Home » General » Do’s and Dont’s of Retrenchment

Retrenchment has a “deleterious impact on the life of workers and their families” and therefore an employer contemplating retrenchment must be able to prove that dismissals of this type are being implemented as “a last resort”.

Due to challenges emanating from the economic situation, employers have retrenched thousands of employees citing reasons such as shortage of raw materials, introduction of new technology, increased operating costs, inability to pay wages, rationalisation, restructuring of new business and downturn in business.

In April this year, Government announced that it has tightened retrenchment regulations making it difficult for employers to willy-nilly throw people into the streets.

The Minister of Public Service, Labour and Social Welfare, Honourable Priscah Mupfumira, was recently quoted by The Herald as saying: “As a ministry we will not accept it when people are retrenched the way Meikles did and we will be looking at it. We cannot afford to have bullies . . . just throwing people on to the streets.”

Minister Mupfumira said Government through her ministry, will require all businesses to first demonstrate that they have done everything possible to ensure viability before resorting to job cuts.

It is against this background that I have deemed expedient to write this article which shall attempt to assist employers on understanding the do’s and don’ts of retrenchment in terms of the Zimbabwean labour legislation.

Retrenchment is normally carried out solely for the purpose of operational requirements centred on constraints facing the business. Section 2 of the Labour Act Cap 28:01 states that the word “retrench”, in relation to an employee, means terminate the employee’s employment for the purpose of reducing expenditure or costs, adapting to technological change, reorganising the undertaking in which the employee is employed, or for similar reasons, and includes the termination of employment on account of the closure of the enterprise in which the employee is employed.

The International Labour Organisation (ILO) (Termination of Employment at the Initiative of the Employer Convention 158 of 1982) sets minimum requirements of substantial and procedural fairness for retrenchment to qualify as a fair dismissal.

Basically, the Convention requires three components, namely a valid reason which pertains to operational requirements, full consultation of workers and payment of severance allowances and benefits.

The retrenchment provisions are enshrined under Sections 12C and 12D of the Labour Act Cap 28:01 as read in conjunction with SI186 of 2003 are in line with the ILO Convention.

The procedure for retrenchment of less than five employees is envisaged in SI 186 of 2003 and where an employer seeks to retrench more than five employees, the procedure is specified in Sections 12C and 12D of the Labour Act.

Although there are so many challenges being faced by industry today, it is important to mention here that the spirit of the labour law is clear in that retrenchment must be proven to be a last resort. Under Section 12D of the Labour Act which provides for special measures to avoid retrenchment, the law states that:

(1) Every employer shall ensure that, at the earliest possible opportunity, his employees are kept informed of and consulted in regard to any major changes in production, programmes, organisation or technology that are likely to entail the retrenchment of any group of five or more employees in a six-month period.

(2) Subject to this section, before giving notice of the intention to retrench any employees in terms of Section 12C, an employer may agree with the employees concerned, or with any workers’ committee, works council or employment council which represents the employees, to have recourse to either or both of the following measures for a period not exceeding 12 months:

(a) subject to subsection (4), placing the employees on short-time work or

(b) instituting a system of shifts as provided in subsection (5).

(3) An agreement entered into in terms of subsection (2) shall have effect notwithstanding anything to the contrary contained in any employment regulations, collective bargaining agreement or other contract or agreement applicable to the employees concerned.

(4) While an employee is on short-time work referred to in paragraph (a) of subsection (2), he shall be paid the hourly equivalent of his weekly or monthly wage for the hours he has actually worked:

Provided that an employee shall receive not less that fifty per centum of his current weekly or monthly wage, as the case may be.

(5) For the purposes of paragraph (b) of subsection (2), an employer may divide all or any of the employees concerned into shifts and may

(a) require each shift to work on alternate half-days, days, weeks or months:

Provided that no shift shall be without work for more than one month at a time or for an aggregate of more than six months in any period of 12 months

(b) pay each employee on shift for the hours, weeks or months he has actually worked.

(6) Before having recourse to any measure referred to in subsection (1), an employer shall give not less than seven days’ written notice to every employee affected by the measure.

(7) Any time during which an employee is not engaged in full-time work as a result of a measure resorted to in terms of this section shall be regarded as unpaid compulsory leave and shall not be deemed to interrupt continuity of employment.

