Retrenchment guidelines

PLEASE NOTE: Always review your decision to retrench employees with your labour attorney or qualified labour consultants. Since individual circumstances may differ from company to company, pro forma documentation must be used with caution and cleared with a labour attorney.

The retrenchment of employees is regulated by section 189 of the Labour Relations Act as well as a Code of Good Practice produced by Nedlac and case law which has been developed by the Labour Courts since the Act was promulgated.

Always ensure that you consult with qualified consultants or legal practitioners prior to initiating a retrenchment exercise and during the retrenchment exercise itself. The documents contained in this section constitute general guidelines only.

Section 189 of Act 66 of 1995 as amended

All documents are in MS Word 97


In each instance, the retrenchment of employees must be handled diligently since disputes concerning retrenchment are resolved in the Labour Court and not through the usual method of arbitration in the CCMA.

General principles

There must be a clearly demonstrated reason to initiate retrenchment relating to the business's "operational requirements" (which is defined as requirements based on the economic, technological, structural or similar needs of an employer). Retrenchments for reason of an employee's non-performance should be avoided, and must be addressed in the context of the Company's disciplinary process.

Employees are retrenched on a LIFO (last in first out) basis, and only in instances where an employee has a clearly established skill or occupies a specific / specialised position or disciplinary record (which can be proved to a Judge in a Labour Court) should LIFO be overlooked.

Selection Criteria


Where employees are offered alternative employment on substantially similar terms and conditions of employment, the Company is not obligated to pay severance pay.

The statutory requirement for severance pay is one week for every year of completed unbroken service. Severance pay is however subject to consultation and can be improved upon subject to the Human Resource departments knowledge.

Severance Pay

Preparatory Documentation


General Process

When contemplating retrenchments, the Business Unit Head must issue letters to all employees in the Business Unit advising them of the pending retrenchment and the date when consultations will commence. [See document "Notice of Retrenchment"]

The letter must specify the following statutory requirements:

(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.

Letters & Documents


The first meeting

If employees are unionised they are entitled to Union representation, otherwise employees are entitled to representation from within the company only.

The purpose of the meeting is to consult 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.

The meeting(s) must be minuted [The format contained in document "Retrenchment Meeting" should be followed]

Meetings should be held individually, unless the employees request collective meetings or are unionised.

A second or third meeting should be held to respond to an employee's proposals and address individual circumstances.

Offers of alternative employment should be made know and offered to all employees. Voluntary retrenchment offers must be consulted upon first before being made available to employees, the terms of which must be clearly defined, especially in a unionised environment.

Once the consultation process has been completed and all employees' counter proposals, questions and concerns have been addressed in writing, those employees who are to be retrenched are handed statutory notices of termination of their services [See "Statutory Notice of Retrenchment"].

Further documentation


Employees who are to be offered alternative employment must be handed written alternative employment offers. [See Offer of Alternative Employment"]

Employees are entitled to the minutes of all meetings.

Compile a draft retrenchment policy to guide managers through the retrenchment policy.

If you require assistance in your Retrenchment Exercise from one of our qualified consultants, please contact us.