Retrenchment: small business & LRA
THE LABOUR Relations Act (LRA), Act 66 of 1995 aims to promote economic development, social justice, labour peace and democracy in the workplace, so management and/or directors must have a good understanding of the Labour Relations Act, 66 of 1995, particularly when it comes to the retrenchment of employees.
The applicable provisions of the act with regard to retrenchments are Section 16, 189 and 189A. However, in this article, we will be looking at Section 189 and Section 16, for companies that employ less than 50 staff members.
Section 189 (1) provides that when an employer contemplates dismissing one or more employees for reasons based on the employer’s operational requirements, which are defined in Section 213 of the LRA to mean “requirements based on the economic, technological, structural or similar needs of an employer”, the employer must consult with:
Any person whom the employer is required to consult in terms of a collective agreement.
A workplace forum if there is no collective agreement.
Any registered trade union whose members are likely to be affected by the proposed dismissals.
If there is no such trade union, the employees likely to be affected by the proposed dismissals or their representatives nominated for that purpose.
Consultation
Section 189 does not prescribe the period over which consultation should extend, but it does require the employer to commence consultations when the employer contemplates dismissing one or more employees under Section 189 .
It is also important to note that Item 5 of the Code of Good Practice based on Operational Requirements (“the Code”) states that the circumstances surrounding the consultation process will be relevant to a determination of a reasonable period.
Item 6 of the Code states that the more urgent the need by the employer to respond to factors giving rise to any contemplated termination of employment, the more truncated the consultation process might be.
Section 189(2) provides that the employer and the other consulting parties must in the consultation envisaged by subsections (1) and (3) engage in a meaningful joint consensus-seeking process and attempt to reach consensus on: Appropriate measures. Avoiding the dismissals. Minimising the number of dismissals. Changing the timing of the dismissals. Mitigating adverse effects of dismissals. Method for selecting the employees to be dismissed. Severance pay for dismissed employees. In other words, the parties consulting must embark on a joint problem-solving expedition, striving for consensus where possible (see Item 3 of the Code). Should a decision to retrench have been taken prior to consultation, then the retrenchment shall be procedurally unfair. It is also important to note that the consulting parties must act in good faith and ensure that the process is meaningful and not try to prolong the process and prevent dismissals.
Should the parties fail to reach consensus then the final decision remains that of the employer.
Section 189(3) states that the employer must issue a written notice inviting the other consulting party to consult with it; and disclose in writing all relevant information including, but not limited to: The reasons for the proposed dismissals. The alternatives that the employer considered before proposing the dismissals, and the reasons for rejecting each of those alternatives.
The number of employees likely to be affected and the job categories in which they are employed.
The proposed method for selecting which employees to dismiss.
The time when, or the period during which, the dismissals are likely to take effect. The severance pay proposed. Any assistance that the employer proposes to offer to the employees likely to be dismissed.
The possibility of the future re-employment of the employees who are dismissed.
The number of employees employed by the employer.
The number of employees that the employer has dismissed for reasons based on its operational requirements in the preceding 12 months.
(4)(a) The provisions of Section 16 apply, read with the changes required by the context, to the disclosure of information in terms of subsection (3).
In any dispute in which an arbitrator or the Labour Court is required to decide whether or not any information is relevant, the onus is on the employer to prove that any information that it has refused to disclose is not relevant for the purposes for which it is sought.
All relevant information must be in writing and verbal assurances, explanations and other information by the em- ployer, if not reduced to writing, will not be sufficient.
Due to the fact the “all relevant information” is not defined in the LRA, but rather open-ended in light of Section 189(3)(a)-(j), it may give rise to the other party insisting on disclosure of other information which may be confidential and does not fall within the ambit of Section 189(3)(a)-(j). It really becomes a question of fact as to whether or not this additional information so requested is relevant. Section 16(3) of the LRA does provide some guidance on this.
Section 189(5) provides that the employer must allow the other consulting party an opportunity during consultation to make representations about any matter dealt with in subsections (2), (3) and (4), as well as any other matter relating to the proposed dismissals.
