Things To Consider During A Retrenchment Exercise – Part 1

The State of Public Emergency was lifted on 30 September 2021, and with it the prohibition against retrenchment exercises in terms of Regulation 30E of the Emergency Powers (Covid-19) (Amendment) (No.2) Regulations 2020 S.I 63 of 2020.

In this two (02) part series of articles, we seek to examine and discuss a few important factors that must be considered during a retrenchment exercise. 

What you need to know and consider:

  • the statutory requirement and the process to be followed;
  • equitable and substantive requirements;
  • the legal risks associated with retrenchment exercises; and
  • the payments and/or other benefits legally due to employees pursuant to retrenchment.

The Statutory Requirements And The Process To Be Followed

Section 25(1) of the Employment Act provides that where an employer terminates contracts of employment for the purpose of reducing the size of his workforce, he shall do so in respect of each category of employee, wherever reasonably practicable, in accordance with the principle commonly known as first-in-last-out (“FILO”). In applying FILO, the employer must consider:

  • the need for the efficient operation of its undertaking; and
  • the ability, experience, skill and occupational qualifications of each employee concerned.

While there is no exhaustive list of reasons open to an employer for a retrenchment, there must be a commercial or business justification for the retrenchment and fair procedure must be followed in the execution of such retrenchment.

Section 25(2) of the Act provides that when an employer forms an intention to terminate contracts of employment for the purpose of reducing the size of his workforce, “he shall forthwith give written notice of that intention to the Commissioner [of Labour] and to every employee to be or likely to be affected by the reduction”. In the premises, an employer must give written notice of its intention to terminate contracts of employment to the Commissioner of Labour (“the Commissioner”) and to the affected employees. 

Once notice has been given to the Commissioner and to the employees, a consultative process between the employer and the affected employees must take place. The purpose of consultation is three-fold:

  • firstly, for the parties to seek ways of avoiding or averting the need to terminate the employees’ employment;
  • secondly, if the retrenchment proves unavoidable, then the parties should consult on a fair selection criterion; and 
  • thirdly, to consult on ways of alleviating the hardships of retrenchment, for example, a reasonable severance package and possible alternative employment elsewhere. 

After consultation, the employer retains the final decision and will communicate this decision to the respective/affected employees. 

The Equitable Requirements

In addition to the criteria set out in Section 25 of the Act, the employer must also comply with the following equitable requirements as recommended by the International Labour Organisation (“ILO”):

  • the employer must consider ways to avoid or minimise the retrenchment;
  • the employer must give sufficient prior warning to recognised or representative trade unions of the pending retrenchment, and to the employees selected for retrenchment;
  • if applicable, the employer must consult with the trade union prior to the retrenchment;
  • if no criteria is agreed upon, the employer must apply a fair and objective criteria;
  • the employer must consult with the affected employee and consider any representations made on his behalf by the trade union; and
  • the decision to retrench must be reasonable, made in good faith and there must be a commercial rationale for the retrenchment.  

The Substantive Requirements

The employer must have a commercial reason for closing down its operations and terminating its employees’ contracts of employment. In order to comply with the substantive requirements for a fair retrenchment, employees must be given relevant information in respect of the employer’s reasons for the proposed retrenchment. 

Part two of the article will cover the legal risks associated with retrenchment exercises and the payments and/or benefits due to an employee pursuant to a retrenchment exercise. For more information, please contact Michael Moseki at michael@bookbinderlaw.co.bw or +267391 2397.