South Africa’s recession is marked by a growing number of companies experiencing severe financial difficulties. Customer orders are waning, budgets are being cut, profits are dwindling, cash flows are tightening and it is becoming increasingly difficult to pay creditors and staff salaries.
In addition to our economic downturn crime is having a serious detrimental effect on the finances of employers. Theft of company stock and equipment costs employers many millions in losses every year. Local and international companies are reluctant to risk labour intensive investment in a country where theft related-losses are so high and where violent crime is out of control. This lack of investment retards our economy. The combination of the mismanagement of our economy and rampant crime in South Africa has resulted in a huge number of job losses and in the failure of new jobs being created.
With so many people losing their jobs the spending power of consumers has been drastically reduced. This has resulted in less business for companies whose financial circumstances have therefore worsened and could result in further job cuts. It is this type of vicious circle that can take an economy in a mild recession through an ever deepening recession and into a full blown depression.
In addition to the micro reason that retrenchment can cause severe hardship for the individual retrenchee, the bigger danger of retrenchments lies in the disaster that the above mentioned vicious circle can cause for the economy as a whole and for each and every business individually. Thus, while tight financial circumstances quickly give rise to the temptation to retrench as quickly as possible, employers need to appreciate the harm that they can do to their longer term survival by implementing retrenchments willy nilly.
The above does not mean that retrenchments must never be contemplated. There are circumstances where job cuts must be implemented. However, there are several reasons that employers should not retrench unless such job cuts are truly unavoidable.
These reasons include:
- The retrenched employee and his/her family is likely to suffer as a result of the retrenchment
- Last-in-first-out is the most common criterion for choosing the employees to be retrenched. This can result in the employer losing employees with valuable skills which can in turn do harm to the quality of products and services and hinder the acquisition of new business
- As explained above, the knock-on economic effect of retrenchments could well result in future losses for the employer
- Labour law does not allow employers to retrench employees unless such retrenchment cannot be avoided. That is, the law of retrenchment in South Africa is focused strongly on preserving employment and makes it clear that a retrenchment is a no-fault dismissal. The law therefore requires the employer to turn over every stone in an effort to find alternatives to retrenchment.
The Courts have become ever more intolerant of employers that fail to go the extra mile to make sure that there are truly no alternatives to retrenchment before cutting jobs. In the case of Oosthuizen vs Telkom SA Ltd (2007, 11 BLLR 1013) the employee was retrenched after his job became redundant. He was placed in a job pool for three months to give him a chance to find a new post within Telkom. He applied for 22 vacant posts and was short-listed for some of them but was successful with none of them.
The Labour Appeal Court found his retrenchment to be unfair because:
- The employer failed to consult with the employee on ways of avoiding retrenchment and the criteria for choosing potential retrenches
- The employer had not given acceptable reasons to Oosthuzen for having rejected possible alternatives to his dismissal
- The employer failed to bring evidence to the Court to explain why Oosthuizen had not been offered one of the jobs for which he had been short-listed
- Oosthuizen had 22 years’ of service and should not, according to the Court, have had to vie for the vacant posts with employees who had shorter service.
The law, together with the economic reasons discussed earlier, stresses the requirement for employers to make every effort to find ways of avoiding retrenchments. While not every type of alternative to retrenchment is viable in every case the following are a few examples of alternatives that employers can consider:- Seeking new ways of increasing revenue, reduction of unnecessary expenses, curtailment of wastage, agreed pay cuts, working of short time, temporary layoffs, job sharing and freezes on recruitment.
Often, employers are too close to the problem to see the solution and panic can result in over-hasty and unnecessary retrenchment. It therefore important for employers to consult reputable labour relations experts before embarking on retrenchments.
BY Ivan Israelstam, Chief Executive of Labour Law Management Consulting. He may be contacted on (011) 888-7944 or 0828522973 or on e-mail address: [email protected].
To book for our CASE LAW UPDATES seminar in Johannesburg on 9 November please contact Ronni via [email protected] or 0845217492.