Blog

Every time international oil prices climb, South African employers feel the strain as domestic petrol and diesel prices follow suit. This filters through to transport, logistics, production and supplier costs, adding further inflationary pressure regardless of where consumer inflation itself happens to sit, Employers are then increasingly compelled to review their operational structures, expenditure, and staffing requirements in order to remain commercially sustainable, while ensuring that any measures affecting employees still comply with the country’s labour law framework.

No aspect of a business escapes scrutiny when employers are under pressure to operate faster, more efficiently, and at a lower cost. The workforce is no exception. Whether confronted by overstaffing, excessive labour costs, inefficient organisational structures, or broader economic difficulties, employers may consider restructuring as necessary to protect the sustainability and competitiveness of their businesses. However, an employer’s prerogative to restructure is not unfettered.

Any proposed change that affects employees’ contractual terms and conditions of employment must be implemented in accordance with the applicable contractual and labour law requirements. If the restructuring may result in dismissals for operational requirements, the employer must comply with Section 189 of the Labour Relations Act 66 of 1995 (LRA) and, in the case of qualifying large-scale dismissals, the additional provisions of Section 189A.

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. While this obviously indicates the procedural requirements in ensuring fairness, the substantive requirements of a fair restructure are often the most challenging aspects for employers to get right. An employer’s case is often terminal from the start due to a few recurring 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 to consider proposed alternatives for affected employees. S189(6)(a) states that 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 institute a farcical consultation process as a so-called 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 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 when 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 had consulted with the employees regarding the retrenchments. This rendered the consultations meaningless as the employer had already made up its mind and gone into the consultations with a foregone conclusion. The employer was required to pay each of the 122 dismissed employees two months’ remuneration in compensation.

Wrong Business Rationale

Terminations due to operational requirements resulting from a restructure may only be carried out as a last resort for genuine reasons based on the 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 must be the actual reasoning without ulterior motives. Employers must be transparent with their proposals and their rationale for them.

On 6 November 2018, the Constitutional Court handed down judgment in 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. The business embarked on a retrenchment process in terms of S189A and the sole reason advanced for the proposed retrenchments in the 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 then-current 45 full-time hours. 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 employees’ contracts of employment.

At the Labour Court, in providing reasoning for its rejection of the union’s proposal, Woolworths admitted to not “understanding” the union’s 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, found the resulting retrenchments to be substantially unfair and ordered retrospective reinstatement for the dismissed employees.

 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”. A common misconception among employers embarking on a consultation process is that they need only issue notice to, and consult with, employees perceived to be affected by the 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 a 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 or may possibly be affected by not only an actual dismissal but by any amendment to their functions, terms and conditions 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.

An example of the above would be where an employer may 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 employee’s 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.

In terms of S189, the employer would be required to consult with all five employees as, should the proposed restructure be implemented, the four ‘remaining’ employees would be performing functions A and B (effectively a newly formed joint position) going forward. A fair selection criterion would therefore need to be agreed or proposed to all five employees of the separate functions prior to the new ‘merged’ function being implemented.

Again, it cannot be assumed prior to actual meaningful consultation what an agreed selection criterion, alternatives, or number of affected staff etc. may be.

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 have primarily been agreed upon between the parties. If no criteria have been agreed, the subsequent criteria must be both fair and objective.

Employers find the latter to be the most challenging specifically where strategic restructures are implemented and a 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 may be acceptable provided that the employer can objectively provide valid measures and relevance of such as differentiators.

Selection based on an employer’s subjective preferences, irrelevant factors (e.g. race, age, union affiliation, or personal dislike) or the incorrect application of legislated fair discrimination measures such as Affirmative Action, is unfair. Selection based on poor work performance or disciplinary history can also be viewed as unfair as performance ratings are rarely truly objective. Scoring associated with disciplinary cases uses a particular manager’s subjective discretion and opinion, thereby bringing the element of employee fault into the selection criteria even though any dismissal due to operational requirements is legally regarded as a “no fault” dismissal.

Forgoing Legal Input

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 even contemplating embarking on any restructure, realignment, or retrenchment processes consult with a subject matter expert prior to implementing such actions.

Written by Barry Gordon-Davis