Common errors made by employers when streamlining business for increased efficiencies

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Common errors made by employers when streamlining business for increased efficiencies

Our new Minister of Finance, Tito Mboweni, delivered the 2019 budget speech in parliament on Wednesday 20 February 2019 and slapped the “Sinners” with a Sin tax increase of between 7.4% and 9% as well as commuters will now have to fork out an additional 29c levy per liter of fuel purchased. companies, close corporations and employees were lucky to escape with the announcement that Tax brackets will not be amended for the 2020 year of assessment. Despite this relatively good news, employers still feel the pinch of South Africa’s collective financial woes of the past few years and have had to be introspective in the way they do business in the republic.

Employers are constantly looking for faster, cheaper and more efficient ways to run their operations and ultimately their workforces are not spared the same analysis and scrutiny. In finding that their company may be over staffed, sitting with an overpriced workforce of functioning inefficiency, or in the extreme, faced with economic difficulties, employers have the prerogative to amend and restructure their organisations as they require. However should a proposed change, amendment, restructure or reorganisation have the potential to impact the contractual terms and conditions of employment of employees or may even lead to the termination of their employment, employers are legislated to adhere to the provisions of Sections 189 and 189A respectively of the Labour Relations Act (“LRA”).

In terms of Section 189(2) of the LRA employers are required to engage in a meaningful joint consensus-seeking process prior to any proposal being implemented. This obviously indicates the procedural requirements in ensuring fairness however the substantive requirements of a fair restructure are often the most challenging aspects for employers to get right. Quite often an employer’s case may be terminal from the start due to the following common errors:

A fait accompli retrenchment

s189(1) indicates that the envisaged consultation process begins “When an employer contemplates…” a proposed process / restructure which could result in the termination of employees due to operational requirements. The primary purpose of the consultation process is to attempt to find appropriate measures to avoid possible dismissals and consider proposed alternatives of affected employees. S189(6)a states the employer must consider and respond to any representations made by the other consulting party and, if the employer does not agree with them, the employer must state the reasons for disagreeing.

Should the employer have a predetermined outcome or instates a farcical consultation process as a “tick box” exercise to simply give effect to a seemingly fair restructure, the process will be immediately flawed and the “meaningful” requirement of the legislated process will not be met. If consultation will have no possible impact on the employer’s “proposal” the restructure could be seen to have already happened or been decided before those affected hear about it, leaving them with no option but to accept it.

Employers may also not declare that positions have are now “redundant” as a result of a unilateral operational restructure and then use the new found redundancy as the business rationale for beginning a retrenchment process. To ensure fairness the s189 process would have to begin at the time the employer contemplated the restructure which then could possibly lead to terminations should the proposed restructure be implemented.

In the case of NUMSA and others vs Dorbyl Ltd and another (2004, 9 BLLR 914) 176 employees embarked on a protected strike. Thereafter, the plant at which they worked closed down and 122 employees were retrenched. The court found that the decision to retrench was taken at an executive meeting held before the employer consulted with the employees regarding the retrenchments and that this rendered the consultations meaningless as the employer had already made up its mind and went into the consultations with a foregone conclusion. The employer was required to pay each of the 122 dismissed employees two months’ remuneration in compensation.

The incorrect business rationale

Resulting terminations due to operational requirements of a restructure may only be carried out as a last resort for genuine reasons based on the genuine technological, structural or economic requirements of the employer.

At the time of contemplating the proposed restructure, employers should ensure that the reasoning behind any proposed restructure is bona fide and be the actual reasoning without ulterior motives. Employers must be transparent with their proposals and their rationale for them.

On the 6th November 2018 the Constitutional Court handed down judgment for the South African Commercial, Catering and Allied Workers Union and Others v Woolworths (Pty) Limited [2018] ZACC 44.

In 2002, Woolworths decided that in future it would only employ workers on a flexible working hour basis and wished to restructure its current workforce in this regard. Woolworths embarked on a retrenchment process in terms of s189A and the sole reason that Woolworths advanced for the proposed retrenchments in its notice in terms of s189(3) was that “the company needs to be in a position to employ employees who are able to be used on a flexible basis”.

