Wednesday, February 21, 2024

Layoffs: Five common mistakes to avoid

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Estimated reading time: 4 minutes

  • South Africa’s labour environment is strictly regulated and complying with legislation requires specialist knowledge.
  • Given the current economic climate, employers must consider various options in order to adapt to a changing environment.
  • When it becomes clear that layoffs are the only option, the employer must guard against identifying employees to be laid off beforehand.
  • When the employer is considering layoffs, all employees who might be affected must be notified.
  • The severance package is only payable in the case of retrenchments and consists of one week’s wage/salary for each completed year of service. The notice period must still be paid out to the employee, even if he or she is not required to work it.

Case study: Your business has shown no growth the last eight months and rising fuel prices are exacerbating matters. You decide that layoffs are the only solution and inform your employees, in writing, of the business’s financial situation. The letter also indicates that you have no choice but to lay off four of the employees. You address another letter to the four employees in which you inform them that their services will be terminated due to the operational requirements of the business. Their last working day will be at the end of the month. However, you receive a CCMA reference informing you that the layoff is unfair. How do you proceed?

South Africa’s labour environment is strictly regulated and complying with legislation requires specialist knowledge. In many cases employers fall victim to the numerous pitfalls in relation to layoffs (retrenchment). Employers often believe that they are acting in accordance with what is stipulated, when in fact they are putting their business at risk.

Learn more about how to deal with insubordination in the workplace here.

Given the current economic climate, employers must consider various options in order to adapt to a changing environment. Layoffs are a no-fault dismissal, as the employee has done nothing wrong and the dismissal is in line with operational requirements. As with all dismissals, the process must be both substantively and procedurally fair. An employer who does not follow the correct procedure risks receiving a referral from the CCMA (Commission for Conciliation, Mediation and Arbitration), which could lead to an award against the employer and a financial payout to the employee and/or re-employment.

The following are five common layoff mistakes employers should avoid.

No decisions beforehand

When it becomes clear that layoffs are the only option, the employer must guard against identifying employees to be laid off beforehand – this is one of the most common mistakes and can lead to automatic unfair dismissal. As stipulated by labour legislation a specific process must be followed, the first of which is to consult with all employees in order to investigate alternatives to layoffs, draw up timelines and limit the negative impact of layoffs.

Read more about labour inspections.

A fair reason for layoff

A fair reason in respect of operational requirements must exist before layoffs can be considered. The employer must guard against having any ulterior motives for terminating some employees’ employment agreements under the banner of layoffs – for example, in lieu of dismissal for misconduct, poor work performance or incompetence. There are three basic reasons for layoffs, namely economic, technological and structural.

Consult with all parties

When the employer is considering layoffs, all employees who might be affected must be notified – this also applies to trade unions, where applicable.

Selection criteria

In terms of Section 189(7) of the Labour Relations Act, 1995 (Act 66 of 1995), there are two types of recognised criteria an employer can utilise to determine which employees are to be laid off, namely:

  • One the consulting parties agree upon.
  • One that is fair and objective, if criteria cannot be agreed upon – the employer must, however, be able to prove that the criteria used are fair and objective, without any ulterior motives.

Learn more about how to deal with eviction proceedings during a labour dispute.

Final compensatory payout

This payment consists of the wage/salary, annual leave payout, statutory notice period payout and severance package. The severance package is only payable in the case of retrenchments and consists of one week’s wage/salary for each completed year of service. The notice period must still be paid out to the employee, even if he or she is not required to work it.

The goal of an employer is to operate their business as profitably and sustainably as possible. Employers must therefore continuously evaluate factors that can have an impact on the long-term success of the business, as this will create a cost-effective environment within which the business can continue to function competitively in the market.

The LWO Employers Organisation assists employers to comply with labour law, and to use it to their advantage to protect their business. As a registered employers’ organisation with the Department of Employment and Labour, the LWO has the right to represent members at the CCMA. Contact the LWO on 086 110 1828 or send an email to info@lwo.co.za. – Abrie Bronkhorst, senior legal advisor, LWO Employers Organisation

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