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WHAT IS RETRENCHMENT?

Retrenchment is a form of dismissal. However, it’s not due to a fault on the side of the employee (for example poor work performance). It is a process wherein the employer reviews the business needs, profitability and other operational factors in order to increase profits or limit losses. This, in most cases, means that the business must reduce employees.

This process is quite complex and requires “exhaustive” consultation with the affected employees or their representatives. The employer must give fair reasons for retrenching employees and follow a fair procedure when making such a decision. Thus, ensuring that they comply with the Labour Relations Act and the rights of their employees. If the proper reasons aren’t provided and proper procedures are not followed, the retrenchment may be considered unfair by the CCMA or Labour Court.

When may employees be retrenched?

Employers may only retrench if “Operational Requirements” necessitates it.

Operational requirements are requirements based on the economic, technological, structural, or other business needs of an employer.

Some examples are listed below:

  • Economic factors: Decline in sales or services. Closure of business. Economic recession.
  • Technological factors: New technology that can replace some employees to reduce cost.
  • Structural factors: Restructuring of the business. New ownership or a merger of two companies.

Fairness of the retrenchment:

When the court has to decide whether or not the employer’s decision to retrench was fair, it considers the avoidability of retrenchment, as well as the process that was followed. Thus, retrenchments should only be implemented as a last resort or if there are no alternative solutions.

What is considered to be a fair procedure for retrenchment?

 

Step 1 – Invitation to consult:

The employer must invite employees that are likely to be affected by the retrenchment, to attend a consultation and provide them with all the required information in order to consult meaningfully. The employer must openly and honestly discuss the reasons for retrenchments and those employees that may be affected. Employees will be able to provide alternative ideas and make suggestions. All necessary information must be disclosed during the consultation. Necessary information includes the timing, financial and emotional impact, selection process and other issues, as required by legislation. This should be a consensus-seeking process. The employer must respond to the consulting employees’ representations and suggestions. If the employer disagrees with the consulting employees, valid reasons for disagreement must be provided.

 

Step 2 – Notice of Retrenchment:

If retrenchment is unavoidable, the retrenchment process moves to the next phase. The employer must then select the employees to be dismissed based on fair selection criteria, or objective criteria that was agreed upon with the consulting employees. Possible selection criteria can include the principle of “last in, first out” (“LIFO”), length of service, skills, qualifications and/or experience. The law provides for additional requirements that must be met in the case where the business has more than 50 employees and is considering retrenching a significant portion of its employees.

Step 3 – Notice of Termination:

This notice will be the final notice given to the employee to end and terminate the working contract. Certain notice periods are required as per the BCEA or Bargaining Council agreements.

Payment packages offered to a retrenched employee:

As part of the retrenchment procedure, employees are entitled to payment packages, which can serve as a financial buffer while the employees look for new working opportunities.

A payment package can include different types of payments:

Severance pay – A retrenched employee must receive at least 1 week’s pay for each completed year of employment at the company. However, if there is a specified amount in the contract of the employee or in the policy of the company, the amount may be larger.

Leave – If the employee has leave that has not yet been taken, the amount for the number of days left must be paid out.

Notice pay – In the event that an employee doesn’t work the usual notice period before being retrenched, notice pay will be given:

    • if employed for less than 6 months, the employee must be paid 1 weeks’ notice pay;
    • if employed for more than 6 months but less than 1 year, the employee must be paid 2 weeks’ notice pay;
    • if employed for more than 1 year, the employee must be paid 4 weeks’ notice pay.
  • Other pay – There could be other arrangements in the employee’s contract that could be paid out, for example any pro-rata payment of a bonus, pension, etc.
  • A retrenched employee is also entitled to claim unemployment benefits (“UIF”).

