Retrenchment in Africa – an overview of the legal framework

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According to Mergermarket’s Deal Drivers Africa, the African continent has firmly entrenched itself into the global marketplace, with both domestic and inbound dealmakers seizing the opportunities on offer. There were 290 deals in 2015, the highest volume since 2007.

With this increase in the merging of companies across borders and the acquisition of new businesses in other countries comes the addition of workforces whose employment conditions are governed by differing labour laws. For businesses operating within several countries, it is essential to know the local legislation with regards to the correct procedures if retrenchment becomes unavoidable.

The labour law regarding retrenchment in Botswana, Kenya, Malawi, Namibia, South Africa, Uganda, Zambia, and Zimbabwe is outlined here.

Botswana

In Botswana an employer is required to notify the Labour Commissioner and every employee affected or likely to be affected when contemplating the reduction of its workforce. Where practicable, the employer must apply the first in last out principle (FILO) as its selection criteria. In doing so, the employer must consider the need for the efficient operation of the undertaking and the ability, experience, skill and occupational qualifications of each employee concerned. If no criteria are agreed, the employer must apply fair and objective criteria.

The employer is required to provide a retrenchment package which must include statutory benefits including: salary, overtime payable at the date of termination (if applicable), any allowances due at the date of termination, balance of leave days due at the date of termination; and severance benefits, gratuity or lump sum pension entitlements if the employer has a gratuity or pension scheme. The package must also include any other contractual or negotiated benefits.

Kenya

In Kenya, there is a requirement to notify the labour officer in charge of the area where the employee is employed. If the employee is a member of a trade union, the employer notifies the trade union to which the employee is a member and the labour officer of the reasons for, and the extent of, the intended redundancy not less than one month prior to the date of the intended date of termination on account of redundancy. If the employee is not a member of a trade union, the employer notifies the employee personally in writing and the labour officer.

The Employment Act, 2007 provides criteria for the selection of employees to be declared redundant. The employer must consider seniority in time, skill, ability and reliability of each employee.

The redundancy package includes severance pay at the rate of not less than 15 days for each completed year of serviceand at least one month’s notice or one month’s wages in lieu of notice. Any leave accrued but not taken must be paid in cash.

However, if there is a contract and/or policy between the employer and the employee that provides for more favourable terms for payment of severance pay, then the provisions of the contract and/or policy will apply.

Malawi

In Malawi, consultations with employees are not required on retrenchment unless they are provided for under the contract of employment or conditions of service. Notification of termination of employment should be given to the employees. The required notification period for this differs in terms of local law, unless the contract of employment provides for additional notice period.

There are no prescribed selection criteria for retrenchment in Malawi. The employer must however act with justice and equity. What is just and equitable will depend on the circumstances of each case.

The employer is required to pay a retrenched employee severance allowance. The rate of severance allowance is two weeks’ wages for each completed year of service for the first five years; three weeks wages for each completed year of service for the sixth to and including the tenth year and four weeks wages for each completed year of service from the eleventh year onwards. Wage refers to the wage of the employee at the time of termination of employment and includes other benefits such as a housing allowance (if applicable).

Namibia

In Namibia, at least four weeks before the intended dismissals, the employer is required to notify the Labour Commissioner and the employee trade union which the employer has recognised as the exclusive bargaining agent or, if there is no trade union, the workplace representative and the employees, on the intended dismissals, the reason for the dismissals, the number and categories of employees affected; and the date of the dismissals.

The employer may inform the trade union or workplace representative (or employees) in less than four weeks if it is not practicable to do before the four weeks. Either party may, within one week after the period above, refer the matter to the Labour Commissioner if, after negotiations and selections, the parties do not reach agreement. The Labour Commissioner must then appoint a conciliator to resolve their dispute.

The selection criteria must be either agreed on or be fair and objective. FILO is a commonly used criterion which has been found to be fair and objective.

On termination, the employer is required to provide the employee with a certificate of service; pay the employee for work done and not remunerated; pay accrued leave not granted and accrued periods of time-off; pay severance allowances if applicable and pay transport to the employee if the employee was recruited within 12 months before date of termination from another place. Remuneration and basic wages are differentiated.

South Africa

In South Africa, when an employer contemplates dismissing employees for operational reasons, an employer is required to consult with the potentially affected employees or their representatives in an attempt to reach consensus on the following: appropriate measures to avoid the dismissals, minimise the number of dismissals, change the timing of the dismissals, mitigate the adverse effects of the dismissals; the method for selecting the employees to be dismissed; and the severance pay for dismissed employees.

The employer is required to issue the potentially affected employees with a notice setting out various topics for discussion on which both parties are required to consult. In the case of large scale retrenchments, there is a minimum 60 day consultation period and additional requirements to be complied with.

Where the employer is the holder of a mining right, the employer is also required to notify the Minister of Minister of Minerals and Energy.

