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Labour law | The reality of retrenchment


By Carol Tissiman

If you are interested in this topic, take a look at our University of Cape Town (Law@Work) Practical Labour Law course.

In the current economic climate, there are few individuals that are unfamiliar with the meaning of the term “retrenchment”. The economic crisis has had a severe effect on SA’s labour market.

Prof Haroon Bhorat from the University of Cape Town School of Economics told the 22nd annual labour law conference that retrenchment figures showed a 36% increase in the period from January 2008 to January 2009, compared to a 14% increase from 2006 – 2007.


A total number of 4899 firms retrenched employees from January 2008 to January 2009 in South Africa.

According to the Quarterly Labour Force Survey July–September, 2009 (Q3:2009) there was an annual decrease of 5,6% in employment; an increase in the number of unemployed persons and a huge increase (over 1 million) in the number of persons who are not economically active – approximately half being discouraged work-seekers, as compared to Q3:2008.

About retrenchment
The Labour Relations Act (LRA) permits employers to dismiss employees for “operational requirements”, also known as retrenchments. An employer can retrench employees in cases where the company is experiencing financial hardship, but also in cases where the employee’s job becomes redundant through a restructuring process, or where the employer wants to reduce costs and/or wishes to increase the profitability and productivity.

Employers need to be careful
However, employers are advised to tread carefully when carrying out retrenchments. Employees rights are well protected by the LRA, and uncalculated retrenchments could end up in the Labour Court, with a judgment stating that the employer must reinstate the retrenched employees, or pay them hefty compensation and legal costs.

If an employer wants to retrench an employee, the retrenchment must be fair. Fairness is decided on two grounds – substantive fairness, and procedural fairness.

Substantive fairness” weighs up whether the retrenchment was appropriate in the circumstances. It must be a reason based on the employer’s operational requirements. It must be a reason that is fair, lawful, reasonable under the circumstances, justifiable (provable) and based on sound business rationale.

When is retrenchment not unfair?
In the case of retrenchment, the law says that it is not unfair for an employer to retrench an employee if the employer:

  • needs to cut down on staff for economic reasons;
  • is changing the business operation, and the employee’s job is no longer required or the job content changes to such an extent that the employee is unable to meet the skill levels required for the job;
  • upgrades technology

If an employer is retrelabour law coursenching for financial reasons – and this is usually the case – the employer must be able to reasonably prove that there is a connection between his financial constraints and the need to retrench.

What employers need to show
Employers must also be able to show that the criteria used to select employees to be retrenched supports this financial reason. In other words, employers must be able to show what savings would be achieved by retrenching the selected employees or was required for the sustainability of the business.

“Procedural fairness” considers the rights of the worker to be treated justly in the process of retrenchment. The procedure is clearly laid down step-by-step in section 189 and 189A of the Labour Relations Act.

Where are most retrenchment occuring?
An overwhelming majority of retrenchments occurred in companies with less than 50 employees. More than 50% of all liquidations in the past year have been of small and medium-sized enterprises. Bearing this in mind, it is vital that small and medium sized enterprise business owners and managers are well educated in applicable labour legislation and best business practices.


 

Back to SmartyPants Newsletter - January 2010 Edition
This article is published under the Creative Commons Attribution license.


Comments 

#1 2010-02-15 16:13
Where can I find the total amount of retrenchments for 2008 and 2009?
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#2 2010-02-16 13:25
Hi Neill

Thank you for your comment. The 23rd Annual Labour Law Conference has not taken place to my knowledge. I am sure that these stats will be presented there.

Kind regards
Deborah
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#3 2010-03-01 13:57
What happens where certain employees were retrenched, certain other employees' salaries were reduced, then later, after about six months or so, the employer rehires new staff. What about the salaries of the staff that remained in the organisation, should it not be reinstated? There was a slight increase in their salaries, but not fully re-instated to what it was before the retrenchment.
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#4 2010-03-01 16:12
Hi Jean

Thanks for your comment. Unfortunately, I cannot answer this question. I do suggest looking into doing our UCT (Law@Work) Practical Labour Law Course, as it is covered in the course, and you will have the opportunity to discuss this with fellow students and Carol Tissiman.

Kind regards,
Deborah
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#5 2010-11-26 06:02
Can somebody be retrenched to protect him or her from death threats made against him or her?
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#6 2010-11-26 08:55
Hi Gerhard

Thanks for your question, however unfortunately we are unable to offer such advice. It is covered in the UCT (Law@Work) Practical Labour Law course though and if you are a student with us, you would be able to ask Carol questions.

Thanks
Deborah
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#7 2011-08-11 11:37
what does the law says if you want to retrench an employee who is pregnant,on annual leave or on sick leave
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#8 2011-09-09 12:25
The company is busy with retrenchment. I was called in, but was not inform before that the company is busy with retrenchment. Is it not Law that the Employee is sur post to call in all the staff and told tj=hem for hand that the company is not making money or bussiness is bad at the moment, so we were just called in. I was not retrenched, but they offer me a job at workshop, but I said to them, for me to go to work is a bit difficult, because I don't have transport. They said to me if I want a job you will do the necessaries. I am 3years at this Company and all of a sudden I must go, and am longer than most of the others here, because it saids last in first out. What are my rights.
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#9 2011-09-09 13:00
Hi Margaret

Thanks for your question, however unfortunately we are unable to offer such advice. It is covered in the UCT (Law@Work) Practical Labour Law course though and if you are a student with us, you would be able to ask Carol questions.

Thanks
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#10 Morne Theron 2011-11-15 00:21
Hi,

When an international company retrenches people in the local SA branch due to them allegedly closing down the branch in SA and but the company continues operations in SA, is there a legal action that one can take due to the company never really closing down the branch in SA, or are there time delays in which the company can wait before re-hiring people in the positions that they have re-trenched, what are the regulations regarding this and does a retrenched employee have any foot to stand on ?
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