Retrenchment laws do not favour employers


Updated legislation combined with case law decisions continually make it harder and harder for employers to retrench employees. For example, employees now have the choice of going to court or of going on strike in order to challenge retrenchments, but the effect of a strike could further weaken the employer?s finances and necessitate further retrenchments.

Retrenchment might be caused by a number of factors:

* Faulty or archaic equipment or technology, ineffective management systems or underskilled/demotivated employees can reduce productivity, increase financial losses and affect jobs.
* Employers may need fewer employees due to labour saving devices or technology.
* A desire to evade labour legislation might result in the contracting out of work instead of giving it to employees
* Bankruptcy or losses caused by mismanagement or misappropriation of funds
* Strikes and lockouts that weaken your company and chase customers and work away
* A drop in sales due to economic factors such as the strengthening of the Rand
* Rationalisation to shed "surplus' employees resulting from buy-outs or mergers. Beware, retrenchments for reasons related to a takeover as a going concern will be automatically unfair.

The courts take into account four key factors when deciding whether a retrenchment was fair:

* Was there a sufficient operational reason for the retrenchment or was the retrenchment a sham
* Was a fair criterion used for choosing the employees to be dismissed or should other employees have been retrenched instead
* Before deciding to retrench did the employer consult properly with the employees or trade union on measures to avoid or reduce the number of retrenchments as well as on numerous other issues related to the retrenchment
* Did the employer give the employees or union all the information relevant to the retrenchment and to the consulting process.

Previously the courts were very lenient towards employers as regards their reasons for retrenching. That is, as long as the employer could show a genuine operational requirement the court was satisfied. However, the attitude of the courts is changing and for the employer merely to show that a retrenchment is necessary in order to boost profits is now unlikely to be enough.

In any case, if the employees are unhappy with the reason for the retrenchment they can, in many circumstances, go on strike.

If the employees choose to go to court instead of striking they only have to show that the retrenchment took place. It is the employer who has the onus of proving that, due to its operational circumstances, retrenchment was unavoidable.

In the case of SATAWU and Others vs Forecourt Express (Pty) Ltd (2003 8 BLLR 824) Forecourt spent 12 million Rand on buying Fauna (Pty) Ltd. This gave Forecourt access to a major trucking contract with a large manufacturer. In terms of section 197 of the Labour Relations Act Fauna had to transfer its truck drivers to Forecourt.

Shortly thereafter, Forecourt outsourced its newly acquired trucking function, sold the trucks taken over from Fauna and retrenched the truck drivers.

The Court found that the retrenchment was not due to the financial position of the employer and that therefore, there was not a sufficient or fair reason for the retrenchments. Due to this and because the employer did not follow the proper retrenchment procedure the Court awarded each retrenchee compensation equal to 12 months? remuneration.

In effect this startling decision goes against the weight of numerous past decisions that allow employers to retrench if jobs become redundant due to outsourcing. While it is possible that this unusual finding was motivated by the severe unemployment problems in South Africa it could be the forerunner of similar tough decisions against employers.

The Forecourt decision also shows that the courts are not shy to award the maximum compensation against the employer.

It is therefore essential that employers now take a completely new look at their plans to outsource, merge or restructure where this could affect workers? jobs. Now, more than ever before, proper legal advice is crucial not only on the retrenchment procedure but on the justification for the retrenchment. The days of the "cowboy' approach to retrenchment are over.

BY lvan lsraelstam, Chief Executive of Labour Law Management Consulting. He may be contacted on (011) 888-7944 or 0828522973 or on e-mail address: Go to: This article first appeared in The Star.