Employer retrenchment do’s and don’ts

Employer retrenchment do’s and don’ts

There are a whole host of reasons why employers retrench.  Whilst the most common reason will be some form of financial stress, the reason for retrenchment could be entirely unrelated to financial difficulty.

It could be said that employers either retrench to lose less money, or retrench to make more money.  Other grounds warranting retrenchment include automation, which replaces manual jobs, and simple organizational restructuring whereby the employer concludes that the business could continue to function, and even flourish.

It’s also important to remember that retrenchment, referred to as an operational requirements dismissal in the Labour Relations Act, is one of the three categories of dismissal in our law, with the other two being misconduct and incapacity.

It is helpful to understand there are, essentially, three steps to be followed in order to ensure compliance with the procedure to be followed, as outlined in sections 189 and 189A in the Labour Relations Act.

In short the three steps are (1) notify the employee the proposed retrenchment in writing, (2) consult with the employee before finalising any retrenchment decision, and (3) finalise the procedure by deciding if the retrenchment will be confirmed as proposed.

So when must the requirements of section 189 of the Labour Relations Act commence?  Well, quite simply, an employer must issue a potential retrenchee a notice of proposed retrenchment once the retrenchment is contemplated by the employer.  In practice, this means that the process must commence once the retrenchment is the most likely, or most preferred, employer option.

Employees are entitled to be represented during the consultation process by any registered trade union whose members are likely to be affected by the proposed retrenchments, a committee appointed to represent potential retrenchees, or a colleague.

Both the employer and the potential retrenchee are equally obligated to participate in the consultation process with a view to attempting to seek consensus on possible ways of avoiding the proposed retrenchment, delay the timing of the proposed retrenchment, or ways to mitigate the adverse effects of the retrenchment.

In addition, and importantly, the employer and the employee must also attempt to seek consensus on the selection criteria to be adopted in the selection of the employees to be dismissed.  If no agreement is reached on the selection criteria, fair and objective criteria should be adopted.  This means, for example, that subjective criteria such as the employee’s disciplinary records, cannot be used to select employees for retrenchment.  This is an important compliance issue, as was held in Singh v Mondi Paper (2000) 4 BLLR 446 “the selection process must rank as the most fundamental issue for scrutiny in order to determine whether the dismissal was fair or not”.

‘Last in first out’ is the most widely recognised fair and objective selection criterion in retrenchment.  However, selection may be based on the need for skills retention, in which case last in first out not a consideration.

The severance pay to be paid to potential retrenchees is also a matter for consultation.  Employers are required to pay no less than one week’s remuneration for each completed year of service, to a retrenched employee.  You can pay more, but you can’t pay less, without an exemption to do so.

It is not uncommon for employers to agree to pay retrenchees in excess of the one week’s remuneration for each completed year of service; however, an employer would typically not do so without ensuring, in return, that the employee agrees to sign a retrenchment agreement, thereby ensuring that the employee cannot subsequently claim unfair retrenchment.

Another factor to consider in most retrenchment scenarios, is the prospect of voluntary retrenchment.  Prior to selecting employees for potential retrenchment, an employer may open a window period within which employees may volunteer to be retrenched. It may sound unlikely that an employee would volunteer to be retrenched.  However, it does occur.  For example, an employee may have been planning to resign, or has been saving to start their own business venture, in which case the severance pay will come in handy.

When such a window period for voluntary retrenchments is opened, the employer would always reserve their right to accept, or reject, applications, based on operational requirements, and the need to retain certain skills.

Finally, section 189A of the Labour Relations Act is to be complied with in the case of more large scale retrenchments, and becomes applicable, in certain circumstances, in retrenchments with employers with more than fifty employees.

Fair dismissals are not a myth: the simple rules

A common refrain from employers is that dismissal is difficult, as our legislation, and CCMA (and Bargaining Council) Commissioners, count against employers in unfair dismissal disputes.  The fact is that dismissal is entirely appropriate, and therefore fair, as long as it is affected for a fair reason, and following a fair procedure in which there is evidence that the employee is probably guilty.  This of course presupposes that there has been a repetition of offences, or one single act of misconduct which is so gross in nature that, on its own, it justifies dismissal.

We see in our practice, on a daily basis, that adherence to these principles invariably results in dismissals being upheld at the CCMA and Bargaining Councils.

Part of the problem is that employers often don’t know what they don’t know.

Discipline needs to be applied consistently, meaning that (1) an employer can’t suddenly discipline or dismiss an employee for misconduct they have overlooked in the past, (2) all employees, in respect of whom an employer has sufficient proof of misconduct, should be disciplined, and (3) all things being equal, employees found guilty of the same offence should receive the same sanction.

