Retrenchment is a form of dismissal which is not due to any fault on the employee’s part but rather to the operational requirements of the employer based on the economic, technological, structural or similar needs of an employer.  

In order to lawfully retrench employees, there must be a real reason for the dismissals (for example the business needs to reduce its wage bill in order to survive a sudden decrease in sales) and the retrenchments must be considered as a last resort.

Section 189 of the Labour Relations Act provides the process which is required to be followed in order to lawfully effect retrenchments

As a high-level summary, Section 189 requires the employer and employees to engage in a meaningful joint consensus-seeking process and attempt to reach consensus on:

• appropriate measures  to:
  • avoid dismissals;
  • Minimise the number of dismissals;
  • Change the timing of dismissals; and
  • Mitigate the adverse effects of the dismissals;
• the method for selecting the employees to be dismissed; and
• the severance pay for dismissed employees

In terms of Section 189(2) the employer must issue a written notice inviting the consulting parties providing therein at least the following information:

• The reasons for the retrenchment.
• Alternatives to dismissal that were considered and the reasons why they were rejected.
• The number of employees likely to be retrenched.
• The proposed method of selection of employees to be retrenched.
• Assistance that the employer will be offering the employee.
• The possibility of re-employment.

The employer must allow the other consulting party an opportunity to make representations about any matter dealt with in the written notice and any other matter relating to the dismissals and respond properly thereto.  If representations are providing in writing, the employers response should also be in writing.

Following the consultation process, the employer must issue notices of retrenchment to the employees who have been retrenched.

In calculating the payments due to the retrenched employees, the Basic Conditions of Employment Act provides that the following payments are due:

• severance pay (calculated at one week per full year of employment;
• payment for any outstanding leave due up to the date of dismissal; and
• Notice pay (either in terms of the Basic Conditions of Employment Act or as provided for in the contract of employment).

While the process might seem relatively straightforward, it is often fraught with difficulties that are often overlooked.  For this reason we highly suggest that you consult with a labour specialist before commencing with any retrenchment procedures.

Retrenchment is a form of dismissal which is not due to any fault on the employee’s part but rather to the operational requirements of the employer based on the economic, technological, structural or similar needs of an employer.   

In order to lawfully retrench employees, there must be a real reason for the dismissals (for example the business needs to reduce its wage bill in order to survive a sudden decrease in sales) and the retrenchments must be considered as a last resort. 

Section 189 of the Labour Relations Act provides the process which is required to be followed in order to lawfully effect retrenchments.