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COVID-19: Labour Court – no need for rigidity in retrenchments, South Africa

7 May 2020
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In times of commercial distress and uncertainty brought on by an ailing economy and the exacerbating effects of the COVID-19 pandemic, many employers find themselves having to consider several cost-saving measures to ensure business continuity. Unfortunately, these measures may include retrenching employees. Retrenchments cannot be implemented without first considering alternatives to dismissal.

In SACU and Another v Telkom SA SOC Ltd (J203/2020) [2020] ZALCJHB 56 (5 March 2020), the Labour Court considered at what point during a retrenchment process an employer can offer its employees voluntary severance packages (VSPs), as an alternative to dismissal.

In this case, Telkom issued its employees with a notice of possible retrenchments in terms of section 189A of the Labour Relations Act 66 of 1995, as amended (LRA). Shortly thereafter, Telkom informed the unions that employees would be offered the opportunity to take VSPs in order to minimise the number of retrenchments.

The unions disagreed with Telkom, contending that the LRA prescribed the order in which certain matters needed to be discussed. Consequently, the unions argued, the rationale for the retrenchments as well as the categories of affected employees needed to be discussed before the issue of alternatives. The logic of the unions’ argument was that if the rationale was found wanting, there would be no need for the retrenchments and, obviously, no need to discuss alternatives to dismissal.

The parties reached a deadlock and the unions approached the Labour Court in terms of section 189A(13), urgently requesting the court’s intervention by compelling Telkom to act in accordance with a fair procedure.

The purpose of section 189A(13) applications is to enable the court to make real-time interventions to remedy any procedural shortcomings on the part of the employer and to put a retrenchment process that has already commenced back on track.

The issue was whether it was procedurally unfair for Telkom to offer its employees VSPs before concluding discussions on the rationale/ reasons for the retrenchments and Telkom’s proposed new structure.

Ultimately, the court found in Telkom’s favour. In a judgment penned by Lagrange J, the court reasoned that section 189 does not prescribe a rigid step-by-step sequence in which consultations have to proceed in order to be compliant. The section provides that consulting parties must attempt to reach consensus on, inter alia, appropriate measures to avoid the dismissals.
VSPs are measures to reduce the number of retrenchments that may occur. In the circumstances, the issue of when to offer the VSPs to employees was a matter that had to be discussed by the consulting parties together with the terms and conditions of the VSPs.

Furthermore, in respect of discussions on the rationale for the retrenchments, the court held that an employer is only required to listen to representations made by the employees and the failure of parties to agree on the rationale should not bring the retrenchment process to a grinding halt. A disagreement of this nature is better left as a challenge of substantive unfairness to be adjudicated further down the line.

Finally, the court found that the obligation to discuss alternatives to retrenchment is unambiguous, meaning that even parties who have reservations regarding the rationale must be prepared to engage in consultations regarding the alternatives.

This judgment by the Labour Court is important for employers who are contemplating retrenching their employees. It confirms that employers are afforded a degree of flexibility in the management of the consultation process, as long as the parties comply with the obligations set out in section 189.

There is no specific order in which issues must be disposed of in consultations, the sole requirement is that the issues listed in the relevant sections are meaningfully discussed under the auspices of a joint consensus-seeking process.

Importantly, it is open to an employer to table VSPs as a point of discussion with the initial retrenchment notice that is issued to employees. Therefore, while parties discuss issues such as the rationale for the retrenchments and any proposed new business structure, there can be parallel engagements relating to the terms, conditions and timing of VSP offers. Any agreement reached in respect of VSP discussions could then be made conditional upon the parties finding that retrenchment is indeed necessary in the circumstances.

Given the court’s emphasis on the obligation of consulting parties to explore alternatives, it is likely that similar reasoning will apply in relation to other proposed alternatives to retrenchment.