Employers may find that they cannot carry the financial burden of retaining all of their staff compliment post lockdown as a result of the financial position they find themselves in. Many employers might be contemplating retrenchments and dreading the idea of losing any of their employees as a result of financial restraints.
In terms of section 189 (1)(d) of the Labour Relations Act (“the LRA”) –
“when an employer contemplates dismissing one or more employees for reasons based on the employer’s operational requirements, the employer must consult the employees likely to be affected by the proposed dismissals or their representatives nominated for that purpose.”
Section 189 (2)(a) of the LRA reads as follows:
“the employer and the other consulting parties must, in the consultation envisaged by subsections (1) and (3), engage in a meaningful joint consensus-seeking process and attempt to reach consensus on:
(a) appropriate measures –
(i) to avoid the dismissals;
(ii) to minimise the number of dismissals;
(iii) to change the timing of the dismissals; and
(iv) to mitigate the adverse effects of the dismissals.”
In essence, sections 189(1)(d) and section 189(2)(a) formulate the framework for the retrenchment process. From informing the employees which the employer contemplates having to retrench, and thereafter, having meaningful joint consensus-seeking consultations with the affected employees, the purpose of the consultative process is to avoid retrenchments or minimise the negative effects thereof.
During the consultative process, an employer could advise employees that in order for the company to remain viable and/or operative the employees have the option of a demotion in the form of a reduced salary or remuneration package.
Demotion could be an appropriate alternative measure to retrenchment in circumstances where a company has fallen on financially difficult times as a result of the lockdown due to Covid-19 if such an alternative is financially viable.
What is a demotion and in which circumstances would a demotion be a viable option?
The LRA does not provide a specific definition of demotion, but section 186(2)(a) of the LRA does make provision for an unfair labour practice by way of an unfair act or omission that arises between an employer and an employee involving –
“unfair conduct by the employer relating to the promotion, demotion, probation (excluding
disputes about dismissals for a reason relating to probation) or training of an employee or
relating to the provision of benefits to an employee”
Grogan (2014) describes an employee’s demotion as a material reduction of his/her remuneration, responsibilities or status.
Should an employer’s conduct be deemed to have been unfair in demoting an employee, the employer could make himself guilty of an unfair labour practice.
However, should the employer’s conduct be fair (the conduct being a demotion), an unfair labour practice will not exist.
Demotions in the following circumstances may be deemed to be fair:
- If the demotion is aimed at avoiding retrenchment; or
- If the demotion is to avoid a dismissal for incapacity; or
- If the employee is demoted as a disciplinary penalty imposed for a valid reason and after a fair procedure (Grogan: 2014, Workplace Law; pg. 85).
Should one or more of the affected employee(s) not accept the demotion as an alternative to retrenchment, the employee(s) will be entitled to severance pay if their refusal of the alternative to retrenchment is reasonable.
It is also advisable that the employees who do accept the demotion as an alternative to retrenchment do so in writing as the employee’s terms and conditions of employment will be altered by their acceptance of the proposed demotion to avoid retrenchment.
Fairness requires that the alternatives to dismissal proposed in good faith by consulting parties are reasonable having regard to the employer’s operational requirements.
In the Labour Appeal Court matter of Havemann v Sacequip (Pty) Ltd (JA91/2014) , the Appellant (Mr Havemann) was employed as an Operations Manager and earned R 60 000.00 per month. Mr. Havemann received a “notice of consultation” in which he was informed that his position may be affected by a restructuring of the business and that the respondent sought to consult with him so as to avoid the need to restructure and/or retrench employees.
Three alternative options to dismissal were discussed:
- Restructuring Mr. Havemann’s package from R 60 000.00 per month to R 15 000.00 (basic salary) plus commission.
- Havemann in return suggested that all employees take a 10% salary reduction in an effort to avoid retrenchments;
- The third option took the form of an offer made to the appellant of an alternative position in Pretoria, a distance from his Meyerton home, as Sales Executive CCTV earning R12 700 per month plus commission.
Neither the Appellant nor the Respondent accepted any of the proposed alternatives.
The court found as follows:
- That the 75% salary reduction option was a “dramatic change to terms of employment”. The court also held that it was not shown to be a rational and bona fidealternative aimed at trying meaningfully to save Mr. Havemann’s position.
- The evidence showed that the consensus-seeking process engaged in by the respondent was flawed. The respondent failed to engage in a meaningful manner with Mr. Havemann concerning reasonable alternatives to dismissal.
- Not only were the respondent’s alternatives a dramatic change in terms of employment but the respondent rejected the reasonable alternative proposal made by Mr. Havemann without further engagement (all employees to take a 10% reduction in salaries).
The above-mentioned reasons, amongst others, led to the court finding that Mr. Havemann’s dismissal was substantively unfair.
Therefore, should an employer consider retrenchments in these trying times and consideration is given to demotions as an alternative to retrenchment – the demotion itself should also be reasonable and in-depth consultations between employers and employees should take place.
Employers should always obtain the necessary labour law advice before starting a retrenchment process and/or suggesting demotions as alternatives to retrenchments.
Ultimately, the onus rests on the employer to ensure substantive and procedural fairness at all times. Guidance by a labour advisor in the retrenchment process with the premise to avoid unfair dismissals, is therefore of the utmost importance.