The Employer’s lockdown conundrum: To pay or not to pay?

There is a well-known English expression which is an apt description for what South Africa and the world are currently experiencing due to the Coronavirus pandemic – “May you live in interesting times”. Ironically enough according to Wikipedia this English expression purports to be a translation of a traditional Chinese curse!

For most of us I am sure we would have had quite a different vision of how our world may have abruptly came to an end. Nuclear Armageddon would probably be on the top of everyone’s list. Or closely followed by climate collapse. If our readers love science fiction like the writer does then perhaps the world ending as envisaged in the Terminator movies or like in the 1970’s tv show Battlestar Galactica which was later re-imagined for a more modern audience after the turn of the century in which servant created robots turn on their human creators.

But the writer digresses. South Africa and the world are clearly currently in unchartered and unprecedented times. In their attempt to stop the spread of the virus governments have literally had to shut down humanity’s ways of societal interaction and with that countries’ economies and by implication the globe’s economy. No country will be spared from the harsh economic fallout that is to follow. No employer nor employee will be spared. Our way of living and of earning a living has literally in the space of thirty days been turned on its head.

This article seeks to provide guidance to employers who are faced with a proverbial catch 22 situation. In the face of a shut down economy with no income being generated by a business must an employer continue to pay its employees or not? What options are available to an employer staring down the face of calamity caused by Covid 19? Whilst this article provides some recommendations on potential roads to be travelled by an employer it is not to be construed as legal advice. Each matter must naturally be dealt with on its own set of facts and unique scenario. It is highly recommended that you consult with a labour law practitioner.

This article deals with five areas:

1. The implementation of short time and/or a reduction in salaries/remuneration by the employer;
2. The retrenchment of employees in terms of sections 189 or 189A of the Labour Relations Act No 66 of 1995 (‘the Act”);
3. The implementation of compulsory leave by the employer during the lockdown period;
4. The invoking by an employer of the “impossibility of performance” doctrine – no work means no pay; and
5. The Temporary Employee/Employer Relief Scheme (TERS)

In the absence of a contractual provision in the employment agreement or a provision in a Collective Bargaining agreement empowering the employer to do so the implementation of short time and/or a reduction in the salaries/remuneration of employees cannot be done unilaterally by an employer. These steps can only be implemented with the employee or employees’ consent. Such unilateral conduct on the part of the employer if implemented could be interdicted by the employee(s) or referred to the Commission for Conciliation Mediation and Arbitration as unfair labour practice and set aside. The first prize therefore for the employer to implement its changes would be to obtain the consent of its employees. If it does not obtain such consent the employer will then have to consider whether it has valid operational reasons to embark on a retrenchment exercise. An alternative, but perhaps drastic, remedy would be for the employer to exercise its right to lock out in terms of section 64 of the Act in an effort to obtain such consent.

The employer can, provided it has sound operational reasons to do so, start the consultative and retrenchment process and procedures envisaged in section 189 of the Act (or 189A as the case may be) to dismiss its employees for operational requirements – “retrenchment”. In a nutshell the decision to dismiss the employees must not be a fait accompli, that is the employer must not have already decided to dismiss before the consultative process has started and only engage in such process to be going through the motions. It must engage in the consultative process in good faith and consider the alternatives to retrenchment proposed by the employees. The decision to dismiss the employees must be the last recourse. Another point to keep in mind especially for an employer faced with financial problems is that it has sufficient finances to pay the severance packages to its retrenched employees. The calculation of the severance package is prescribed by law in the Basic Conditions of Employment Act No. 75 of 1997 (“the BCEA”).

Employees who are required to self-quarantine themselves for 14 days or longer are on “special leave”. (This was announced by the Minister of Employment and Labour on 17 March 2020). It would be allowable that the employer requires its employees to take their annual leave during a lockdown period. This annual leave cannot be applied to an employee for the period where such employees was in self-quarantine, since as we have stated above this period is categorized as “special leave”. In other words, the employer’s entitlement to insist on annual leave being used during a lockdown period applies only to the statutory portion of annual leave in the BCEA as set out in section 20 thereof (which speaks of 21 consecutive days or 15 business days). The entitlement of the employer would also be dependant on the terms and provisions of the employment agreements, any leave policy and/or any collective agreements. Section 20 (10) of the BCEA reads as follows:

“(10) Annual leave must be taken-

(a)     in accordance with an agreement between the employer and employee; or

(b)     if there is no agreement in terms of paragraph (a), at a time determined by the employer

In accordance with this section.”

“At a time” can be the lockdown period.

Another scenario to consider in our present lockdown is where the business of an employer is totally closed during the lockdown period. Employees have been sent home and are not required to perform any work-related duties all together. Indeed, the employer because of the lockdown cannot provide a workplace to its employees to perform their workplace duties and similarly the employees are in the same boat. Because of the lockdown the employees are not in a position to render their services to the employee. In such a scenario we are dealing with the impossibility of performance doctrine. The concept of “no work no pay” must be considered here in such a scenario. In our view where the performance of the employment relationship has been prohibited by law (the government have declared a state of disaster, ordered a nationwide lockdown and promulgated the ancillary Regulations) where are clearly dealing with an instance of objective impossibility. So, in those instances where both the employer and employee are unable to perform and provide their respective employment obligations to each other our view is that there would be no legal obligation on an employer to pay its employees during the lockdown period. We emphasize however that this must not be taken as a hard and fast rule during the lockdown period. By way of an example the impossibility of performance doctrine would not apply where an employer’s employees can work remotely from their homes. The extent however to which employees can provide and fulfil their employment obligations to the employer will be dealt with in the next section.

In order to financially support employers and employees during the lockdown the government has created the Temporary Employee/Employer Relief Scheme (TERS) as published in the Regulations promulgated as a result of the nationwide lockdown. Section 1.1.6 of the Regulations dated 26 March 2020 defined a temporary layoff as “a temporary closure of business operations due to [sic] Covid-19 pandemic of the period of the National Disaster”. This definition was however amended in the Regulations of 8 April 2020 to mean a “reduction in work following a temporary closure of business operations, whether total or partial, due to Covid -19 pandemic for the period of the National Disaster.”  Paragraph 5.3 of the Regulations dated 26 March 2020 stated that “An employee who is being paid by the employer during this period is not entitled to this benefit.” This was however amended  by the Regulations published on 8 April 2020 to read as follows: “Subject to the amount of the benefit contemplated in clause 3.6, an employee may only receive covid-19 benefits in terms of the Directive if the total of the benefit together with any additional payment by the employer in any period is not more than the remuneration that the employee would ordinarily have received for working during that period.”

It would appear therefore that the absolute prohibition against qualifying in terms of TERS if an employee is being paid has been removed. The intention of the amendment is presumably still to allow for a claim under TERS in the event of a salary deduction as opposed to making payment in full and then simply recouping the payment from TERS.

In the difficult economic times being experienced in South Africa it was always a challenge and a responsibility to be an employer – to provide work and a sense of purpose to one’s employees. These challenges and responsibilities are going to become even more difficult in the present time and in a post lockdown economy and environment. It has never been more important to be a just employer.

We leave you with these parting lyrics of Bruce Springsteen who wrote his own version of the American folk song “How Can a Poor Man Stand Such Times and Live?”, a song written about hard times during The Great Depression:

“Got family scattered from Texas

All the way to Baltimore

Yeah, and I ain’t got no home

In this world, no more

Gonna be a judgment that’s a fact

A righteous train rollin’ down this track

Tell me how can a poor man

Stand such times and live?

Tell me how can a poor man

Stand such times and live?

Tell me how can a poor man

Stand such times and live?