Two types of fairness must be evident in all disciplinary cases, including dismissals, namely substantive and procedural fairness; these are the yardsticks used to assess whether, or not, a dismissal, or lesser disciplinary action for that matter, was fair.

Substantive fairness has four elements.  Firstly, there must be a fair reason for the disciplinary action, or dismissal, and secondly, discipline must be applied consistently. The third important factor is that if the employer has sufficient proof of guilt, prior to selecting a sanction, the employer is required to give careful consideration to mitigating and aggravating circumstances.

Mitigating circumstances are factors presented by the employee, in an attempt to persuade the disciplinary hearing chairperson to show leniency in their selection of a sanction.  Mitigating factors would include length of service, whether the employee has a clean disciplinary record, age, and any other personal circumstances which may have a bearing on the sanction choice (such as the employee being a sole breadwinner).

Aggravating circumstances are factors presented by the employer complainant, and are the employers sentiments on which sanction should be selected, and why.  For example, an employer may submit in aggravation that (1) the employee has short service, (2) the employee has a poor disciplinary record, (3) the employee has shown no remorse, and (4) importantly in potential dismissal cases, the trust relationship has not merely been damaged by the employee having been found guilty of the misconduct, but has in fact been broken beyond repair, thereby rendering the ongoing employment relationship intolerable.

In the event that an employer seeks dismissal on grounds that the trust relationship has been damaged beyond repair, this employer view must be justified, as the CCMA will not merely agree that a trust relationship has bene broken beyond repair, simply on the ‘say-so’ of the employer.  An investigation will be conducted to establish whether, or not, the presumption of an irreparable breakdown in trust is reasonable in the circumstances.

Item 7 in Section 8 of the Labour Relations Act (Code of Good Practice: Dismissal) sets out guidelines for employers as far as substantive fairness is concerned, and in so doing, focuses on the fact that the employer is required to also show (1) that the employee contravened a rule, (2) that the rule or standard was valid and reasonable, (4) that the employee knew, or should have known, the rule or standard, and (5) that dismissal was a fair and appropriate sanction.

Put differently, when it comes to the selection of an appropriate sanction, it is frequently said that “if the employer’s choice of sanction makes the court whistle, it is too harsh”.

In addition to being substantively fair, disciplinary action must also be procedurally fair.  Quite simply, employers are obliged to adhere to their internal disciplinary procedures, which set out the manner in which disciplinary processes will be implemented in the company.  This would include, the notice period to be applied prior to disciplinary hearings being convened, and the employee’s right to representation (typically internal representation only).  Additionally, the misconduct allegations must be clear communicated to the employee, and an interpreter should be sourced should the employee elect to defend themselves in their mother tongue.

Remember too that the amount of proof required to prove an employee guilty of misconduct is proof of probable guilt (proof on a balance of probabilities) often explained on the basis that the probabilities that the employee is guilty must be greater than (not equal to) the probabilities that the employee is not guilty.

Finally, disciplinary hearings were never intended to be conducted in a complicated, criminal procedure-like manner.  It is understood that laypersons oversee disciplinary processes.  Fairness and reasonableness are key.

National Minimum Wage Act – the lowdown

National Minimum Wage Act – the lowdown

Two pieces of legislation are relevant to the new minimum wage law effective from 1 January 2019, namely the National Minimum Wage Act (2018) and the Regulations to the National Minimum Wage Act (2018).  It has been estimated that approximately six and a half million employees will benefit from this legislation.


The minimum wage legislation coincides with a raft of amendments to many other labour laws including the introduction of paternity and adoptive parent leave, and strike secret ballots.

The purpose of the National Minimum Wage Act is “to advance economic development and social justice by, amongst other things “improving the wages of lowest paid workers”, “protecting workers from unreasonably low wages” and “preserving the value of the national minimum wage”.

The Act “applies to all workers and their employers, except members of the South African Defence Force, the National Intelligence Agency and the South African Secret Service”.  Volunteers are excluded from the Act and need not, of course be paid any wage.

The applicable national minimum wage is R20.00 per hour, except for farm workers who have a minimum wage of R18.00 per hour, and domestic workers whose minimum wage is R15.00 per hour. “Workers employed on an expanded public works programme are entitled to a minimum wage of R11.00 per hour.

The minimum wages for farm and domestic workers will be reviewed and amended by 1 January 2021, whilst the general minimum wage is to be reviewed annually.

Importantly, an employer will commit an unfair labour practice if they “unilaterally alter wages, hours of work or other conditions of employment in connection with the implementation of the national minimum wage.

In calculating wages when applying the National Minimum Wage Act, “the calculation of a wage for the purposes of (the Act) is the amount payable in money for ordinary hours of work”.  However, payment of the minimum wage excludes any payment for employee transport, equipment, tools, food and accommodation.  It also excludes all gratuities including tips and bonuses.

