By: Shenaaz Khan



In today’s economic climate, many employers are faced with the challenge of lowering expenses to ensure the continued viability of their businesses. This generally translates to culling redundant employees to reduce the wage bill. But how do you go about retrenching your employees and what will this cost?


The Labour Relations Act permits employers to dismiss employees for operational requirements. These are defined as requirements based on economic, technological, structural or similar needs of the Employer.


Economic reasons are those that relate to the finances of the enterprise. The most common scenario here is that a business is either breaking even or making a loss and needs to reduce expenses as soon as possible. Technological reasons refer to the introduction of new technology which makes existing jobs redundant. Introducing technologies in the workplace like software or machines that perform the functions of employees means there may no longer be a need for those employees. Structural reasons relate to the redundancy of posts consequent to a restructuring of the employer’s business, for example, a hardware store that closes down a division within its business or a company merging two departments.


The first step when considering a possible retrenchment is to consult with employees who may be affected by the retrenchment. This includes consultation with any trade union if the union’s members may be affected by the retrenchment. The purpose of this consultative process is for the parties to be aware of and reach consensus on certain issues.


The issues that need to be communicated are the reason(s) for the proposed retrenchment; alternatives to retrenchment being considered; number of employees being retrenched; the method of selecting employees; payments to be made to affected employees as well as other issues as stipulated by the Labour Relations Act.


All parties who have been consulted must be afforded an opportunity to make representations and provide feedback prior to any confirmation of the retrenchment. One of the critical aspects to cover in the consultation process is alternatives to avoid or minimise the retrenchments. There are many examples of alternatives but some include the introduction of short-time, employees may agree to a wage-cut, employees may be offered different posts within the business and voluntary retrenchment packages may be negotiated with employees.


The employer may not use retrenchment to target employees whom the employer does not want. That is why there must be a justifiable reason for the retrenchment and the selection criteria must be objective. The generally accepted criterion is the ‘last in first out’ principle, however there are exceptions to this like the retention of employees or skills which are fundamental to the continued viability or successful operation of the business.


In terms of payment to an employee who is retrenched, an employer is required to pay the employee’s salary up until the last day worked; any outstanding annual leave; severance pay and notice pay. Severance and notice pay may vary depending on the length of service. Securing reasonable alternative employment with another employer for your employee may nullify the need to pay severance.


Failing to follow the necessary procedures or retrenching employees without a bona fide reason may result in the employer landing themselves in hot water and having to pay a further sum of money or having to reinstate employees that were retrenched.


In summary, there must be a legitimate reason for the retrenchment, the procedure stipulated in the Labour Relations Act must be adhered to and there must be a meaningful consultative process before an employer effects a retrenchment. Employers are strongly advised to seek professional assistance when embarking on a retrenchment exercise.


Shenaaz Khan

Consultant at Labour Specialists Employer Solutions

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