Top tips for a fair retrenchment process


Employment law experts share best practices for South African businesses contemplating mass retrenchments.

A looming recession due to a shrinking GDP is leaving many South Africa businesses on their knees with no option but to embark on huge retrenchment exercises.

Retrenchments are a contentious issue, but if done properly, can ensure that the majority of the workforce remains employed, and protect the fiscal sustainability of the business.

Employment law experts at Cliffe Dekker Hofmeyr (CDH), Hugo Pienaar and Abigail Butcher, give advice on how businesses can pay close attention to their statutory obligations.

According to the experts, it is important for businesses to embark on retrenchment only for genuine operational requirements such as economic, technological and/or structural reasons. “Employers cannot utilise the retrenchment process to address or resolve issues relating to, for instance, poor performers or misconduct.”

First and foremost, it is also crucial for employers to afford unions, employee representatives and employees the opportunity to present a proposal regarding the decision to undergo retrenchments before making any final decision.

“The most common mistake employers make is to confront unions or their employees with a fait accompli – a notice of retrenchment generally incorrectly refers to the employer’s decision to retrench and an invitation to consult about the impact of the retrenchment only. It is necessary for unions and employees to also be afforded an opportunity to make proposals with regard to the employer’s decision to embark on a retrenchment exercise prior to any final decision made on retrenchment,” said the duo.

The second most important factor, explained the experts, is to have a clear objective selection criteria for employees who are identified for retrenchment. “It is important that the selection criteria are not limited to only ‘LIFO’ (last in, first out), and that it is agreed and/or applied objectively. An objective criterion may be used to retain the most suitably qualified employees, especially at a more senior level.”

Thirdly, employers are obligated to pay the minimum severance pay [one week’s remuneration for every completed year of service, or the minimum set out in a particular collective agreement]. Where possible, the company is encouraged to offer more. “It is important to note that the calculation of the severance pay is based on an employee’s remuneration, which is the cost-to-company package of an employee.”

Lastly, in good faith and where permissible, the employer may offer additional training to affected employees. “This is encouraged but not mandated and it will assist retrenched employees to acquire further skills after their retrenchment.”

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