Wednesday, April 15, 2009

In these tough economic times, almost all employers are looking for ways to cut their costs. For many of them, their highest cost is their employees.

Employee costs are increased by the benefits provided to them, such as retirement benefits and medical aid, as well as car and cellular phone allowances. Doing away with these benefits would greatly lessen the load on employers’ purse strings.

Unfortunately for them, employers cannot unilaterally reduce or withdraw such benefits as this would constitute a unilateral change to employees’ terms and conditions of employment.

Employee benefits are normally contained in their contracts of employment. Accordingly, employees have a contractual entitlement to these. Therefore, if the employer unilaterally reduces or withdraws employee benefits, it would be in breach of its contractual obligations to employees.

Even if the benefits are not contained in the employees’ employment contracts, the fact that the employer has been providing these over a period of time is consistent with a conclusion that they have become contractual terms through custom and practice. In the absence of information that would justify a contrary conclusion, the employer is most likely under a contractual obligation to provide such benefits.
In our law, employment contracts can only be amended by agreement between the parties. The employees will potentially have various causes of action if the employer fails to comply with its contractual obligations.

Employees could allege a breach of the employment contract. In such a case, employees may either demand specific performance by the employer (payment of what is owed to them contractually) or they may accept the breach, resign from their employment and allege a constructive dismissal.

Employees may also bring unfair labour practice proceedings. The Labour Relations Act 66 of 1995 (LRA) provides that an employer commits an unfair labour practice where it acts unfairly in relation to the provision of benefits.
Further, employees could bring proceedings in terms of section 64(4) of the LRA. Here the employees could demand that the employer restore the status quo by restoring the terms and conditions of employment that applied before the reduction/withdrawal within 48 hours, failing which the employees may go on a lawful strike immediately, without following any pre-strike procedures.

Employers are advised to consult with, and reach agreement with employees on any proposed changes. Failing agreement with the employees, the employer can unilaterally implement the changes, but in doing so takes the risks explained above.

If the employer needs to reduce or withdraw benefits in order to avoid job losses, one further possibility is to offer the benefit reductions/withdrawals in the context of a retrenchment consultation process. However, the employer should be cautious about how this process is followed and should take legal advice before commencing such an exercise, as if it is not done in accordance with the letter of the law, it could amount to an automatically unfair dismissal.
An automatically unfair dismissal carries the consequence of either the employees’ reinstatement or payment of compensation equivalent to as much as 24 months’ remuneration.

Lusanda Raphulu and Eva Mudely are Senior Associates in the Employment Department at Bowman Gilfillan