A recent crisis like Covid-19 affecting the economy and other issues causing ripple effects on South African Businesses, many business owners have found retrenchment becoming a very real possibility.
There are processes that businesses must follow:
There are three forms to dismiss an employee: misconduct incapacity and retrenchment.
Since the company has to retrench employees, retrenchment is viewed as a no-fault dismissal. It’s not because the employee has committed misconduct.
In South Africa, it is legal to retrench, but the process must be lawful and proper.
The most important part of the process is to consult with employees, which means that you must give them a document called a Section 189 Notice.
Usually, a Section 189 Notice must be provided. A 189 Notice is generally available for free online via an internet search. It is important to ensure that you have valid reasons for the retrenchment.
There are three types of reasons of retrenchment to choose:
- Structural Retrenchment,
- Technological Retrenchment
- Financial Retrenchment.
An employer must select one of those three grounds to dismiss the employee for retrenchment.
Fair Selection Criteria
It is important for an employer to make sure that you have fair selection criteria for dismissing an employee.
Therefore, you must be able to select and justify which employees will be retrenched.
The most common selection criteria are LIFO: last in first out: the last employees that have joined those employees will be retrenched. It is a fair and objective selection criterion.
In order to avoid being retrenched, it’s important to also provide the staff with the opportunity to speak and to come up with proposals.
You must then genuinely consider these alternatives to retrenchment. Don’t just brush them off, genuinely apply your mind to it.
The key is to try and avoid dismissals where possible.
Ways you could avoid dismissals:
- Can you give pay cuts to the employees?
- Can you structure it on working fewer hours for less pay?
If dismissal is the only option on the table, then certain other requirements need to comply. Severance pay, for instance, needs to be paid to employees.
Severance pay is a mandatory amount of money that needs to be paid to employees by the retrenchment. This is in terms of the Labour Relations Act, it’s non-negotiable.
How do you calculate severance pay?
The minimum requirement is one week for every completed year of service.
It is important to pay the employee unpaid leave and any notice pay that is due as well. You should also provide the employee with important UIF documents, including the UI-19.