Section 189(6) (a) further provides that the employer must consider and respond to the representations made by the other consulting party and, if the employer does not agree with them, the employer must state the reasons for disagreeing. Where representations are made in writing, the employer must respond in writing .
Finally, Section 189(7) provides that the employer must select the employees to be dismissed according to selection criteria that have been agreed to by the consulting parties or, if no criteria have been agreed, criteria that are fair and objective.
Fairness requires that the criteria should not be arbitrary but relevant. Objectivity requires that the criteria should not depend on the subjective prejudices of the employer – that is, the employer should not use retrenchment as a pretext to deal with unwanted employees. A summary of the selection criteria are as follows:
a) Last In First Out (LIFO) – last employee employed is the first to be retrenched.
b) Bumping – where a senior employee “bumps” a junior employee out of their position. This only happens where a senior employee is prepared to take over the junior position to avoid retrenchment.
c) Efficiency, skills, ability and productivity – this is where the employer looks at the efficiency, skills, ability and productivity of each employee; but this will only suffice where the employees knew that this was a requirement for the employer.
d) Early retirement – employees who have reached a minimum retirement age may be encouraged to take an early retirement. The employee’s consent must be obtained or it may constitute an unfair dismissal.
e) Volunteers – the employer can ask the employees to volunteer for retrenchment, before embarking on the other selection criteria.
f) First In First Out (Fifo) – where the longest employed employees are selected first for retrenchment. This not a favourable approach as important skills, know-how, trade secrets etc, may be lost.
In conclusion, once a company has complied with the requirements of Section 189 as more fully set out above, then only would they be able to retrench the selected employees in accordance with Section 189(7). What information is the employer not obliged to disclose?
Information
In terms of Section 189 of the LRA, there is information that the employer is not obliged to disclose during consultation. Section 16(5) provides that:
“An employer is not required to disclose information: That is legally privileged. That the employer cannot disclose without contravening a prohibition imposed on the employer by any law or order of any court.
That is confidential and, if disclosed, may cause substantial harm to an employee or the employer.
That is private personal information relating to an employee, unless that employee consents to the disclosure of that information.”
To simplify, we break these four points down and deal with each under the following respective headings: Legally privileged information In order for a document to be legally privileged, it must have been obtained for professional legal advice. It is important to note that it will not be regarded as privileged if the legal advice was sought for another purpose. Also, the document must have been obtained for pending litigation, litigation or anticipated litigation.
Contravening a prohibition in law or a court order
The employer cannot disclose without contravening a prohibition in law or a court order. This information can never be disclosed.
Confidential information may cause substantial harm to an employee or to the employer if disclosed
An employer is not required to disclose confidential information which may cause substantial harm to an employee or the employer. This is really a catch-all provision which would cover customer pricing, trade secrets, competitiveness in the marketplace and so forth.
Private personal information relating to an employee
The employer is not required to disclose information that is private personal information relating to the employee without that employee’s consent to the disclosure of that specific information. This includes, among other information, salary, illnesses and medical history.
One would have to first look at the additional information requested by the consulting party and deal with it on a factby-fact basis.
Severance pay
Section 41(2) of the Basic Conditions of Employment Act 75 of 1997 (“the BCEA”) provides that an employer must pay an employee who is dismissed for reasons based on the employer’s operational requirements severance pay equal to at least one week’s remuneration for each completed year of continuous service with that employer.
The parties are free to negotiate a higher severance package.
It is also important to note Section 41(4) which provides that an employee who unreasonably refuses to accept the employer’s offer of alternative employment with that employer or any other employer, is not entitled to severance pay in terms of Section 41(2). This was dealt with and confirmed in the case of Greyvenstein v Flaiming Silver Trading 62 trading as Sunglass World (2007) 28 ILJ 1081 (LC).
The retrenched employees shall be paid at least one week’s remuneration for each completed year of continuous service with that employer. This can only be applied after the selection criteria have been determined in accordance with Section 189 of the LRA.