A guide to Retrenchment in South Africa

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The disastrous economic effects of the government’s approach to curbing the spread of the COVID-19 virus will likely be felt for years to come. Daily we hear about small businesses closing up shop as they just can not withstand the financial losses suffered. While many others have been forced to drastically reduce their workforce through retrenchment.

Although retrenchment is an unpleasant process it is obviously preferable then completely closing down a company. So to assist both Employers and Employees I have outlined the retrenchment process in South Africa as set out by the CCMA. I have also put together some advice for anyone who has been retrenched to hopefully help them get back on their feet.

What is Retrenchment?

Retrenchment is a form of workplace dismissal where an employee is released from their employment contract due to the operational requirements of the company. It is important to emphasize here that there is no fault on the part of the employee, and even top-performing staff members may be retrenched.

The operational requirements of a company will be based on economic, technological, or structural needs. These can be explained as follows;

1. Economic needs: These are directly related to the company’s ability to generate income. As you can imagine this is the leading reason for retrenchment during the Lockdown.
2. Technological needs: Occurs when new technology makes a position in the company redundant. This is becoming quite common these days as new technology is developed, and certainly something the world is going to have to address at some stage.
3. Structural needs: Companies will sometimes need to restructure to make themselves more efficient. Often this leads to a number of positions simply not existing within the new company structure.

Retrenchments must be substantively and procedurally correct.

As with any other workplace dismissal, a retrenchment must be both Substantively and Procedurally correct. If not, an employee would be well within their rights to refer the matter to the CCMA. If you have read the article on workplace dismissals then you will already know what this means, if not then here is a refresher.

1. Substantively correct: The employer must have a good/correct reason for the retrenchment.
2. Procedurally correct: The employer must follow the correct retrenchment procedure

We have already identified the substantive reasons for retrenchment. Economic, Technological, or Structural. Now let’s look at the correct procedure to follow.

Correct Retrenchment Procedure.

Employers must know and follow the correct procedure when making the decision to retrench staff. If they fail to do so they are quite likely to end up in the CCMA.

The CCMA’s website lists the following procedure to be followed:

CORRECT PROCEDURE

Consultation must take place as soon as the employer contemplates retrenchment. Consultation must take place –

• 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

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; and
• severance pay.

Let’s break this down.

There must be consultation before retrenchment.

There needs to be completely open communication during the retrenchment process. The employer needs to consult with the employees who are likely to be affected by the retrenchment. This consultation may also be done through the employees’ workplace forum or registered trade union.

Essentially consultation is an effort to find a consensus between the employer and the employees. It gives the affected employees an opportunity to offer alternatives to retrenchment. If retrenchments are unavoidable, suggest ways to minimise the number of employees affected.

Suggestions on issues such as selection criteria and severance pay will also be addressed during the consultation process.

The consultation process is a back-and-forth between the employer and employee representatives. The employer should respond to the suggestions made, and if they disagree on any points, valid reasons should be given.

Please note that should the company employ more than 50 staff members there are additional procedures that must be followed according to law.

Deciding to retrench staff.

Only after the consultation process is completed should the employer make the final decision to retrench staff. The employer must select employees to be dismissed based on selection criteria that are fair and agreed upon during the consultation process.

The employer must then notify the staff member/s that will be dismissed of the decision. It is extremely important that the employer provide the following information to the affected employees in writing:

• Reasons for the retrenchment.
• Alternatives to retrenchment that were discussed during the consultation process and why they are not feasible.
• Details of the selection method that has been adopted.
• Any possibility of future re-employment
• Severance pay

Retrenchment Selection Criteria

Hopefully, all parties involved in the consultation process are able to agree on the selection criteria to be implemented. However, if a consensus can not be reached the employer needs to make a decision that will be fair and objective.

Unfortunately, there is no “one size fits all” solution, and because each company and situation is unique in its own right. The correct selection method must be applied for the correct situation. These are some of the most common selection methods used:

• Last in, First Out (LIFO)
• Length of service
• Retaining key skills, qualifications, or experience.
• Past performance (Dismissing poor performers)
• Redundant positions are being dismissed.

What payments must be made to a retrenched employee?

Severance pay: By law, the employer is required to pay 1-week severance pay for each year of ongoing service. However if the employer has agreed to a higher amount during the consultation process, or if a higher amount is agreed upon in the employment contract. Then the larger amount must be paid.

Employees must take note that if they are offered alternate employment with the employer or another employer, which is turned down, they will not be entitled to severance pay.

Leave due: If the employee has any annual leave due which has not been taken, the employer is obliged to pay this out.

Notice Pay: If the retrenchment is immediate the employee will also be entitled to payment for the notice period they should have received. This is:

• if the employee was employed for less than 6 months, they must be paid 1 week’s notice pay;
• if the employee was employed for more than 6 months but less than 1 year, they must be paid 2 weeks’ notice pay;
• if the employee was employed for more than 1 year, they must be paid 4 weeks’ notice pay.

Other payments: The employee would also be entitled to any other payments contained in their contract of employment. Eg: pro-rata bonus, pension, retirement fund benefits, and commissions.

What to do if you feel you were unfairly retrenched?

As we mentioned earlier a retrenchment needs to be both procedurally and substantively correct for it to be considered fair. If a person feels that they have been unfairly retrenched they will need to approach the CCMA within 30 days of the retrenchment.

If this is a route that you are considering I highly recommend that you first consult a labour law professional to ensure you have a case. Secondly, you should read this article on the CCMA process which has all the forms you will need to lodge a case with the commission.

What to do if you have been retrenched?

Right, so you have been retrenched! It is important to remember that this is not personal. The company had no other option, and in fact, it was probably a very difficult decision for the company to make.

So if the company had no other option and followed the correct procedure, you would not be referring the matter to the CCMA. What do you do?

Register your UIF claim.

Provided your employer has been contributing to the Unemployment Insurance Fund on your behalf you should have no problem registering a claim. You can check out this article on how to claim from UIF which also has all the required forms to download.

You will be able to claim for up to 12 months, and although you will not get a full salary, at least there will be some money coming in while you search for a new job.

Stay positive and develop a plan of action

Maintaining a positive attitude is absolutely vital to get through this difficult time. Check out these 23 motivational quotes for job seekers to help keep you inspired.

Develop a job-hunting strategy that will work for you. Resist just sending your CV out to every vacancy out of desperation. Although you may need to consider a lower-paying position or one with less responsibility. Accept that this will only be temporary but necessary.

Complete an online course

If you are finding that not many vacancies are being advertised, or you are just not getting called back for interviews you can also productively use the time to upskill. There are some fantastic free online courses that you can complete relatively quickly.

Sometimes completing an online course, however simple, is just the pick-me-up confidence booster needed during a soul-destroying job search.

Update your CV

I always recommend you keep your CV updated, however, if you are like most people and only update it when job hunting then now is probably a great time to do this. Don’t put this task off, it is actually quite simple with these CV designing hacks.

At the same time you might consider cleaning up your social media profile and ensuring your LinkedIn profile is set up correctly.

Conclusion

Retrenchment is difficult for both the employee and the employer. And if you have just been retrenched then things probably feel quite out of control at the moment. Try to remember that this will pass, normality will return and you will survive.

I know it might not feel like it, but let me repeat that. YOU WILL SURVIVE THIS!