Given the tough economic times which currently prevail in South Africa, I get a lot of enquiries from employers who are forced to reduce the size of their workforce by way of retrenchments, and an equal number of enquiries from employees who are desperately trying to avoid losing their jobs due to a retrenchment.

This article will be the first in a series of articles containing useful questions and answers in regard to retrenchments.

Question 1:  What is a retrenchment?

A retrenchment is when an employer contemplates dismissing one or more of its employees based on the employer’s operational requirements. Operational requirements mean requirements based on the economic, technological, structural or similar needs of an employer.

A retrenchment must be for both a fair reason and after following a fair procedure.

If the reason is not fair, or the procedure is not fair, then a retrenchment will be regarded as unfair, and an employer may be ordered to reinstate, re-employed or compensate an employee up to 12 month’s salary for an unfair retrenchment.


Question 2: What is a fair reason for a retrenchment?

A retrenchment is for a fair reason if the reason is due to economic, technological, structural or similar needs of an employer.

Economic- this means, for example, that the business is experiencing financial difficulty which may be for a number of reasons, eg. that the amount of customers/orders has dropped, or that the business is experiencing cash-flow problems.

Technological- this, for example, refers to the fact that machinery now performs the functions that were previously performed by people eg. if a forklift is used for loading goods instead of using individual employees to load goods.

Structural- this means that an employer feels that the business model or the staff structure of the business should be re-arranged in order for the business to be more profitable and successful.

Similar needs – is any other situation which is like or the same as, an economic, technological or structural need.

One cannot retrench employees, or be retrenched if the issue at hand is, for example, absenteeism, dishonesty or poor work performance, as these do not fall under the category of operational requirements!!


Question 3: What is required in order for there to be a fair procedure in a case of a retrenchment?

s189 of the Labour Relations Act 66 of 1995 sets out the procedure that must be followed. Unlike disciplinary hearings for issues like dishonesty; or incapacity enquiries for issues of poor work performance, the retrenchment process takes the form of a joint consensus-seeking consultation process. However, it is very important to be aware that it is not just simply a matter of following a check-list approach – just because one can tick all the items listed in s189 does not necessarily make the procedure fair- what makes the process fair is that there is genuine and meaningful consultation on all of the issues which form the subject of the consultation process.


Question 4: How does a retrenchment process even start?

After an employer has assessed its business, and it contemplates or foresees that the number of staff may need to be reduced, then at the time that it first contemplates or foresees such possible reduction of staff, the employer must issue a notice inviting those employees who may be retrenched to participate in a consultation process, and that notice must not only set out the reason for the possible retrenchment(s), but it must also contain the information that is prescribed by s189 of the Labour Relations Act 66 of 1995.


Question 5 : Once an employee has been identified for possible retrenchment, does it mean that they will definitely be retrenched?

No it certainly does not mean that they will definitely be retrenched. The whole purpose of a consultation process is to determine [ with the input of the affected employee(s) ] whether there is a way that their retrenchment can be avoided. A retrenchment may be avoided by, for example, identifying another employee who should be retrenched rather than the person who has received the notice identifying them for possible retrenchment, or for example, demonstrating to the employer that the proposed new structure is actually not the best possible structure for the business, and that an alternative structure may be proposed which prevents retrenchments.


Question 6 : Is a retrenchment a dismissal ?

The answer is yes, a retrenchment is a dismissal, however it is regarded as a “no-fault” dismissal, which means that the reason for the dismissal is not due to anything that the employee has done wrong, but rather that the reason for the dismissal is something over which the employee has no control eg. the downturn in the economy.


As indicated above, this will be the first of a number of articles dealing with issues relating to retrenchment. Should you, however, have any questions relating to retrenchment that has not been dealt with, please do not hesitate to forward your questions to me.