Managing retrenchment and leave days in Vuca

In the previous article, I articulated how employers can lawfully reduce or cut labour costs in general.

This article focuses more on what the labour laws of the land in respect to retrenchment and leave days as cost-cutting measures.

In light of the impact of the Covid-19 pandemic, particularly the increased adoption of a paperless economy, it becomes necessary for employers to properly apply labour laws in cutting labour costs.

Labour cost is the actual amount paid for each employee’s wages and benefits during or after employment.

This includes wages, salaries, commissions, terminal benefits, an employer match of taxes such as social security and medical aid, employer-paid insurance premiums and pension deposits as well as the cost of all other fringe benefits.

Labour costs can be calculated as employee’s labour cost per hour by adding the gross wages to the total cost of related expenses (including annual payroll taxes and annual overhead), then dividing by the number of hours the employee works each year.

This formula will help determine how much an employee costs his/her employer per hour.

It is always necessary for any business to make sure that labour costs, like any other costs in the production of goods and services, are reduced.

The world over, the Covid-19 pandemic has caused disruptions not only in terms of health issues, but also in economic production and productivity. This disruption reminds the writer of the Vuca business environment.

Vuca is an acronym for volatile, uncertain, complex and ambiguous.

It simply describes the level of challenges that are experienced in the business environment.

The use of technology is one of the biggest Vuca elements in today’s business world.

With Covid-19 social distancing concept, the business world became more Vuca than before as the economy became increasingly paperless.

Labour costs increased or became more difficult to meet.

How one can manage these costs in terms of retrenchment and leave days laws is what this article seeks to deal with.

For business players, there are several costscutting measures in terms of the Labour Act (Chapter 28:01) hereinafter called ‘the Act’.

One of the measures is to properly manage vacation leave days.

In terms of section 14A of the Act, an employee is entitled to vacation leave being one-twelfth of his qualifying year of service in each year of service.

Qualifying service means any period of employment following the completion of the employee’s first year of employment with an employer.

If one was employed on January 1, 2019 his or her leave days would have started accruing from January 1, 2020.

In terms of the Act, every employee has a right to accrue leave days up to 90 calendar days.

It is, therefore, advisable for employers to make sure that employees take their annual leave days to reduce the accrual of such days.

The accrued leave days become a cost that the employer will be obliged to pay in cash upon the termination of employment.

An employer can encourage his employee to go for Covid-19 vaccination while making use of accrued leave days.

Can an employer make use of accrued leave days to ensure that an employee is vaccinated for Covid-19?

There is nothing illegal in the employer agreeing with the employee to utilise the annual leave days to attend to Covid-19 vaccination requirements.

In a bid to reduce accrued leave days, is it lawful for the employer to state in a contract of employment that the maximum leave accrual is 30 days?

This is contrary to the Act and may be held to be an unfavourable condition to the employee, hence unlawful.

Can an employer direct an employee to take unpaid leave, for example, in circumstances where there is no business?

This is unlawful.

If there is insufficient work may be due to the impact of Covid-19 or the business going paperless, then an employer ought to engage in special measures to avoid retrenchments such as short-time working hours or shifts system.

Short time work is required to be for not more than 12 months.

This is when an employee is paid an hourly equivalent of his weekly or monthly wage for the hours he has actually worked.

The employee must be paid not less than 50% of his or her weekly or monthly wage.

This has great potential to reduce the wage cost in appropriate cases.

The employer may also engage in shift systems for not more than 12 months.

This is where the employer divides all or any of the employees into shifts and require each shift to work on alternate half days, days, weeks or months. Each employee on shift is paid for hours worked.

Again, this will help reduce costs as each time the employee is not engaged in full-time work is regarded as unpaid compulsory leave.

If it becomes necessary to cut costs through retrenchment, then the employer can retrench the employees in terms of the Act.

It is important to note that an employer cannot legally go for retrenchment without first having taken measures to avoid retrenchment.

In terms of the Act, retrenchment entails the termination of the employee’s employment to reduce expenditure or costs, adapt to technological change, reorganising the undertaking in which the employee is employed, or for similar reasons, and includes the termination of employment on account of the closure of the enterprise in which the employee is concerned.

The negative impact of Covid-19 on business or technological changes can constitute acceptable and lawful reasons for retrenchment.

Therefore, when an employer retrenches, the reason must not only be stated, but must also be lawful. Supporting information justifying the existence of the reason for retrenchment must be available.

Currently, retrenchment based on the impact of paperless operations or Covid-19 appears to be a common occurrence in the banking sector in Zimbabwe.

For such retrenchment to be lawful, the employer must make sure that it has bona fide and valid reasons.

Furthermore, the employer must show that they adopted or attempted to adopt measures to avoid retrenchment before commencing the compulsory retrenchment process.

Unlike before the year 2015, the retrenchment package payable now is arguably low. The package in the broader sense is ordinarily constituted of statutory terminal benefits such as cash in place of leave, arrear salaries, if any, gratuity, if any and minimum retrenchment package.

The minimum retrenchment package payable in terms of the Act is an amount not less than one month’s salary for every two years of service.

Before 2015, employers would be required to pay in addition to statutory terminal benefits, service pay, severance pay and relocation allowances. It is now cheaper for the employer to retrench.

Failure to comply with the retrenchment laws may invalidate the retrenchment process and undo the cost-cutting measure.

Furthermore, it is now possible in terms of the Act for an employer to apply to the relevant employment council or retrenchment board for an exemption to pay the minimum retrenchment package.

Again, this only happens when the employer has complied with the foundational retrenchment procedures.

These weekly “Insights” articles are coordinated by Lovemore Kadenge, independent consultant, past president of the Zimbabwe Economics Society and past president of the Institute of Chartered Secretaries & Administrators in Zimbabwe. Email: kadenge.zes@ gmai.com and Mobile No. +263 772 382 852