
Retrenchments
15 July 2020 | Jean Vermaas
As the number of retrenchments begin to soar[1] as a result of companies suffering under the Covid-19 crisis, it becomes increasingly important for both employers and employees to understand the basic processes of retrenchment and how these processes are to be applied and regulated.
Retrenchment is generally considered a colloquial term for a dismissal as a result of operational requirements. Operational requirements can be interpreted as an economic reason used by the employer to reduce monthly wage bill[2] and bring down its overheads. It is important to note that there must be an economic reason, such as a loss of income due to forced closure during the nation’s lockdown.
It is important to note that should it be possible to attain the same goal, for example reducing the wage bill, by a different means the dismissal by operational requirements will be considered unfair and should be avoided[3].
The Labour Relations Act[4] under sections 189 and 189A govern dismissals as a result of operational requirements, the latter section is applicable where more than 50 employees are to be dismissed as a result of operational requirements.
For the purposes of this article we will focus on Section 189[5] and the applicable sections which will be briefly summarized and discussed below. Section 189(1)[6] in short prescribes that the employer must consult with the affected employees. Section189(2)[7] prescribes that the goal of the consultation in section 189(1) and notice in terms of section 189(3)[8], discussed below, is to reach a form of consensus to find measures which may avoid dismissals, minimise dismissals, change the timing of dismissals and to reduce the negative effects dismissals may have on the affected employee.
Section 189(20 further prescribes that consensus should be attempted to be reached on further aspects such as the selection of employees whom may be dismissed and what the severance pay must be.
Section 189(3)(a)-(j)[9] deals with the written notice and what it must contain. The notice can be generally considered to start the consultation process and must contain aspects such as reasons for the dismissal, any alternatives that were considered by the employer to avoid dismissals, the number of affected employees, the method which will be used to select the employees whom may be dismissed, the time period in which the dismissals will take place, proposed severance pay, any assistance the employer offers the affected employee, the possibility of future re-employment, the total number of employees employed by the employer and the number of employees dismissed by the employer in the last 12 months.
As mentioned above a dismissal by operational requirements, a retrenchment, is a consultative process and the employer must allow the employee to make representations to the employer during the retrenchment consultation process. The employee is allowed to request information from the employer in order to make these representations as complete as possible which will then be submitted to the employer.
Should an employee, be ultimately retrenched the employer must pay the employee an amount of severance pay. This amount is prescribed by section 41 of the Basic conditions of Employment Act[10] and the minimum amount prescribed is 1 weeks’ worth of remuneration for every completed year of service. It is to be noted that this is a minimum prescribed amount and some employers may offer larger “packages” to employees to either have the employee enter into a voluntary retrenchment or to “Soften the Blow” of the retrenchment itself.
It is noted that severance pay should only realistically discussed at the end of the process. Severance pay is over and above what the employee is entitled to have paid out upon dismissal payments like accumulated leave etc.
It is important to note that the employer may offer the affected employee an alternative position in the company structure and should the employee unreasonably refuse this position he or she is not entitled to severance pay[11] [12].
Should the employer not follow the correct procedure or should there not be a legitimate economic reason for the dismissal by operational requirements the employee may refer the matter to the CCMA or the Labour Court.
A dismissal by means of operational requirements is a complex process for both the employer and employee and it is advised that should you as an employee be retrenched or you as an employer find it necessary to begin the retrenchment process to seek legal advice in order to guide you through the process.
- https://mg.co.za/business/2020-06-29-possible-lockdown-retrenchments-are-already-soaring/ (Accessed on 13 July 2020)
- Workplace Law 10th Edition, Grogan, 2013, pg271
- Workplace Law 10th Edition, Grogan, 2013, pg271
- Act 66 of 1995
- Labour Relations Act 66 of 1995
- Labour Relations Act 66 of 1995
- Labour Relations Act 66 of 1995
- Labour Relations Act 66 of 1995
- Labour Relations Act 66 of 1995
- 75 of 1997
- Workplace Law 10th Edition, Grogan, 2013, Pg 288
- NEHAWU v SA Institute for medical research (1997) 2 BLLR 146 (IC)