Avoiding so-called retrenchments

These are unprecedented times and senior managers in most companies are facing difficult decisions to ensure the survival of the enterprises. A first reaction may be to ‘contemplate’ terminating a number of employees based on operational requirements as provided for in s 189 of the  Labour Relations Act, 1995 (LRA).  Employees do not have a right not to be dismissed.  But they do have a right not to be unfairly dismissed.  That requires a valid and fair reason after following a fair procedure.

Special protections apply when the reason is based on operational requirements, as opposed to the reason being related to conduct or performance.  Job security is important and in many respects termination of employment should be seen as a measure of last resort.

So what are the alternatives? All employers are obliged to create proportional wage cost curves across seven genuine occupational or decision-making levels in the enterprise.

There is every good reason to seriously consider reducing the ‘wage cost curve‘ by a percentage, even on a temporary basis until the crisis is over, to ensure that everyone shares the pain of COVID-19 in a non-discriminatory manner.

At present many businesses have ‘subsidised’ the bottom 2 or 3 levels to compensate for the lack of services that should be provided by the government and adversely affect those employees far more than those on the upper levels.

This should be seen as aacceptable differentiation and not discrimination.

In May last year a personal appeal was made to the President to sort out the flawed EEA9 reporting structure but nothing appears to have been done and now is the time to get that done to ensure that the restructuring of the economy i achieved effectively and fairly. See Genuine pay differentials: A simple fix required

Excerpt from that post

Garbage in and out

It is said that ‘garbage in, is garbage out’ and we are in real danger of not measuring genuine pay differentials. Employers are currently being forced to report wages paid to employees at seven occupational levels. But, if the ‘benchmarks’ in the Employment Equity Act are totally flawed any reports based on the information submitted by employers will be totally useless and meaningless.

For this reason it was decided to appeal to the President personally to take action to sort out this serious situation and to avoid a possible constitutional challenge as well. On 13 May 2019 the Daily Maverick published the open letter and with permission it is repeated here: Dear President Cyril Ramaphosa, please revisit our pay differentials


In the private sector, if not the public sector as well, there has to be a ‘value-exchange with pay linked to the content of the job and the level of decision-making. It is no longer appropriate to refer to a ‘wage gap. Legally there must be proportional pay differentials based on a semantic scale as intended by EEA9 attached to the EEA. But, as pointed out in the letter there is a serious flaw because it has included in one group two distinct groups, including junior managers, who must be recognised and elevated to a higher separate level.

Subsidies to compensate for lack of basic services

The other important issue raised in the open letter is serious consequences of not appreciating that according to the current flawed system it is possible for managers in the top levels to argue that their pay is not disproportionate relative to the lower levels. But, if employers ‘subsidise’ pay at the very bottom to compensate for basic services that are not provided by the State, such as transport, it is essential to disregard the subsidy and determine the true value of those jobs for the purposes of creating the necessary pay curve and determine proper pay differentials and the appropriate pay at the highest levels.

Nothing prevents employers from treating the subsidy as a necessary contribution for social development but the premium should not be used for determining differentials. It can also be disregarded for calculating the costs of production as well. When it comes to BBBEE there are unexpected consequences when linking the scorecards to EEA9 as will be seen in the draft Accountants Sector Code.