AUTHOR: SAIURI SEETAL
PUBLICATION DATE: AUGUST 7, 2025
Retrenchment is a form of dismissal based on the employer’s operational requirements, and not employee misconduct or performance. Operational requirements are defined in the Labour Relations Act 66 of 1995 (LRA) as “requirements based on the economic, technological, structural or similar needs of an employer.”
Retrenchments are an unfortunate but lawful reality in the South African employment landscape. With economic pressures, restructuring, technological advances and global market influence continuing to affect business sustainability, employers are often compelled to consider reducing their workforce.
Common reasons for retrenchments include economic deterioration or loss of contracts; company mergers or acquisitions; automation or technological changes; business closures or department shutdowns; organisational restructuring in pursuit of efficiency.
Pursuant to the LRA retrenchment is a legal measure of last resort and must be conducted fairly and transparently. Sections 189 and 189A of the LRA govern retrenchments, with section 189A applying to larger employers or large-scale retrenchments. The law requires both substantive fairness (a valid reason) and procedural fairness (a fair process).
Substantive Fairness
The employer must prove a genuine operational need for retrenchment and that the decision was based on business considerations rather than personal reasons.
Procedural Fairness
A fair retrenchment process must include meaningful consultation with employees (or their representatives) with the goal of reaching consensus on appropriate measures to avoid the dismissals, to minimise the number of dismissals, to change the timing of the dismissals and to mitigate the adverse effects of the dismissals; the method for selecting the employees to be dismissed; and the severance pay for dismissed employees.
Consultation must be joint consensus seeking process. In terms of section 189(3) of the LRA, the employer must issue a written notice inviting the other consulting party to consult with it and disclose in writing all relevant information, including, but not limited to –
- the reasons for the proposed dismissals;
- the alternatives that the employer considered before proposing the dismissals, and the reasons for rejecting each of those alternatives;
- the number of employees likely to be affected and the job categories in which they are employed;
- the proposed method for selecting which employees to dismiss;
- the time when, or the period during which, the dismissals are likely to take effect;
- the severance pay proposed;
- any assistance that the employer proposes to offer to the employees likely to be dismissed;
- the possibility of the future re-employment of the employees who are dismissed;
- the number of employees employed by the employer; and
- the number of employees that the employer has dismissed for reasons based on its operational requirements in the preceding 12 months.
The employer must allow the other consulting party an opportunity during consultation to make representations about any matter mentioned above, as well as any other matter relating to the proposed dismissals. 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. If any representation is made in writing, the employer must respond in writing. The employer must select the employees to be dismissed according to selection criteria that have been agreed to by the consulting parties or if no criteria have been agreed, criteria that are fair and objective. A selection criterion that is often used is “last in, first out” (LIFO), although alternatives like skills retention or performance-based criteria may be used if agreed upon.
Employers must allow adequate time for responses and engage in genuine discussions to this effect. Failure to consult properly could render the retrenchment procedurally unfair, even if the reason for it is valid.
Unfair retrenchment occurs when an employer dismisses employees for operational requirements without following a fair procedure or without a valid reason as required by the LRA. If an employee believes the retrenchment was unfair, they can refer the matter to the Commission for Conciliation, Mediation and Arbitration (CCMA) or Bargaining Council (BC), if it has the scope to deal with retrenchments, within 30 days of their dismissal.
If the dispute remains unresolved at conciliation the commissioner will issue a certificate of non-resolution and refer the matter to the Labour Court for determination. The referral must be made within 90 days. An employee can also elect to refer the matter to arbitration instead if the employer followed a consultation procedure that applied to that employee only; the employee was the only one dismissed for operational reasons; the employer employs less than ten employees.
The remedies available to an employee include re-employment, reinstatement, compensation or any other order that the Labour Court considers appropriate.
Conclusion
South African labour law provides a comprehensive framework to ensure that while businesses navigate turbulent times, workers’ rights are protected, and due process is followed. Whether you are an employer contemplating restructuring or an employee facing possible dismissal, understanding your rights and obligations is critical in managing this difficult process fairly and in alignment with the LRA.
For further guidance on the retrenchment process or to discuss your specific circumstances, reach out to Garlicke and Bousfield for tailored legal advice.
Tel: +27 31 570 5409
Email: saiuri.seetal@gb.co.za