The selection criteria applied to determine which employees would be retrenched should preferably be agreed between the consulting parties. If no agreement is reached, the employer should use selection criteria that are fair and objective. Selection criteria generally considered to be fair include length of service, skills and qualifications. The most widely used criterion is the ‘last in, first out’ (LIFO) principle.

Notice pay in lieu of notice (if the employee is not required to work the notice period); pay for annual leave accrued but not taken; any other contractual amounts that may be due to the employee on termination of employment; and severance pay equal to one week’s remuneration for every completed year of continuous service with the company – where the employer has a more favourable severance policy in place the policy will apply. The employee should also get any retirement fund entitlements.

Uganda

In Uganda, an employer who intends to retrench more than 10 employees in a period of three months must notify the Commissioner for Labour in the Ministry of Labour, Gender and Social Development. There is also a requirement to provide the Representatives of the Labour Union, if any, that represent employees in the undertaking and the employees affected with relevant information [such as terminal benefits and plan of payment] at least four weeks before the first of the terminations.

There is no statutory provision indicating any criteria for retrenchment. The reasons for retrenchment would perhaps dictate the criteria to be used. The retrenchment package would be dictated by the contract between the parties. Ordinarily it is expected to cover current earnings, notice pay, severance allowance, transport allowance, leave pay, overtime and any gratuity due to the affected employee.

Zambia

In Zambia, not less than 30 days of the impending redundancies the employer is required to provide notice to the employees affected or the representatives of the employees on the impending redundancies, the number of employees to be affected and the period within which the terminations are intended to be carried out.

Not less than 60 days prior to effecting the terminations, the employer is also required to provide notice to the Labour Office of the impending termination and submit information on the reason for the redundancy; the number of categories of employees likely to be affected; the period within which the redundancies are to be effected; and the nature of the redundancy package.

The employer is permitted to exercise its discretion when determining which employees are to be declared redundant. Having a deliberate selection process in place is optional and is entirely dependent on the employer.

The employer is required to pay the affected employees a redundancy package which can be determined with reference to the employee’s contract of employment or an applicable collective agreement. In default, reference can be made to the General Order.

The General Order principally focuses on the redundancy pay due to certain classes of employees. The General Order prescribes a redundancy package of one month’s notice and two month’s basic salary for each completed year of service. Where an employee has not completed a year of service, the redundancy package due is prorated to the actual period served. In addition, the employee is entitled to be paid all of the benefits he or she would have accrued up to the date of his or his termination.

Zimbabwe

In Zimbabwe, the retrenchment process may be voluntary or compulsory. On voluntary retrenchments, there are no formal legal requirements. The employer should send out an internal notice to its employees setting out certain information such as the reason for the retrenchments and efforts made to avoid them. A voluntary retrenchment must be reduced to writing and include certain information. A form will need to be sent to the Retrenchment Board for approval. The Retrenchment Board will then send back another form approving the voluntary retrenchment.

Where none of the employees are agreeable to a mutual termination, the employer is to resort to the law on compulsory retrenchment. If the employer wishes to retrench fewer than five employees, then it is required to give notice of its intention to retrench to the works council or the employment council. The notice must provide reasons for the retrenchment and indicate the employees to be affected. If there is no such works council or employment council, the employer is required to give written notice to its employees.

The parties should attempt to reach agreement on whether or not the employees should be retrenched. If the parties fail to reach agreement within one month of notice to the works council or employment council, the matter must be referred to the Retrenchment Board. A decision should be reached by the Retrenchment Board within two weeks of the matter being referred to it.

The Retrenchment Board sends a written recommendation to the Minister of Public service on whether or not the proposed retrenchment should be permitted. The Minister may approve the recommendation, with amendments if applicable, or refuse to grant the proposed retrenchment. There is no right of appeal to the Minister’s decision. However, the employer or the employees can apply to the Labour Court for a review of the process or of the package approved by the Minister.

Where the employer wishes to retrench five or more employees within a period of six months, then the employer is required to provide written notice to the works council or to the employment council. The procedure to be followed by the works council/ employment council mirrors that listed above. If there is no works council or employment council, the notice must be sent to the Retrenchment Board

It is important to note that employees must be kept informed of and consulted at the earliest possible opportunity. The employer is permitted to exercise its discretion when determining which employees are to be retrenched, provided there is no discrimination on constitutionally objectionable grounds. T

here are no statutory minimum benefits prescribed and the amount of any such benefits is the subject either of agreement in the works council or employment council, or determination by the Minister in giving approval for the retrenchments (after taking into account any recommendation made by the Retrenchment Board).

Despite the absence of a statutory minimum, the general practice is to determine generous retrenchment packages. A typical retrenchment package comprises: notice pay (three months for permanent employees); severance pay (usually one or two months basic pay); service recognition pay (usually one month for every year served) and a relocation allowance equivalent to one month’s pay or transport (not always given).

Conclusion

The above is a summary of the requirements in the specified jurisdictions. It is recommended that legal advice and guidance is obtained before commencing with a retrenchment exercise.

 

Lusanda Rhapulu, Partner, Employment & Benefits Practice, Bowman Gifillan Africa Group

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