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Retrenchments Part 1

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Retrenchments Part 1

Retrenchments – Part 1 An Overview

Employers must have a very good reason to retrench employee(s) and they need to ensure that they follow the correct procedure.

The Courts often make orders against employers to reinstate retrenched employees, with or without back pay, or pay compensation to the retrenched employee(s), which can amount to hundred of thousand of rands.

The procedures that employers need to follow are specified in Section 189 and Section 189A of the Labour Relations Act (LRA). It should be noted that the LRA does not refer to retrenchments, but to dismissals based on the operational requirements of the employer.

These operational requirements are listed in the LRA as economic, technological, structural or similar needs of the employer. Employers must evaluate the need to retrench employees very carefully, as the reasons must be fair and valid and the employer must follow a fair procedure


When the employer has a fair and valid reason to dismiss an employee, and the employer follows a fair reason, then the retrenchment will be substantively and procedurally fair.

Examples of fair and valid reasons for an employer to retrench an employee:

Where processes are automated and manual labour is no longer required;

employers are no longer profitable or are suffering losses;

in order for the employer to be more profitable (it is not necessary for the employer to be suffering losses).

Always read the provisions of the LRA as large scale retrenchments and the retrenchment of just one employee is dealt with differently.

From a procedural point, when an employer contemplates retrenchments, the employer must consult with the employees. No disciplinary hearings are held, as dismissals for operational requirements are not fault base it is not the employees fault that they are getting retrenched


Consultation must take place in the form of a hierarchy – with:

any person that an employer is obliged to consult with in terms of a collective agreement;

if there is no collective agreement in place, with a workplace forum, if there is one applicable for the employees that the employer proposes retrenching;

if there is no workplace forum as stated above, then consultation must take place with any registered trade union whose members are likely to be affected by the proposed retrenchment;

If there is no such trade union, then the affected employees likely to be effected by the proposed dismissals or their nominated representative must be consulted with.

During the consultation process, the parties must attempt to reach consensus on:-

Appropriate measures

to avoid the dismissals;

to minimise the number of dismissals;

to change the timing of the dismissals;

to mitigate the adverse effects of the dismissals.

The method for selecting the employees to be dismissed, and the severance pay for dismissed employees.

The employer must disclose in writing to the other consulting party all relevant information, including but not limited to –

Reason for the proposed retrenchment;

Alternatives that the employer considered before proposing the dismissals and the reasons why the employer rejected each of those alternatives;

The number of employees likely to be effected and the categories in which they are employed;

The proposed method for selecting which employees to dismiss;

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

the severance pay proposed;

any assistance that the employer proposes to offer to the employees likely to be dismissed; and

the possibility of future re-employment of the employees who are dismissed.

The employer must allow the other consulting party, whether in terms of a collective agreement, workplace forum, trade union or the employees themselves,

an opportunity during consultation to make representations about any related matter.

The employer must consider and respond to the representations made. If the employer does not agree with the representations, then the employer must state his reason for disagreeing.

If the employees make written representations, then the employer must respond in writing.

The parties must aim to agree on the criteria to be used for selecting employees to be retrenched. If the parties cannot agree, then they must use criteria thatis fair and objective, such as the LIFO (last in, first out) principle.

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