Covid-19 has devastated lives and decimated businesses, which in turn has caused an unprecedented number of retrenchments of employees in South Africa.

A retrenchment is when an employer contemplates dismissing one or more of its employees based on the employer’s operational requirements. Operational requirements, in turn, mean requirements based on the economic, technological, structural or similar needs of an employer.

Economic – means, for example, that the business is experiencing financial difficulty which may be for a number of reasons, eg. that the amount of customers/orders has dropped, or that the business is experiencing cash-flow problems.

Technological – refers to the fact that machinery/technology now performs the functions that were previously performed by people eg. if a forklift is used for loading goods instead of using individual employees to load goods.

Structural – means that an employer feels that the business model or the staff structure of the business should be re-arranged in order for the business to be more profitable and successful.

Similar needs – is any other situation which is like or the same as, an economic, technological or structural need.

A retrenchment must be for a fair reason ( known as the substantive fairness ) and be carried out following a fair procedure ( known as procedural fairness ).

If either the reason or the procedure is not fair, then a retrenchment will be regarded as unfair, and an employer may be ordered to reinstate, re-employee, or compensate an employee up to 12 month’s salary for an unfair retrenchment.

Whilst it is impossible to cover the entire spectrum of issues that arise when one embarks on a retrenchment process, there is one fundamental mistake/misunderstanding on the law regulating retrenchments that have become more evident since the advent of the Covid 19-induced wave of retrenchments.

So what is this mistake that is being made?

The mistake that both employers and employees are making is that just because, for example, the revenue of a business has dropped due to Covid-19, ( which drop in revenue would have to be proved ) and this is an economic issue which meets the definition of operational requirements, that it then means that there is a fair reason for the retrenchment(s) and that the substantive fairness aspect is thereby done and dusted, and that one can then swiftly move onto dealing with procedural fairness. Meeting the definition of operational requirements is only the start and not the end, of the enquiry into substantive fairness.

When dealing with substantive fairness, there are 2 questions that need to be asked. The first is a general question, and the second is a more specific question.

The general question relates to whether it is fair to dismiss any employees at all ( ie. has the definition of operational requirements been met ie. does the issue at hand relate to the economic, technological, structural or similar needs of an employer), and if so, do these circumstances of the employer actually exist, and do they warrant retrenchments.

The 2nd question ie. the specific question, is not whether or not there is a fair reason for the dismissal of any employees, but whether there is a fair reason for the dismissal of that particular employee or those particular employees in question. This question is answered by having regard to how that particular employee, or those particular employees, were identified for dismissal.

As much as consultation on the selection criteria that are to be applied forms part of procedural fairness, it is the application of such selection criteria that identifies an employee/ the employees for dismissal, and it thus also directly impacts upon substantive fairness.

If the selection criteria that are applied are in themselves not fair and objective, that will result in a substantively unfair dismissal. For example, the use of an employee’s disciplinary record is certainly objective, but it may not be fair because the employee will essentially be penalized twice for the same incident: the first time at the disciplinary hearing, and the second as part of the retrenchment process.

As a further example, it may happen that the selection criteria relied upon are in fact both fair and objective, for example, LIFO ( last in first out ) and retention of skills, but they are then not fairly applied.

By way of illustration, it may happen that 2 employees have the same length of service and the same qualifications, but the employee that was dismissed actually had skills that were far better suited to the demands of the business or the particular position, or these skills were actually a better fit as far as job competencies are concerned. In these circumstances, the dismissal of the better-suited candidate will be found to be substantively unfair.

Retrenchments are by no means a straightforward and simple exercise, and expert legal advice should be sought when navigating through the retrenchment minefield.

 

Article written by Craig Berkowitz

Specialist Labour lawyer and Acting Judge in the Labour Court of South Africa

Craig can be contacted on 083 453 1822 or by email at cblaw@netactive.co.za