It is clear from a reading of Section 12D (2) that it provides for a situation where the employer is going through financial difficulty.

The section allows the employer to before giving notice of intention to retrench consult with a view to an agreement on the adoption of special measures to avoid retrenchment.

The employer can engage with either the employees concerned or the Workers Committee or Works Council or Employment Council.

By the use of the word or (which word has to be treated as a disjunctive unless there is compelling indication to the contrary as per dicta by Gubbay JA in S vs Ncube and Ors 1987 (2) ZLR 246 (5) and 264 and followed in TM Supermarkets (Pvt) L td vs Chadcombe Properties (Pvt) Ltd 2010 (1) ZLR 196 (H)) the legislature clearly intended that either of the groups as identified could be consulted.

If the special measures mentioned above have failed, the employer can then notify the works council or employment council of its intention to retrench. What follows is engagement of the procedure set out in Section 12C of the Labour Act.

Negotiations are conducted on whether or not the concerned employees should be retrenched, and the retrenchment package payable. The Works Council carries out a mediation role and if negotiations do not yield a positive outcome, the matter is referred to the Retrenchment Board and finally to the Minister of Public Service, Labour and Social Welfare.

In view of the recent development that Government will get tough on retrenchments, what is simply required from the employers is to submit the following

The total wage bill of the company and what percentage of that bill will be saved by the retrenchment.

The total executive and management salary structure and bill of the company wishing to retrench including all allowances paid in cash or any other ways, i.e. the full total package

Full company Board of Directors’ fee structure and all allowances paid to Board of Directors.

The efforts or any special measures that management and the workers have tried or made to avoid retrenchment.

In my view these are simply administrative requirements which do not need a Statutory Instrument as Section 76 of the Labour Act provides for duty of full disclosure when financial incapacity alleged and remember I have highlighted that it is clear from a reading of Section 12D (2) that the law provides for a situation where the employer is going through financial difficulty.

The Retrenchment Board and the minister will not recommend the proposed retrenchment unless the above requirements are met. The employer can only terminate the contract of employment after accepting the minister’s recommendations in terms of Section 12C of the Labour Act.

There has been situations where after the minister’s recommendations were made to retrench the concerned employees, some employers decided not to retrench due to financial incapacitation. There is nothing wrong with continuing the employment relationship under the circumstances as the spirit of the law on retrenchment seeks to promote the avoidance of loss of regular employment.

At present, the Labour Act is silent with regards to the quantum of retrenchment packages. This has caused a lot of challenges as employers have found it difficult to pay high retrenchment packages that are not sustainable from a business point of view.

At its 2013 congress, the Confederation of Zimbabwe Industries (CZI) suggested that the existing labour laws were burdening productivity and industrial competitiveness in Zimbabwe. Among other issues, CZI proposed that a standard retrenchment package of one week’s salary for every year worked be introduced. In South Africa, the quantum of retrenchment package is specified in Section 41 of the Basic Conditions of Employment Act (1998) being a minimum of one week’s remuneration of every completed and continuous year of service with that employer.

However, in the absence of any such legal provision in our law, the courts have placed reliance on the calculation formula used in the matter between Continental Fashions v Mupfumiri amp Others 1997 (2) ZLR 2005 (S) where it was held that a retrenchment package must include the following

Severance allowance for recognition of loss of job, which is a lump sum to help an employee with immediate costs following loss of regular employment.

Severance allowance for recognition in pay for each year served.

Statutory payments as provided in Section 13 of the Labour Act

Any benefits which the employee enjoyed which can be sold to him at book value.

In conclusion let me say here that the purpose of retrenchment is to avoid closure or liquidation of a company and not just to throw away employees into the streets. Employers are therefore encouraged to demonstrate the justification and benefits of retrenching employees as the last resort when submitting proposals to the Retrenchment Board and to the Honourable Minister of Public Service, Labour and Social Welfare. We also wait to see the amendments to the retrenchment law currently taking place among other labour law reform principles that are before the Attorney-General.

Disclaimer: Opinions expressed herein are solely those of the author.

Matthias Ruziwa is an experienced and progressing Strategic Human Resource Practitioner. He is also an independent arbitrator practicing in the Midlands Province, City of Kwekwe.

Source : The Herald