Labour Law in South Africa

Understanding Labour Law in South Africa on the Issue of Retrenchments

The labour law in South Africa, and specifically the Labour Relations Act, governs how and when retrenchments can be made.

What is Seen as Retrenchment?

Under the labour law of South Africa, retrenchment is when the employer dismisses an employee as part of a process whereby the employer restructures the business to become more profitable or to reduce losses. The employee is thus not at fault, and the employer needs to reduce its labour force in order to achieve the business goals of reduction in losses or improvement in profits. The decision to retrench must be fair and the employer must still follow correct procedure according to the labour law requirements of South Africa.

Operational Requirements

Retrenchments may follow as part of the employer restructuring the business to meet the goals of profitability or reduction in losses. The employees are thus dismissed for operational requirements. It is thus a fair reason. The operational requirements must be based on technological, business needs or the economic needs of the employer.

If the employer, for instance, experiences a sudden drop in product sales and faces bankruptcy, the employer may have to retrench employees to ensure that the business has enough funds to carry on. Another example is where technological advances have made it possible for the employer to replace manual labour with more effective and economically efficient technology, in order to make the business more profitable. Restructuring the business to become more competitive in the market can also lead to retrenchments. The employer may want to reduce the workforce because some of its departments are no longer operational.


Simply retrenching employees for one of the above reasons doesn’t mean that the employer still complies with requirements of the labour laws of South Africa. Should there be a dispute, the Labour Court or CCMA, as relevant, decides whether the reason was valid and whether retrenchment was inevitable.

Fair Procedure

A fair reason and inevitability of retrenchment are not enough. The employer must also follow fair procedure according to labour law requirements. This also entails consultation with the affected employees or employee likely to be retrenched. The employer can, instead of consulting directly with the employees, consult with their trade unions, the workplace forums, or the elected representatives of the employees.

It is imperative that the employer invites the relevant parties to consultation by means of a written notice to the effect that includes the necessary information regarding the consultation process to follow. During this consultation process, the employer and employees, or their representatives must work together to find solutions regarding the contents of the notice. The employer, where there is disagreement about issues in the notice, states the reason for disagreeing with the employees or their said representatives.

The retrenchment criteria must be discussed with the consulting employees or their representatives, and retrenchment must be based on the agreed terms. As such, employees cannot be randomly selected without prior consultation. Once the consultation process is completed, and fair and objective selection criteria have been established regarding who will be retrenched, the employer must then issue a notice regarding the retrenchment to the relevant and affected employees. Keep in mind that if the employer has more than 50 workers, then the employer must follow additional steps, best discussed with our attorneys in labour law.

Details in the Notice to Consult

The notice regarding the proposed retrenchment must be in writing, and must include the reason for the retrenchment, the total number of employees likely to be retrenched, the positions of the employees, the selection criteria that the employer proposes to follow, the possibility of future employment of the proposed retrenched employees, and the number of workers who have been retrenched in the twelve months before. Other important details must also be included – best discussed with our labour law attorneys in South Africa.


The employer must pay severance pay, leave pay, notice pay where the employees are not expected to work the notice period, and other pay, such as bonus pay, stipulated in the employment contracts.

Where to Get Help

It is recommended to study the relevant labour laws on the issue of retrenchments and to get legal advice from labour law attorneys before you terminate employment contracts at your company. Contact us at or on (011) 234 2125 for legal assistance regarding retrenchments according to the requirements of labour law in South Africa


NB: 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.

Scroll to Top
Scroll to Top