How to end the employment relationship in a fair manner where the employer needs to reduce the number of employees it employs, for operational, financial or technological reasons (retrenchment)

The law places certain duties on all employers that are considering the retrenchment of one or more employees. Before taking any decision to retrench, the employer is required to consult with employees. Consultation requires joint meaningful engagement in an attempt to reach agreement.

While some consultation sessions will result in agreements reached between the consulting parties, this is not always the situation. Of importance in all instances is that the process that is followed is fair and that the underlying reasons for the retrenchment can be justified in the circumstances.

What happens when a retrenchment agreement is concluded?

If the consulting parties reach agreement on the identity of those to be retrenched and the terms of retrenchment, an agreement should be drawn up and signed. This is always the preferable option, as once the agreement is signed; there is little chance of the matter being taken further, either to the CCMA, bargaining council, or the labour court.

What happens where no agreement is reached after consulting?

In the case of small-scale retrenchments, if the consultation process has been completed with no agreement reached, the employer may proceed with the retrenchment by giving written notice to the employees to be retrenched.

The notice period should be based on the employment contract of the employees, or if there is no provision in the contract, on the Basic Conditions of Employment Act 75 of 1997 (or bargaining council collective agreement, if applicable).

The employer has the option of requiring employees to work out their notice or requiring them to leave immediately and paying them out for the notice period.

Each employee should be paid a severance package of no less than one week’s remuneration per completed year of continuous service, together with and in addition to payment owing in respect of accrued leave, the final wage / salary payment, and any other amount owing by law or in terms of the employment contract.

The employee should be provided with a certificate of service and a letter of reference.

When will a retrenchment be fair?

In terms of our law, for a retrenchment to be fair, two requirements must be satisfied:

• The employer must have a fair reason for retrenching an employee; and
• The employer must also follow a fair procedure when carrying out the retrenchment.

What is a fair reason for retrenchment?

As a guideline, the following questions should be asked in order to determine whether there is a valid reason to retrench employees:

• Was the retrenchment a result of the employer’s economic, technological, structural or similar needs?
• Was the retrenchment operationally justifiable, concerned with the viability of the business and on rational grounds?
• Was there a proper consideration of alternatives including saving on operational costs other than labour?
• Were the selection criteria that the employer used fair and objective?

For the reason for the retrenchment to be fair, the answer to all the questions above should be “yes”.

What is a fair procedure to follow during the retrenchment process?

The requirements for the retrenchment procedure to be fair are as follows:

• There must be meaningful joint consultation process before employees are retrenched;
• There must be an attempt to reach consensus over certain matters;
• The employer must disclose information that is relevant to the proposed retrenchments;
• The employer must allow trade unions/employees to make representations;
• The employer must consider and respond to the representations;
• The employer must select employees for dismissal according to fair and objective criteria, or criteria that the parties have agreed on.

For the procedure to be fair all the requirements above must be complied with.