Dealing With Retrenchments In 2023

Section 22 of the Constitution affords all South African citizens the right to choose their trade, occupation, or profession freely. However, it also says that the practice of a trade, occupation, or profession may be regulated by law.

2020 saw a great many people lose their jobs owing to retrenchment. While numbers still looked strong in quarter 1, in quarter 2 the number of employed people decrease to 14.1 million. According to the Quarterly Labour Force Survey, the number of employed people increased slightly to 14.7 million in quarter 3. It is hoped that the upward trend will continue into 2021 as the economy recovers and learns how to navigate the new way of doing business.

In this article, we will have a look at two cases that have been through our Courts which highlight retrenchment issues have arisen as a result of the COVID-19 pandemic.

Lemley v Commission for Conciliation, Mediation and Arbitration and others (2020) 29 LAC 1.11.27

If a reasonable alternative to retrenchments is offered but rejected then no severance is payable. The big question is what is a reasonable alternative? What % differential on the package will be reasonable? The answer must lie in the circumstances that are present at the time. If the employee refused to accept the change to remuneration this could - in certain circumstances - amount to an unreasonable refusal of the alternative.

In this case, as an alternative to retrenchment, the employer was offered a transfer from Port Elizabeth to East London, which he refused. The employer then offered other alternatives, including an increase in his rental subsidy or the option of early retirement, with a cash settlement to help him continue to contribute to his pension fund until the date of his retirement.

The employee refused all these alternatives and, as a result, the employee was dismissed for operational requirements without a severance package.

A Commissioner and the Labour Court, on review, found that the employer was not entitled to severance pay because he had refused a reasonable offer of alternative employment. On appeal to the Labour Appeal Court (LAC), the employee argued that the Commissioner had erred by disregarding his age and personal circumstances which made it impossible for him to relocate.

The LAC confirmed that, in terms of the Basic Conditions of Employment Act 75 of 1997, employees dismissed for operational requirements are entitled to one week’s severance pay per year of service with the employer, unless they have unreasonably refused an offer of alternative employment. 

The employee had not provided any reasons for his refusal to accept the offer to relocate. The Court found that the purpose of statutory severance pay is to limit job losses through retrenchment by incentivising employers to provide alternative employment. The employer had taken steps to avoid retrenching the employee and he had made no effort to engage with management.

The Commissioner’s finding that the employee had unreasonably refused an alternative to retrenchment was reasonable and the Labour Court had correctly declined to review the award.

The appeal was dismissed.

In CWIU & others v Latex Surgical Products (Pty) Ltd (2005) 14 LAC 7.1.3 as the courts will generally not second-guess a business decision made by a company, they will assess the fairness of a decision to retrench owing to operational reasons and not the correctness thereof. These principles were demonstrated in this case:

• The individual employees were members of a union and were dismissed by the company in February 1999.
•  The Labour Court (LC) found that the dismissal was both procedurally and substantively fair but allowed them leave to appeal to the Labour Appeal Court (LAC).

The LAC found that the reasons for dismissal were unfair on the basis of the selection criteria used:

• They were not fair nor objective as required by s 189(7)(b) of the LRA;
•  Immediately after the dismissal, the employer  employed 80 casual workers who were no more qualified than those who were dismissed;
• The company did not take into account the dismissed employees’ proposal that they all work shifts and share the available work to avoid anyone being retrenched.

The LAC found that there was no fair reason for the dismissal and ordered reinstatement with retrospective effect.

Retrenchments are not easy. The operational reason for the retrenchment has to meet the benchmark of being objective. Although courts will not intervene in employers’ decisions they will if the evidence is clear that there was not justifiable rationale.

Contact me at [email protected] or visit our website.