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IT IS quite amazing how the most well-intentioned political and social engineering decisions often produce the kind of negative results that are exactly opposite to what was intended. The Employment (Termination and Redundancy Payments Act) is one such piece of legislation.
This was passed in 1974 during the heyday of socialism when the leading political and intellectual lights believed that the state could fix every wrong, businessmen and people who sought to run profitable businesses were rapacious at best, and big businesses, known as 'unions', needed more assistance in the form of legislation such as this act provided.
To be fair, the period from the 1930s up to the 1970s was a time when most Jamaican workers were uneducated and were largely employed by agricultural businesses, while business managers were generally heartless and even brutal in the way they treated their workers.
BAD MANAGEMENT BREEDS STRONG UNIONS
Bad and insensitive management invariably is the reason why unions exist. The records of this country show that we have had more than our fair share of bad management up to the point of this legislation. Nonetheless, the current practices of the redundancy regulation are driven by a set of circumstances that no longer exist. Many more business leaders adhere to fairly decent and even good corporate governance arrangements, while globalisation and the pervasive need for transparency and openness have converted the redundancy rules into more of a burden on business. This burden outweighs the benefits that were intended by the redundancy act.
The Jamaican government of the day seemed to have borrowed the redundancy concepts from Britain, and with that, the specious theory of the employee's 'proprietary right to the job'.
BLATANTLY ONE-SIDED ACT
To its credit, the British Government, recognising that this was a blatant one-sided interference from government in the normal affairs of businesses and in the economy, made the arrangement that the Department of Trade and Industry (DTI) became obliged to pay 50 per cent of the cost that companies would incur from redundancy decisions.
The rationale, a reasonable one, was that taxpayers should carry this burden because the taxpayers, through the legislature elected by them and by extension the government elected by the ordinary citizen, enacted this legislation which was an unusual cost to businesses and the government should therefore foot at least half of the cost. In Jamaica our government borrowed the British principle only in part because it threw the whole problem of the cost of the redundancy act squarely in the laps of those businesses that have to use it.
REDUNDANCY - A DETERRENT TO CHANGE
The cost of redundancy has become a real deterrent to businesses that must effect changes in the course of their operations. Unfortunately, the act did not take into consideration that, over time, businesses do change Is GraceKennedy a shipping company or food distribution and financial services company? Change was forced on Cable & Wireless because of new competition in the marketplace from Digicel.
The urgent competitive need to move from an old business model and direction to a new one, makes the 'proprietary right to the job' of the worker a really bad idea when the job no longer exists.
The act would seem to put an overwhelming burden on business houses to maintain a job in which an employee can have a continuing 'proprietary right' when the marketplace has said to the company it no longer needs the services or product that the job was created to produce. The creators of the redundancy act obviously subscribe to the belief of the 17th century poet - Alexander Pope - who wrote "Whatever is, is right" rather than to the perennial business principle that "change is the only constant".
One of the real costs of this redundancy legislation is that it stops business from restructuring - a restructuring that could often avoid bankruptcy. There is no doubt that any business leader who seeks to change the course of his or her business by restructuring, has to contemplate the huge cost that he or she will have to put on the company in the form of redundancy payments.
In an environment of falling but still high interest rates, borrowing to pay for these redundancy costs is not an affordable option.
An equally unavailable option is that of going to shareholders with, say, a rights issue. Investors will not put in new money to pay redundancy costs for people who will no longer be contributing to the company that they own. The redundancy law also acts as a significant barrier to foreign investors and often causes them to pause, and sometimes avoid, coming to Jamaica as an investment destination.
A REAL COST TO EMPLOYEES
But the cost is not just to the employer. The redundancy practice exacts a very high cost from employees as well. The redundancy arrangement changes the reward construct from one based on performance and productivity to one based essentially on seniority.
I have seen many employees in companies that should move on to do other things (maybe start entrepreneurial ventures or seek employment with other businesses or in new industries), stay in companies long beyond the time when they should have left - just waiting to be made redundant. Redundancy installed itself as a "right" in the Jamaican economy and almost immediately wiped out the sense of privilege to work based on an individual employee's personal performance and improvement in productivity. Redundancy favours existing workers, supports seniority (over effective performance) and has a built-in bias against new, young workers.
In fact, given that redundancy costs are so high,it has in effect become a large deterrent to the employment of people by well-run companies. Business managers with foresight and ones that recognise that in the future their companies, may have to change the business from the one in which they started, will be very careful to use alternate methods of production and keep employment roles to a minimum in order to have at least a chance of survival in perpetuity.
SUNSET CLAUSES IN LEGISLATION
The blatant one-sided redundancy law that exacts such a high price from companies needs to be repealed - since the government cannot afford to fund it. This act is a great example of why each piece of legislation passed by parliament should have a sunset clause. Such a clause would ensure that the legislation being enacted by parliament today would have a clear expiry date, in ten to 15 years, or less. This sunset clause would force a future parliament to review the law and see if changes should be made or if it still makes sense to be in the books. We need to cut out the huge costs that accompany the redundancy act and remove the disincentives to companies to employ and keep employees.
Respond to: writerhill@gmail.com
Aubyn Hill:
Managing partner of Corporate Strategies Limited -
a restructuring and financial advisory firm.
Source: Jamaica
Gleaner
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