Retrenchment is an unfortunate reality for many South African businesses facing financial pressure, changes in market conditions, restructuring, or mergers. Because retrenchment is regarded as a dismissal based on operational requirements, employers must follow a fair and lawful process before making a final decision. Employees should also understand their rights, including the right to meaningful consultation, fair selection criteria, and the payments due to them on termination.

Applicable Legislation
Retrenchment is considered to be a "no-fault" dismissal. This means that, due to operational requirements, the employees’ services are terminated, not because of poor performance. This is governed by the Labour Relations Act (LRA).

Employers should engage in meaningful consultation with employees to explore alternatives to dismissal, reduce the impact of retrenchment, and limit the number of affected employees.

Section 189 sets out the procedure employers must follow when considering and implementing retrenchments. A written notice in terms of section 189(3) must be issued to the affected employees and, where applicable, their trade union. The notice should set out the reasons for the proposed retrenchment, the alternatives considered, the proposed selection criteria, the number of employees likely to be affected and the proposed severance package.

Reasonable Criteria 
To ensure that a retrenchment is substantively and procedurally fair, employers must apply selection criteria that are fair, objective and consistently applied. One commonly used method is the last-in, first-out principle, under which employees with the shortest service are considered for retrenchment first. However, the employer may also consider the skills, experience and qualifications required for the positions that will remain within the business.

Severance Pay
Because retrenchment is a no-fault dismissal, affected employees may be entitled to several forms of financial relief. The minimum severance pay is one week’s remuneration for every completed year of continuous service with the employer. Employees must also receive notice or payment in lieu of notice, as well as payment for any accrued but untaken annual leave. Retrenched employees may further apply for benefits from the Unemployment Insurance Fund.

Employees’ rights  
Employees have the right to challenge any retrenchment if they believe that the process is unfair or contains an ulterior motive. An employer is not allowed to target specific employees or to disguise poor performance as operational.
 
Employees may challenge the retrenchment at the Commission for Conciliation, Mediation & Arbitration (CCMA) or at the Labour Court.

Retrenchment remains a difficult topic; if you are the employer, it is important to follow the correct procedure to avoid costly awards from employees against the business. If you are an employee, it is important to know your rights and what you are entitled to.
 
Whether you are an employer considering retrenchment or an employee affected by the process, it is important to obtain legal advice to ensure that your rights and obligations are properly understood and protected.


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