All affected employees accepted the need to work flexi-time and the union proposed that employees be paid a full rate for 40 flexi hours worked rather than the current 45 hours full time. This proposal would have resulted in an 11% drop in remuneration for the employees. Despite the union and its members thus agreeing to the proposed change Woolworths still rejected the offer and gave notice to terminate employee’s contracts of employment.

At the Labour Court, in providing reasoning for their rejection of the unions proposal, Woolworths admitted to not “understanding” the unions offer and argued that a holistic reading of the S189(3) notice also revealed additional reasons for the proposed retrenchments. The court rejected this contention as farcical and found the resulting retrenchments to be substantially unfair and ordered retrospective reinstatement for the dismissed employees.

The incorrect consulting parties

The LRA prescribes that at the time an employer contemplates any proposed process they are to consult with all parties who are “likely to be affected”. It is a common misconception for employers who have begun a consultation process to issue notice and consult only with those who are perceived to actually be affected should the employer carry out its proposal i.e. employees identified in the proposed selection criterion nominated by the employer in their s189(3) notice of intent.

The above is a fundamental flaw in the consultation process as it firstly may indicate that the decision to implement the restructure is fait accompli and secondly that the selection criterion has been finalised without attempting to seek consensus with consulting parties. The phrase likely to be affected means any person who could, may or possibly be affected by not only an actual dismissal but by any amendment to their functions, terms and condition of employment, title, status etc.… Any fundamental change to an employee’s employment requiring their legal acceptance would indicate the possibility of being affected by a restructure.

To illustrate the above, should an employer wish to investigate the possibility of merging two functions within the workplace carried out by separate employees. Let’s say function “A” is performed by four employees and function “B” is carried out by a single employee. Should the employer propose the possibility of the four employees of function “A” taking over function “B” rendering that single employees position operationally redundant, it would be incorrect to only consult with the single current employee of function “B”. Despite how it may seem, the employee is not the only one likely to be affected.

The employer would be required to consult in terms of s189 with all five employees of both functions as should the proposed restructure be implemented the four employees going forward will be performing functions “A” and “B” (effectively a new formed joint position) and a fair selection criterion would need to be agreed or proposed to all five employees of the separate functions prior to the new “merged” function being implemented.

In reductions of staff performing a particular function, all employee’s performing the function are to be part of the consultation process as likely to be affected, again it cannot be assumed prior to actual meaningful consultation what may be an agreed selection criterion, alternative or number of affected staff etc.

The flawed selection criterion

Should an employer have no alternative but to impose a proposed restructure which leads to the termination of employees, s189(7) compels employers to select the employees to be dismissed according to selection criteria that has primarily been agreed upon between the parties or if no criteria have been agreed, criteria that is both fair and objective.

Employers find the latter to be the most challenging specifically where strategic restructures are implemented and simple selection criterion such as “last in first out” could lead to strategic skills being lost. In NUM & others v Anglo American Research Laboratories (Pty) Ltd [2005] 2 BLLR 148 (LC), the applicant was retrenched but had a longer period of service than employees who had been retained. However the court found such a deviation to be fair as it was objectively proven that the applicant lacked the specific skills of the employees who were retained.

Therefore selection criteria including length of service, merit, performance and qualifications or a combination of these criteria may be acceptable provided that the employer can objectively provide valid measures and relevance of such as differentiators.

Selection on the basis of an employer’s subjective preferences or irrelevant factors is unfair as well as the incorrect application of legislated fair discrimination such as Affirmative Action. Other selection criterion found to be unfair is an employee’s poor work performance as well as their disciplinary history. Performance ratings are generally not “objective” and are commonly scored using the subjective discretion and opinion of a particular employees manager which then brings into the selection criteria the element of fault on the part of the employee (such would be the case in disciplinary history), this despite the fact that any dismissal due to operational requirements is legally regarded as a “no fault” dismissal.

Not consulting your legal advisor

What is clear from the above is that employers embarking on legitimate restructuring processes face scrutiny on all aspects of the process. Despite bona fide reasoning and rationale employers can quite easily make unintentional technical errors. It is advised that any employers contemplating embarking on any restructure, realignment or retrenchment processes consult with their LabourNet consultant prior to implementing such actions.

For more information on the above topic, please contact the LabourNet Helpdesk at

0861 LABNET (0861 522638).

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