Employment & Pension Law Update, Steps to consider before retrenching reported in The Witness

Steps to consider before retrenching

RETRENCHMENT for the purpose of increasing the profitability of a business is acceptable and valid, but employers need to follow a thorough consultation process with employees otherwise the dismissals will be considered procedurally unfair. This was confirmed by the Labour Court in the case Van Rooyen & Others v Blue Financial Services SA (Pty) Ltd.
In this case the employer was a profitable business, but wished to restructure to increase profits. The employer could show that the restructuring was vindicated by an increase in sales. The employer could also show that the role of regional manager in the new structure was sufficiently different to justify assessing the incumbents in regard to their suitability for the new posts. Objective criteria were used to identify suitable candidates.
The employer, however, dismissed a detailed memorandum submitted by the applicants without engaging them on the content. Instead, the employer complied with its deadline previously set in the consultation process and ended consultation. The employer also failed to engage the applicants on selection criteria.
The court accepted that there was no need to lead evidence on the "excessive bleeding and imminent death" of the business and accepted the commercial reasons for the employer's new business model.
The court held that the employer's dismissal of the applicant's memorandum breached their obligation to participate in a meaningful joint consensus seeking process as required by the Labour Relations Act. There were no drastic measures necessary to ensure the survival of the enterprise to explain ignoring the memorandum.
There was no consultation on the selection criteria. Although assessments were conducted on candidates to assess their suitability for the restructured position, the court concluded that there was an obligation to engage the applicants on the outcome of the assessment.
The court concluded that an employer's obligation to consult over alternative employment and to take steps to accommodate affected employees in that employment, is much more onerous in circumstances where the rationale for a proposed retrenchment is to improve profitability.
In these circumstances the court held that the employer had failed to consult adequately and that the applicant's dismissal was procedurally unfair. The applicants did not seek reinstatement and were each awarded compensation equivalent to four months pay.

Michael Maeso, Partner and Head of Employment & Pension Law