Retrenchment – what? when? how?

All employers have two goals: to make a profit and be sustainable. Employers should therefore consistently evaluate all factors that can have an influence on the long term success of the business in order to create a cost effective environment enabling the business to stay competitive within the market.  Retrenchment is the process where an employee’s position becomes redundant and is therefore dismissed. Retrenchment is a no fault dismissal, as the employee did nothing wrong and dismissal is due to operational requirements. As with all dismissals, the retrenchment process must be both substantively and procedurally fair.

Substantive fairness – for what reasons can the employer retrench employees?

There are three basic reasons that can lead to retrenchment:

  • Economic reasons
    This refers to when a business is no longer in the financial position to employ all current employees any longer due to a variety of reasons that can include the minimum wage, economy, recent drought, amended legislation impacting on the cost of doing business, entry of competitors into the market, etc.
  • Technological reasons
    Progress in a sector often introduces new technology that can result in making existing jobs redundant. Progress can refer to new techniques and methods of completing tasks quicker, technological inventions, new machinery and mechanisation that can have a direct impact on the number of employees needed.
  • Structural reasons
    For a business to adjust to a changing environment whether due to challenges or progress, restructuring takes place regarding changes in the workforce, which can lead to positions becoming redundant. Structural changes can also follow when a business makes strategic changes in terms of its vision and goals. When a business makes structural changes, these changes are reflected in the organogram or organisational chart.

Procedural fairness – following the right procedure

The Labour Relations Act (LRA) specifies a very strict procedure which is crucial to follow regarding retrenchment. It is important that employers take note that the terms and conditions of employment may not be amended unilaterally. Steps to be followed in the retrenchment procedure should always include:

  • Notifying employees
    If after careful consideration of all circumstances, the employer decides to proceed with retrenchment as a last option, employees must be notified by means of a written memorandum, that must contain specific information as per the LRA, giving employees at least 48 hours’ notice enabling them to prepare for the consultation with regards to other workable solutions and general input. If an employee is a member of a trade union, the trade union should also be notified.
  • Consultation
    Consultation allows both parties to engage in discussions to consider alternatives to retrenchment, minimise retrenchments, establish timeframes and reduce the negative impact of retrenchment. The employer should in all good faith keep an open mind throughout the process and seriously consider proposals put forward by employees. Meetings should be held individually with all possibly affected employees as well as the trade union where applicable.
  • Implementation after consensus
    The LRA does not define the period over which consultations should extend, but parties must keep consulting and engage in discussions until consensus is reached. If no alternative to retrenchment was identified and the employer has no other option but to proceed with the retrenchment process, retrenched employees are entitled to the following payments where applicable:  
    • severance pay;
    • notice pay;
    • outstanding leave; and
    • any other outstanding amount the employee is entitled to

Most cases referred to the Commission for Conciliation, Mediation and Arbitration (CCMA) pertain to unfair dismissal. Employees are more informed about their rights and the procedures to follow when they feel they have been wronged by the employer. In general arbitration awards in favour of the employee are due to the lack of following correct procedure on the employer’s behalf.

We strongly advise employers to implement clear rules in the workplace and follow correct procedures with regards to all labour matters, especially dismissal, retrenchment and general discipline in the workplace, by acting proactively.

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LWO Regsadviseur - LWO Legal Advisor

LWO Regsadviseur - LWO Legal Advisor

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