HomeOpinion & AnalysisColumnistsCan lean organisations afford to be mean?

Can lean organisations afford to be mean?

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In recent years, retrenchment has become part of the corporate way of life. More and more jobs have come under the axe. In Zimbabwe, retrenchment is carried out in terms of Section 12C and 12D of the Labour Act (Chapter 28:01) as read with Statutory Instrument 186 of 2003. The procedure differs with respect to how many employees you intend to retrench at a given time. Suffice to say retrenchment in this country is a burdensome process and consultation with affected employees or their representatives is mandatory all the way.

Where parties fail to reach an agreement on a package, such dispute will be referred to the Retrenchment Board for determination. The law requires organisations avoid retrenchment as much as possible. Where retrenchment is inevitable, its impact on the affected employees must be mitigated as far as is possible. This is the premise from which the Retrenchment Board derives its mandate.

Controversy surrounds what constitutes a reasonable retrenchment package. The Retrenchment Board takes into account the capacity of employer to pay and circumstances of retrenchees, for example, how easy or difficult it will be for them to get alternative employment. Another important consideration is the level of packages paid elsewhere, that is, by other companies in the same sector.

There are many instances where companies have abandoned the retrenchment process midway because the Retrenchment Board has come up with an exorbitant package beyond the employer’ reach.
When Bindura Nickel Corporation (BNC) sought to retrench 2 229 of its workers at the Trojan and Shangani mines and at its Bindura Smelting and Refining plant in 2009, there was a dispute on the package. The nickel miner then referred the matter to the Retrenchment Board which ordered the company to pay a total package in excess of $15 million. BNC decided the package was exorbitant, unreasonable and unaffordable. The package was almost twice the company’s market capitalisation, the company argued. The company had no option but to recall all the affected employees back to work, while appealing to the Labour Court against the package. The company’s leadership lamented the country’s labour laws which made it difficult for companies to retrench in times of crises.

Our law does not specify the minimum retrenchment package to be paid out to retrenchees. The issue is left to each individual organisation to decide. In Continental Fashions v Mupfuriri and Others (Judgment SC 161/97) the Supreme Court lamented the absence of any guiding laws on the size of retrenchment packages in Zimbabwe and suggested the approach adopted elsewhere. For example, Section 196 of the South African Labour Relations Act (1995) provides for one week’s pay for every completed year of service with an employer as the minimum package. Section 35 of the Malawian Employment Act provides two weeks’ pay for each year served for those with less than ten years service. For those with ten or more years of service, one month’s pay for each year served is paid.

For those organisations contemplating retrenchment or in the process of doing so, there are four main components that seem to make up most retrenchment packages. They can be adopted as a guideline.

Notice pay: Three months’ notice pay is usually paid. This is in terms of Section 12(4)(a) of the Labour Act, which requires the party terminating an employment contract to give three months notice to the other party.

Severance pay: This is a lump-sum payable for sudden loss of income. It is meant to deal with the shock of suddenly finding oneself in the ranks of the unemployed. Statutory Instrument six of 2002 stipulates three months’ severance pay. The Retrenchment Board has generally awarded three to six months pay.

Service pay/gratuity: Generally, one month’s salary has been awarded for each year of service. Those who will benefit more from this component are those who would have served the organisation for a number of years. If the “last-in-first-out” formula is used, the affected employees are not likely to benefit much.

Relocation allowance: This is a lump-sum originally meant to assist retrenchees to move their household property back to their rural homes or place of origin. I guess this was originally more applicable to mining establishments located far from major centres. It has, however, since become a standard component of most retrenchment packages. This ranges from one week to three months’ pay.

Various other items may be included in retrenchment packages depending on such factors as affordability, the organisation’s attitude towards worker welfare, and so on. Some of these discretionary items have included the following:
When Air Zimbabwe decided to retrench in August 2009, it offered as part of the retrenchment package enjoyment of travel benefits (free flights) for two years effective August 1 2009 for senior managers
Extension of medical aid or school fees for a period of up to 12 months.
Payment of a pro-rata portion of the next annual bonus
Writing off outstanding loans
Extension of house and car loans. This was the case Charamba v Stanbic Bank Zimbabwe Limited (Labour Court Judgment LC/H/81/04)
Selling the company car at book value. This is only applicable to those to whom company cars have been allocated
A strong letter of recommendation to assist the retrenched employees in their job hunt
l Taking office furniture as part of the total retrenchment package
Workers whose employment has been terminated due to retrenchment can be given a certain priority of rehiring
Pension contributions can be maintained by both parties up to the time of maturity of the scheme.

The list is certainly not exhaustive. Organisations can tailor-make the retrenchment package to suit their individual circumstances.

With current trends of retrenchments showing no sign of abating, the issue of the optimum size of retrenchment package will remain mired in controversy. Companies seek retrenchment in order to survive. Retrenchees on the other hand face a bleak future and seek the best deal possible. It saves time and costs for parties to agree internally and then forwarded to Labour and Social Services ministry only for the record and to ZIMRA for tax approval.

Apart from the obvious requirement to treat employee fairly, organisations must take note of the “survivor syndrome” — whereby those who remain can be affected by the retrenchment just as much as those who leave. Disillusionment, cynicism and stress will obviously be rife.

Organisations today do need to be lean to survive, but the question is: Do they also need to be mean?

Isaac Mazanhi is a labour analyst. He writes in his personal capacity.
He can be contacted on email: imazanhi@hotmail.com

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