The COVID-19 pandemic has brought with it financial distress for many employers, with a trickle-down effect to employees. Many businesses will simply not survive the forced lockdown and will face the unfortunate decision to reduce staff in order to survive. Companies often consider offering voluntary severance packages (“VSPs”) to its employees. When may VSPs be considered, and does a company have to fully engage in a retrenchment process prior to the offer of a VSP?
The issue was considered in a recent judgment handed down by the Labour Court in the matter SACU and Another v Telkom SA SOC Ltd (J203/2020) [2020] ZALCJHB 56 (5 March 2020).
Telkom issued its employees with a notice of possible retrenchments in terms of Section 189A of the Labour Relations Act (“the LRA”). Shortly thereafter, Telkom informed the unions that employees would be offered the opportunity to take VSPs in order to minimise the number of retrenchments. The Trade Unions however contended that the LRA prescribed the order in which certain matters needed to be consulted on and that the rationale for the retrenchments as well as the categories of affected employees needed to be consulted on before the issue of alternatives to retrenchment. Therefore, Telkom could not propose VSPs until the parties had consulted on the rational for retrenchments and the selection criterea.
The Trade Unions based their position on the argument that if there was no rationale for retrenchments, there would be no need for the retrenchments and, obviously, no need to discuss alternatives to dismissal.
The parties were unable to resolve the impasse, and the Trade Unions applied to the Labour Court to compel Telkom to comply with the consultation process as “prescribed by the LRA”.
The Labour Court ruled that Section 189 does not prescribe a rigid step-by-step sequence in which consultations have to proceed in order to be compliant. The section provides that consulting parties must attempt to reach consensus on, inter alia, appropriate measures to avoid the dismissals, and VSPs are deemed to be measures to reduce the number of retrenchments that may occur. In the circumstances, the issue of when to offer the VSPs to employees was a matter that had to be discussed by the consulting parties together with the terms and conditions of the VSPs.
In addition, procedurally there is an obligation on the employer to consider representations made by employees regarding the rationale for retrenchments. The parties are not required to agree on this issue. If employees are retrenched, and a court finds that there was no rationale for the retrenchments, then same would be determined to be substantively unfair. This does not affect the procedure.
The judgment is of importance to employers who are contemplating retrenchments. What it means is that the procedure set out in Section 189 is not a rigid checklist, but rather more flexible. Once the employer has given notice of the contemplation of the possibility of retrenchments, VSPs can be proposed as part of the overall consultation, which should include the rationale, alternatives to retrenchment and selection criteria. There is no rigid order prescribing what matters are to be consulted on and disposed of before moving on to the next issue.
Finally, employers are reminded that it would be foolish to offer VSPs as a stand alone without any discussion or consultation with employees. This would have to be done in terms of a contemplation of retrenchment process, and a Section 189 Notice would have to be issued to employees before any offers of VSPs.