Can an employer in certain situations request that salaries will be temporarily adjusted to try and keep the business afloat, and if so, what options are available to the employer?
Should an employer be looking at solutions to keep a business afloat and to remain financially feasible during this period of lockdown, there are various options at an employer’s disposal, namely: the reduction or temporary adjustment of salaries by agreement, short-time, temporary lay-offs, retrenchment, and the temporary employee relief scheme.
For some employers, an agreement in the reduction of salaries of employees may be seen as the quickest, most efficient and cost-effective way to keep the business afloat during this time. An employer and employee may enter into a written agreement relating to the reduction of such an employee’s remuneration and/or benefits. If parties do enter into such an agreement, it must clearly state what the reduction is, and for how long it will be in effect, stating the reason for such reduction as well.
Ultimately, the purpose of such an agreed reduction of salaries should be explained by an employer to the proposed affected employees – as employers should only be looking at reducing salaries to avoid short-time, temporary lay-offs and/or possible retrenchment where the business can still operate and remain financially feasible. Such a reduction should be deemed fair, reasonable and proportional – taking into consideration the individual circumstances of each affected employee when discussing same with them.
This is, however, not the most procedurally sound manner of proceeding should employees not be in agreement with the proposed reduction of their salaries. In the absence of a written agreement between the parties, any reduction in salary could be deemed as a unilateral change in terms and conditions of employment which could amount to an unfair labour practice – should the matter be referred to the CCMA by the affected employee.
The unilateral changes made by an employer may be in the form of a sudden reduction in salary for some or other reason, changes to commission structure or a reduction in the amount of commission paid, the removal of or reduction in some other benefits such as a bonus, or something of that nature. It may also include the sudden unilateral introduction of additional terms and conditions of employment, such as a condition that the salesperson will not be paid his commission until the client has paid for the goods sold.
With reference to relevant case law: In the case of ICHAWU & Others v CCMA & Others (case C308/13, 29 July 2015) – the Labour Court was faced with a situation which it summarised as follows:- “An employer imposes unilateral changes to terms and conditions of employment on its workers. The workers refuse to comply. Does that constitute gross insubordination?”
The Union, representing nine former employees of the employer, argued that such a refusal could not constitute gross insubordination or any misconduct at all. The question arose after the employer, who was experiencing financial difficulties, indicated its intention to introduce short time which would have the effect of reducing the employees’ working week from five days to four.
The employer consulted with the Union on this issue. When the Union did not agree to the proposed change, the employer implemented the new roster unilaterally. In response, the Union referred a dispute to the CCMA in terms of section 64(4) of the Labour Relations Act and required the employer to restore the previous terms and conditions of its members. The Court pointed out that in the circumstances such as those faced by the employer in this case, employers could resort to a lock-out in order to reduce terms and conditions of employment. It also stated that in certain instances, where a change in terms and conditions of employment is necessitated by operational requirements, an employer could embark on a section 189 process and offer the revised terms and conditions of employment as alternatives to retrenchment. There are, however, several complicating factors which must be considered, and employers should, therefore, seek legal assistance before attempting to implement revised terms and conditions of employment.
It is rather recommended that an employer proceeds with consultations with its employees through formal retrenchment consultations as per Section 189(1) of the Labour Relations Act, No 66 of 1995 (LRA).
The other options that are available to employers in the absence of an agreement for the reduction of salaries of employees, are briefly explained as follows:
Whereby an employer may reduce the working hours of an employee, with a proportional decrease in the employee’s remuneration. Should an employer like to implement short-time to mitigate its losses during the COVID-19 pandemic, the employer should ensure that a proper process is followed, and that all decisions are communicated with employees.
Employers may temporarily stop an employee’s work in circumstances where the employer is unable to afford the payment of an employee due to the financial circumstances of the business. It is, however, important that employers properly consult and discuss this process with their employees.
Should an employer consider the retrenchment of one or more of its employees for reasons based on its operational requirements which include the financial position of the business, Section 189 of the Labour Relations Act 66 of 1995 then applies. “Operational requirements” is defined as requirements based on the economic, technological, structural or similar needs of the employer. Extreme caution is required before the employer embarks on a retrenchment exercise, especially during this period of lockdown.
Temporary Employee Relief Scheme (“TERS” Process):
This entails a process whereby the Unemployment Insurance Fund may fund a financially distressed business directly in relation to the “TERS” allowance. It makes provision for the following relief: Wage subsidy; Wage subsidy and training; and a “turn-around” solution.
A financially distressed business will only be funded through “TERS” if it qualifies in terms of the requirements in its application for such a process. The distressed business must also able to demonstrate in its application that it has a “turn-around” plan, or a sustainability programme – which will result in job preservation at the expiry of the funding agreement. This scheme will be accessible for a maximum period of 3 months, and employers may continue to claim from this fund for that duration.
With the above-mentioned in mind – It is therefore important for employers to engage with their employees about any proposed agreement regarding the reduction of salaries, as well as in considering any other available options to employers. With specific mention to the reduction of salaries, it is paramount for such an agreement to be made in writing between the parties. In the event that such proposed agreement is not made – employers are advised to rather consider the other above-mentioned options such as short-time, temporary lay-offs, retrenchment, and the temporary employee relief scheme – paying attention and adhering to the correct and proper processes that must be followed for each option, and ensuring that all decisions are properly and clearly communicated with all employees.
Article by: Carl Ranger & Preshalia Pandaram
Dispute Resolution Officials