In order to keep the doors open, a business may need to change an employee’s terms and conditions of employment. If the employee unreasonably refuses to accept these new terms, an employer is entitled to retrench them, potentially without severance pay. Two cases illustrate this point well.

In NUMSA vs Aveng Steel & another [which was handed down on 13 June 2019 and reported at [2019] 9 BLLR 899 (LAC)] the LAC found that the retrenchments were a reasonable and a bona fide means to ensure its long-term survival. Accordingly, the dominant or approximate cause for the dismissals was Aveng’s operational requirements and not the rejection of the proposal.

The LAC put it as follows:

Accordingly, for so long as the decision to retrench is made with the genuine intention of making or keeping a business viable, and under circumstances where there are no other reasonable alternatives, it will not render the dismissal unfair.

“[68] Hence, the essential inquiry under section 187(1)(c) of the LRA is whether the reason for the dismissal is the refusal to accept the proposed changes to employment. The test for determining the true reason is that laid down in SA Chemical Workers Union v Afrox Ltd. The court must determine factual causation by asking whether the dismissal would have occurred if the employees had not refused the demand. If the answer is yes, then the dismissal is not automatically unfair. If the answer is no, as in this case, that does not immediately render the dismissal automatically unfair; the next issue is one of legal causation, namely whether such refusal was the main, dominant, proximate or most likely cause of the dismissal.”

The Link Between Retrenchment And Profitability

It is important to note that viability of a business is a wider concept than mere profitability. A viable business is only one in which shareholder return justifies investment in the business. Hence, an employer could be permitted to retrench in order to make sure that the business remains viable.

In Astrapak Manufacturing Holdings vs CEPPWAWU [2013] 12 BLLR 1194 (LAC) the LAC concluded that the retrenchees were not entitled to severance pay and summarized the situation as follows:

“25. Although it is difficult to demarcate precisely when the offer can be refused by an employee without the danger of s41(4) of the BCEA being invoked against him or her, in my view, once an employee is faced with a wage decrease, it cannot be said that he or she should not have the choice of refusing the offer and seeking employment elsewhere, notwithstanding the extremely difficult conditions which pertain to employment in general within the South African economy”.

The economic situation that South Africa finds itself in, owing to Covid-19, has left many employers in the unenviable position of needing to retrench employees to ensure the business’ continued survival.

However, what must always be kept in the forefront of employers’ minds is that retrenchment is a last resort and every attempt should be made beforehand in order to ensure continued employment.

Contact Global Business Solutions

If you need assistance with retrenchments in your company, or any other labour law matter, please contact us on [email protected].