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Redundancy - A new challenge

By Khemila Narraidoo

With the advent of the Workers’ Rights Act (“WRA”), we have seen our labour laws being challenged in many ways in Mauritius. At first, our attention was quickly grasped by the additional leaves which have been brought by the WRA, the calculation of the end of year bonus and, more especially, by the new definition given to the word ‘worker’ under the WRA. We should, however, realise that these are not the only elements which will affect the financial impact which the WRA is having on our economy.

Redundancy is an unfortunate situation where someone loses his job because the employer does not need him anymore or because the company is closing down. Under our previous labour law, that is, the Employment Rights Act 2008 (ERA), the employer would either have to show (i) that the post occupied by the employee is no more required by the employer in the context of a re-organisation or redundancy; or (ii) the economic situation of the company requires that the employee be made redundant in order to be sustainable. Before proceeding with the dismissal under the ERA, an employer had to first inform the Permanent Secretary of the Ministry of Labour, Industrial Relations and Employment, together with a statement of the reasons for the reduction of workforce 30 days prior to the reduction of the workforce or the closing down of the business. Although the ERA had laid down the employer’s obligation to explore other options which may be available to him so as to avoid reduction of the workforce, this was challenged only if the employee decided to sue his employer before the Industrial Court.

Before the WRA, very often, we had seen cases where employers would reduce their workforce due to economic hardship and employees would found themselves with no jobs from one day to the other and barely any compensation. The employer had no gratuity to pay to the employee if the notice period was given to the employee. In case where the employer elected to dismiss the employee summarily, then gratuity equivalent to the remuneration that the employee would have earned during the notice period, would have to be paid in lieu of notice. Under the ERA, where an employer reduced his workforce or closed down his enterprise, the employer and the worker had the possibility to agree on the payment of compensation by way of a settlement. In such a case, the worker would not have been entitled to join the Workfare Programme and the employer would not have been required to pay what is known as the Recycling Fee under ERA in respect of that worker.

Under the new era of the WRA, we see a drastic change when it comes to redundancy. For employers having a minimum of 15 employees or, having an annual turnover of at least 25 million rupees, the WRA now imposes a duty on the employer to notify and negotiate with the recognised trade union or employees’ representatives prior to reducing the workforce. In the absence of an agreement, prior authorisation of the Redundancy Board need to be sought.

The Redundancy Board has been set up to deal with all cases of reduction of workforce and closure of enterprises for economic, financial, structural, technological and other similar reasons. It is apposite to note that the Redundancy Board did not use to exist under the ERA. However, under the Labour Act 1975, a similar type of board used to exist, namely the Termination of Contracts of Service Board (“TCSB”). One major advantage which the Redundancy Board has over the TCSB is that the Redundancy Board has a duty under the WRA to complete its proceedings within 30 days from the date of notification by the employer, with any extension to be agreed by the parties. No such deadline was imposed on the TCSB at the time that the Labour Act was in force. This is certainly an advantage to the employer, especially, since the employer has to keep paying the employee his salary pending the decision of the Redundancy Board. The employer would, therefore, not need to wait endlessly for the Redundancy Board to take a decision. It is to be noted that under the WRA, an employer is not allowed to reduce the number of workers in his employment either temporarily or permanently before the decision of the Redundancy Board. Where the employer acts in breach of those procedures, any reduction in the workforce shall be deemed to be unjustified.

The Redundancy Board can, therefore, decide that the reduction of workforce or the closing down of a company is either justified or unjustified. Where the Redundancy Board finds that the reasons for the reduction of the workforce are unjustified, the employer has a duty to pay to the employee severance allowance at the rate of 3 months’ remuneration per year of service or the Board may, with the consent of the worker, order the employer to reinstate the employee to his former employment. In the event that the Redundancy Board finds that the reduction of workforce or the closing down are justified, the employer is entitled to terminate the employment of the employee and the latter is entitled to 30 days’ wages as indemnity in lieu of notice.

When it comes to redundancy under the new labour laws, one has to realise that gone are the days when a company would decide to close its doors and all it had to do was notify the Permanent Secretary.

Impact of the WRA: With the introduction of the Redundancy Board which is composed of independent members as well as representative of workers, it is more difficult for companies to make workers redundant for unjustified reasons. The Board is better structured and has more powers to make orders in these cases. Businesses would also be more cautious and take professional advice before taking strategical decisions.