Regulations to the National Minimum Wage Act (2018), on the other hand, primarily addresses all matters relating to employer applications to be exempted from paying the prescribed minimum wages.  To begin with, the regulations stipulate that “an exemption may only be granted if the delegated authority (the Director-General of Labour) is satisfied that (a) the employer cannot afford to pay the minimum wage, and (b) every representative trade union representing one or more of the affected workers has been meaningfully consulted or, if there is no such trade union, the affected workers have been meaningfully consulted”.

If an employer is granted an exemption to pay the national minimum wage, will be for a maximum period of twelve months, and may not be less than ninety percent of the applicable minimum wage.  Exemptions can be withdrawn if it is established that the employer “has provided false or incorrect information that has led to the granting” of the exemption, or “the employer is not complying with the exemption notice”.

The affordability test to be applied in assessing exemption applications the elements of profitability, liquidity and solvency.  So-called ‘audit triggers’ have been identified in the regulations, include “discrepancies in depreciation”, “out of proportion net losses”, “discrepancies in reported revenue and reported total expenditure” and “discrepancies in total liabilities”.

Our firm has already received numerous enquiries from employers who are contemplating widespread retrenchments in response to the impact of the implementation of the new minimum wage.

You don’t need to look far to find highly charged sentiments on this legislation, both in favour of, and against its implementation.

Organised labour has already expressed its concern that the exemption process will enable many employers, in the manufacturing and construction industries for example, to successfully apply for exemption from payment of the minimum wage, given the parlous sate of the economy.  Time will tell if this proves to be true.  There is little doubt that the Director General of Labour will be inundated of exemption applications from employers.

The CCMA anticipates that disputes relating to the payment of minimum wages will increase its caseload by about fifteen percent.  We think this is a conservative estimate, with a twenty percent case load increase being more likely.

Domestic workers are also protected from unfair dismissal

Domestic workers are also protected from unfair dismissal

One of the biggest employment sectors in the country is that of domestic workers.  There is specific minimum wage legislation relating to domestic workers, and as is to be expected, domestic workers have the same rights as their fellow workers in more formal sectors.

Domestic work differs from more formal employments sectors by virtue of the fact that the employment relationship takes place in private residences.  This quite clearly already places great importance on issues of trust and honesty. Many domestic employment relationships last for many years, but not all do so.

Like any other employment relationship, the CCMA takes a dim view of unfair dismissal in the domestic sector.  This was the case in the arbitration hearing between Sindisiwe Victoria Nala v Fiona Huma-Siripa (Case Number: GAJB5275-17).

In this case, the employee was a so-called live-in domestic worker, who had been employed by the employer since 7 January 2016, prior to the termination of the employment relationship on 8 March 2017.

According to the employer, the employee would, from time to time, “get a few days off, and then travel to the north coast of Kwa-Zulu Natal in Empangeni”.  On one such occasion, the employee took one of her monthly trips to visit her family in Empangeni, however she failed to return to work on the agreed date.

The employer then phoned the employee, but her phone was off, after which she sent her a short message (sms), and followed this up with a further sms the following day.  The security guards at the access gate of the complex in which the employer reside, called to confirm that the employee was at the gate at 4pm, the day after she had agreed to return to work.  The employer then took the employee’s belongings to the gate, confirming “Siyabonga, thank you”, we no longer wanted her.

According to the domestic worker, she did indeed return from visiting her family in Empangeni, in Kwa Zulu Natal, on the day after she had agreed to do so, but she had lost her mobile phone, and could therefore not communicate with the employer.

She continued that when she reported to the entrance gate of her employer, the husband of the household arrived at the gate and instructed her to get into his car, after which he drove her to the local Shoprite Centre.  At the shopping Centre, he informed her that her belongings were in the boot, and that “it was over with them” and they no longer needed her services.

The employee continued that “she was dismissed in a callous manner”.

The Commissioner agreed.  The arbitration award began by noting that the employee “was not granted an opportunity to state her case”.  It continued that what’s more “there was no consultative meeting at all”.  To make matters worse, the employee “was not charged with misconduct or found guilty of any misconduct”.  The dismissal was held to have been callous and demeaning to the employee’s personhood.  Furthermore, the dismissal was without a valid and legitimate reason.

The procedurally and substantively unfair dismissal warranted six months compensation to the employee in the eyes of the Commissioner.

Sectoral determination 7: The Domestic Worker Sector, makes provision for minimum wages and conditions of service in this sector, including all forms of leave, and notice periods.

It is also important to remember that any domestic worker, or indeed any person for that matter, that works for in excess of twenty-four hour per month, must be registered with the Department of Labour for the unemployment insurance fund.