In the previous Newsletters we spoke about the dismissal on grounds of the employee’s conduct and dismissal due to incapacity. Today I want to look at the dismissal of an employee on grounds of “operational requirements”, commonly known as retrenchments.
Before finally deciding on retrenchments, several facts need to be considered:
1. What will the real saving be, and will it make a difference to the bottom line? A labour intense industry will obviously differ from a capital intense industry. In a labour intense industry, the wage bill may be 80% of the total cost, while that of a capital intense factory the wage bill could be say 8% of the total cost. Retrenching 10% of the workforce will have an effective 8% saving in a labour intense industry while it would only have a 0.8% in the capital intense industry. (This is very generalized, but aims to illustrate a point)
2. Every retrenchment has a very unsettling effect on the remaining workforce and the Company. Are the savings that are expected to be achieved worth it?
3. Retrenchments may cause serious industrial unrest. It is therefore essential that there are real reasons necessitating the retrenchment.
4. The ultimate reason for the reduction in staff is to reduce the wage bill. A secondary reason could be to make the operation more efficient.
To cut the wage bill, the following should be looked at and seriously considered:
a. Cutting overtime / Saturday / Sunday work
b. Consider short time
c. Change the shift system
d. Early retirement with full benefits
e. Unpaid leave
f. Across the board wage cut (only possible in certain circumstances)
g. Transfers to another site / sister company
h. Spreading the reduction of the workforce over a longer period, thus permitting maximum reduction through natural turnover of staff
i. Training staff to thus take up other positions.
If the above have been considered and implemented where possible and the need to retrench staff still exists, the people (groups) to be retrenched need to be identified with reasons. The reasons may vary from individual to individual or from group to group. Care must be taken not to discriminate e.g., only women (because they can fall pregnant, or the men are the main bread winners), or Indians or Whites etc.
Discussions must be held with the Unions (Staff) Representatives as soon as the decision to retrench has been made. Management needs to take a wholistic view of all comments and suggestions brought to the table by these representatives.
Consider the points mentioned in pints (a) to (i) above. Not having to retrench good staff can help when the economy improves. (The aviation industry in especially Europe have retrenched very large numbers, just to be short staffed as the industry improved again after Covid).
The advantage of early retirement (with full benefits) is that the younger staff with financial commitments (e.g., home loans, car HP) can still fulfill their commitments.
One of the most common groupings is LIFO (last in, first out). The unions like this system as it gives value to longer service. There is however a major problem. This cannot be done across the board. As an example, a chemist with 1 year service vs. an unskilled cleaner with say 5 years’ service. The chemist may be of great value to the company to develop new products so the company can generate more profits, while the same value cannot be attached to the cleaner.
Another means to identify individuals is by making use of a merit system. The danger is that the merits must be measurable e.g., attendance record, efficiency, experience, length of service etc. The danger is that it might be difficult to apply 100% objectively (e.g., productivity).
Once the group(s) have been identified, the employer must consult with the individuals and consider their requirements e.g., assistance with finding alternative employment.
A point that needs attention early in the discussion is the severance payment that will be offered. The minimum is one week pay for each year service (that is why LIFO is so popular with the employer). Furthermore, all leave due, outstanding bonuses or any other payment due to them must be included.
The retrenched employees should be on a list of preferential re-employees. This list is normally active for two years.
Staff that lose their jobs (because of retrenchments) should be assisted in one way or another to find alternative employment. The HR Department can assist. This assistance should be real assistance and not just lip service!
For more information we would like to refer you to some other articles written by myself which are on our website www.wilbrink.co.za
Should you require more information, please go to our website: www.wilbrink.co.za or alternatively give me a call on 031 – 266 9035 or my cell 083 265 3805 or e-mail me at wilbrink@icon.co.za