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What the law says about retrenchment

Published Nov 30, 2016


This article was first published in the third quarter 2016 edition of Personal Finance magazine.


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Retrenchment is a specific legal process governed by sections 189 and 189A of the Labour Relations Act. Section 189A applies to employers with more than 50 employees and imposes onerous conditions on an employer that plans to retrench at least five percent of the workforce. Among these conditions is a restriction on the number of employees who can be retrenched relative to the number of employees in the company as a whole, a limit on the number who can be retrenched in a 12-month period, and the mandatory appointment of a facilitator.

Whereas section 189A applies to larger employers and multiple retrenchments, all employers are subject to section 189, which requires the employer to have justifiable operational reasons for any no-fault dismissal. These can be based on economic, technological, structural or similar need, including, for example, the introduction of technology that changes the skills needed by the company, financial changes to the business and posts becoming redundant because of changes in the nature of the business.

Your employer must participate in good-faith negotiations; a company cannot use retrenchment as a mechanism to get rid of problematic employees or unions. You must be consulted thoroughly before any decisions are taken, and the company should provide you with evidence that there is a genuine and valid reason for retrenching you, and share all pertinent information with you. And remember, even if you are the only person being retrenched, if you belong to a union that is recognised by your employer, your union representative can support you.

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Faced with the possibility of retrenchments, your employer’s first step is to give you a section 189 notice before a final decision is taken, notifying you that the company is considering retrenchment. This starts the consultation process. In this written notice, your company should give you:

* Reasons for the possible retrenchment;

* Alternatives that have been considered, and why these alternatives have been rejected;

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* The number of staff likely to be affected and their job categories;

* In the case of multiple retrenchments, the methods to be used to select the workers who will be retrenched;

* The time when, or the period during which, the dismissals are likely to take effect;

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* The severance pay proposed;

* Any proposed assistance, such as time off to go to job interviews, and/or the opportunity to improve your skills to make yourself employable elsewhere;

* Information about any prospect of re-employment in future;

* The number of employees in the company; and

* The number of employees retrenched because of operational requirements in the last 12 months.

The next step is consultation between you (or your union representative) and your employer. Called the joint consensus-seeking process in the Act, the point of it is to try to avoid dismissals and attempt to reach consensus on:

* Appropriate measures to avoid dismissals; minimise the number of dismissals if a department or a group of employees is affected; change the timing of the dismissals; and/or mitigate the adverse effects of the dismissals;

* The method for selecting the employees to be dismissed, if appropriate; and

* The severance pay for dismissed employees.

There should be more than two consultations – at least three or four. You can make representations, either in writing or orally, although it is best to do so in writing so there is a paper trail if you eventually go to court. If your company disagrees with your representations, it must give reasons for disagreeing.

When it comes to severance payouts, the law is that you receive the equivalent of one week’s pay for each year of continuous service, but your company may sweeten the deal by offering more.

Your company doesn’t have to pay you severance if it offers you a substantially similar position in terms of conditions of service and you refuse the offer. For example, your boss cannot offer you a position as a clerk if you are a manager, but he can offer you a position at a similar level with similar conditions of service to those you have now.

Of course, you can refuse retrenchment, which means the consultations have deadlocked. If you are the only person being retrenched, you can refer the dispute either to arbitration or to the Labour Court, irrespective of whether the retrenchment procedure complied with section 189.

If it is a section 189A retrenchment, you can also go on strike, subject to the laws on strikes; your company can lock you out; or you and your company can agree to change the consultation or facilitation periods. Under this section, the Commission for Conciliation, Mediation and Arbitration (CCMA) must appoint a facilitator 15 days after a retrenchment notice if it is asked to do so by the employer or most of the retrenched workers. If a facilitator is not appointed within that time, a party may refer the dispute to the commission once 30 days have lapsed from the date on which the notice was given.

The parties can go to the CCMA and then to court, where your employer must prove that the dismissal is fair, but by then you will have been retrenched. The court may order your company to reinstate you, or it may order it to pay you compensation if the reason for the retrenchment, or the process followed, has been inadequate.

Any leave owing to you is paid in the last salary. This is true for any pro rata bonus or staff savings – in fact, anything you are owed must be paid with the last salary. You will be paid out for your company shares, or the value of them, on the date of retrenchment. If you are not, you can take your company to court. Notice is usually one month, but this is dependent on your particular contract.

Pension or provident funds are external to the company, so you must make an arrangement with the insurance company that holds them.

Once you have been retrenched, you can apply for unemployment insurance. You have to apply to the Department of Labour for unemployment benefits within six months of becoming unemployed, and you can claim benefits for a maximum of 34 weeks (238 days), depending on how long you contributed to the Unemployment Insurance Fund.

You can also be re-employed by the same company. If you are employed by another company straight away, you will still receive your severance pay, because the retrenchment was not your fault.

It is worth remembering that trade unions will pay your legal fees, so if a union is active in your company, you are advised to join it.

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