Retrenchment: What you need to know

terminated.jpgThe South African economy was in serious trouble even before the Covid-19 storm, but the devastating effect of the lockdown means that many businesses are having to retrench their employees.  This article is intended to provide some basic guidelines for businesses with fewer than 50 employees.

What is the difference between retrenchment and dismissal?

Retrenchment is a ‘no fault’ dismissal of the employee, based on operational requirements. For a retrenchment to be fair, it must be for a real reason e.g. a significant drop in sales; structural and/or technological changes and it must be unavoidable… a last resort.

A redundancy occurs when a specific position within a business is no longer required. This may be the case for businesses that are currently pivoting to adapt to new market demands. It is important to note that it is the position, not the person that is redundant and that retrenchment of the person may still be necessary.

What is the Process?

Retrenchment in South Africa is governed by the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA).

  1. As soon as the employer begins to consider retrenchment, a section 189(3) letter* must be issued disclosing all relevant information to all the relevant parties. (The employees most likely to be affected and/or their representatives). 

The notice/letter must contain the following information:

  1. The reasons for the proposed dismissals.
  2. The alternatives the employer has considered and the reason for rejecting.
  3. The number of employees likely to be affected.
  4. The proposed criteria for selecting employees to be dismissed.
  5. The likely date for dismissals to take effect.
  6. The proposed severance pay.
  7. Assistance offered to employees likely to be dismissed.

 

  1. Meaningful Consultation

A 30-day consultation period must cover ways to avoid retrenchment and to reduce the impact (e.g. reduced hours); the method of selection and the amount of severance pay. All parties must first reach consensus on the selection criteria and where no consensus can be reached, the employer must apply criteria that are fair and objective. (e.g. Last in, first out).

 

  1. Calculate the payments to be made
    1. Severance pay – The Labour Relations Act (LRA) requires that employees are paid out a minimum of 1 week ‘s remuneration for each completed and continuous year of service. (Different Bargaining Council agreements may apply.)

NB: Should an employee unreasonably refuse an offer of alternative employment he/she will not be entitled to a severance package.

  1. Outstanding leave owing, as per the employment contract or BCEA.
  2. Notice pay (If employed for less than six months – one week's notice; if employed for more than six months but not more than one year – two weeks' notice and if employed for more than a year – four weeks' notice.)
    1. Domestic and farm workers, who have been employed for more than six months, must receive four weeks’ notice.
    2. The employer may require employees to work/not to work during the notice period.
  3. Pro rata payment of bonus, pension and provident fund, depending on the contract.

 

  1. Inform and Terminate the employees

 

  1. The employer may not terminate until the 30 days’ consultation period has passed.
  2. The employer must also provide the employee with a written retrenchment letter, detailing the payments and the effective date. Employer’s should also assist with claiming unemployment insurance benefits. 
  3. In terms of CCMA Code of Good Practice on Operational Requirements, retrenched employees must be given the opportunity to be rehired should a similar position open with the company in the future or if their position changes.

 

Ultimately, retrenchments must be effected in a fair and transparent manner, only for relevant operational reasons.

 

*s189 of the Labour Relations Act, No 66 of 1995 (LRA)

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