Restructuring and Retrenchments

Updated: 5 days ago


Restructuring and Retrenchments

The Covid-19 pandemic is certainly not breaking news but still has a big impact on the way that we do business. It is now more important than ever that companies continuously assess whether they are optimally structured to deal with the ongoing changes and challenges. Many are considering ways in which they can restructure their businesses to reduce their expenses and ensure their competitiveness or, in some cases, their survival.


Along with the fact that companies might want to restructure to secure their financial viability and operational effectiveness, employees might not want to accept these changes and employers might feel that there is no way forward. Where employees refuse to agree to changes to terms and conditions of employment, employers may be required to engage a process in terms of section 189 or 189A of the Labour Relations Act to effect the required changes.


This Act defines a dismissal based on the operational requirements of an employer as one that is based on the economic, technological, structural or similar needs of the employer and is categorised as a "no fault" dismissals whereby particular obligations are place on an employer which are both procedural and substantive.


When an employer contemplates the possibility of retrenching, consultation should take place with employees, or the relevant party as prescribed by the Act and consultations need to take the form of a joint consensus seeking process guided by the matters listed in section 189(2). This section requires the parties to attempt to reach consensus on, amongst other things, appropriate measures to avoid dismissal. As per section 189(3), 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 retrenchments; the alternatives considered before proposing the retrenchments and why they were rejected; the proposed selection criteria; the timing of the dismissals; the number of employees likely to be affected; the proposed severance pay; the assistance that the employer proposes; the possibility of future re-employment; the number of employees in the company and the number of retrenchments over the preceding 12 months.


What if a viable alternative exists and the employees simply refuse to accept such an alternative? If there is a genuine reason for the proposed retrenchment and the alternative would in fact save the employee from retrenchment, then a refusal by the employee to accept the change could ultimately lead to a dismissal. The employer would then be entitled to employ people who are agreeable to work the new terms to satisfy the current operational requirement. There must be a valid reason for the retrenchments and that the threat of retrenchment cannot be used as a way of simply forcing employees to accept a change to terms and conditions of employment. The employer would still be able to justify and satisfy that the company is not able to optimally perform with the current terms and conditions of employment.


It is important that whilst agreement does not have to be reached, the employer must show that it has engaged in the consultations in good faith and in a joint consensus manner. Ultimately, the decision however rests with the employer. It is fair to say that there are no quick fixes to survive the pandemic, but it is however important to do proper strategic planning to determine whether restructuring is necessary to ensure the survival of the company.

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