Title page for ETD etd-07152011-141314

Document Type Master's Dissertation
Author Preston, Nicholas Ashley
Email nicp266@gmail.com
URN etd-07152011-141314
Document Title A critical analysis of the interplay between operational dismissals and the global recession
Degree LLM
Department Mercantile Law
Advisor Name Title
Prof S R van Jaarsveld Supervisor
  • operational dismissals
  • global recession
Date 2011-04-11
Availability restricted

The aim of this dissertation is to critically assess the effects of the global recession and the comparative effects it had on employment law throughout the world, more specifically within South Africa. Accordingly, a comparative analysis was undertaken to evaluate labour legislation in a number of foreign countries, which would in turn be used to identify the shortfalls in our current legal system.

The Labour Relations Act hereinafter referred to as the ‘LRA’, like most legislation, was designed to regulate and refine specific issues where the law was previously deficient. Unfortunately external factors such as the global recession influence the implementation of legislation and at times cause unintended consequences. It is doubtful whether the drafters of the LRA ever contemplated such an event and its effect on the South African labour market. The recession resulted in major and immediate pressure on companies who had to reduce costs to keep profitable and as a result, employers worldwide were forced to embark on widespread retrenchment schemes. The question that begs an answer is: Whether the LRA has under the influence of the recession, led us to the unintended result that instead of protecting jobs, it has in fact expedited job losses? Frans Rautenbach shares the notion that South African labour laws have become too stringent and that they often have adverse effects. Kahn Freund once said that, “the law has only a modest contribution to make in employment relations and that legal regulation in the sphere of labour relations can only ever be secondary.”

The recent global recession came unexpectedly and forced employers in South Africa and worldwide to develop survival strategies and implement them with extreme urgency. South African employers were required to meet a much higher procedural standard before being able to react with retrenchment schemes than was required by their international competitors in China and India. Kahn Freund and Frans Rautenbach promote the notion of a free system which enjoys little or no regulation and which in turn leads to a natural progression of balance between the employer and employee. These notions are detailed more fully below where it will become evident that South Africa needs to consider the possibility of de-regulation rather then implementing additional and stricter provisions into labour legislation.

South African employers who endeavored to comply with stringent and protracted labour laws and procedures found themselves at the mercy of the failing market, spending time and money on other things such as consultations, negotiations and strong oppositions from unions. At a crucial time for economic survival, we should have been focusing on core business activities like our international competitors were doing. Many South African companies found themselves in liquidation because of our onerous legal requirements, which prevented them from reacting as quickly as their international counterparts who were able to implement immediate restructuring programmes. In a time when employers worldwide needed to tighten their belts and focus their attention on their core business, our employers were spending time and money on administrative and legal debates and incurring costs which many of them would be unable to sustain in such an economy. The ultimate result was that they could no longer focus solely on keeping their businesses afloat.

It is proposed that economic threshold percentages are formulated in respect to different sized entities. When productivity dips below such thresholds and remains below the threshold for a certain period of time as a result of a causal nexus with local or international economic influences, then the usual procedural periods relating to retrenchments should be truncated significantly to try a sustain the survival of those companies. One cannot expect employers who are fighting the influences of the recession and international competition as well as facing numerous demonstrations of industrial action, to also undertake stifling, lengthy and expensive legal procedures to save their companies. The LRA has no contingency plans built into it but rather hard and fast rules that apply to all and every circumstance. We need to realise these short falls and customise our legislation in our favour so that we do not legislate ourselves out of the global market but at the same time maintain our firm grip on the development that has been made in respect to employees’ rights. This is and always has been the inherent nature of employment law and we need to realign the balance to cater for contingencies such as the global recession. If employers have to liquidate and close their doors due to the fact that they are unable to afford the time and cost of compliance with stringent legal procedure, then everyone loses even those who did not face initial retrenchment.

The long-term benefit of such an approach is that companies remain afloat, and when market conditions improve, those very companies will once again start hiring and providing jobs. Our current labour laws and procedures stifle corporate entities and expedite their closures during tough economic times to such an extent that they need to close. This almost guarantees no possibility of employment or re-employment with those companies in future and leaves the retrenched employees with the difficulty of seeking employment within the remaining pool of companies who were able to weather the economic storm. If it is not possible to relax our labour laws in ordinary circumstances, then we need to at least relax them in times akin to that of the current global recession.

The future challenge will be to give employers the freedom they need to retrench when true operational requirements arise and to do so quickly when faced with recessionary influences but at the same time prevent any abuses thereof. The courts when called upon will need to employ a cautious approach to ascertain that true operational requirements justify a departure from the normal consultation periods before embarking on the retrenchment process

© 2010, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria.

Please cite as follows:

Preston, NA 2010, A critical analysis of the interplay between operational dismissals and the global recession, LLM dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-07152011-141314/ >


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