Retrenchments in South Africa: Employer Guidelines for a Fair Process

Retrenchment is one of the most challenging decisions an employer can face. While businesses may need to reduce their workforce due to financial pressures, restructuring, or operational changes, the process must be handled fairly and in line with South African labour laws. Failure to follow proper retrenchment procedures can lead to costly legal disputes and reputational damage.

If you’re an employer considering retrenchments, this guide will help you navigate the process while ensuring compliance with the Labour Relations Act (LRA).

What is Retrenchment?   

Retrenchment is the termination of employment due to operational requirements – not misconduct or poor performance. Operational requirements include:

• Economic Reasons: Declining profits, financial strain, or budget cuts.

• Technological Reasons: Implementation of new technology that reduces the need for manual labour.

• Structural Reasons: Business restructuring, mergers, or downsizing.

Under Section 189 of the LRA, retrenchments must be procedural, fair, and necessary. Employers must prove that the decision is legitimate and that all alternatives have been explored before proceeding.

The Fair Retrenchment Process in South Africa   

To avoid unfair dismissal claims at the Commission for Conciliation, Mediation, and Arbitration (CCMA), employers must follow these key steps:

1. Notify Affected Employees in Writing   

Employees must receive a written notice explaining:

• The reasons for the retrenchment.

• The number of employees affected.

• The criteria that was used to select employees for retrenchment.

• Possible alternatives to retrenchment that were considered.

• The severance package and other entitlements.

This notice is the first step in consultation and must be provided before any final decisions are made.

2. Engage in a Meaningful Consultation Process   

Retrenchments should be a last resort. Before proceeding, employers must engage in consultation with affected employees, trade unions, or workplace forums. This consultation should cover:

✅ Ways to avoid retrenchment (e.g., salary reductions, shorter workweeks, or internal transfers).
✅ How to minimise the impact on employees.
✅ The selection criteria (e.g., “last in, first out” (LIFO), skills-based selection, or voluntary retrenchment).
✅ Severance pay and benefits.

Consultation must be genuine and transparent, allowing employees to give input before a final decision is made.

3. Apply Fair Selection Criteria   

Employers must use fair and objective criteria to decide who will be retrenched. Common selection methods include:

• Last In, First Out (LIFO): The most recently hired employees are retrenched first.

• Skills and Performance-Based Selection: Employees with essential skills may be retained over those with less critical roles.

• Voluntary Retrenchment: Employees may be given the option to take voluntary retrenchment packages.

Whichever method is used, it must be fair and non-discriminatory.

4. Offer a Legally Compliant Severance Package   

Employees who are retrenched are entitled to severance pay in line with the Basic Conditions of Employment Act (BCEA). This includes:

💰 Severance Pay: At least one week’s salary per completed year of service.
💰 Notice Pay: Based on employment contracts or BCEA requirements (e.g., one month’s notice).
💰 Outstanding Leave Pay: Payment for any unused annual leave.
💰 UIF Benefits: Employees can claim from the Unemployment Insurance Fund (UIF).

Employers are not required to pay severance if the employee declines alternative employment within the company.

5. Issue Retrenchment Letters and Provide Support   

Once the process is complete, employers must provide employees with formal retrenchment letters. This should confirm:

📌 The final date of employment.
📌 The severance package details.
📌 A UI-19 form for UIF claims.

Where possible, employers should also assist employees in finding alternative work, offering skills training, or providing recommendations.

What Happens if the Process is Unfair?  

Employees who believe they were unfairly retrenched can refer the dispute to the CCMA within 30 days of dismissal. If the CCMA finds the retrenchment to be unfair, it may order:

• Reinstatement of the employee.

• Compensation (up to 12 months’ salary).

• An amendment to severance terms.

To avoid legal risks, employers must ensure retrenchments are procedurally and substantively fair.

Final Thoughts: Ensuring a Fair Retrenchment Process  

Retrenchments should always be a last resort, handled with transparency, fairness, and empathy. Following the correct legal process under the Labour Relations Act is crucial to avoid disputes and protect your business from potential legal claims.

Need Guidance on Retrenchments?  

If you’re considering retrenchments and want to ensure compliance with South African labour laws, Chamlabour is here to help. Our expert consultants will guide you through the process, ensuring fairness while protecting your business.

Contact us today for professional retrenchment assistance.