Section 189 of the Labour Relations Act (“LRA”) permits employers to dismiss employees for operational requirements. These are defined as requirements based on economic, technological, structural or similar needs of the employer.
An employer who employs 50 or less employees are subject to the process set out in section 189 of the LRA, which sets out the procedural and substantive obligations placed on the employer to maintain a fair retrenchment process.
The following is a high-level summary of the prescribed retrenchment process:
Like all dismissals, retrenchments must be both procedurally and substantively fair. Section 189 of the LRA requires all consulting parties to reach consensus on the various matters (specified below).
The LRA requires that consultation must take place when the employer contemplates retrenchment. The consultation is a process and not a once-off meeting.
Section 189(1) of the LRA provides that, before retrenching, employers must consult any person whom the employer is required to consult in terms of any collective agreement that may be in force. If there is no collective agreement, meetings should be held with all employees that could be affected by the retrenchment.
Section 189(2) of the LRA states that the consulting parties must attempt to reach consensus on the following matters:
- The possibility of avoiding the dismissal i.e. alternatives to dismissal;
- Appropriate measures to minimize the dismissals;
- Measures to change the timing of the dismissals;
- Appropriate measures to mitigate the effects of retrenchment;
- The method for selecting the employees to be dismissed; and
- Severance Pay.
2. Notification of Retrenchment
The LRA provides for the disclosure of certain information by the employer on matters relevant to the consultation. Although the matters, in respect of which information for the purposes of consultation is required, are specified in section 189(3) of the LRA, the list in that section is not a closed one. If considerations, other than those that are listed, are relevant to the proposed dismissal or the development of alternative proposals, they should be disclosed to the consulting party.
Section 189 (3) of the LRA requires the employer to disclose in writing to the employees or their unions (where applicable) all relevant information including but not limited to:
- The reasons for the Retrenchment
- Alternatives to dismissal that were considered and the reasons why they were rejected
- The number of employees likely to be affected
- Proposed method of selection
- Severance pay
- Assistance that the employer will be offering
- Possibility of future re-employment
The notice will also serve as an invitation to consult between the parties.
3. Opportunity for feedback
The employer must allow the affected employee the opportunity to make representations in relation to the proposed retrenchment, oral or written. If the employee makes representations in writing, the employer must respond in writing.
4. Criteria for selection
Section 189(7) of the LRA provides that employers may select employees to be retrenched according to the criteria they have agreed upon by the consulting parties. If no criteria have been agreed upon, that the selection must be fair and objective, the LIFO (“last in, first out”) principal is often applied but is not the only principal.
5. Notices of termination
The employer must issue notices to the employees, who have been selected to be retrenched, after the consultation process has been completed.
6. Severance pay
Employees are entitled to receive severance pay only if they are retrenched for operational requirements. The requirements regarding severance pay are set out in section 41 of the Basic Conditions of Employment Act (“BCEA”). Section 41 of the BCEA provides that an employer must pay an employee who has been dismissed for operational requirements “severance pay equal to at least one week’s remuneration for each completed year of service with that employer”.
The employer must pay the retrenched employee the following payments:
- Severance pay;
- Any outstanding leave due (up to date of dismissal); and
- Notice pay (either in terms of the BCEA or as per employment contract).
The Constitution of the Republic of South Africa requires fairness to be the compass of these processes.
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This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)