There is a difference between retrenchment and mutual termination


Getting these two types of termination confused can result in costly labour dispute outcomes.

Where a voluntary separation package is accepted by an employee the parties might agree that the payment will be calculated in the same way to that used for calculating a statutory retrenchment package. That is, the calculation might be based on the number of years of service of the employee.

However, this does not mean that the employee has been retrenched in terms of section 189 of the Labour Relations Act (LRA). In terms of that section, if the employer has operational requirements that might necessitate terminations, the employer is required to consult with the employees who may be affected or with their representatives. Section 189 allows the employer to retrench employees if there is a good enough basis for this and if the consultation process has been conducted properly. 

In a section 189 retrenchment the employer does not have to get the agreement of the employees to carry out the retrenchment. Instead, it need only comply with the provisions of the LRA. On the other hand where there is a mutually agreed separation this, by definition, involves an agreement. A section 189 retrenchment is concluded by a letter from the employer giving the employees notice of termination of employment. However, a termination by mutual consent is concluded by a legal agreement.

Employers are warned that they should not get these two types of termination confused. A termination concluded by a genuine and legally binding contract is not classed as a dismissal in the LRA. Whereas a section 189 retrenchment is a type of dismissal and may, in certain cases, be viewed as an unfair dismissal.

In a case recently decided by the Labour Appeal Court [ABSA Investment Management Services (Pty) Ltd vs Crowhurst 2006, 2 BLLR 107] Ms Crowhurst went to Labour Court claiming unfair retrenchment. ABSA lost the case and, on appeal, claimed that the employee’s employment had been terminated via mutual agreement which the employee denied. 

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Confronted with these two conflicting versions the Court had to look closely at the document that implemented the termination of Ms Crowhurst’s employment. It stated that, due to the redundancy of her position, her employment was being terminated. The letter neither bore content that indicated a mutually agreed termination nor referred to the alternatives to retrenchment that the employer had claimed had been offered to her. 

The Court decided that Ms Crowhurst had in fact been retrenched and that this dismissal was unfair. The employer was therefore required to pay Ms Crowhurst six months’ remuneration in compensation and also to pay her legal costs.

As the stakes are high when employment is terminated, employers are warned to not only formulate their mutual termination documents to make it clear that the termination is not a dismissal, but to also record their retrenchment consultations so as to make sure that they are able to prove to the courts what really was and was not said. Furthermore, they should avoid leaving termination strategies and processes to those not fully versed in labour law. 


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