With the unemployment rate of economically active South Africans reaching 27,6% in the first quarter of this year and media reports filled with job cuts across industry sectors, companies need to be cognisant of any potential retrenchment mistakes to avoid.
This is according to Nicol Myburgh, head of the HR business unit at CRS Technologies, who says: “It is interesting to note that the word retrenchment has no legal definition in the country. The process is documented in Section 189 of the Labour Relations Act and is consequently referred to as a Section 189 dismissal or operational requirement dismissal.”
According to Myburgh, employees can be dismissed for misconduct, incapacity (either medical or poor performance), or operational requirements (retrenchment). Each one of these follows a vastly different procedure.
In the case of retrenchment, many employers use this process to get rid of non-performing or so-called ‘problem’ employees. Often, they do not even appropriately consult with the individuals they plan to retrench.
“There is a difference between consulting with and telling people they will be retrenched,” Myburgh explains. “The former is a discussion that intends to reach consensus to deliver value for both parties. While not quite a negotiation, it comes close to it. This involves discussing in good faith the process, selection method, financial factors, termination, and so on with the affected employee.”
But what can be considered a fair retrenchment selection method?
The LIFO (last in, first out) principle is the most objective and involves choosing shorter serving employees for retrenchment before their longer serving colleagues, says Myburgh. “Another method is to create criteria for the selection, assign values to each one, measure staff accordingly and dismiss everyone who fails to meet the criteria. Of course, the problem with this process is that it is possible for employers to manipulate the criteria so that they can get rid of ‘problem’ employees. If this is raised, the onus is on the employer to prove this is not so.”
“Businesses must always keep in mind that retrenchment is not about the people but rather the positions. If the correct procedure is not followed, especially when unions are involved, it can cost organisations significantly more money in the long term.”
Discussing packages
When it comes to structuring retrenchment packages, decision-makers need to understand the human element and not blindly look at the numbers.
To this end, the legal minimum requirement for a retrenchment package is one week’s salary for every completed year of service. The Act is silent on partial years worked, but some companies pay out pro-rata for the partial year, while others completely disregard it. It is up to the employer to decide what it wants to do in this regard.
“On a more positive note, employers can consider offering voluntary retrenchment packages,” Myburgh points out. “Typically, these are usually higher than the legal minimum requirement and employees can choose to accept or reject the retrenchment offer. This can serve to smooth the retrenchment process which is often fraught with emotion, especially on the part of the employee being retrenched.”
Regardless of the process followed, retrenchments can have a negative impact on the staff who remain.
“Once retrenchments start, the trust employees have in the business is broken. Management must therefore be completely transparent regarding the future of the company, its structure and financial well-being. Employees should be constantly reassured about their future with the organisation,” he concludes.