Labour Law Retrenchment

What the Labour Law States About Retrenchment Procedures in South Africa

The labour laws in South Africa allow for the retrenchment of employees for valid reasons, such as the restructuring of a business.

It is imperative that the reason for retrenchment be valid and the correct procedures followed. It must be a situation that is unavoidable and it should only be implemented after due consultation with labour law attorneys and the employees.

Once the decision for retrenchment has been made, the employer must engage in conversation with employees to explain the situation, minimise the number of employees to be retrenched, and discuss the criteria for choosing employees to retrench. With it affecting the income earning ability and thus the livelihood of the employees, it is essential to make sure that the process is fair. To this end, it is highly recommended to seek legal advice on the matter.

According to labour law, retrenchment is only a valid option if it is for justifiable economical, technological, or business restructuring purposes. The consultation with employees can help to identify possible solutions, such as other ways to cut costs or improve profits.

The employer should notify the employees by means of a written memorandum. The memo should contain information about the nature of the scheduled meeting. Sufficient details should also be given regarding the reasons for retrenching employees. It must state what is to follow, who the affected parties are, and how the process is to take place.

During the consultation with the employees, the employer should be open to alternatives, such as salary reductions or lessening work. This is also best handled with the help of experienced labour law attorneys. It may be necessary for the employer and the employees to compromise, in order to minimise the effect on the workforce.

One of the challenges is deciding who to retrench. Here too, the employees must be consulted. The labour law does not allow for retrenchment as a means with which to dismiss workers for poor performance. It cannot be done in a discriminatory manner. If, for instance, the firm retrenches mostly black workers, it could be viewed as discrimination. This also counts for gender. It is thus essential to use fair criteria if you want to avoid being challenged for unfair dismissals and discrimination.

According to South African labour law, retrenchment issues must be decided by the employer and employees. It is thus imperative to reach a viable solution. The norm is to retrench the newest employees first, but the criteria can be set by both parties, as long as fairness is applied. This may be necessary to ensure that BEE targets can be reached. This, however, must be done with due consultation and notification, in order to avoid having to defend the decision in front of the CCMA or even in court.

Notice and Assistance

The employer should give employees sufficient time to find suitable employment. It is important to give notice of retrenchments early on and to help employees by means of written references and time off to find suitable employment.

Severance Pay

The employer should follow theminimum requirements regarding severance pay. As such, it is recommended to pay at least one week’s remuneration for every year of work. Larger employers often pay salaries of up to three months ahead as part of their severance packages. For small employers, this may not be financially possible, so they can keep to the minimum requirement of one week for every year worked. Keep in mind that if an employee is offered a similar position to his/her current position and the employee declines, the employer is not obliged to pay a severance package. This should also be communicated with the employees. Should the employee have a valid reason for not accepting the position, then the employer must still pay the severance package.

It is essential to follow the correct procedures, as the employer can be forced to reinstate retrenched employees or pay compensation, which can be far more than would have been the case if the correct procedure was followed.

Seek Legal Guidance to Avoid Mistakes

Retrenching employees can be a difficult decision and a challenging time in your business. Make sure that you follow the correct retrenchment procedures, in order to avoid the above. Call us on 011 234 215 for labour law guidance.

*This article is for information purposes only and does not constitute legal advice. You are advised to consult with us before using/relying on this information.

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