Alternatives to retrenchment – are employers obliged to save jobs?

July 1st, 2016


By Neil Coetzer

With the steady decline of the South African economy, employment law lawyers have found themselves consulting increasingly on possible retrenchments and restructuring exercises as employers seek to remain profitable or even to avoid total closure. As employers in a contracting economy continue to shed jobs, the number of unemployed South Africans seems to be growing daily. The situation has become so dire that even the Commission for Conciliation, Mediation and Arbitration (CCMA) offices around the country have affixed posters to their walls requesting employers, unions and employees to work together to save jobs. The seriousness of the situation has led to increased participation from unions and greater focus on alternatives to retrenchment in an attempt to preserve those jobs that are currently available. Those alternatives, however, are usually either temporary in nature (such as a resort to short-time or lay-off) or propose changes to existing terms and conditions of employment (such as a salary reduction or withdrawal of benefits).

Retrenchments and the LRA

Section 189 of the Labour Relations Act 66 of 1995 (LRA), as amended, permits an employer to dismiss employees for operational requirements or reasons. The phrase ‘operational requirements’ is a broad term referring to economic, technical, structural or similar needs of an employer. Before effecting such dismissals, however, the LRA places an obligation on employers to engage in a meaningful joint consensus-seeking process in an attempt to reach consensus on, inter alia, appropriate measures to avoid and/or minimise the number of dismissals. An employer could, as part of the s 189 process, advise employees that in order for it to remain viable and operative, employees would have to agree to a reduction in their remuneration or other terms and conditions of employment. Those employees who refuse to agree to the reduction could be lawfully dismissed in order to allow the employer to employ employees who are prepared to accept the reduced terms and conditions of employment. This is, in essence, the reasoning that was adopted by the Supreme Court of Appeal in NUMSA and Others v Fry’s Metals (Pty) Ltd [2005] 3 All SA 318 (SCA).

However, in some instances employers are unwilling or even unable to dismiss employees. The reasons for this are varied, but usually stem from an operational necessity to maintain production or the inability to pay severance packages due to cash shortages. In the present economic climate it also seems to be a social and moral imperative to prevent job losses wherever possible. However, in these circumstances the question arises whether an employer is entitled to implement alternatives suggested during the s 189 consultations unilaterally if the purpose of doing so is to avoid a loss of jobs. In other words – instead of dismissing employees to achieve the reduction in cost, as per the Fry’s Metals scenario, is it not preferable for an employer to retain its current complement of employees, but simply to implement whichever alternatives would reduce the employer’s cost?

Alternatives to retrenchment and the consultation process

According to Professor Alan Rycroft (‘Employer and Employee Obligations with regard to Alternatives to Retrenchment’ (2015) 36 ILJ 1775), s 189 contains an underlying assumption that consultation can only be meaningful and consensus-seeking if all parties engage in the process, full disclosure is made by the employer and any exchanges by the parties are well-motivated and rational. Dismissals for operational requirements may also only be effected as a measure of last resort. As a consequence, much attention must be given to alternatives which can be agreed to. Such alternatives include, inter alia

  • the reductions or changes to terms and conditions of employment;
  • lay-off;
  • short-time, placing a moratorium on new appointments, overtime or Sunday work;
  • transferring affected employees to other jobs in the employer’s business or group;
  • training or re-skilling employees for other available positions; and
  • granting extended unpaid leave.

Ideally, employers and employees should engage in constructive and rational dialogue on these issues in order to reach agreement. Such agreements, which are concluded between majority unions and the employer, can be extended to all employees at the employer’s workplace(s) in terms of s 23 of the LRA. It often happens, however, that no agreement can be reached on alternatives. Parties routinely adopt polarised positions and engage in brinkmanship in order to force a particular outcome and thus undermine the entire consultation process. In those circumstances, employees may be forced to make an election as to whether they are prepared to accept the alternatives or not. As set out above, the position in respect of Fry’s Metals is clear. However, whether an employer is entitled to implement alternatively unilaterally is not.

Implementing alternatives unilaterally

In Entertainment Catering Commercial & Allied Workers Union of SA and Others v Shoprite Checkers t/a OK Krugersdorp (2000) 21 ILJ 1347 (LC) the Labour Court (LC) found that employers are entitled to unilaterally change employees’ conditions of service in order to save jobs. This was confirmed in Media Workers Association of SA and Others v Independent Newspapers (Pty) Ltd (2002) 23 ILJ 918 (LC) where the court held as follows:

‘Implementation of s 189 often results in changes in terms and conditions of employment. Such changes are justified if they are made in the course of a bona fide retrenchment exercise and as an alternative to retrenchment. … In this case they were not underpinned by the ulterior motive to dismiss for not acceding to a demand. … Merely because dismissal was not considered as a probability does not mean that changes were not brought about in terms of s 189. Dismissal is one, though not a necessary, consequence of restructuring’ (my italics).

Author John Grogan (Workplace Law 11ed (Cape Town: Juta 2014) at 214 – 215) points out that in both the ECCAWUSA and Independent Newspapers judgments, the courts found that the changes proposed by the employers were bona fide and genuine attempts to avoid retrenchment. In Chemical Workers Industrial Union and Others v Algorax (Pty) Ltd (2003) 24 ILJ 1917 (LAC) the LAC pointed out that the employer could have implemented the changes to the shift system without having to resort to retrenching the employees who refused to accept the changes. This confirms the position in the ECCAWUSA and Independent Newspapers judgments.

