The rapidly evolving Covid-19 pandemic and the recent declaration by the President of the Republic of South Africa that a nationwide lockdown will be imposed for a period of 21 days to commence at midnight on 26 March 2020, will have severe and far-reaching implications for South African employers, especially those classed as small to medium enterprises. The essential conundrum facing employers can be simply stated as follows: how do I ensure the viability of my business post-pandemic and further, how do I maintain the integrity of my workforce?
Regrettably, given the novel nature of the pandemic and the fact that most legal systems simply do not envisage the onset of a situation of the type we currently face, there is no one-size-fits-all remedy that could be applied to relieve employers of the financial burden associated with a forced 3-week shut down of non-essential businesses. There are, however, a few practical options available to employers which will be discussed more fully below.
If an employee’s employment contract contains a clause allowing the employer to unilaterally reduce working hours, and therefore payment in accordance with the reduction, in response to unforeseen circumstances such as those currently faced, an employer should inform its employees of the existence of the clause, the practical impact and operation of the clause and the decision by the employer to give effect to the allowances in the clause.
Should these provisions be present in an employment contract, it follows that both parties to the agreement had at the outset of the employment relationship agreed to these terms expressly and the employer will be entitled to implement the relevant time and wage/salary reductions in order to ensure the survival of the entity and may obviate the need for retrenchments.
The employer would simply be enforcing a contractual right afforded to it at the commencement of the employment relationship.
Alternatives short of retrenchment:
Where an employment contract does not make provision for a unilateral reduction of working hours by an employer, an employer is bound to seek alternative avenues for financial relief by way of agreement with its employees.
In this regard employers are encouraged to consult with their employees, especially given the looming commencement of the nationwide lockdown, and to reach agreement along the following lines:
- That employees be placed on immediate annual leave for the duration of the lockdown and at least until the expiry of the lockdown period, subject to its extension should the need arise;
- That employees who do not have annual leave due to them, or employees who do not have sufficient annual leave days available to them to encompass the entire lockdown period, be advised that the employer will seek to place these employees on an unpaid leave of absence during this period.
As these arrangements would in essence amount to a unilateral variation of employment conditions, which is considered unlawful in terms of South African labour law, it is essential that employees be duly consulted, their input considered, and their agreement procured prior to the employer making a firm decision on the issue. Employees should be advised that the employer’s decision to suspend its operations and to place employees on annual and/or unpaid leave during the relevant period, is integral to the continued survival of the company and the avoiding of liquidation proceedings and further that it is relevant to the continued employment of the employees.
Retrenchment, despite its severe nature, remains a viable option to employers where they will not be able to sustain the continued operation of their business despite having attempted resolution on the grounds mentioned above. Dismissals based on the employer’s operational requirements must be conducted strictly in terms of the existing procedures set out in the Labour Relations Act, No. 66 of 1995 (and further supporting legislation) in order to adequately protect a retrenching employer from later potential claims by employees that the process was not properly adhered to and therefore amounted to an unfair dismissal.
In the event that employers believe that a retrenchment of staff is the only viable option to avoid disastrous commercial effects on its business, we would recommend that employers ensure that they comply fully with the strict retrenchment procedures laid down in our law, ensure adequate consultation with employees (in so far as this is possible given the imposition of social distancing measures) and to further ensure that the employer can attend to the statutory duties surrounding payment of all amounts, benefits and severance allowances due to the employees to be retrenched.
The dangers inherent in rushing or failing to comply fully with the requirements of the retrenchment process in order to lessen immediately the financial burden on an employer are legion and we would advise that employers ensure that they have taken proper legal advice on the retrenchment process during the time of Covid-19 before commencing with such drastic action.
Another issue to consider, is that it is widely understood that the Covid-19 pandemic will be temporary, and that commercial life will likely return to normality at some point in the near future. Bearing this in mind, employers may wish to exhaust all reasonable alternative options available to them before electing to proceed with retrenchments. Whilst retrenchments could have the effect of temporarily lightening the employer’s financial burden, it may be in the employer’s best interests to hold off on retrenching in so far as possible with a view to securing the services of the full complement of its employees once trading resumes.
Financial assistance available to employers:
President Ramaphosa’s address on 23 March 2020 highlighted the immense measures government are implementing to ensure minimal impact on small to medium businesses who will, in almost all cases, experience some financial difficulty during especially the lockdown period. The measures to be implemented, and which are most relevant to the topics discussed in this article, are as follows:
- A special dispensation for distressed companies is being discussed and is expected to be implemented shortly. This dispensation will make provision for temporary payment of wages to employees via the Temporary Employee Relief Scheme which will assist employers in avoiding retrenchments.
- Employees who become infected as a result of exposure to Covid-19 in the workplace may apply to the Compensation Fund for assistance.
- Private sector employees earning less than R6,500.00 monthly will receive a tax subsidy of R500.00 per month each for a period of 4 months.
- Employers may apply for a National Disaster Benefit via the Unemployment Insurance Fund (“UIF”) which has been implemented to ease the burden on employers who are forced to temporarily suspend operations due to the pandemic. This benefit is calculated at a flat rate equal to the current minimum wage (i.e. R3,500.00) per employee for the duration of period in which the employer has had to suspend operations or a maximum period of 3 months, whichever period is the shortest.
Navigating the current Covid-19 landscape can be highly stressful and debilitating for employers but the imposition of consultative measures and the employment of practical resolutions to employee remuneration may not only ensure the continued existence of businesses but may also ensure that employees are sufficiently protected, and jobs retained. Should any further advice or information regarding any topic touched upon in this article be required, please do not hesitate to contact our offices and we will happily oblige.