How to proceed when retrenchment becomes the last resort

The issue of retrenchment may be inevitable especially during this corona virus pandemic which has caused companies to shut down for longer periods rendering them financially incapacitated to fulfil their obligation of paying their employees. Both parties to the employment relationship can not fulfil their obligation due to supervening impossibility of performance. It is therefore prudent that employers and employees must mutually agree on how to proceed during this difficult time. Where retrenchment becomes the last option it must be done according to the provisions of the labour laws. The purpose of this article is to highlight the retrenchment procedure when issues of downsizing arise in an organisation.

Retrenchment, is defined in section 2 of the Act as follows:-

“Retrench, in relation to an employee, means terminate the employee`s employment for the purpose of reducing expenditure or costs, adapting to technological change, reorganizing 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”.

It is very clear from the wording of section 2 supra that retrenchment is termination of employment contract in clearly defined circumstances. Employers must be guided by these circumstances for the retrenchment process to be acceptable.

In Zimbabwe, retrenchment is governed by Statutory Instrument 186 of 2003, Labour Relations (Retrenchment) Regulations, 2003. The regulations provides that an employer who wishes to retrench shall do so in terms of section 12C of the Labour Act Chapter 28.01 as amended by the Labour Amendment Act Number 5 of 2015. The amendment brought changes to the provisions of retrenchment on section 12C of the Act. The new provision now provides for retrenchment and compensation for loss of employment. It now allows employers to retrench one employee or more, which is a complete shift from the previous position of five or more employees. It is critical to note that retrenchment is initiated by the employer not the employee. In the case of NEI Zimbabwe (Pvt) Ltd. v Brown and Others SC 84/04, the court clarified that termination of employment in a retrenchment exercise is by the employer and not the employee. Employees must be careful not to initiate retrenchment as employers may consider it as voluntary decision and may end up giving them an ex gratia payment.

The new provision on section 12C requires employers to follow the following steps if the retrenchment is to be acceptable at law:

The first step requires the employer to give notice of the intention to retrench. The notice should be given to the works council, where there is no works council, to the employment council and if no employment council to the retrenchment board.
The second step requires the employer to provide the works council, employment council or retrenchment board as the case may be with full details of the employees whom the employer wishes to retrench and reasons for retrenchment.

At the third step the employer is then obliged to send a copy of the notice with the details supra to the retrenchment board.
After notifying the retrenchment board the employer will then engage the concerned employees by means of convening a works council for determination of the retrenchment package. In their determination of the package the parties shall be guided by the provisions of section 12C (2) of the Act which reads as follows:

“Unless better terms are agreed between the employer and employees concerned or their representatives, a package (hereinafter called “the minimum retrenchment package”) of not less than one month’s salary or wages for every two years of service as an employee (or the equivalent lesser proportion of one month’s salary or wages for a lesser period of service) shall be paid by the employer as compensation for loss of employment (whether the loss of employment is occasioned by retrenchment or by virtue of termination of employment pursuant to section 12(4a)(a), (b) or (c)),no later than date when the notice of termination of employment takes effect”.

If parties agree for a better package the employer will proceed to pay the agreed package by the parties. In the event that parties fail to agree on the package, the default package of two weeks’ pay for every year served shall prevail. It is no longer the prerogative of the retrenchment board to decide on the package to be paid to the employees where parties disagree.
Where an employer alleges financial incapacity and consequence of inability to pay the minimum package, the employer can apply for exemption from the employment council or retrenchment board to pay in instalments or not to pay at all. Upon application the retrenchment board or the national employment council shall request for a proof of inability to pay and propose to the employer a scheme to pay in instalments over a period of time. The employment council or the retrench board shall respond within 14 days of receiving the application and failure to respond shall deem the application for exemption to have been granted.
The new provisions have left employees vulnerable since employers can evade paying completely by raising reasons of incapacity to pay due to financial challenges induced by corona virus pandemic. Be that as it may, negotiations in good faith must prevail for the benefit of both parties.

Simbarashe Gobvu is an experienced La¬bour Practitioner and an Independent Arbitrator who write in his own capac¬ity. He can be contact¬ed at [email protected]/ Phone 0773215904 or 0713008767

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