With a continued low economic growth rate and rising unemployment still painting a bleak picture for South Africa, law firm Cliffe Dekker Hofmeyr (CDH) director Jose Jorge warns that companies will “continue to tighten their belts” in the months ahead, meaning more job losses are likely on the horizon.
The National Treasury's projections indicate that, in a worst-case scenario, South Africa’s unemployed could rise by another 5.6-million people, even if the economy is slowly recovering.
With a working population of only 23.5-million, seven-million are currently unemployed.
Jorge laments that this will lead to a weaker gross domestic product, weaker tax revenue, greater budgetary deficits, increasing debt financing – ultimately repeating the cycle, of which retrenchments are an unfortunate consequence.
To put it into context, the three months of April 1 to June 1 this year – at the height of South Africa’s Covid-19 journey – saw 1 676 small-scale retrenchment disputes referred to the Commission for Conciliation, Mediation and Arbitration (CCMA), and another 362 referrals for large-scale retrenchments.
This is a concerning figure, laments Jorge, as this equates to over 101 000 affected employees in just three months – meaning South Africa is losing jobs “at a massive rate”.
Additionally, the CCMA’s budget was reduced by R55-million for 2021, adding to an already heavy burden.
However, businesses ultimately have to survive, and this means that they have to comply with stringent procedures set out by the Labour Relations Act (LRA), if retrenchments are on the table.
There are potential pitfalls to going down this road, Jorge says, such as deciding when to start the consultation process, the interplay between automatically unfair dismissals and the interplay of retrenchment provisions.
“We’ve been seeing more and more of these kinds of disputes arise where employees refuse to accept the demand that arises in an operational requirement-related dismissal that relates to a matter of mutual interest,” he notes.
Additionally, there is also the issue of when to give a notice of termination when there has been no facilitation in a large-scale retrenchment.
Speaking to when the obligation for consultation arises, Jorge explains that this is difficult to start, as some employers are concerned about starting the process “too early”.
“There is quite a rational fear that this process is going to destabilise the company, meaning that news of retrenchments is distressing to employees, demoralising and could lead to lower productivity, and skilled staff that might jump ship,” he says.
Though he emphasises the importance of getting the timing right, because if a company does not and consultations start too late, the company runs the risk of not having allowed for a meaningful consultation – the consequence of which is a CCMA finding of “substantive unfairness” and a possible reinstatement order.
“Depending on the number of employees that are being retrenched, this could become very expensive and detrimental to the business,” he warns.
Regarding automatically unfair dismissals, Jorge explains that, quite often, in a business, one of the ways to ensure productivity and to avoid job losses, is to “change the terms and conditions of employment”, though this is considered to be very controversial.
“Changing the terms and conditions to save jobs, [the company] runs the risk of an automatically unfair dismissal.”
According to the LRA, a dismissal is deemed automatically unfair if the reason is a refusal by the employees to accept a demand in respect of any matter of mutual interest between them and the employer.
“Along with the finding of ‘automatically unfair’, [the company] also runs the risk of having the limits of compensation doubled to 24 months' remuneration per employee, and getting this wrong could lead to a very expensive exercise,” Jorge says.
The last potential pitfall arises out of whether to use facilitation or not, and he notes that “companies seem reluctant” to use CCMA facilitation, usually out of fear that they will “give away control” of the process once the commission is involved, and that the process will then be delayed and bogged down with technicalities.
This is not the case, Jorge says, because by using CCMA facilitation, the process is resolved within 60 days.
The period is less clear when there is no CCMA facilitation.
According to the LRA, if there is no facilitator appointed, then a party may not refer a dispute to the CCMA, unless 30 days have lapsed from the date of the retrenchment notice, and once the 60-day period has lapsed, only then can an employer give notice to terminate contracts of employment.