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Lockdown: What about the employees?

Government has locked down South Africa for a period of 21 days in an attempt to limit the spread of Covid-19, and the virus causing it, the novel Corona Virus.

While a shutdown such as this is widely regarded as the best defense against the spread of the virus, this leaves businesses and business owners with a number of steep hurdles to overcome and a lot of questions to answer.

Probably one of the most widely asked questions circulating now in media and social medial deals with employees and their salaries.

Will employees be entitled to their salaries during the mandated shut down and what are financially distressed business owners to do when they can’t pay those salaries?

 The answer here is largely dependent on the cash reserves of the business.

 It is a common principle that the relationship between employee and employer is reciprocal, meaning in simple terms, “no work, no pay”.  This does not entail dismissal of the employee, but is merely an interim arrangement to be implemented while the employee is prevented from performing services and during that time the employee will still remain in employment.   Where the business has available reserves, it may be beneficial to both parties to negotiate with employees to allocate available leave days for this period of shutdown.  However this is not an option available for most small businesses.

 In their instances, they may physically not have the necessary capacity to pay salaries until they have received sufficient income.  This may extend even after the lock down has ended, as suppliers and clients take time to start up their own operations.

 These businesses may be advised to rather dismiss their employees through a formal process referred to as retrenchment.  Notwithstanding the urgency and stress caused by this virus and lockdown, the business should still follow all procedural rules and processes as laid down by labour legislation.  It is critical to this process that businesses include their employees in the discussions regarding the need for dismissals and through this process they may find alternatives to retrenchments, such as reduction of pay, change of working hours, temporary suspensions, or extensions of unpaid leave.

 Where after the lockdown companies are faced with not being able to pay their employees’ salaries while they are able to trade, they may qualify to be placed under business rescue.  Where a company successfully enters business rescue proceedings, the business rescue practitioner must ensure that employees enjoy preference above other creditors.

 There are currently no easy answers but the best way forward is where employers and employees work together to find the best solution.

 For more in detail advice, contact our offices for assistance.

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