Voluntary Retrenchments:

Voluntary retrenchments are when the employee enters into an agreement with the employer to be retrenched. Therefore, the employee will not be able to claim unfair dismissal or additional pay. However, in return, a retrenchment package will be accepted which includes severance pay, leave, and other payments according to the employment contract. Usually, such retrenchment packages include additional benefits. A legal agreement will exist on acceptance of such a voluntary retrenchment offer.

Unfair retrenchments:

Employees that have been unfairly retrenched can refer a dispute to the Commission for Conciliation, Mediation and Arbitration (“CCMA”) or a bargaining council. This dispute must be referred within 30 days from date of retrenchment. If the dispute is not resolved at conciliation, the general rule is that the employee may then refer the dispute to the Labour Court, however, there are certain limited instances where the CCMA retains jurisdiction to arbitrate retrenchment disputes.

In the Labour Court or CCMA, a decision can be made for the employee to be reinstated or compensated. Therefore, it is important to follow the correct procedures when commencing retrenchments.

 

NEASA is an employers’ organisation with professionals that can assist you during your retrenchment process with all the necessary documents, procedures and consultations, as well as attending to disputes at the CCMA. Give us a call today to become a member.

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SECTORAL DETERMINATIONS

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Sectoral Determination 12: Forestry Sector
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Sectoral Determination 13: Farm Worker Sector

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Sectoral Determination 14: Hospitality Workers

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Sectoral Determination 2: Civil Engineering Sector
 

 

 

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Sectoral Determination 6: Private Security Sector

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Sectoral Determination 7: Domestic Workers
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Sectoral Determination 9: Wholesale & Retail Sector
 

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SECTORAL DETERMINATIONS

Ministerial Determination For Small Business Sector

 

Sectoral Determination: Ministerial Determination For Small Business Sector (Website)

Sectoral Determination: Ministerial Determination For Small Business Sector (Website): View Link

Ministerial Determination For Small Business Sector (Contract)

Sectoral Determination 10: Children In The Performing Of Advertising, Artistic & Cultural Activities

 

Sectoral Determination 11: Taxi Sector

Sectoral Determination 11: Taxi Sector (Website): View Link

Sectoral Determination 11: Taxi Sector (Contract Template): Download

 

Sectoral Determination 12: Forestry Sector
Sectoral Determination 12: Forestry Sector (Website): View Link

Sectoral Determination 12: Forestry Sector (Contract-Template): Download

 

Sectoral Determination 13: Farm Worker Sector

Sectoral Determination 13: Farm Worker Sector (Website): View Link

Sectoral Determination 13: Farm Worker Sector (Contract-Template): Download

 

Sectoral Determination 14: Hospitality Workers

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Sectoral Determination 14: Hospitality Workers (Contract-Template): Download

 

Sectoral Determination 1: Contract Cleaning Sector
January 2018 - Contract Cleaning Sector Increase: View Link

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Sectoral Determination 1 Contract Cleaning Sector (Contract): Download

 

 

 

 

Sectoral Determination 2: Civil Engineering Sector
 

 

 

Sectoral Determination 2: Civil Engineering Sector (Website): View Link

 

Sectoral Determination 5: Learnerships
 

Sectoral Dermination 5: Learnerships (Agreement): Download

Sectoral Determinations 5: Learnerships (Contract): Download

Sectoral Determination 5: Learnerships (Website): View Link

Learnership Agreement

Contract Of Employment Learnership: Download

 

Sectoral Determination 6: Private Security Sector

Sectoral Determination 6: Private Security Sector (Website): View Link

Private Security Sector (Contract): Download

 

Sectoral Determination 7: Domestic Workers
January 2018 – Domestic Worker Sector Increase: View Link

Sectoral Determination 7: Domestic Workers (Website): View Link

Sectoral Determination 7: Domestic Workers (Contract-Template): Download

 

 

Sectoral Determination 9: Wholesale & Retail Sector
 

Sectoral Determination 9: Wholesale & Retail Sector (Website): View Link

Sectoral Determination 9: Wholesale & Retail Sector (Contract-Template): Download