During stages 5 and 4 of the national lock down, when businesses not involved in providing essential services were prohibited from operating, the oft quoted “No work no pay” principle applied by operation of law. In essence, the government-imposed prohibition on business operations created a supervening impossibility of performance for both employer and employee resulting in neither being able and/or required to fulfil their obligations under the employment contract. Employees could not work, and employers were not obliged to pay them.
As the restrictions on movement and business operations are lifted and we move into our new normal, the “no work no pay” principle no longer applies, with the result that many employers now face the prospect of returning employees, who are entitled to their usual wage or salary payments. Unfortunately, many businesses are unable to meet the requirements of taking back a full work force and paying employees pre-COVID19 remuneration. This could be due to a number of reasons including, inter alia, loss of business and/or difficulties with cash flow.
Where to for these employers and employees?
While it is no longer possible for an employer to rely on the “no work no pay” principle in the absence of the compulsory lockdown, even though the current lack of work and/or funding may be as a direct result thereof it, it is possible to vary terms and conditions of employment with employee consent. Examples of this include, inter alia temporary layoffs or shut downs, rotational layoffs, short time, or salary cuts. When proposing varied terms and conditions, employers are encouraged to consider creative solutions which could see employees receiving some value, other than retained employment, in return for the sacrifices they will be required to make. For example, an incentive scheme in terms of which employees agree to forego a percentage of their remuneration and for that amount to be invested in a long-term incentive scheme of some sort.
The advantages of the abovementioned alternatives, if accepted, include the avoidance of having to pay severance packages when funds may be limited and the ability to continue trading at reduced capacity commensurate with demand while working towards restoring business to full capacity.
Unfortunately, the above mentioned measures can only be implemented with employee consent, even if they are genuine means to saving jobs. Changing terms and conditions of employment in the absence of employee consent exposes the business to the risk of the employees referring a dispute to the CCMA. Disputes of this nature are incapable of arbitration in the CCMA and the employees would be entitled to go out on strike as a mechanism to having their original employment conditions restored.
By now, most employees appreciate the dire situation business are facing and it ought to be possible for employers to secure employee consent if the genuine need for the measures being proposed is transparently and openly communicated to them. Proposals should clearly be posited as measures to avoid retrenchment and, for some employers, even liquidation to ensure that employees understand the need for compromise and accept that the alternative to what the employer is proposing i.e. unemployment could be far worse for them.
The abovementioned measures can be presented to the employees as means of avoiding the retrenchment exercise in the first place or as alternatives to forced retrenchment.
Section 189 (1) of the Labour Relations Act 66 of 1995 (“the LRA”) requires an employer to consult with employees when it contemplates dismissing one or more of its employees for reasons based on its operational requirements. Where cost cutting measures are proposed as an alternative to a forced retrenchment exercise, it is important that the Company is in a position to issue the required notices in terms of section 189(3) of the LRA should the employees reject the alternatives proposed or if it becomes apparent that the proposed measures will not be sufficient to eliminate the need for retrenchments or a restructure.
Ideally these notices should be issued no more than a few days after the rejection of the alternatives is communicated to the Company and will invite the employees that are at risk of being retrenched (or their trade union) to consult with the employer on the need and reasons for their proposed retrenchment and the terms that will apply to the retrenchment if a decision is ultimately taken to proceed with terminating the employee’s employment due to the Company’s operational requirements.
Where cost cutting measures have been proposed as means to avoiding the retrenchment exercise it is possible to include these same measures in the required notices and again engage with the employees over these within the context of the consultation process and as an alternative to forced retrenchment.
The fact that employees may be working from home or still be prohibited from working in specific, limited business sectors does not absolve the employer from its obligation to issue the required section 189 (3) notices. Notices need not be handed to employees and can be distributed via email or other electronic means. Consultations can be conducted via online platforms if it is not possible for the parties to meet in person due to social distancing.
There are unfortunately no easy answers for employers in these challenging and uncertain times and any plan of action should be carefully analysed, considered and backed by sound legal advice before it is implemented.