Impact of COVID-19 – Retrenchments and Demotions

Apr 22, 2020

Over the last four weeks since the implementation of the lockdown at midnight on 26 March 2020, we have seen an overdose of information and debate on the rights of employees and employers during this time, whether employees not working during the lockdown should take annual leave, forced leave or unpaid leave, guidelines to employers on how to deal with the unprecedented circumstances, Government creating a special UIF relief fund, requirements for submitting UIF claims, etc. together with lots of speculation and debate about various related issues.

The focus has been on how best employers should manage the lockdown situation and treating employees with compassion and fairness. However, at this stage not much has been said about the aftermath of the COVID-19 and its impact on the employment relationship. We all know that it is not going to be business as usual, things will be different and will be done differently. Due to the financial losses suffered by employers, one of the consequent effects on employers and employees alike, is the likely retrenchments and/or demotions that would become a reality.

It is understandable that employers are anxious because of the toll that COVID-19 is taking on business income. However, by implementing retrenchments, employers will lose valuable skills which will have a knock on effect on customers and the further reduction in employers’ ability to generate income.

Many businesses with stressed finances are therefore seeking, in consultation with employees, ways of avoiding retrenchment. These include, amongst possible others, demotions, the working of short time, pay cuts and temporary layoffs.

Retrenchments

Employers are warned that, where retrenchments (dismissal due to operational requirements) are truly unavoidable, these must be implemented according to the requirements of section 189 of the Labour Relations Act 66 of 1995 (LRA). However, the panic attached to COVID-19 has a high potential to result in hasty and legally non-compliant retrenchments.

At the Labour Court, the employer has the duty of proving that:

  • there was a genuine and valid reason for retrenching
  • the employees chosen for retrenchment were fairly picked
  • the retrenchment procedure as laid down in the LRA has been followed properly and in good faith by the employer
  • the employer has shared with the targeted employees (or their representatives) all documentary and other information pertinent to the retrenchment.

In the case of NUMSA and others vs Dorbyl Ltd and another (2004, 9 BLLR 914) the plant at which the 122 applicant employees worked was closed down and they were retrenched. The Court found that the decision to retrench was taken before the employer consulted with the employees regarding the retrenchments. The employer was required to pay each of the 122 retrenchees two months’ remuneration in compensation.

The courts see retrenchments as no-fault terminations. This means that the employee is losing his/her job through no fault of his/her own. In addition, the unemployment rate in South Africa is extremely high and COVID-19 will ensure that it will be close to impossible for many retrenchees to find new jobs. For these reasons the courts have no hesitation in protecting the rights of retrenchees and making employers pay heavily where they deviate from the law.

Demotions

As alluded above, demotion may be one of the ways to assist employers with financial issues due to COVID-19.

Demotion can occur in the following ways:

The employer gives the employee a letter stating that he/she has been demoted due to:

  • the employee’s pay and/or responsibilities are reduced.
  • the employee’s subordinates are taken away.
  • the employee is required to report to someone who used to report to him/her.
  • an employee acting temporarily in one position gets transferred back to his/her old position.

Despite trying circumstances, employers are advised to take all labour law considerations into account before imposing demotion on an employee. The reason for this is that should the CCMA or bargaining council find the demotion to be unfair the commissioner has the right to:

  • reinstate the employee into the position from which he/she was demoted.
  • award the employee compensation.
  • apply any other corrective measure that he/she may deem to be appropriate.

In Plaatjies vs RK Agencies (2005, 1 BALR 77) the employer offered the employee an alternative position at a lower salary due to the fact that the employer had lost a major contract. While the arbitrator accepted this as a valid reason the demotion was still unfair because the employer had failed to consult with the employee before making the offer.

In view of the above decision, employers should never implement demotion before obtaining the appropriate labour law advice as to:

  1. Whether the demotion is merited (in the case of COVID-19 it would be as the employer will no longer be able to afford salaries).
  2. The procedure to be followed in implementing a fair demotion.

In terms of Ngxowa v Sebenza Manufacturing System [2009] 11 BALR 1122 (MEIBC], a demotion occurs when the employer diminishes the status of the work or responsibilities of an employee even when their remuneration remains the same. Section 186(2)(a) of the LRA provides that any act or omission involving the unfair conduct of the employer in relation to demotion constitutes an unfair labour practice.

There are three contexts in which demotion arises and such are:

  1. As a disciplinary measure.
  2. As an alternative to dismissal for incapacity; and
  3. As an alternative to retrenchment.

In Piki vs Development Action Group, the CCMA held that an employer is not permitted to unilaterally change the employment conditions of the contract of employment without the employee’s consent. Since a demotion without consent is a repudiation of the employment contract, it therefore entitles the employee to sue for breach of contract.

However, an employer should always consider a demotion as an alternative to retrenchment. The main reason for this being that in most cases a person would rather have a job with less money than no job at all.

Should an employee refuse the demotion, the employee will be entitled to severance pay, as long as the reason for refusal is justifiable. Should such refusal of demotion, as opposed to retrenchment be unreasonable, the employee will not be entitled to severance pay in terms of Sub-Sections 41(2) and 41(4) of the Basic Conditions of Employment Act 75 of 1997.

Employers must always obtain the employee’s consent to a demotion, in writing, as it entails the changing of an employee’s terms and conditions of employment. This means a demotion cannot be imposed unilaterally by an employer without consulting with the employee. Should an employer demote an employee without affording the employee the right to be heard, it could amount to an unfair labour practice with the employer being liable to the employee for either reinstatement or compensation.

In the case of a dismissal for operational requirements, an employer may suggest that the employee consider accepting an inferior position to the one previously held, with a reduction in salary as an alternative to retrenchment. This may assist with small, medium and large employers having to accommodate the financial distress that the COVID-19 has and will still bring to the economy.

Author:

Wallace Albertyn

Wallace Albertyn is a Senior Associate and Legal Advisor at LabourMan Consultants.

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