Retrenchment is a strategy that is adopted when an organization aims at reducing operations in order to cut expenses and attain a more stable financial position. In most cases, it involves reducing the number of workers, but it can also involve reducing the number of business operations.
Securing employment comes with plenty of benefits such as an assured constant monthly income, promotions and various bonuses. However, during retrenchment, these benefits can all be lost due to the cutbacks.
At such instances, both the employer and the worker need to have a good understanding of everything concerning retrenchment in South Africa and avoid unfairness.
Retrenchment procedure in South Africa
Retrenchment doesn’t happen because a worker has done a mistake whose consequences amount to being laid off. Rather, it happens due to change in priorities and operational needs of the business.
It is normal for companies to run into hardships that necessitate downsizing. Companies may also change their production goals and render some department redundant.
In this case, the employer is the one who is responsible to provide fairness in the retrenchment process.
In South Africa, the retrenchment procedure is outlined in the Labour Relations Act (LRA) and it is a requirement for employers to adhere to these guidelines.
So, what are those steps?
Steps in the retrenchment process
1. Issuing of Notice by the employer
The employer is required to issue a notice to all workers who will be affected before the actual retrenchment process begins.
In the notice, the employer must also state the reasons for the lay off and provide any other necessary information to prepare the employees for consultations.
Other information that should be highlighted in the notice include;
Number of workers that will be affected
Compensation for the affected workers
Future employment possibilities for the affected workers
The expected time for the workers to leave the company
Section 189 of the Labour Relations Act requires all consulting parties to reach consensus on the various matters specified. During consultation, the employer listens and responds to issues raised by the worker(s) who are about to be laid off.
Such issues may be; how the selection was made, if there is any possibility of re-employment, avoiding dismissal, appropriate measures to minimize dismissals, measures to change the timing of the dismissals, appropriate measures to mitigate the effects of retrenchment, and compensation for the affected workers.
3. Notices of termination
After the end of the consultation process, employees who are to be retrenched are issued with notices.
4. Severance pay
According to South African labour laws, employees who are retrenched for operational requirements are entitled to severance pay, hence the employers pay the employee dismissed for operational requirements.
This may however not be provided if the retrenchment is as a result of the company collapsing or going bankrupt.
The employer must pay the entrenched employee the following payments
Any outstanding leave.
What is the minimum number of employees that can be entrenched?
South African labour laws stipulate the minimum number of employees that can undergo retrenchment. This number depends on the total number of workers in the company.
For instance, only 10 employees can be entrenched in a company with workers between 50-200, whereas, a maximum of 50 workers can undergo entrenchment in a company with over 500 workers.