The Retrenchment Process in South Africa

Retrenchment — legally called dismissal based on operational requirements — happens when an employer needs to reduce staff for economic, technological, structural or similar reasons. It is regulated by sections 189 and 189A of the Labour Relations Act 66 of 1995 (LRA), which require the process to be fair in both substance and procedure.

A fair reason is required

The employer must have a genuine operational reason — such as financial difficulty, restructuring, or the closure of a division. Retrenchment cannot be used as a disguise to remove a specific employee for other reasons; if it is, the dismissal will be unfair.

The consultation process

Before retrenching, the employer must consult with the affected employees or their representatives. Consultation must be a genuine, joint problem-solving exercise, not a formality. The employer must issue a written notice inviting consultation and disclose relevant information in writing.

• The reasons for the proposed retrenchments.
• Alternatives considered and why they were rejected.
• The number of employees likely to be affected and the selection criteria.
• The proposed severance pay and timing of the dismissals.

Selection criteria

Employees must be selected using fair and objective criteria, such as “last in, first out” (LIFO), skills, or retention of critical positions. The criteria should be agreed during consultation or, failing agreement, be fair and objective.

Severance pay

Under section 41 of the Basic Conditions of Employment Act, a retrenched employee is entitled to severance pay of at least one week’s remuneration for each completed year of continuous service. The employee is also entitled to notice pay and payment for accrued leave. An employee who unreasonably refuses a suitable alternative position may lose the right to severance pay.

Large-scale retrenchments

Section 189A applies to larger employers retrenching a significant number of employees. It allows for facilitation by the CCMA and gives employees additional options, including the right to strike or to refer a dispute about the fairness of the retrenchment to the Labour Court.

If you believe a retrenchment was unfair — for example because there was no real consultation or the reason was not genuine — you may refer a dispute to the CCMA or the Labour Court, generally within 30 days of the dismissal.