What you need to know about retrenchment

 In Blog


Retrenchment is a form of dismissal due to no fault of the employee, it is a process where the employer reviews its business needs in order to increase profit or limit losses, which lead to reducing its employees.

This is commonly known as dismissal due to operational reasons and there are operational requirements that an employer must comply with when dismissing (retrenching) employees. This cannot be used as a strategy to dismiss problematic employees instead of using a fair selection criterion such as the “Last In First Out” (LIFO).

Operational Requirements

Operation Requirements means requirements based on the economic, technological structural or similar needs of an employer (Section 213 of the Labour Relation Act No. 66 of 1995).

Section 189 of the Labour Relation Act No.66 of 1995 provides requirements that needs to be followed in order to ensure there is fairness between the employee and the employer. The employer must prove that indeed operational requirements do exists.

If an employer has the intention to dismiss one or more employees based on operational requirements, the employer must consult with the following persons (Section 189 (1) of the Labour Relation Act): –

  • Any person whom the employer is required to consult with in terms of a collective agreement. Collective agreement regulates the terms and conditions of employees in their workplace, their duties and the duties of the employer. It is usually the result of a process of collective bargaining between an employer and a trade union representing employees.

    One will also want to know what  Collective Bargaining is; it is a co-operating process that resolves disputes between the employer and employee.  It is a process whereby trade unions and employers’ organisations come together to resolve a dispute of mutual interest to both parties.

  • If there is no collective agreement that requires consultation then the employer will have to consult with:-
    • A workplace forum, if the employees are likely to be affected by the proposed dismissals as 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 are 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 who are likely to be affected by the proposed dismissals or their representatives nominated for that purpose.
  • The employer must issue a written notice inviting the other consulting party for a consultation and in the notice; the employer needs to disclose all relevant information related to the retrenchment. The written notice must include but not be 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 the employees likely to be affected and the job categories in which they are employed;
    • the proposed method for selecting during which, the dismissals are likely to take effect;
    • the severance pay proposed;
    • any assistance that the employer proposes to offer to the employees are 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 the employees that the employer has dismissed for the reasons based on its operational requirements in the preceding 12 months. (Section 189 (3) of the Labour Relation Act)

    The consulting party must be awarded the opportunity to make representations about any matter dealt with above and as well as any other matter relating to the proposed dismissals. The employer must consider them and respond to the representations made by the other consulting party and if the employer does not agree with the representations, the employer must provide the consulting party with reasons for disagreeing. If the representation is made in writing, the employer must respond in writing. (Section 189 (5) (6) of the Labour Relation Act)

    During the consultation, the employer and other consulting parties must engage in a meaningful joint consensus and attempt to reach consensus on appropriate measures to-

    • avoid the dismissals;
    • minimise the number of dismissals;
    • to change the timing of the dismissals;
    • to mitigate the adverse effects of the dismissals;
    • the method for selecting the employees to be dismissed; and
    • the severance pay for dismissed employees. ( Section 189 (2) of the labour Relation Act)

    In order for the employer to avoid legal proceedings, cautiousness must be applied when this process of dismissal is used. If the employer retrenches one employee, the CCMA will have jurisdiction to hear the matter and if more than one employee is retrenched then the Labour Court will have jurisdiction to hear the dispute. The employer also faces the risk of the court of law awarding compensation of up to 12 months to the employee’s normal remuneration.

    Section 189 (7) provides that the employer must  select the employees to be dismissed in accordance with the selection criteria that have been agreed to by the consulting parties or if no criteria has been agreed to, criteria  that is fair and objective.

    In organisations where there is more than 50 workers, the minimum number of employees that may be retrenched is- (Section 189 (A) of the LRA)

    • 10 employees if the employer employs up to 200 employees;
    • 20 employees if the employer employs more than 200 but not more than 300 employees;
    • 30 employees if the employer employs more than 300 but not more than 400employees;
    • 40 employees if the employer employs more than 400 but not more than 500 employees; or
    • 50 employees if the employer employs more than 500 employees; or
    • The number of employees that the employer contemplates dismissing, together with the number of the employees that have been dismissed by reason of the employer’s operational requirements in the 12 months prior to the employer issuing a notice in terms of section 189 (3), is equal to or exceeds the relevant number specified above.

    In respect of dismissal that falls under section 189 (A), the employer must give notice of termination of employment in accordance with the provisions of section 189 (A). Despite section 65 (1) (c), employees have the right to strike or refer the matter to the Labour Court once notice has been given by the employer.

    The employer may not take a decision to dismiss during the first 30 days or give notice of termination of employment before 60 days lapsed.

    An employer must pay the retrenched employees severance pay equal to 1 week’s remuneration for each completed year of continuous year of service with the same employer. The employer does not have to pay if an employee unreasonably refuses to accept an offer of employment with the current employer or another employer (section 41 (2), 41 (4) of the Basic Condition of Employment Act No. 75 of 1997)

    It is important that an employee’s understand their rights when it comes to retrenchment and it is essential for employers to carefully apply the procedure of retrenchment. There must be fairness towards both the employer and employee.

    YAMBU Legal Protection deals with an assortment of Labour related matters and has successfully helped many of its clients protect their legal rights in the workplace.  For more information on how YAMBU can assist you in the future please go to our YAMBU Legal Protection Product page.


    Labour Relation Act No. 66 of 1995

    Basic Conditions of Employment Act No. 75 of 1997


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