Coronavirus Layoffs or Retrenchment?

Q:

If I cannot afford to pay salaries as a result of declining revenue because of government restrictions on the operation of my business due to the outbreak of the novel coronavirus (COVID-19) pandemic, should I retrench my employees?

 A:

If you absolutely cannot afford to continue paying employees, I would not recommend a retrenchment if your intention is to temporarily suspend operations until restrictions are lifted.

I’ll begin with my recommendation of a “temporary layoff” and support it with a quote by one of the most respected past presidents of the Industrial Court - His Honour Mr. Addison Masefield Khan - from page 5 of a 1991 TIWU v Consolidated Appliances Limited judgement:

“The practice of a temporary lay-off is well recognised in industrial relations practice. A temporary layoff is a remedy which may be utilised by an employer to obtain relief where circumstances beyond his control warrant its implementation. It is a right which an employer may use only when the circumstances demand it. It must not be abused or be as a result of a whimsical decision. It must be required by the circumstances, which must be beyond the control of the employer and not of his own making.”

Most importantly for an employer suffering from significantly reduced revenue, with a “temporary layoff” there is no legal obligation for an employer to pay employees during the period, however, with retrenchment, severance payments must made to retrenched employees within a certain period.

In addition to that and a few other reasons, I would not recommend retrenchment mainly because it is governed by the Retrenchment and Severance Benefits Act 1985, which means that there are strict legal obligations that must be followed. For example:

Section 4(1) – if five (5) or more employees are being retrenched, each employee, the Minister of Labour and the recognised majority union (if there is one) must be given written notice that includes:

·         Names and position

·         Length of service and current salary

·         Reasons for redundancy

·         Proposed date of termination

·         Criteria used for selection of workers to be retrenched

Section 6 - minimum 45 days’ notice (only for 5 or more)… or payment in lieu of the notice period.

Section 18(3) – employees must be paid for their years of service.

• Employees paid daily, weekly & fortnightly must be paid two (2) weeks’ wages per year for 1 - 4 years’ service and then three (3) weeks’ wages per year for service of 5 years and more
• 
  
• Employees paid monthly must receive 1/2 month’s salary per year for 1 – 4 years’ service and then 3/4 month’s salary per year for service of 5 years and over

Section 22 - stipulates that severance payments must be made no later than thirty (30) days after the last day of the notice period mentioned in section 6.

Section 25(1)(a) - A person who contravenes the provisions of this Act is guilty of an industrial relations offence within the meaning of the Industrial Relations Act and liable—

(a) in the case of an employer, to a fine of ten thousand dollars; 

Now that you have all the information, the choice is yours.