The impact of business rescue on employees

business rescue
12 Jan 2018

Business rescue has become a popular alternative to liquidation of a company. The Business Rescue procedure was introduced through section 6 of The Companies Act 71 of 2008 (“Companies Act”). One of the principal differences between the two is that, while under the supervision of the business rescue practitioner, the company continues to trade.

The effect thereof is that the employment conditions remain unchanged and employees wouldn’t automatically lose their jobs, as would be the case under liquidation. The benefit thereof means that more jobs are being saved. As a result, all factors of the employment relationship remain intact and unchanged, unless an agreement is reached between employee and the business rescue practitioner, to change these conditions.

During business rescue proceedings employees often form an employee committee, which has a mandate to deal with management on employment related issues. Although business rescue cannot alter the terms of an employment contract, it does affect certain rights.

On the other side of the spectrum, employers will generally consult extensively with employees during business rescue proceedings to ensure that employees are clear about what is going on, why it is happening, what the procedures are and what the company plans to achieve through the process of business rescue.

Subsequently employers need to put in place fundamental requirements like appropriately prepared, industry-specific contracts of employment. These are essential in forming the foundation of any employment relationship. Furthermore, appropriate work standards, policies and procedures are the tools that management have at their disposal to ensure that all the formalities in terms of the Companies Act are complied with when entering into business rescue proceedings.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)

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