Retrenchment: A Basic Guide for Employers

What should employers know about retrenchment? Once a possibility at the beginning of lockdown, retrenchment has now become the new reality for many businesses. Retrenchment should always be a last resort, however, businesses on the cusp of folding have little option but to resort to this complicated process. Businesses must prepare themselves for the worst-case scenario and it is crucial that they comply with the law throughout the retrenchment process. Employers cannot afford the costly consequences of unfair dismissal claims.

Retrenchment is a type of dismissal that is through no fault of the employee. Retrenchment occurs where businesses experiencing economic pressure may need to let some of their employees go in order to increase profits or reduce losses.

Steps in the Retrenchment Process

1. Operational Requirements of the Employee

Employees may be retrenched for operational requirements, which are requirements based on the economic, technological, structural, or similar needs of an employer.

2. Joint Consensus Seeking Process

The employee must engage with employees and their representatives in a joint consensus-seeking process on appropriate measures;

to avoid dismissals,
to minimize the number of dismissals,
to change the timing of the dismissals, and
to mitigate the adverse effects of the dismissals,
the method for selecting the employees to be dismissed, and
the severance pay for dismissed employees.

Those Involved in the Consultation Process:

The employer must consult with one of the following parties:

any person whom the employer is required to consult in terms of a collective agreement;
if there is no collective agreement that requires consultation;
a workplace forum, if the employees likely to be affected by the proposed dismissals are employed in a workplace in respect of which there is a workplace forum; and
any registered trade union whose members are likely to be affected by the proposed dismissals;
if there is no workplace forum in the workplace in which the employees likely to be affected by the proposed dismissals are employed, any registered trade union whose members are likely to be affected by the proposed dismissals; or
if there is no such trade union, the employees likely to be affected by the proposed dismissals or their representatives nominated for that purpose.

Written Notice Issued to Employees:

In terms of section 189(3) of the Labour Relations Act, the employer must provide written notice to the other consulting party inviting it to consult with it and disclose in writing all relevant information, including, but not limited to:

the reasons for the proposed dismissals;
the alternatives that the employer considered before proposing the dismissals, and the reasons for rejecting each of those alternatives;
the number of employees likely to be affected and the job categories in which they are employed;
the proposed method for selecting which employees to dismiss;
the time when, or the period during which, the dismissals are likely to take effect;
the severance pay proposed;
any assistance that the employer proposes to offer to the employees likely to be dismissed;
the possibility of the future re-employment of the employees who are dismissed;
the number of employees employed by the employer; and
the number of employees that the employer has dismissed for reasons based on its operational requirements in the preceding 12 months.

The consulting party must be given an opportunity during the consultation to make representations on any of these matters and any other matters relating to the proposed dismissal. The employer must respond to these representations.

Alternatives to Dismissal:

As retrenchment should always be the last resort, the employee has a duty to consider an alternative such as demotion.

Severance Pay:

Retrenched employees are entitled to one week’s severance pay for each completed and continuous year of service with the same employer.

If an employee unreasonably refuses to accept an offer of employment with the current employer or another employer, the employer is not obligated to pay severance pay.

Q&A for Employers on Retrenchment

What are the obligations of employers?

Because retrenchments are ‘no-fault dismissals’ (i.e. through no fault of the employee), the obligations upon employers are particularly onerous. In addition to ensuring that all possible alternatives are taken before retrenchment, employers must:

Have a legitimate reason or cause for dismissal
Define the operational requirements that the dismissal was based on
Prove that the dismissal was based on a fair procedure in accordance with section 189 of the Labour Relations Act
Define the facts upon which the dismissal was made in order to satisfy that it was substantially fair

Must the employer issue a written notice to all its employees?

Yes. Employees that are likely to be affected are those employees that may be retrenched and others that may experience changes due to the restructuring or the downsizing of the retrenchment.

What must the notice contain?

The notice must contain the issues relating to the proposed retrenchment and invite the parties to consult with the employer on the retrenchment with the end-goal being to reach a consensus.

Do employers have to pay my employers once they are retrenched?

Employees are entitled to the following relief upon retrenchment:

Severance pay → one week’s pay for each year of service. If the employment contract stipulates a higher amount then this amount must be paid.
Leave → If the employee has not taken annual leave, money must be paid that is equal to the number of days not taken off.
Additional pay → depends on provisions in the employment contract. For example, a pension.
Notice pay

Is the employee always entitled to severance pay?

No. The employee forfeits their right to severance pay should they unreasonably refuse to accept an alternative offer of employment by the employer.

Can the employer retrench employees after lockdown?

As South Africa’s economy continues to slide down into a slump, prospects of recovery for businesses appear slim. Post-lockdown, businesses may find that they have little choice but to retrench some of their employees to continue operating. Provided that employers comply with the requirements laid down in the Labour Relations Act, and retrenchments are consequently substantively and procedurally fair, retrenchments may be considered.

How can Mediate Works assist?

Mediate Works has a diverse panel of highly experienced experts from enquiry chairpersons, investigators, facilitators, mediators, counselors, and lawyers to assist. Ebrahim Patelia has sat as an adjudicator for CSOS for some time and has co-trained a number of the CSOS mediators through Conflict Dynamics.

Mediate Works can assist in training employers on the correct retrenchment protocol. MW adapts our processes to comply with the law, your disciplinary framework, and the need to comply with the current lockdown regulations. We use secure and efficient online platforms to deliver in the instance that an on-site visit is not possible.

Retrenchment: A Basic Guide for Employers

Steps in the Retrenchment Process

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