Retrenchment – You could be next!

retrenchment procedure
11 Jan 2021

We break down and help you understand the retrenchment process

In this article, the retrenchment process is fully explained. We offer you guidance on how to deal with retrenchment and help you understand your rights.

What are your rights?

There are 4 possible reasons for an employee’s dismissal: misconduct, poor performance, incapacity (sickness etc.), or retrenchment. The first three types of dismissal happen because of the employee’s conduct or health. Retrenchment, on the other hand, has nothing to do with the employee’s conduct or health, but is due to the employer’s business situation, for example, an economic downturn. In this case, an employer may reduce its staff to improve its economic position.

When can an employer retrench its employees?

The LRA (Labour relations Act) states that an employer can dismiss employees because of “operational requirements”. This is defined as “economic, technological, structural or similar needs”. This simply means that the employer must have a real economic or business reason for retrenching employees, such as:

  • a downturn in the economy
  • a drop in demand for a business’s products or services
  • new technology which replaces workers at less cost

The retrenchment procedure

In addition to having a fair reason to retrench employees, the employer must follow a fair procedure. The main elements of this procedure are: a) issuing a written Notice of Retrenchment to the employees, and b) consultations between the parties.

The Retrenchment Notice in terms of section 189(3) of the LRA

Before retrenching, the employer must give a written notice of retrenchment to the employees (or their representatives). The notice must contain information, such as the reasons for the proposed retrenchment, the number of employees to be dismissed and details of the severance package.


The most important part of the retrenchment procedure involves consultations between the employer and the employees – the goal being to agree on ways to avoid or at least reduce the size of the retrenchment.

In addition to the employer and the employee, the consultations may involve other parties acting on behalf of the employee, such as workplace forums or unions.

The employer must give the employees or their representatives enough information to allow them to negotiate meaningfully with the employer.

Employer’s duty to attempt to avoid or minimise retrenchment

An employer can only retrench workers if it is the only reasonable option. The employees may suggest ways in which the retrenchments can be avoided, such as:

  • Putting a hold on the hiring of new employees
  • Placing employees on short-time work. That is, having employees work less time per day
  • Transfer of employees to other jobs within the business

Which employees to retrench

The most common method for selecting which employees to retrench is the LIFO principle (“last in – first out”). This means the most recently hired employees will be the first chosen for retrenchment. Other selection principles include the length of service, performance and qualifications.

The retrenchment package

The employer is legally obligated to pay retrenched employees “severance pay”, being one week’s pay for each completed year of service. This amount may be higher if the employee’s contract says so, or if the industry rate is higher due to a Collective Agreement.

In addition to severance pay, a retrenched employee must be paid

Does an employer have a duty to mitigate the effects of retrenchments?

Forms of assistance such as providing psychological counselling to employees are voluntary and an employer is not legally obliged to do them.

Can you challenge your retrenchment at the CCMA (“Commission for Conciliation, Mediation and Arbitration”)?

If more than one employee has been retrenched then employees must refer the matter to the Labour Court.

If you are retrenched without a fair reason and/or a fair procedure, you can contest the retrenchment at the CCMA or the relevant Bargaining Counsel (if applicable). If the retrenchment is found to be unfair, you will be reinstated or receive compensation.

What if your employer shuts down temporarily due to Covid-19?

If you lose your job temporarily because your employer shuts down temporarily due to COVID-19, you may be paid for up to three months in terms of the TERS Scheme (“Temporary Employer/Employee Relief Scheme”).

When can an employer give notice of termination?

In terms of s189A(7)(a) of the LRA, an employer can only give a notice of termination once the 60 day period for consultation has lapsed and provided that the consultation process has been exhausted.

In summary – should you face retrenchment – these are your rights:

  • Your employer must give you a written Notice of Retrenchment.
  • Your employer must consult with you (or your representative) before reaching a final decision to retrench you.
  • Your employer must provide you with sufficient information to conduct the consultations properly.
  • Your employer must use a fair and objective method for deciding which employees to retrench.
  • If your employer retrenches you, you must receive a retrenchment package.

If your rights to a fair retrenchment have not been upheld, you can challenge the legality of the retrenchment at the CCMA or relevant Bargaining Counsel. Before you act, be sure to contact your Legal and Tax Advisor, who will assess your case and advise you as to the best course of action.

With Legal&Tax you’re not alone

Contact us for expert legal advice and assistance with your retrenchment or other labour matters. For more information, click here or click the “Send a legal query” button below.

Article sourced from Legal&Tax.

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(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
Nadia Hadebe

Nadia Hadebe is a legal advisor at Legal&Tax. Read more about Nadia Hadebe


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