Retrenchment: process and reason

It happens that an employer is in financial trouble, has to develop strategies to limit losses, or has to deal with a drastic change in the market that disrupts the entire business. These are good examples of situations in which retrenchment may be necessary. In a nutshell, the substantive requirement is completely justified: one cannot draw blood from a stone if the business simply does not have enough funds. But the second aspect of a legal retrenchment is the procedural requirements. When a dispute arises over retrenchment, both substantive and procedural requirements are considered.

Substantive requirements (the facts)

In terms of Section 189 of the Labour Relations Act (LRA), there are specific criteria that employers must meet before layoffs begin. These criteria include:


  • Operational requirements: Employers must show that there are genuine operational reasons necessitating retrenchment. These may include economic factors such as a decrease in revenue, technological advances resulting in restructuring, or changes in market conditions.


  • Selection criteria: Employers must establish fair and objective criteria for selecting employees for layoffs. This may include factors such as, among others, skills, qualifications, or years of service. Discrimination based on factors such as race, gender or trade union membership is strictly prohibited.


  • Alternative measures: Employers should explore alternatives to layoffs, such as offering voluntary severance packages, implementing shorter working hours, or moving employees to other positions within the business.


Dealing with the substantive issues requires consideration and planning from employers. It is essential to assess the business’s financial situation, explore all available options, and ensure transparency and fairness throughout the process.



Procedural requirements

The procedural requirements with retrenchment refer to the steps that employers must follow when considering layoffs. Legislation sets out a detailed procedure that employers must follow, which includes:


  • Notice and consultation: Employers must notify the affected employees and relevant trade unions or employee representatives of the proposed layoffs. This notice must include, among other things, the reasons for layoffs, the number of employees involved, and the expected timeline.


  • Consultation process: Employers must engage in a meaningful consultation process with affected employees and their representatives. This entails that relevant information is provided, alternative measures are considered and that there is sufficient time for discussions.


  • Joint decision-making: Employers and employee representatives are encouraged, where possible, to engage in joint decision-making regarding the retrenchment process. This may include: negotiating severance packages, investigating relocation opportunities, identifying training and other support for affected employees, and so on.


  • Notice and severance packages: Employers must notify the affected employees in writing of the layoff, as well as provide severance packages in accordance with the Basic Conditions of Employment Act. The notice period and severance packages are determined based on the employee’s years of service: one week’s wages for each completed year of service.
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By following the prescribed procedural steps, employers can ensure that they comply with legislation and reduce the risk of disputes. Effective communication, transparency and empathy are essential components of the procedural aspect of layoffs. Retrenchment is a complex and challenging process for both employers and employees. By understanding and addressing both the substantive and procedural issues set out in Section 189 of the LRA, employers can deal with retrenchment in a fair and responsible manner.


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