How to determine an unfair retrenchment in South Africa

Retrenchment, which forms part of one of the reasons for dismissal in South Africa (operational reasons), is a complex and sensitive aspect of employment law in South Africa.

Retrenchments are designed to protect both employees and employers under specific circumstances as detailed in section 189 of the Labour Relations Act, 1995.

Instances of unfair retrenchments frequently occur due to non-compliance with legal procedures, discriminatory policies or a lack of substance and justifiable reasons for the retrenchments. These instances create distress for the affected employees while potentially posing a significant legal risk for employers. As such, South African labour law aims to balance the operational needs of a business with the rights and welfare of employees, making it imperative for the retrenchment process to be fair, transparent and legally compliant.

The key pieces of legislation in South Africa that govern retrenchments are the following:

• The Labour Relations Act, 1995 which is the primary act outlining the requirements for a fair retrenchment process such as the duty to consult, alternatives to be considered and a fair selection criteria to be followed.
• The Basic Conditions of Employment Act, 1997 which stipulates the minimum conditions of employment including notice periods and severance pay in the retrenchment process.
• The Employment Equity Act, 1998, which plays a crucial role in preventing discriminatory practices in the workplace, including during the retrenchment process.

Collectively, these Acts create a comprehensive framework to ensure that retrenchments, when necessary, are conducted in a manner that respects the rights of employees and the operational requirements of employers

Common examples of Unfair Retrenchments in South Africa:

Common examples of unfair retrenchments in South Africa are the following:

1. Non-compliance with Legal procedures in terms of section 189/189A of the Labour Relations Act, 1995:

• Lack of Consultation- an employer retrenches a group of employees without any prior consultation or without providing them with a chance to suggest alternatives.
• Bypassing collective agreements- the employer bypasses the established collective bargaining procedures with trade unions during the retrenchment process.
• Failure to follow notice periods- an employer dismisses employees immediately without adhering to the legally required notice periods or without providing pay in lieu of notice.

2. Discriminatory Practices:

If the selection criteria for retrenchments are based on arbitrary or discriminatory factors like race, gender, pregnancy, religion, or union affiliation, it constitutes unfair dismissal.

• Retrenchment based on race- an employer disproportionately selects employees of a particular race for retrenchment.
• Gender-based selection- an employer targets female employees, especially those who are pregnant or on maternity leave for retrenchment.
• Retrenchment due to Union Affiliation- employees actively involved in union activities are selectively retrenched as a form of retaliation.

3. Lack of substantial justification:

Employers need to have a valid and justifiable reason for retrenchment, usually economic, technological, structural or similar needs of the employer. If the retrenchment is done without a genuine business reason, it could be considered unfair.

• Fictitious Financial Trouble- a company claims financial distress as a reason for retrenchment but continues to make significant profits and executive bonuses.
• Retrenchment Despite Available Work- Employees are retrenched despite the existence of ample work or the company subsequently increasing workloads for remaining staff.
• Technological change as a pretext- an employer cites technological change as the reason for retrenchment but does not actually implement any new technological or changes in the business process.

4. Ignoring Alternatives to retrenchment

If an employer does not genuinely consider or propose alternatives to avoid retrenchments, such as cost-cutting measures, retaining or redeployment, the process may be unfair.

• No effort to redeploy: a company does not attempt to redeploy staff to other departments or roles where vacancies exist.
• Lack of consideration for reduced hours or pay: an employer does not consider alternatives like temporary reduction in work hours or salary cuts to avoid retrenchments.
• No retaining offered: the company has opportunities for employees to be retained for other roles but does not offer this option.

5. Retrenching employees and filling the same positions soon after:

If an employer retrenches employees citing operational requirements but then hires new employees for the same positions shortly afterwards, this could indicate an unfair process.

• Immediate replacement: Shortly after retrenchment, the same positions are advertised and filled with new employees.
• Outsourcing After retrenchment: a company retrenches employees citing operational reasons and then immediately outsources the same jobs
• Change of title, same role: the employer retrenches employees but soon after hires new staff for the same roles, albeit with different titles.

6.Vitimization or retaliation:

• Retrenching employees as a form of victimization, for instance, for whistle blowing, participating in legal strikes or other protected actions, is unfair.
  Retrenchment after whistleblowing: an employee who exposed wrongdoing in the company is retrenched under the guise of operational requirements
• Targeting Strike Participants: employees who recently participated in a legal strike are selected for retrenchment.
• Retrenching complainants: employees who have lodged legitimate complaints or grievances against management are unfairly targeted in a retrenchment process.

7. Inadequate Severance pay:

• Under-calculating severance: an employer calculates severance pay based on incorrect wages or tenure, resulting in lower payouts
• Withholding Severance Pay: the company fails to pay the severance pay or delays it without justification
• Ignoring legal minimums: an employer offers severance pay that is below the legally mandated minimum amount.

The fairness of these common examples may be challenged in the relevant legal forums such as the Commission for Conciliation, Mediation and Arbitration (CCMA) or Labour Court.