Retrenchment Procedure

Relevant Legislation: Labour Relations Act 1995 (section 189) and Basic Conditions of Employment Act 1997 (sections 35, 37 and 41).

1. CONSULTATION

When?
As soon as employer contemplates retrenchment.

With whom?
Consultation must take place (in order of precedence):
• in terms of a collective agreement
• with a workplace forum
• with a registered trade union whose members are likely to be affected or
• with the employee(s) likely to be affected.

About what?
An attempt must be made to reach consensus on:
• avoiding the dismissals [examples could include adjusting working hours, eliminating temporary labour, eliminating overtime, offering early retirement]
• minimising the number of dismissals
• the timing of dismissals
• ways to lessen the effects of the retrenchment
• the method for selecting the employees to be dismissed
• severance pay.

2. DISCLOSING INFORMATION IN WRITING
An employer has to disclose relevant information in writing, including the:
• Reasons for retrenchment
• Alternatives considered and why those were rejected
• Number of employees likely to be affected and their job categories
• Proposed method of selection
• Timing
• Severance pay proposed
• Assistance that the employer will be offering (examples could include offering employees time off to attend interviews, early release should a new job be found, issuing letters of reference, psychological counseling)
• Possibility of future re-employment.

3. OPPORTUNITY FOR FEEDBACK
The employer must give the other consulting party an opportunity to make presentations.
Representations must be considered and be responded to.

4. CRITERIA FOR SELECTION
If no agreement is reached on the criteria for selection, criteria must be fair and objective.
(The LIFO [last in first out] principle is often applied, but is not the only consideration. Staff with key skills may be retained, and a poor performance record may be taken into consideration.)

5. PAYMENTS
a. Severance Pay: 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.
b. Outstanding leave: To be paid out.
a. Notice pay: If employed one to four weeks – one week; if employed four weeks to one year – two weeks and if employed more than a year – four weeks. Domestic and farm workers who have been employed for four weeks or more, must receive four weeks’ notice. The employer may require employees to work/not to work during the notice period.
b. Other: 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.

Section 189(1), (2), and (3) of the Labor Relations Act no 66 of 1995 (“the LRA”), which provisions read as follows :
“(1) When an employer contemplates dismissing one or more employees for reasons based on the employer’s operational requirements, the employer must consult-
(a)
(b)
(c)
(d) .. the employees likely to be affected by the proposed dismissals..
(2) The consulting parties must attempt to reach consensus on

(a) appropriate measures-
(i) to avoid the dismissals
(ii) to minimise the number of dismissals;
(iii) to change the timing of the dismissals; and
iv) to mitigate the adverse effects of the dismissals;
(b) the method for selecting the employees to be dismissed;

and

(c) the severance pay for dismissed employees.

(3) The employer must disclose in writing to the other consulting party all relevant information, including, but not limited to-
(a) the reasons for the proposed dismissals;
(b) the alternatives that the employer considered before proposing the dismissals, and the reasons for rejecting each of those alternatives
(c) the number of employees likely to be affected and the job categories in which they are employed;
(d) the proposed method for selecting which employees to dismiss;
(e) the time when, or the period during which, the dismissals are likely to take effect;
(f) the severance pay proposed;
(g) any assistance that the employer proposes to offer to the employees likely to be dismissed; and
(h) the possibility of the future re-employment of the employees who are dismissed.”

(6) Section 189(5) reads as follows:
” The employer must allow the other consulting party an opportunity during consultation to make representations about any matter on which they are consulting.”
(7) Section159(6) reads as follows:
“The employer must consider and respond to the representations made by the other consulting party and, if the employer does not agree with them, the employer must state the reasons for disagreeing.”
also apparent from section 189(7) which provides that the employer must select the employees to be dismissed on criteria either agreed to, or if that is not possible, on criteria that are fair and objective.