A subsequent judgment of the Labour Appeal Court (LAC) went further to impose a duty on an employer to take all steps to avoid dismissals. Although the case concerned the redundancy of a position, the principles remain relevant. In Oosthuizen v Telkom SA Ltd (2007) 28 ILJ 2531 (LAC) the LAC found as follows at para 8:

‘In my view an employer has an obligation not to dismiss an employee for operational requirements if that employer has work which such employee can perform either without any additional training or with minimal training. This is because that is a measure that can be employed to avoid the dismissal and the employer has an obligation to take appropriate measures to avoid an employee’s dismissal for operational requirements. … In such a case the dismissal is a dismissal that could have been avoided. A dismissal that could have been avoided but was not avoided is a dismissal that is without a fair reason’ (my italics).

As can be seen from the above, there is sufficient support for the view that alternatives can be implemented unilaterally by employers. In fact, the judgments above seem to evince a duty on an employer to implement alternatives which are likely to save jobs. Conversely, an employer that neglects or refuses to implement alternatives could be said to have acted unfairly.

A further question, however, arises in regard to whether the alternative that will be implemented needs to be reasonable. Section 41(4) of the Basic Conditions of Employment Act 75 of 1997, as amended (the BCEA) relieves an employer of the duty to pay severance pay in circumstances where the employee who is dismissed for operational requirements ‘unreasonably refuses to accept the employer’s offer of alternative employment’. In Irvin and Johnson Ltd v Commission for Conciliation, Mediation and Arbitration and Others (2006) 27 ILJ 935 (LAC) the LAC found that the purpose of this provision was to promote employment and to incentivise employers to take the necessary steps to provide alternative employment for all employees facing dismissal for operational requirements. While this provision clearly underscores the importance of job preservation, it is also important to point out that an employee’s refusal of an unreasonable offer of alternative employment would not absolve the employer from having to pay a severance package. The LC, as a court of fairness and equity, will inevitably inquire into the fairness and reasonableness of the employer’s chosen alternative as well as the final decision to implement the alternative unilaterally (see Astrapak Manufacturing Holdings (Pty) Ltd t/a East Rand Plastics v Chemical Energy Paper Printing and Allied Workers Union (2014) 35 ILJ 140 (LAC)). The courts may, for instance, take a dim view of an employer that implements an alternative which has the effect of reducing an employee’s salary by more than 20% or imposes an indefinite lay-off or short-time process, although there may be compelling reasons for doing so.

Remedies for employees

In respect of large-scale restructuring exercises, subs 189A(7) and (8) of the LRA provide that once employees are issued with notices of termination of their employment, they may either give notice of their intention to strike or, alternatively, refer a dispute to the CCMA in respect of the alleged unfairness of the reason for their dismissal. However, this situation would not arise in the circumstances described above since no notices of termination would have been issued.

In the event that alternatives are implemented and dismissals are avoided, are employees entirely without recourse?

In circumstances where the implementation of the alternative affects the training or benefits of an employee, it is possible that an unfair labour practice claim in terms of s 186(2)(a) of the LRA could be referred to the CCMA. In addition, an employee could either institute a contractual claim for breach of contract in terms of s 77(3) of the BCEA or refer a dispute concerning a unilateral change to terms and conditions of employment in terms of s 64(4) of the LRA. The most obvious defence to all of these potential claims is, of course, that the employer is entitled to change terms and conditions of employment through a s 189 process. The defence is yet to be tested, however, although I cautiously suggest that the fairness of the employer’s conduct may become an important consideration in the determination of any dispute referred in terms of ss 186(2) or 64(4). A claim in terms of s 77(3) is, however, a contractual claim and, once formulated, may fall outside of the fairness jurisdiction of the LRA.

However, a claim concerning a unilateral change to terms and conditions of employment in terms of s 64(4) of the LRA is not capable of being arbitrated and would consequently permit employees to engage in a protected strike in support of a demand to have their previous terms and conditions restored. Whether such a strike could be interdicted on the basis that the reduction was effected through a lawful s 189 process is not clear and may be argued before the LC in due course.

A retaliatory strike in these circumstances seems to be at odds with the noble motive of job preservation. It seems, to my mind at least, manifestly unfair to permit employees to engage in a strike after an employer has discharged its statutory duties lawfully, fairly and in circumstances where an employer has also implemented alternatives which have resulted in fewer or no dismissals for operational requirements. Even s 189A only permits a strike where employees are actually dismissed – something that would be avoided if an alternative is implemented. To penalise an employer for avoiding retrenchments seems counterintuitive and constitutes a disincentive for employers to save jobs. It is also worth considering whether such an outcome offends the constitutional notion of fair labour practices, particularly since it is guaranteed to ‘everyone’. The issue definitely requires further consideration and our courts should seek to give more clarity on the consequences of implementing fair and reasonable alternatives unilaterally.

Neil Coetzer LLM (UP) is an attorney at Cowan-Harper Attorneys in Johannesburg.

This article was first published in De Rebus in 2016 (July) DR 31.


De Rebus