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Thread: Retrenchment Issues

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    Retrenchment Issues

    Two questions on which I would appreciate some opions regarding the legality ito the Labour Law, please:

    1. The company I am working for has given a whole section within the company two months notice of retrenchment as they are 'restructuring' and have decided to move the work offshore to India although the company continues to do business at the same scale in the RSA. My retrenched colleagues now are having to train the workers from India here at our offices to be able to do the work when they return to India. Although the company wont admit it outright it is actually a decision based upon cheap labour that is available abroad. How does this action tie in with our Labour Laws?

    2. The company also say, as part of the restructuring process, that they are downgrading my post and I can either accept the downgraded position, at a lower salary, and do exactly the same work as currently being done, or alternatively be retrenched. Once again, how does this tie in with our labour laws?

    Thanks

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    Silver Member Greig Whitton's Avatar
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    Retrenchments need to follow a proper process - employers can't just issue a notice of retrenchment and be done with it. Amongst other steps, they need to consult with all of their employees and seriously consider alternatives to retrenchment before making a reasonable decision. If they don't do this, then the retrenchments can be deemed procedurally unfair.

    Requiring employees to train other workers is not inherently illegal, but if it is clearly part of a plan to retrench and if proper retrenchment procedures have not been followed then it would obviously magnify the unfairness.

    I'm not sure of the legality of their offer re your position. I'm inclined to say that it's not illegal because it indicates a willingness to consider alternatives to retrenchment. However, if it truly is the exact same work but at a lower salary, then that might not be fair. Hopefully someone else can clarify.

    Founder of Evergrow - Helping South African business owners grow their business without the growing pains

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    Diamond Member HR Solutions's Avatar
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    Unfortunately this is happening quite often in SA due to strikes, people demanding ridiculous pay increases etc etc. In certain instances companies can just move their business offshore. Labour is cheaper and a lot less hassles.

    The fact is if a company is battling to survive in the SA market they have to look at other options.
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    Platinum Member sterne.law@gmail.com's Avatar
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    With regards to an alternative offer, two issues arise.
    The first is, is the company using retrenchment to force a change upon someone? Unlawful.
    The second is, if an employee refuses a reasonable alternative position, then the company does not need to pay the severance package.

    Outsourcing also has permutations.
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    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by sterne.law@gmail.com View Post
    Outsourcing also has permutations.
    My understanding of the outsourcing of a function currently done within the company, to an external company, is that it would be treated by a labour court in the same manner as the sale of a going concern - i.e. the responsibilities and "liabilities" of the company in respect of the employees that were fulfilling the function within the company would transfer to the outsourced company. Going the retrenchment route in such an outsourcing situation would be ruled as unfair dismissal.

    The interesting part in that is it is my understanding that it is the outsourced company that ends up holding the can. All fine and well when the outsourced company is operating within the borders of SA. How could this be enforced where the outsourced company has no local presence?
    The trouble with opportunity is it normally comes dressed up as work.

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    Silver Member Greig Whitton's Avatar
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    Yep, you are spot on Dave. Outsourcing can fall under section 197 of the Labour Relations Act and, where it does, the existing employment contracts and liabilities would be transferred to the new employer (i.e. the company handling the outsourcing).

    However, it's not a black or white issue. Our Labour Courts have ruled that some outsourcing situations fall under these provisions whereas others have not (and, in some cases, the judgments were appealed and overturned). A lot depends on the particular nature of the outsourcing.

    So what happens if a local company outsources to an international partner? Well, South African labour law can still apply to foreign companies - even those with no local office. However, once again, this is not black and white. There is legal precedent both for and against, so it has to be treated on a case by case basis.

    Getting back to the original post, I think that the following issues need to be considered in order:

    1. Is the company outsourcing work that used to be processed internally? (instead of, say, discontinuing work that used to be processed internally and contracting a third party to complete work that was never completed internally)

    2. If the company is outsourcing work that used to be processed internally, do the provisions of section 197 apply?

    3. If the provisions of section 197 apply, does South African labour law apply to the foreign company that will be used for the outsourcing?

    If the answer to all of these questions is yes, then the retrenchments would almost certainly be unlawful.

    If the answer to any of these questions is no, then the company would likely be entitled to consider retrenchment but would still need to follow proper retrenchment procedures.

    Founder of Evergrow - Helping South African business owners grow their business without the growing pains

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    Thanks for the input guys. Greig, to answer your question above (number 1.) - It is a Yes, the exact same work is being outsourced, which is why the staff on their way out are having to train the staff of the outsourced company.

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