Retrenchment: When is the duty to consult triggered?

24 Aug 2015 4 min read Employment Alert Article

Section 189 of the Labour Relations Act, No 66 of 1995 (LRA) applies when an employer contemplates dismissing one or more of its employees for reasons based on its operational requirements ie the employer's economic, technological, structural or similar needs.

An employer is under an obligation to consult with employees who may be retrenched prior to retrenchment. The crucial question that arises is, when is the duty to consult triggered?

The LRA refers to the time when the employer "contemplates" retrenching employees. However, it does not define the meaning of "contemplates". To better understand this, one needs to consider the purpose of the consultation process.

The consultation process is intended to afford employees who may be affected by proposed retrenchments the opportunity to:

  • understand the reason(s) for the proposed retrenchments;
  • make representations on possible ways to avoid retrenchments and if they cannot be avoided; and
  • limit the number and impact of retrenchments.

The process is one of joint problem solving in an attempt to reach agreement. Given this purpose the consultation process must logically start before a final decision is taken to retrench employees. Employees who may be affected by retrenchments must be afforded an opportunity to give their input and make counter-proposals in an effort to influence the decision making process.

The exact moment when an employer can be considered to "contemplate" retrenchment and accordingly, when the duty to consult is triggered, was considered by the Appellate Division in Atlantis Diesel Engines (Pty) Ltd v National Union of Metalworkers of South Africa 1995 (3) SA 22 (A). The Court considered two possible approaches to the timing of the consultation process.

  • The first in which the employer is obliged to starting consulting once the possible need for retrenchment is identified and before a final decision to retrench is taken.
  • The second in which the employee need only be afforded an opportunity to comment or express an opinion on a decision already taken.

The Court confirmed the first approach and found that the duty to consult arises "when an employer, having foreseen the need for it, contemplates retrenchment. This stage would normally be preceded by a perception or recognition by management that its business enterprise is ailing or failing; a consideration of the causes and possible remedies; an appreciation of the need to take remedial steps; and the identification of retrenchment as a possible remedial measure. Once that stage has been reached, consultation with employees or their union representatives becomes an integral part of the process leading to the final decision on whether or not retrenchment is unavoidable."

The Labour Appeal Court (LAC) took the matter a step further in the case of Imperial Transport Services (Pty) Ltd v Stirling (1999) 3 BLLR 201 (LAC). The LAC distinguished between:

  • the situation in which retrenchments are brought about by internal factors that are within the control of the employer, such as the introduction of new machinery; and
  • retrenchments which are as a result of factors outside of the employer's control, such as a downturn in the economy.

The LAC found that where the reason for possible retrenchments is within the control of the employer fairness demands that the employed should, before implementing the changes, ask whether jobs may be affected by the changes and if jobs will be affected, the employer has a duty to consult with affected employees before the changes are implemented.

It is clear from the Court decisions that an employer has a duty to consult with employees who may be affected by possible retrenchments before a final decision is taken by an employer to implement changes that may result in retrenchment. Naturally, an employer may have considered possible changes, how these may impact employees, possible retrenchments, and possible alternatives to retrenchments before being under a duty to start consulting with its employees. However, it cannot take a final decision which affects employees continued employment before consulting with the affected employees and affording them the opportunity to give their input and make proposals which may impact the decision making process. In the circumstances, it is critical that for example, a board of directors does not take a final decision to retrench employees before initiating the consultation process, consulting with and securing the input of employees who may be affected by the proposed changes.

If an employer fails to start the consultation when it contemplates dismissing employees and before a final decision to retrench is taken, this will affect the fairness of the retrenchments.

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