Find out about the retrenchment of employees in South Africa. Do you need to send a retrenchment letter? How do you do it lawfully and fairly? What is the correct procedure to follow? How do you calculate retrenchment or severance pay? As much as no one enjoys terminating the employment of employees, even when based on the operational requirements of the organisation, there are times when you will not have a choice.
The key is to do it lawfully, carefully, and fairly, in strict compliance with labour laws. You must provide for reasonable notice, and depending on years of service, also severance pay. In South Africa, retrenchment is not the correct term – termination must be based on ‘operational requirements’, as defined, and is the correct term, but many practitioners still talk about retrenchments.
You need all the help you can get. Lawfully and fairly terminate the employment of employees based on genuine operational requirements, including economic, technological, structural or similar needs, by briefing us to:
- coach you through the statutory process,
- provide the necessary documents, and
- answer your questions.
What can be a reason for the retrenchment of employees?
There are many reasons, such as COVID-19 or AI. For example, you can lay off employees due to the economic effects of COVID-19 on your business. Importantly, though, it is usually only resorted to if there are no rational or reasonable alternatives. You are not prevented from restructuring or re-engineering your enterprise to make it more profitable. Employers should not be discouraged from ensuring that enterprises are sustainable, competitive, and profitable, so there is no need to prove that positions or jobs have become redundant.
Must I give written notice before retrenching?
Yes, you must commence the process in writing. When you contemplate the retrenchment of employees, you must notify the affected employees in writing and provide all the information specified in Section 189 of the Labour Relations Act, 1995 (LRA). Often this takes the form of a retrenchment letter.
How to retrench employees in South Africa?
Graham Giles, one of the most experienced and well-informed employment law attorneys in the country, says: “Employees do not have a right not to be dismissed. But they do have a right not to be unfairly dismissed. That requires a valid and fair reason after following a fair procedure.” This means that retrenchment is definitely an option, but only if you do it the right way.
You will unlawfully or unfairly dismiss your employees at your own peril.
What is the procedure for the retrenchment of employees?
The LRA requires a “meaningful joint consensus-seeking process” and good faith on both sides before any final decision is taken by senior management. This means you must meaningfully engage with the affected employees. You cannot simply make a unilateral decision and inform them. During the engagement process, employees are encouraged to ask questions and make representations. There may be questions about selection criteria and other alternatives. You are required to respond to the questions. Apart from the formal notice, you will be required to meet with the affected employees or, where applicable, their representatives (trade union or otherwise).
What are the risks of unlawful or unfair termination?
Besides reputational damage, there is the risk of an award of reinstatement or compensation, limited to 12 months’ salary. Dissatisfied former employees may refer a dispute to the CCMA or bargaining councils for conciliation and then arbitration. Indignant former employees might also act against you in other ways. It could also have a severely detrimental effect on staff morale.
What are the alternatives to retrenching employees?
During the current crisis, common law principles relating to the impossibility or illegality of performance apply and override legislation and employment agreements to a significant extent. Before or during the consensus-seeking process it may be possible to avoid termination by bringing forward leave, job-sharing, short-time working, unpaid leave or even early retirement. Some employers invite employees to apply for voluntary severance packages, whilst ensuring that the most productive or important employees do not leave.
Apart from some senior executives taking salary cuts, employers are also taking measures to reduce the cost curve and ensure that the pain is shared proportionally by all employees, thereby avoiding the need to lay off some employees.
There is a distinct danger of allowing valuable employees to go, and for that reason, senior management is not obliged to apply LIFO (last in, first out). If retrenchment is inevitable, it is essential to retain employees with specialised skills, knowledge and experience.
The same principles are being applied worldwide, except in the United States of America, where there are now over 30 million citizens seeking jobs or benefits. This is because, in general, there are no employment agreements, and workers are often let go without any prior process or valid and fair reasons. ‘Employment at will’ applies, which also means that workers are not entitled to any notice or severance pay, except in the unlikely event of an existing employment agreement that includes those rights.