The Labour Relations Act permits employers to dismiss employees for operational requirements and provides that an employer must pay an employee dismissed for operational requirements “severance pay” equal to at least one week’s remuneration for each completed year of service with that employer.
In the first stage of a retrenchment process, it is acceptable for an employer to offer employees who might otherwise be selected by the employer a sweetened retrenchment package to opt to be one of the selected employees to go first. This is in advance of the employer making the actual and difficult selection of the remaining employees. This is part of the retrenchment process and does not make this first stage of retrenchment into a resignation, which would be a voluntary act of terminating service. It is the first stage of the retrenchment process.
There is no difference in law between “voluntary retrenchment” and “involuntary retrenchment”. The employee has been retrenched.
Questions always arise in connection with the tax treatment of a severance benefit paid by an employer or a retirement fund upon retrenchment. It is important to note that the Income Tax Act does not use the word “retrenchment” at all. The word “retrenchment” is a labour law term.