Retrenchment South Africa: strategy, procedure and compensation 2019

Retrenchment South Africa: strategy, procedure and compensation 2019

The workplace can be quite an interesting place when you are having a good run, which usually comes with good tidings like bonuses and promotions. However, there are also bad experiences when you have to deal with the negatives such as cutbacks. If you are an employer, then you are also faced with the difficulties associated with implementing defensive strategies at the workplace. In such cases, both the worker and the employer need to have a good understanding of everything that entails retrenchment South Africa to avoid unfairness and unnecessary legal battles.

Retrenchment South Africa: strategy, procedure and compensation 2019

Image:, Christina Morillo (modified by author)
Source: UGC

Retrenchment happens when an employer dismisses an employee due to changing priorities and operational needs of the business. This option does not happen because a worker is at fault. It is essential for the employer to follow the correct retrenchment process as well as the cutback policy. According to the law, the employer is the one who is solely responsible for proving the fairness of retrenchment, and the employee needs to understand if the right protocol was followed. Therefore, this piece of writing is informative to both the employer and the employee.

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Fair retrenchment procedure in South Africa

In South Africa, the Labour Relations Act (LRA) clearly spells out the retrenchment procedure that must be adhered to correctly and in good faith by the employer. So, what steps should be followed for cutbacks to be considered fair?

1. Fair retrenchment process South Africa 2019 dictates that the employer has to issue a notice to the affected parties before engaging in talks with them. These consulting parties include those mentioned in the collective agreement as well as the registered trade union of the workers who will be affected by the move. In the event that there is no trade union, employees or their representatives must be consulted. The notice states the employer’s desire to retrench certain workers and provides necessary information for the employees to prepare them for any consultations. Some of the information the employer must include in the notice include:

  • Why the cutback is happening.
  • The number of total workers and how many employees will be affected by the downsizing.
  • Measures taken by the employer to avoid the retrenchment of the proposed employees. The employer should also explain why those measures were not accepted or failed and explain why the specific cutback method is appropriate.
  • The proposed compensation package for the affected staff.
  • Future employment possibilities for retrenched workers.
  • The number of staff members that the employer has retrenched within the past year.
  • The expected time when the workers can leave the company.

Keep in mind that the employees can always request more information from the employer if they feel that the provided information is insufficient. It all depends on the circumstances behind the retrenchment process and decisions.

2. The consulting party responds to the notice, if possible in writing. Consultation in the context of retrenchment South Africa simply means a dialogue to seek an agreement between the employer and the worker who will lose his/her job. The employer responds to the issues raised by the other party, in case he disagrees, and is required to come up with suggestions for the necessary terms and hopes to reach an agreement with the affected person. During the consultation, things like how the selection was made and the compensation for the affected workers should be discussed. During this actual consultation process, the parties involved must agree on other things such as how to:

  • Avoid or minimize retrenchment.
  • Change its timing.
  • Minimize the effects of the move.
  • Select workers that have to leave.
  • Severance pay.
Retrenchment South Africa: strategy, procedure and compensation 2019

Image:, Rebrand Cities
Source: UGC

For companies with over 50 employees, South African labour laws stipulate that a minimum number of employees can be retrenched as follows:

  • 50 - 200 workers: 10
  • 200 - 300 workers: 20
  • 300 - 400 workers: 30
  • 400 - 500 workers: 40
  • 500 and above workers: 50

If the employer targets to let go more than 50 employees, that number has to be added to the total number of employees that had to leave in the previous 12 months.

3. In case of a dispute:

  • The employees can strike.
  • The employer can lock out the workers.
  • The parties involved can change the periods for consultation or facilitation.

4. If requested by the employer or workers, the Commission for Conciliation, Mediation and Arbitration will appoint a facilitator after 15 days of issuance of the retrenchment letter. 60 days after the retrenchment notice and a facilitator is appointed. After that, several actions can be taken.

Possible reasons for employers not following the retrenchment policy

There are several reasons why an employer can decide to retrench an employee without following the proper procedure. These reasons include:

  • Disbelief about the power of the law.
  • Distraction arising from operational reasons that make the employer forget about the legality of a retrenchment.
  • Poor legal advice given to employers.
  • Some employers believe that they are above the law.
  • Sometimes, employers use retrenchment unlawfully to get rid of employees they consider undesirable.
  • The belief that the law will be lenient on them once it comes out that there was a good reason for the cutback.

As you may have speculated, none of the above is a good reason for an employer to throw the law out of the window in matters concerning retrenchment South Africa. In the eyes of the court, the employee is losing a job through no fault of his/her own and deserves fair treatment. Coupled with the fact that finding a new job is hard, a fair procedure is now more important than ever.

Retrenchment compensation in South Africa

What is a retrenchment package? The retrenchment policy in South Africa clearly states that the retrenched employees are entitled to certain compensation packages. These are:

  1. A severance package, which is usually an amount stipulated in an employee’s contract. Instead of a severance package, an employer can choose to give the retrenched employee alternative employment. If the employer declines the alternative employment, then he or she will miss out on the severance pay.
  2. Secondly, the employer must pay the employee for any leave or time off that the employee has not taken in that year. In addition to the leave package, the employer has to pay a notice pay to the employer depending on the length of time that the employee has been with the company. The notice pay can be either one, two, or four weeks’ notice payment. One week pay applies to employers that have been with the company for six months or less while the two weeks’ pay is for those who have been employed between six and 12 months. Anything more than that warrants the four weeks’ payment.
  3. The above payments aside, there is a possibility that the employee had certain clauses in the contract that may require payment in case of situations like retrenchment. These too have to be settled. Once the cutback is complete, then you as the retrenched employee will be entitled to the unemployment benefits from the government. The benefits are under the national Unemployment Insurance Fund for anyone who is unemployed. The unemployment benefits will become available to you within six months after your retrenchment if you have not found employment within two weeks of your retrenchment. For you to receive the benefit, you have to have the following:
  • Identity card.
  • The six most recent pay slips.
  • Proof of being a job-seeker from the Department of Labour.
  • A statement from your previous employer proving that you were retrenched.

What to do if you are unfairly retrenched

What is unfair retrenchment? This occurs when the right procedure is not followed. The law concerning retrenchment South Africa clearly states the way forward for employees to deal with employers who do not follow the appropriate policy. An employee can do the following:

  • Refer the case to a necessary authority within 30 days after the retrenchment.
  • Refer the case to the Labour Court if the matter escalates. The Labour Court can intervene for:
  1. A fair process to be followed
  2. Avoidance of the cutback
  3. Re-employment of the worker
  4. Proper compensation

The demands that the employee makes of the employer have to be within reason, that is, the employer has to be in a position to meet the demands. In addition, the employee has to understand that there is a limit to the compensation received. The compensation cannot exceed 12 months pay.

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In recent times, it is crucial for all parties to understand the processes, policies, and strategies of retrenchment South Africa so that protracted legal battles are avoided. In addition, it makes for a smoother transition and amicable parting between the two parties.



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