May an employer unilaterally reduce an employee’s remuneration due to the effects of COVID-19?

May an employer unilaterally reduce an employee’s remuneration due to the effects of COVID-19?

Salary reduction due to COVID-19

Due to the immense financial impact of COVID 19, many employers have had to take the drastic and inevitable steps to consider reducing their employees’ remuneration.

In these unique and extraordinary circumstances, lengthy negotiations and obtaining each employee’s individual written consent to implement such cost-cutting measures were not feasible and/or possible.

In this article we will look at various case law examples to clarify uncertainty on this specific topic.

Case law: Macsteel Service Centres SA Pty Ltd v NUMSA

In making a ruling on 3 June 2020 in the case of Macsteel Service Centres SA Pty Ltd v NUMSA (J483/20), Johannesburg Labour Court, the court had to decide whether such a cost-cutting strategy constituted a unilateral change to the terms and conditions of employment. If so, NUMSA would be permitted to embark on a protected strike.

  • The court in the Macsteel case (paragraph 61) held that, “a strike initiated in terms of section 64(3)(e) of the LRA can only take place if there is a unilateral change in terms and conditions of the employment rather than a dispute of right and only when the employer has failed to comply with the request not to implement the unilateral change”.
  • In terms of Subsections 64(4) and (5) of the Labour Relations Act (LRA):

“An employee or a trade union that refers a dispute about a unilateral change to terms and conditions of employment to the CCMA or Bargaining Council, may in the referral:

  1. Require the employer not to implement unilaterally the change to terms and conditions of employment, or
  2. If the employer has already implemented the change unilaterally, require the employer to restore the terms and conditions of employment that applied prior to the change.
  3. The employer must comply with the requirements of subsections (a) and (b) within 48 hours of the service of the referral on the employer.”

Case law: In Staff Association of the Motor and related Industries (SAMRI) vs Toyota of SA Motors (Pty) Ltd

The court in the Macsteel case relied on the case of In Staff Association of the Motor and related Industries (SAMRI) vs Toyota of SA Motors (Pty) Ltd (1997) 10 ILJ 374 (LC) and held that subsections 64(4) and (5) of the LRA are aimed at limiting the managerial prerogative to vary terms and conditions of employment and/or policies unilaterally.

  • The court found that: ‘To be successful under section 64(4) the employee has to show firstly unilateral changes were effected to the terms and conditions of the employment contract and secondly that there was no consent to the unilateral changes.’

Case law: Sun International Ltd v SACCAWU (2018) 6 BLLR 624 (LC)

The court in the Macsteel case further relied on the case of Sun International Ltd v SACCAWU (2018) 6 BLLR 624 (LC) where it held that, ‘for the sake of completeness, though the merits on the protected nature of the strike are no longer in issue and even though it may be obiter, I am satisfied that the strike would still not have been protected in any event, because the real reason for the strike concerned alleged short payments arising from the introduction of the new biometric system. Although the union denied that the dispute concerned short payments, the union never disputed the veracity of the exchanges between the Group Human resources officer and the Deputy President of the union which confirmed that rectification of alleged short payments arising from the Kronos system was the reason for the strike’.

In conclusion

The court in the Macsteel case finally held that, “what forms part of the terms and conditions of employment, are any variation to an employee’s salary, irrespective of whether it is increased or decreased, will amount to change a in terms and conditions of employment and cannot be effected unilaterally. Salary is a quid pro quo for work rendered and any change that has the effect of affecting an employee’s salary or remuneration package, constitutes a change to terms and conditions or employment”.

What was most telling were the comments that the court had made in the Macsteel case pertaining to the rationality of the employer’s strategic cost-cutting measures. The court was alive to the reality that many employers currently face tough choices. Therefore, the court in the Macsteel case had limited this decision only for the purposes of whether the strike was protected in terms of section 64 of the LRA and not whether the employer’s economic strategy was unfair and/or unlawful.

We at SERR Synergy are fully cognisant of the plight that employers and employees are faced with due to Covid 19. Our role and mission are to guide employers on how to properly engage with trade unions or employees directly in order to effectively communicate such cost-cutting measures. We assist employers in conducting such consultations and then draft the appropriate settlement agreements or addendums to an employee’s contract of employment to avoid unnecessary and crippling strikes pertaining to alleged unilateral changes to terms and conditions of employment.

About the Author: Jared Francis joined SERR Synergy in October 2016, and currently holds the title of KZN Labour Manager. He is an admitted attorney who has practised in KZN and Gauteng and has more than 10 years' experience in the legal and industrial relations fields, respectively. He holds an LLB degree, a Post-Graduate Diploma in Industrial Relations and a Post-Graduate Certificate in Forensic Investigation from the University of KwaZulu-Natal. He also holds Post-Graduate Certificates in Advanced Labour Law, Corporate Law, Advanced Human Resource Management and Health and Safety from UNISA. He is currently studying towards his MBA.

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