6 March 2025
Retrenchment is regulated by section 189 of the Labour Relations Act 66 of 1995 and any termination due to retrenchment is seen as a no-fault dismissal, what this means is that the employee in essence did nothing wrong to give rise to the termination and it is important to keep this in mind when going through the section 189 process.
Employers must ensure compliance with the provisions of section 189 to avoid disputes as retrenchment is a structured procedure and an employer must balance their operational requirements with the rights of employees. Retrenchment is considered a last resort, what this means is that an employer should only consider dismissing employees through retrenchment once all other possible options to avoid termination have been exhausted. It becomes necessary due to a company’s genuine operational requirements, such as economical, technological, structural or similar needs and should be used only when there are no other viable alternatives.
The retrenchment process is not a “one stop shop” where employees are merely terminated for operational requirements. The process envisaged in section 189 is that of a consensus seeking approach, where the parties genuinely attempt to avoid any dismissals, minimize the number of dismissals, to change the timing of dismissals and mitigate the adverse effects of the dismissals.
Employers must notify, in writing, all employees who might be affected by the retrenchment process, it is not a simple notification and there are certain requirements and information as provided for in section 189 that the employer must inform the employees on. Once the employees are notified, meaningful consultations must take place between the employer and relevant parties, such as trade unions, workplace forums, or directly with employees. These discussions focus on exploring alternatives to retrenchment and determining fair criteria for selecting employees for termination, if no alternative can be found. The retrenchment process is not a mere formality of a forgone conclusion of termination. Alternatives, for example, short time, reduced hours, reduced remuneration etc need to be considered as alternatives to retrenchment. However, if all avenues have been exhausted, and there are no reasonable alternatives to retrenchments, termination notices are issued to the identified employees.
Affected employees are entitled to severance pay, typically equal to at least one week’s remuneration for each completed year of service, as stipulated by the Basic Conditions of Employment Act, however, depending on if the industry in question is regulated by a sectoral determination or collective agreement, the applicable severance pay could differ.
In conclusion, retrenchment is seen as a no-fault dismissal, therefore employees are not summarily dismissed as they would be for misconduct. The employer must be able to show that they have a fair and valid reason for retrenchment and ensure that it is counterbalanced with a fair process and/or procedure. Going through retrenchments are not an enjoyable experience for any party involved. If you are contemplating possible retrenchments or need guidance thereon, please contact our offices.
