Restructuring: What Human Resource Personnel Must Know

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As COVID-19 continues to interrupt, HR professionals have to keep track of a great deal of developments. One of them is keeping up to speed with modalities on how a possible restructuring can be made in case the company chooses to go down that path.

Restructuring generally means all that process of changing the operational set up of a company with a view to improving the way the business runs or managing an economic situation.

In times like these when economies are volatile, companies are allowed to make a number of sweeping changes in an effort to realign themselves with economic realities. Therefore, the overarching purpose of restructuring is to get the right roles configured the right way.

In the process, new positions may be created in the company, existing positions may be merged and some employees may be deemed surplus to requirements. This makes those employees redundant and subject to a potential lay off.

To be fair, restructuring is an uncomfortable process for employees to go through. Nevertheless, the law seems to have observed that it is a lesser evil for employees to suffer possible layoffs than the company maintaining the wage liability and ultimately being the subject of insolvency proceedings.

One of the very first companies to have considered a restructure as a direct result of COVID 19 is Nice House of Plastics. In a press release of May 13, 2020, the company decried the “extremely high cost base” in keeping up operations. It was stated: “the company continued to face a major challenge of balancing the cost of doing business against its ability to meet customer requirements.” One of the expenses observed to have soared disproportionately were employee costs.

In order to cushion the company against an economic blow, it was resolved that: “the company will immediately embark on a restructuring program that will result in retirement of all those who were scheduled to retire, a total of 09 members of staff, staff redundancies affecting 47 members of staff, and leave without pay for the remaining staff for an initial three months.”

In times like these, restructuring is one of the plausible options available to a company facing distress. Companies must however follow all the necessary protocols for the restructuring to result in a success. The importance of a meticulously organized restructuring is that it insulates the company against possible claims for unlawful termination for employees who would be deemed surplus to requirements.

The first and probably most fundamental legal prerequisite for any restructuring and ultimate redundancy of workers is that there must be a genuine reason for it. Companies are not at liberty to lay off employees on the basis of restructuring for just about any reason. Restructuring is a managerial prerogative but the requirement ofcourse is for this to be done fairly and in accordance with the law.

The Employment Act 2006 in Section 81(1) stipulates that restructuring can only be made for reasons that are economic, technological, structural or other reasons of similar nature. It is predicted that most of the processes of restructuring made during the COVID-19 pandemic will be made for economic reasons under section 81(1) of the Employment Act 2006.

It is imperative to note however that it is not just the overall recognition of an economic slump due to the pandemic that will suffice. Companies will have to first see to it that their revenues have plummeted for them to rely on economic grounds for a restructuring process.

The reason for this is that there is no one size fits all in this COVID-19 situation. While some companies such as those dealing in tourism and travel services have had their operations halted, others such as those dealing in online deliveries have seen a peak in their operations. It would therefore be believable to restructure for economic reasons in the first situation, but certainly not the second.

The other requirement is good faith. Restructures and redundancies are generally underpinned by the principle of good faith. There is need for consultation with the employees or their trade unions before a decision is made. This requirement is rubber stamped by the old English case of Williams v Campair Maxam Ltd.

The defendant company had been losing business and departmental managers had to pick teams of core staff who could be retained to keep the business viable. Employees to be retained had been chosen on the basis of personal preference and the union was not consulted.

In canvassing the issue on whether this restructuring had led to unfair termination, the court laid down a number of principles to guide any termination on grounds of redundancy, viz:

  • The employee should give ample notice of the impending redundancy;
  • The employer should consult with the union as to the best means by which the desired management result can be achieved jointly and with little hardship to the employee as possible. The employer should agree with the union as to the selection criteria to be applied;
  • The selection criteria should be objective and set against such things such as attendance record, efficiency at the job, experience and length of service;
  • Selection should be made fairly in accordance with that criteria; and
  • Before taking the decision to terminate the contract, the employee should consider the possibility of offering the employee alternative employment.

These principles enunciated in case law are mandatory. It can be seen that good faith is a centerpiece of any restructuring process. Employers must consult their employees and this involves considering feedback with an open mind. The restructuring cannot also be used as a cloak to terminate “troublesome” employees. The selection of who goes and who gets retained must be fair, and must take into account the employee’s overall contribution to the company.

It would also be good practice for the employer to consult the employee on considering alternatives such as change in employee benefits, occupying alternative roles within other parts of the company or a reduction in working hours or a shift to part time working.

For its own part, section 81(1) (a) of the Employment Act 2006 mandates an employer who would like to terminate more than ten employees within a space of less than three months to provide representatives of the labour union of the employees with relevant information at least four weeks before the first of terminations. The information must show the number workers likely to be involved and the period over which the terminations would be carried out.

The employer must also under section 81(1) (b) notify the labour commissioner of the reasons of the termination, the category and number of workers likely to be affected, and the period over which the terminations are to be carried out.

An employer will be in a good position to defend any subsequent labour claims if he or she can set out a clear rationale for the redundancy terminations, which are supported by evidence and if a fair and thorough process is undertaken.

Needless to mention of course is that all terminated employees due to redundancy will be entitled to all their terminal benefits both under Employment contract and the Employment Contract 2006.


 

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