Requirements of the Retrenchment Process in South Africa

Christinne van der Walt
5 December 2023

Retrenchment is a “no-fault” dismissal that doesn’t stem from employee misconduct but rather from the employer’s need to adapt to changing circumstances, necessitating a legally structured process to safeguard employees’ rights. Section 189 of the Labour Relations Act 66 of 1995 regulates the process of dismissals based on operational requirements, which are requirements based on the employer’s economic, technological, structural, or similar needs. Retrenchment in terms of Section 189 of the Labour Relations Act must be both procedurally and substantially fair.

Who must the employer consult with during the retrenchment process if they retrench one or more employees?

Section 189(1) of the Labour Relations Act provides that when an employer wants to dismiss one or more employees based on the employer’s operational requirements, the employer must consult with:

  • the relevant persons in terms of a collective agreement; or
  • if there is no collective agreement; a workplace forum and registered trade union; or
  • if there is no workplace forum, the registered trade union; or
  • if there is no registered trade union, the employees to be affected by the retrenchment or their nominated representative.

Which topics must the consulting parties attempt to reach a consensus on during consultation in the retrenchment process?

Section 189(2) of the Labour Relations Act provides that the consulting parties must, in consultation, engage in a meaningful joint consensus-seeking process and attempt to reach consensus on:

  • measures to avoid the dismissal;
  • measures to minimise the number of dismissals;
  • measure to change the timing of the dismissals;
  • measures to mitigate the adverse effects of the dismissals;
  • the method for selecting the employees to be dismissed; and
  • the severance pay for the dismissed employees.

What information must be disclosed to the other consulting parties during the retrenchment process?

The employer must issue a written notice to the other consulting parties to consult. Section 189(3) of the Labour Relations Act provides that the employer must also disclose in writing to all the parties all relevant information, including, but not limited to:

  • the reasons for the proposed dismissal (retrenchment);
  • the alternatives that the employer considered to the dismissal and the reasons why the alternatives were rejected;
  • the proposed method for selecting which employees to dismiss;
  • the time and period the dismissals are to take place;
  • the proposed severance pay;
  • the assistance offered to the employees;
  • the possibility of future re-employment;
  • the number of employees employed by the employer; and
  • the number of employees dismissed due to operational requirements in the last 12 months

Does the consulting party have an opportunity to provide feedback during the retrenchment process?

In terms of Section 189(5) of the Labour Relations Act, the employer must allow the consulting party to make representations about any matter relating to the consensus requirements, information to be disclosed, and matters relating to the proposed dismissals.

The employer must consider and respond to the representations made by another consulting party. If the employer does not agree, the employer must provide reasons.

How does an employer decide which employees to retrench?

Section 189(6) of the Labour Relations Act provides that the employer must follow criteria for the selection of the employees to be dismissed that were previously agreed upon by the consulting parties. If no selection criteria have been agreed to, the selection criteria must be fair and objective. The Last in, First out (LIFO) principle is often followed, and other considerations such as key skills or poor performance can also be taken into consideration.

What must be paid to an employee who has been retrenched?

The following payments need to be made to an employee who has been retrenched:-

  • A severance package should be paid to the value of one week’s remuneration for each completed year of service.
  • The employee’s outstanding leave must be paid out.
  • Notice pay, which depends on how long the employee has been employed. If the employee has been employed for less than six months, one week’s notice must be paid out. If the employee has been employed for more than six months but less than a year, two weeks’ notice must be paid out, and if the employee has been employed for more than a year, four weeks’ notice must be paid out.
  • Other payments that must be made, depending on the employment contract, include bonuses, pensions and provident fund payments.

When can a retrenched employee refer a retrenchment dispute to the CCMA?

  • The employee can refer a retrenchment dispute to the CCMA in the following instances:
    • if the employer followed a consultation procedure that was only applied to that employee;
    • if the employer’s operational requirements led to the dismissal of that employee only; and
    • if the employer employs less than 10 employees, irrespective of the number of employees who are dismissed.

Contact one of our specialist labour attorneys at Burger Huyser Attorneys if you are faced with the dreadful and often complex task of having to retrench employees or if you feel that you have been unfairly retrenched.

DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE