Bowmans partner Helen Wilsenach on how not to handle retrenchments
The most important thing is to have a clearly communicated and genuine consultative process.
The economy is tough and that has been reflected in some of our recent cases where companies have had to restructure and retrench significant portions of their labour forces. This has been the case since the global financial crisis of 2008 and is particularly prevalent in certain industries, such as manufacturing and the mining industry.
But there is a right way and a wrong way of dealing with large-scale retrenchments. Companies that have done it well have often approached it as a project management piece. They haven't taken a simplistic approach of looking at what the law says they are required to do and enacted retrenchment processes strictly in accordance with that.
"Both costs and employee expectations need to be properly managed. While it is important to tick all the boxes from the legal point of view, the people are ultimately the most important part of the process and you have to make sure you deal with them in the correct way to ensure that post the process you are not left with a demotivated and unhappy workforce."
Be aware that the people you want to retain the most are generally the most mobile and will likely be the first to leave if the process is not properly managed. It is often a balance between managing the need to consult properly – bearing in mind that there is a mandatory minimum consultation period of 60 days in most large-scale retrenchment processes – versus managing the business risk side of things.
Also, you have to have a clear understanding of which managers will be running the process, including which of them will be responsible for communications and so forth. The law says that if an employee raises a question in writing, you need to respond to them in writing. So especially in the case of large-scale retrenchments, it is advisable to have in place a strong communication team that has an industrial relations background and which promptly responds to an employee’s query in a consistent and informed manner. While the input of legal is important, this is something that is best handled by HR working with the legal team (i.e. not solely by legal). In fact, when it comes to a large scale retrenchment process as a whole, it is HR that has to take the lead, supported by legal.
Get the consultation right
There is a mandatory consultation period, which is there for a reason because you want to make sure there is meaningful engagement – in fact, the law expressly requires a “meaningful joint consensus-seeking process”. One of the possible ways to shorten the process, and an acceptable alternative to an “involuntary” retrenchment, is to offer the potentially affected employees voluntary retrenchment packages in exchange for signing an agreement waiving the right to bring an unfair dismissal claim. On the one hand, this can be expensive for the company, especially in large-scale retrenchments, because you are then paying enhanced severance packages. That said, this is by far the most amicable alternative when undergoing a significant restructuring program. Further, it can save protracted legal costs down the line and the risk of a finding that the retrenchments were procedurally and/or substantively unfair.
Companies create risk when they only consider the rational argument (i.e. the business case) for the proposed retrenchments and don’t also factor in the need to handle the process with care and in a manner that seeks to limit the negative impact on the morale of the workforce post the process.
Another key area of risk is around selection criteria. For example, when there is a clear indication that the company already knows who they want to keep and are only consulting employees to go through the motions.
You should also avoid issuing any public communications that imply a foregone conclusion in relation to the number of retrenchments, which positions are being made redundant etc. For example, companies will often put out statements including the number of people that are going to be retrenched because the market likes that kind of certainty, but this can give rise to legal risk. Consultation with employees must take place before a final decision can be made regarding retrenchments.
Be careful with selection criteria
Where an agreement is not reached with the potentially affected employees or their trade unions regarding the applicable selection criteria, the company is permitted to apply its proposed criteria so long as it has first consulted sufficiently. However, these selection criteria need to be fair and objective. Last in, first out (LIFO) is an acceptable criterion in some environments and is often what the unions prefer but it is not always appropriate, where the company may not want to lose its skilled new hires. LIFO may also give rise to a claim by an affected employee that s/he should “bump” another more junior employee with less years of service out of their role, in which case the newer hire may have to be retrenched.
You also have to be very careful about using performance as a selection criterion. The law provides for separate processes that have to be followed for poor performance and you can't use retrenchments as a smokescreen to get rid of underperforming employees. Equally, you should avoid providing those employees that you know you wish to retain but whose role is potentially affected, with an assurance at the beginning of the process that they won’t be retrenched.
When there is only one role that is potentially affected then normally the proposed selection criterion is simply that the current incumbent of the affected role would fall to be selected for retrenchment. But when you have, let's say ten members of your secretarial staff and you want to reduce that to five positions then it becomes trickier.
Skills, experience or qualifications
Criteria that companies frequently propose using are skills, experience or qualifications. But with qualifications, it has to be relevant. It's a measure that can be used when you are dealing with engineers, for example, but in other roles, formal qualifications are not as relevant.
"It's all very well using skills as a criterion but that is also challenging because companies have to be able to objectively show how a person executes their role with more skill than others and what skills are required for a particular role."
You cannot require an employee to re-interview for their existing role. However, where what is proposed in a restructuring is that certain positions will fall away and new roles will be created then it may be appropriate to propose an interview process. It is only if the new roles are genuinely different from the affected employees’ current roles that such a selection process should be adopted. In that case, people have to go through a fair and objective interview process (where potentially the employee’s performance in his/her current role may be one relevant factor for assessing their suitability for the new role).
It is important to remember when drawing up selection criteria for retrenchments is that it has to be consistent. You can't decide who you would like to keep beforehand and then use one criterion for one role and then another for a different so that, in the end, you effectively manipulate the process to cherry pick who stays and who goes. That will not pass scrutiny.