In a country characterised by high unemployment and an economy which has delivered lower than forecasted growth rates, employers should avoid being tempted to believe that staff reduction will be the solution to their financial woes. 

Whilst retrenchments may well in certain circumstances become necessary and justifiable, employers often view it as the first port of call, instead of the last. Corporate restructuring should be a more holistic exercise – where every aspect of the business is considered with a view to improving efficiency and profitability.

During this process, a critical analysis should be undertaken in respect of a review of non-staffing costs and operational overheads to achieve savings wherever possible to minimise the impact on employees and avoid retrenchments. These measures can include considering the following: negotiating rental reductions or rent holidays; renegotiating commercial and supplier contracts (such as supplier payment terms) and reducing other operational expenditure (IT, advertising, travel, entertainment), selling-off non-performing divisions of the business, which may be placing strain on other areas that are performing, making use of flexible staffing models instead of appointing new full-time employees, or outsourcing of certain functions that are being performed more expensively in-house.

At times, decisions to retrench employees have been found to be short-sighted especially where key skill has been exited (with the same skills being recruited later for considerably higher cost) or where poor planning in respect of the reorganisation exercise creates further negative impact and harm to the business insofar as a lack of product and service offering is concerned – thus harming the business even more by drawing away revenue streams.

Section 189 of the Labour Relations Act provides that the issue around alternatives to retrenchment is a topic for consultation between employer and employee. The purpose of consultation is that the parties must engage in a “meaningful joint consensus-seeking process” and attempt to reach an agreement on possible ways to avoid or postpone the impending retrenchments.

Due to ignorance, poor preparation or a cursory approach to looking at alternatives or a combination of all of this, alternatives to retrenchment are often dealt with superficially to such extent that viable alternatives, whether short-term or long-term in nature, are seldom identified.  Our law places an obligation on both consulting parties to consult on this topic and such meaningful consultations can only take place if both employer and employee constructively engage regarding this. 

Alternatives to retrenchment include considering options such as: retraining of employees for alternative roles where possible; temporary to long-term salary reduction, voluntary early retirement, unpaid leave, reducing working hours (short time) as well as overtime or work on Sundays and Public Holidays, to name a few.  

Employers tend to be reluctant to consider such alternatives or are generally dismissive about it, without meaningful consideration.  Similarly, many employees and especially those that are unrepresented in these consultation processes, are unaware that they can, as part of such consultation process, advance such alternatives.

It is recommended that employers take steps to demonstrate their good faith by identifying viable initiatives as alternatives to retrenchment before deciding that the section 189 process is the quick fix to future profitability.

Author
Hoosen Wadiwala