Managing retrenchments in tough economic times

Managing retrenchments in tough economic times

The CCMA is receiving record numbers of retrenchment referrals, thanks to the pandemic 

The Commission for Conciliation, Mediation and Arbitration (CCMA) received 28 000 retrenchment cases from May to June 2020 during the lockdown. In August it revealed that it had received 190 large-scale retrenchment referrals and 1 307 small-scale retrenchment referrals in that month alone. While the numbers may be slowly dropping as the lockdown eases, it is important that organisations have a clear understanding of the regulations that come with retrenchment and how to ensure that both employee and business are protected. According to Nicol Myburgh, Head: CRS Technologies HCM Business Unit, there are a lot of considerations that go with retrenchment and a Section 189 dismissal, and it is critical that these are carried out in accordance with the letter of the law.

“It is a very difficult time for business – the lockdown has exacerbated an already fragile economy and many companies are struggling and going into retrenchment procedures,” he explains. “However, retrenchment is complex and there are pitfalls that need to be avoided so as to not end up falling foul of the CCMA and the law.”

The role of the CCMA is to mediate the process of retrenchment and ensure it is done fairly and correctly. The role of the business is to ensure that the paperwork and regulations are adhered to so that employees are taken care of correctly. Companies have to know how to undertake this process properly, clearly outlining the financial reasons and issues that have brought them to this point.

“Companies need to know the ins and outs of retrenchment regulations and paperwork,” says Myburgh. “Retrenchments are 99% procedural, so if you miss a step or do something wrong, you are immediately procedurally unfair and the CCMA will grant an arbitration award to the employee.”

Embarking on a retrenchment process

The first step the business needs to take is to issue a Section 189 letter that informs employees that you’re embarking on a retrenchment process. There are 21 items that have to be covered in this letter and if even one is missing, you’re putting your business at risk.

Once you’ve released the letter, you can then set a date for consultations and this is when you will need to discuss the retrenchment process with employees, and sometimes unions. Any discussions and negotiations have to be put in writing, otherwise you are opening yourself up to complications. Once these processes have been completed, you will need to make specific payments at a specific time, and you have to provide people with very clear deadlines and notice periods.

It’s a little-known fact that the principle of Last In, First Out is not one that the business is forced to adhere to. Many companies believe that they’re locked in to this method and have to get rid of the last people they hired. This is not true. There are different methods for retrenchment that do not involve you having to dismiss your top performers. You can manage this process by working with a consultant who can help you identify the best route through the retrenchment process and help you manage morale, paperwork and procedure as carefully as possible.

“As much as it’s an extra cost at a time when costs are tight, it’s worth getting a consultant to help you go through retrenchment processes so you are completely aligned with the law,” concludes Myburgh. “If you’re not a specialist, it can be daunting to follow each employee case and ensure that every box is correctly ticked and that both business and employees are protected. A specialist will not only support you in getting the paperwork right, but will help you manage your people and processes correctly.”

We also have a comprehensive retrenchment kit available for download from our shop. The kit consist of retrenchment information and procedures in accordance with the Labour Relations Act. A step-by-step guide and documentation templates are also included.

Manage retrenchment complexity, legally

Manage retrenchment complexity, legally

Retrenchment is never easy, but it’s essential that organisations work to the letter of the law 

In the wake of an economically challenging year that has put businesses of all sizes under immense pressure, there has been a commensurate increase in the number of job losses. Companies have had to make hard choices around employees and their futures. Some companies have closed, some have cut staff so they can keep some jobs and the business open, others have had to juggle the different demands of salary and performance to find an unhappy balance in the middle. Unfortunately, amidst these hard decisions and financial challenges is another complex issue – retrenchment regulation.

“There is much that needs to be considered when looking at a Section 189 dismissal, or retrenchment,” says Nicol Myburgh Head: CRS Technologies HCM Business Unit. “Very specific conditions have to be met or employees could refer their case to the CCMA.”

The Commission for Conciliation, Mediation and Arbitration (CCMA) is focused on resolving disputes around the Labour Relations Act 66 of 1995 (LRA). As it is not under the control of any specific political party, trade union or business, the CCMA offers impartial guidance to employees and organisations and can even undertake large-scale retrenchments for companies that want to ensure their retrenchments follow the letter of the law. The CCMA provides a mediator and ensures that the process is fair and correct.

Retrenchment procedures

“The lockdown has made a fragile economy significantly worse and we’ve seen many companies fail, or struggle to push back from the edge,” says Myburgh. “Many are entering into retrenchment procedures now and the complexities can land them in even more difficult circumstances – the last thing they need when they’re closing their doors. It’s a good idea to work with an expert consultancy in this field who can help make the right decisions.”

For companies that want to bypass retrenchment entirely, they can look to some of the solutions implemented by organisations throughout the lockdown. Some have stopped paying their staff for a period to keep the company afloat – this is short-term measure that doesn’t necessarily work. Some companies have taken the risk and still gone into retrenchments.

“Some companies have decided to completely remove their overhead costs by shutting down the organisation completely and liquidating their assets, with plans to start a new company when the lockdown is over,” says Myburgh. “This has meant that they’ve had to go with widescale retrenchments, which requires careful compliance with regulation and the letter of the law.”

Retrenchment process is procedural

A significant percentage of the retrenchment process is procedural. Specific things have to happen in order for the process to be defined as above board. If there is even one element out of place, the business is considered to be procedurally unfair and the CCMA will grant an arbitration award to the employee. This is a risk, as employees often win these cases and the cost to company can be significant.

“To ensure that your organisation does this properly, your first step is to provide the employee with a Section 189 notice that informs them that the company is contemplating retrenchment,” says Myburgh. “This letter must include specific facts to ensure it is compliant. Thereafter a date for consultation must be set and each part of the process put in writing. There are also certain payment criteria that have to be met and notice periods to follow.

“It is certainly a minefield, but not an impossible one,” he concludes. “Get someone who specialises in this type of situation and do it properly. A specialist will have an in-depth understanding of the complexities around retrenchment and ensure that both your organisation and your people are fairly taken care of.”

CRS Technologies has worked closely with organisations to ensure that they follow the law when it comes to managing retrenchment. The company has also launched a downloadable retrenchment kit which can be purchased from the CRS Online Shop if companies want clear checklists, templates, guidelines and plans on how it should be done.

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