Terminations on notice: Cutting or deferring costs?

The reports in the media last month concerning the sacking of the Barclays Global CEO Antony Jenkins indicate that he lost his job doing what he was hired to do; sounds funny I presume.

Sam Hlabati

Reports stated that when he took the top job in 2012, Jenkins was charged with repairing the tattered reputation of the bank by tackling its “toxic culture”, downsising the investment bank, and focusing more on retail operations.

Some quarters in the press believe that he did just that — except maybe too quickly, and by too much. Crucially, he did it without boosting earnings at the same time.

Ultimately, investment banking staff, shareholders and members of the board realised that even though they had asked the reformer to change their bank, they grew tired of the taste of the medicine they prescribed.

Barclays’ new executive chairman, John McFarlane, told CNBC TV that Jenkins “hadn’t done anything wrong … he’s just not the right person to take us forward”. That is a pregnant statement.

“He (Jenkins) was good at executing what we asked him to do at that time. What we are asking him to do now is different and the board believes that the probability of my executing is higher”, McFarlane said in his interview with the BBC: “It’s not just a reduction in costs, it’s a change in the way we do things that’s required here.”

After a few months at the helm of Barclays, Jenkins unveiled his “Transform” programme which he hoped to unravel the legacy issues from the bank and said “performances and rewards would be judged against a set of core values, including integrity and respect for others.”

He also confirmed Barclays would gut the investment bank and cut 19 000 people out of its workforce by 2016, with around 7 000 to be borne from investment part of the bank.

The Wall Street Journal reported that the move to sack Jenkins was led by the bank’s non-executive directors, who were growing impatient with the British bank’s progress in restructuring under Jenkins.

BBC added that Barclays board members are believed to have wanted bigger cost cuts and more focus on the investment bank’s performance.

Inevitable agenda

One cannot escape the cost cutting theme; as this is apparently the agenda at hand.

The bank being a service provider whose major production factor is labour, would have to reduce jobs to cut costs; hence the announcement that 19 000 jobs will be cut.

On another note, Fortune recently reported that Anglo, the world’s fifth-biggest diversified global mining group by market capitalisation, said it would cut about 6 000 of its almost 13 000 office-based and other non-production roles globally, 2 000 of which will be transferred through the sale of some assets.

In the longer term, Anglo, which employs 151 000 staff worldwide, aims to reduce its workforce by about a third.

What both Barclays and Anglo are aimining to do is the reduction of costs through cutting jobs, while Barclays aims to outrightly reduce jobs by making people redundant, Anglo are aiming to preserve some jobs by selling off assets.

The Zimbabwe labour market is similarly characterised by companies that decry the high cost of doing business; with a finger being pointed to the cost of labour as being the highest component of costs.

Every other company that finds itself in the trap of high staff complement and cumbersome and expensive processes in laying off staff, is always looking for a way out.

Following what has been termed a landmark ruling on July 17 in which the Supreme Court delivered a judgement in the Don Nyamande Anor v Zuva Petroleum (Pvt) Ltd SC 43 15 (1) which upheld a common law principle that the employer can terminate a contract of employment by simply giving notice without the compulsion to give a reason, thus termination of contract on notice; there has been chaos in the local labour market.

In the wake of the ruling, thousands of jobs have been lost on the basis of termination on notice. Some big corporations which have portrayed themselves as the employers of choice; dishing huge salary packages; have been the first in line to exploit the “window” offered by the Supreme Court judgement. These corporations are obviously burning with the high cost of labour and are running to reduce costs. Guess their CEO’s do not want to suffer a fate similar to Barclays’ Anthony Jenkins.

Ongoing battle

While all this drama is unfolding with employees receiving the dreaded letters with words to the effect that one is directed not to report for work with immediate effect, something seems to be happening on the horizon.

Nyamande and Dongo have taken their battle to the Constitutional Court challenging the Supreme Court ruling on the basis that it infringed Section 3 of the Constitution as it resurrected a common law rule, which was last applied more than three decades ago.

The Zimbabwe Congress of Trade Union Secretary-General Japhet Moyo, is reported by the NewsDay as having said the Supreme Court judgment will remain suspended until the Constitutional Court rules on the matter. Moyo was quoted as saying: “In terms of Zimbabwean jurisprudence, an appeal to a higher court has got the effect of suspending the decision appealed against. Therefore, as far as we are concerned until the ConCourt decides on the application/appeal, the decision of the Supreme Court stays suspended.”

He is a further quoted as having said there are employers who might not be aware that an appeal has been made and might be still basing on that judgment to terminate employment. Moyo could be right in that if this turns to be true then it could be costly for companies should the termination of contracts on notice be declared null and void.

Job security

Do the companies that are jumping on the bandwagon of the termination by notice have respect for their workers? Have they put any thoughts onto the effect of such terminations on the workers that will remain behind in the company?

Do the workers who remain behind feel secure that their jobs are guaranteed when they would have seen their colleagues being told to drop everything; being unceremoniously sent home.

I presume for a business that is closing their operations in totality terminations on notice are feasible as there is no worker goodwill to preserve. Doing that to a going concern seems suicidal to say the least.

Every leader who wants to sound knowledgeable would always say that people are what matters most in business. Where is the “people come first” ethos when terminations on notice are the way to exit people?

What will become of companies that are currently riding on the waves of the Zuva case should a subsequent judgement result in a reversal of what is being perceived as a window to terminate contracts of employment without paying packages?

The jury is still out on the ethical conduct of using the termination of service of notice in labour market where employees have traditionally been retrenched.

Are companies cutting costs through termination of contracts on notice or are they just deferring the actual costs if this is risky practice as it seems at the moment?

Sam Hlabati is a senior professional in Human Resources (SPHR®), a Certified Compensation Professional (CCP®) and a Global Remuneration Professional (GRP®). Email: samhlabati@gmail.com; twitter handle; @samhlabati