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Downsizing and retrenchments

Richard Fryer

Question from Bonita

We have 3 employees who are employed as follows:
a tea-lady (3 years service) at R17.36 per hour (domestic worker rate)
a sweeper (1+ years\' service) at R17.36 per hour (domestic worker rate)
a general worker, cleaning offices (6+ years service) at R27.19 per hour general worker rate (incorrectly appointed as such, because general workers are usually working on site doing hard labour.

In terms of restructuring: Can we terminate their existing contracts and employ them into into new contracts on the rate of R17.36 for all three? With regard to equal work for equal pay, all three employees are performing the same cleaning duties and the working hours will be from 8 am to 4pm. What will the impact be on the employee with the highest wage rate and what can the company do to ensure that the process is substantively and procedurally fair?


Given the information provided, one cannot terminate the existing contracts and place the employees on new contracts without ensuring correct procedures have been followed. Where changes in terms and conditions of employment are necessary to ensure the sustainability of the business, negotiation between parties is required.

If I make the assumption that the proposed retrenchments are due to economic constraints in that it is not financially viable to pay a wage of R 27.19 per hour compared to the R 17.36 wage for the same work my response would be twofold. Firstly, those employees who earn the acceptable rate would not be affected by the changes in operational requirements and one would not be required, or for that matter permitted, to terminate their contracts in order to have them sign new contracts. Only the one employee will be affected by the changes in the operational requirements and that is the one earning in excess of the acceptable rate.

Secondly, in order to possibly change the terms and conditions of this member of staff’s employment one will be required to engage in a meaningful consensus seeking process as prescribed by Section 189 of the Labour relations Act. This process includes seeking viable alternatives.
It is important to note that, if the employee is a member of a registered trade union, the company is required to invite the trade union to participate in the consultation sessions. Failure to do so would be regarded as unfair.

In short, to ensure that the process substantively fair, one needs to have a fair reason to propose the termination of the services of the staff member, that is either operational or financial rationale. In order to ensure the process is procedurally fair you will be required to abide by the prescription of S189 of the LRA. I would always recommend utilising the services of someone who is knowledgeable and comfortable with the process to assist and guide you with such.

In the relation to equal pay for work of equal value, it is also important to note that the Employment Equity Act states that the main purpose is to promote equal opportunity and treatment in the workplace by means of eliminating unfair discrimination. Guided by this principle, this applies to equal pay for work of equal value as well. Therefore, you may not unfairly discriminate in terms of pay differentials, however pay differentials are justified by different levels of responsibility, skills and experience.

Richard Fryer is a Senior Industrial Relations Consultant at Danshaw Consulting with extensive experience in Labour Relations and Human Resource Management. He is currently completing Master’s degree in Industrial Psychology at the University of Stellenbosch and has shared his expertise for more than 5 years with Danshaw clients surrounding matters such as dispute resolutions, restructuring, negotiations, employment contracts and policies as well an array of Industrial Relations and HR matters.