by Brian Robertson

Embarking on a restructuring program necessitating the retrenchment of staff is one of the most harrowing, complex exercises an organisation can go through. It requires compassion, consultation, empathy and a clear understanding of what your legal obligations are.

I recently wrote a post on the psychological and compassionate aspect of retrenchments. This article addresses the legal requirements of S189.

Once an organisation has made the decision to retrench, the culture of the organisation will alter significantly – forever. Leadership will assume a higher than usual profile. be judged and be held accountable. Leaders will be expected to act in a manner that is transparent and fair maintaining the trust of the employees who remain. Rebuilding organisational culture is possible but it requires sensitive insight and understanding.

Let’s begin by defining retrenchment. Retrenchment is termed a “no-fault dismissal” as it is a form of dismissal due to no fault of the employee – it is not performance nor conduct related.

Restructuring starts with the employer reviewing the organisation to determine whether it is fit for purpose. If not, this could lead to restructuring and possibly reducing the number of employees.

In doing so, the employer must:

  • Give fair reasons for retrenching (substantive fairness) and
  • Follow a fair procedure (procedural fairness).

Once an employer has made the decision to retrench, the process to be followed is referred to as retrenchment based on “operational requirements”.

Operational requirements mean requirements based on the economic, technological, structural, or financial needs of the organisation.

An example of economic needs would include:

  • A drop in sales or services of the employer leading to reduced income;
    • The closure of business;
    • An example of technological needs would include new technology developed that can replace some employees;
    • An example of structural needs would include restructuring a portion of the business no longer profitable;
    • An extraordinary event such as Covid-19 and the economic impact of lockdown.

Once the employer has decided to follow Section 189 Operational Requirements procedure, they must ensure they follow the procedure outlined in Section 189(2)

  • The employer must consult with the employees who are likely to be affected by the retrenchment, or their workplace forum, registered trade union or elected representatives, or any person elected in terms of a collective agreement.
  • The employer must issue a written notice inviting the consulting employees to consult and disclosing all the necessary information for such consultation. The content to be discussed is advised in Section 189(3)
  • This notice must be in writing and contain the necessary information for the consulting employees to make representations at the consultation.
  • The necessary information includes, but is not limited to:
    • the reasons for the proposed retrenchment;
    • options considered by the employer to avoid the proposed retrenchment and the reasons for rejecting these options;
    • the number of employees likely to be affected and their positions;
    • the proposed selection criteria for selecting employees for retrenchment;
    • the time when the retrenchment is likely to take effect;
    • the proposed severance pay*;
    • any assistance that the employer proposes to offer the employees who are retrenched;
    • the possibility of future employment of the employees who may be retrenched;
    • the number of employees of the employer; and/or
    • the number of employees that have been retrenched for the last 12 months.

*  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”. However, if an employee refuses alternative employment with the employer or other employer s/he will not be entitled to severance pay.

Leave – an amount of money equal to the annual leave, or time off, that has not yet been taken by the employee must be paid out.

Notice pay instead of working the employee’s notice period –

  • if the employee was employed for less than 6 months, s/he must be paid 1 weeks’ notice pay;
  • if the employee was employed for more than 6 months but less than 1 year, s/he must be paid 2 weeks’ notice pay;
  • if the employee was employed for more than 1 year, s/he must be paid 4 weeks’ notice pay.

Other pay – depending on the employment contract this would be any pro-rata payment of a bonus, pension and so on.

Once an employee is retrenched, s/he is entitled to claim unemployment benefits (“UIF”).

  • The employer and consulting employees must now engage in a consensus-seeking process on certain matters contained in the notice.
  • The employer must allow the consulting employees to make representations about the matters contained in the notice and other matters relating to the proposed retrenchment.
  • The employer must respond to the consulting employees’ representations. If the employer disagrees with the consulting employees, it must state the reasons for disagreeing with them.
  • The employer must select the employees to be dismissed based on a selection criterion agreed with the consulting employees or a selection criterion that is fair and objective. Recommendations regarding selection criteria can be found in Section 189(7)
  • After the consultation process has been exhausted, the employer may make its decision to retrench, and then issue a notice of retrenchment to the affected employees.

The law provides for additional procedures that the employer, employing more than 50 employees, must follow when making a decision to retrench. This falls under Section 189A

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