A retrenchment is a form of dismissal from your job. It’s important to note that you are not being fired; meaning, this isn’t your fault. It usually means a company has reviewed their business needs and operational requirements and has come to the conclusion that for the business to survive, it needs to reduce the number of employees to increase profits or limit further losses.
Of course, this process isn’t just as simple as informing an employee of their retrenchment and giving them a month’s notice. The employer must, amongst others, give fair reasons for the retrenchment and follow the legal procedure to ensure labour laws are not broken and rights infringed upon.
What is meant by a company’s “operational requirements”?
Simply put, this refers to what the business needs to keep its doors open or significantly reduce losses. The specific requirements can be influenced by the economy (has there been a drop in sales or is the company facing imminent closure?); technological (can employees be replaced by an automated process or technological developments); or structural (is the company getting a “makeover” and restructuring its processes?).
A fair retrenchment process and your legal rights in South Africa.
As mentioned before, being retrenched isn’t just as simple as your employer giving you notice. South African law, specifically section 189 of the Labour Relations Act, states that employers cannot retrench employees without following due process. Failure to do so could land the employer in legal hot water (more on this later in the feature).
1. Get invited to and attend a Consultation.
This is the first step of the process, and it is implemented so that all involved (the employer, employees and unions) have open and honest discussions about the reasons for possible retrenchment and who will be affected. Employees must receive a notice about the consultation as soon as the employer considers going through with retrenchments. This kind of news can be very unsettling, but remember, you will have an opportunity to state your case and even come up with alternative suggestions.
There are various things to discuss at the retrenchment consultation. This part of the process is all about attempting to reach a consensus between all involved. The law requires the following to be looked into:
- Is there a possibility of avoiding dismissals? For example, would demotions be possible – at least that way income is still somewhat guaranteed.
- If not, what can be done to minimise the financial and emotional impact of the dismissal?
- Can the timing of the dismissals be changed?
- How are the employees facing retrenchment selected?
- What will the retrenched employees take away financially?
2. Be notified in writing about Retrenchment?
In the regrettable event that retrenchment is unavoidable, the company must send the employee a Notification of Retrenchment. What’s more, the employer must state, in writing, the reasons for the retrenchment; why the alternatives that were discussed in the consultation aren’t feasible; how many employees will be affected; and how they were selected. This notification must also lay out the severance package; what additional assistance the employer can offer; and an indication of whether or not the employee could be re-hired in future. Once this notification has been sent, the employer must give those affected the opportunity to respond.
3. Receive a Notice of Termination.
Of course, this is required to inform the employee of the fact the working relationship will call come to an end, and will also stipulate the employees last day of employment at the company. Again, even though you may have had some time to make peace with the retrenchment process, this kind of notice can trigger anxiety and uncertainty. Make sure you reach out to a partner or close friend if you need someone to help you process your emotions.
The payment package: Severance pay, other amounts, and how they are calculated.
Being informed about the amount potentially owed to you as a result of being retrenched is vital, as it can provide some kind of financial buffer and much-needed peace of mind while you look for other work.
Let’s break it down:
- Severance pay: Generally speaking, the severance pay amount must be one week’s pay multiplied by each full year of employment at the company. That said, if a specific amount is mentioned in a policy or contract, then it must be honoured (even if it is more than the standard calculation).
- Leave pay-out: If the employee has not taken some or all of their annual leave days for that specific year, they must be paid out for the days not taken.
- Notice pay: Because an employee won’t necessarily be working the usual notice period before the working relationship ends, they must be paid out for it. If someone has worked for less than six months, it would be one week’s notice pay. If the employee has been at the company for more than six months, but less than one year, they are entitled to 2 weeks’ notice pay. For an employment period of more than a year, the notice pay period will be four weeks.
Legal consequences for unfair retrenchments.
It’s vital to remember that your rights as an employee are protected by the law. So, if you feel as though you have been subjected to an unfair retrenchment, you likely have a case for unfair dismissal. Be sure to read our Basic Legal Advice on Dealing with Unfair Dismissals. If this is the case, you can approach the CCMA or a Bargaining Council within 30 days of retrenchment. If conciliation fails at this forum, the employee can refer the dispute to the Labour Court. Should the legal retrenchment process not have been followed, the Labour Court could instruct the employer to reinstate the employee or award the employee 12 months’ remuneration as compensation.
Where the retrenchment was based on any form of discrimination (for example, because of someone’s race, religion, gender, sexual orientation etc.), the compensation amount could be as much as 24 months’ remuneration.
There have also been cases for employers trying to justify retrenchments with the fact the business is being bought by a larger corporation. However, even in this case, the process is still applicable and a legal requirement.
If you want to read more about your rights in the workplace, have a look at our easy-to-understand write-up on How to Deal with Unfair Labour Practices at Work.
Possible alternatives, other options and applying for benefits.
At the end of the day, even if the legal process was followed and generally amicable, you are still left with trying to find another job and dealing with the period in between employment. One option for some financial relief is applying for the Unemployment Insurance Fund, which you can do immediately after being retrenched. This is something your previous employer can assist you with – find out how here.
A chance to rebuild and take on new challenges
While this kind of change is daunting, it’s also an opportunity to re-evaluate your life and career path. Think of it as a necessary push in the direction of enriching your life with a different working experience.
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What is the notice period for retrenchment in South Africa?
If employed for less than six months – one week’s notice; if employed for more than six months but not more than one year – two weeks’ notice and if employed for more than a year – four weeks’ notice. Domestic and farm workers, who have been employed for more than six months, must receive four weeks’ notice.
How is retrenchment package calculated in South Africa?
Severance pay – this should be at least one week’s remuneration per completed year of service. Remuneration is calculated including basic salary and payments in kind. Outstanding leave must be paid out in full. Notice pay may vary depending on your employment contract.