When MTN sent a letter to employees informing them of a planned Section 189 restructuring that could see people lose their jobs, trace union Solidarity was quick to slate the decision.
In a strongly worded statement, Solidarity condemned MTN’s retrenchment plans when it makes billions in profit per year.
“MTN’s behaviour towards its employees is immoral, with prices rising and when people with jobs are struggling to keep their heads above water. The company is playing with people’s lives,” it said.
Trade unions nearly always oppose job cuts, so Solidarity’s response to MTN’s plans to dismiss employees is expected.
However, MTN also has a good reason for cutting staff. All companies must ensure high productivity levels to support profitability and long-term success.
As a company evolves, some employees can become unproductive and even redundant. It is particularly true with the rapidly changing work environment since March 2020.
Staff costs can escalate without an increase in productivity. Revenue per employee is a good measure of productivity.
Revenue per employee is an efficiency ratio used to determine the revenue generated per employee and measures the average productivity of a company’s staff members.
MTN has significantly increased the revenue per employee over the last five years – up from R7 million in 2017 to R11 million in 2022. It accelerated over the last two years.
However, MTN’s staff costs per employee also increased during this period – from R480,000 in 2017 to R714,000 in 2022.
By dismissing staff, MTN can reduce staff costs and increase earnings.
The chart below shows MTN’s staff costs per employee over the last five years.
Why MTN is restructuring
High employee productivity improves competitiveness, enhances staff morale, and creates a more sustainable company.
It raises the question of why MTN could not simply retrench unproductive staff or those who are no longer a good fit for the company.
Instead of just cutting staff, MTN had to embark on a costly “transformation process”, which took two years with early retirement, voluntary severance, and alternative positions options.
The answer lies in South Africa’s labour laws, which have strong employee protection to prevent unfair dismissals.
Many imposing legal obstacles make it very difficult for companies to dismiss employees who deserve to be dismissed.
A company can dismiss employees for four reasons – misconduct, poor performance, incapacity, or retrenchment.
It is cumbersome and traumatic to dismiss employees for misconduct, poor performance, or incapacity, which is why most companies opt for retrenchments to cut staff.
Retrenchments are dismissals due to no fault of the employees. There are three reasons to retrench staff – structural, economic, or technological.
- Structural – Businesses evolve, which may include restructuring, making specific functions redundant. A company typically embarks on Section 189 procedures as part of the process.
- Economical – When a company faces financial hardships, it can consider decreasing its staff complement.
- Technological – When companies implement technological advancements, the need for staff may decrease.
It is difficult to claim financial hardship when you make large profits, and getting rid of staff because of technology is often challenging to justify.
It leaves companies with restructuring when they want to cut staff.
It is for this reason that most companies who are dismissing employees opt for the restructuring route.
MTN’s transformation through a Section 189 process – with promises of reskilling, upskilling, and deployment into other areas – is, therefore, the best legal route to follow.