Thinking About Retrenchment? Read This First.
The retrenchment process is very closely regulated by the Labour Relations Act 66 of 1995 (“the Act”) and the courts have very strict requirements in respect of both proceduralcompliance with the Act’s provisions, as well substantive fairness in the employer’s decision. The legislation also sets out the procedure to follow depending on the number of employees being retrenched.
In order to win a retrenchment case at the CCMA or Labour Court, the employer must fulfil its onus of proving that the retrenchment was fair in all respects, and the retrenchment must therefore not be arbitrary, and must include substantial consultation with employees. When considering employees for retrenchment, the employer will generally have to choose one set of criteria and stick to it. The “Last In First Out” (LIFO) principle is often used, where the last employee to be hired is the first to be retrenched. Alternatively, the employer may choose to retain the employees with the most critical qualifications, experience or position, and to retrench employees whose positions are not critical.
Whatever the method, choose criteria that are fair and objective, and stick to them.
Once the process has been followed the following payments need to be made to the employees being retrenched:
Employees should be paid at least one week’s remuneration for each completed and continued year of service. (‘Remuneration’ includes basic salary, payment in kind and discretionary payments related to working hours or performance). Should an employee unreasonably refuse an offer of alternative employment he/she will not be entitled to a severance package.
Outstanding leave to be paid out.
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. The employer may require employees to work/not to work during the notice period.
Depending on the employment contract, the following may be relevant — pro rata payment of bonus, pension and provident fund. If relevant, ensure that blue card is issued.
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