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Retrenchments during Covid-19

Retrenchments during Covid-19

Arisha Rajaram

During these unprecedented times, businesses are struggling to cope with the financial aspects of running a business, and both employers and employees are suffering. One of the major issues that businesses are faced with is whether to retrench employees in order to re-build their business.

Avoiding retrenchment

Where employers’ businesses are likely to be severely impacted by the spread of COVID-19, employers may be thinking of retrenching some or all of their employees, due to the inability to pay salaries if the business itself is not generating an income. However, employers need to be aware that the COVID-19 pandemic may be temporary. As a result, temporary employment measures should be considered prior to instituting retrenchment proceedings.

Alternatives to retrenchment

Employers may consider alternatives to retrenchment which could include:

  • temporary remote working arrangements;
  • special leave if the employer is able to grant this; and
  • utilizing annual leave or utilizing short term measures of placing employees on short time work, for a specific time period.

Short time

It should, however, be noted that short time cannot be unilaterally imposed on an employee. In order to deal with the issue of short time, the employer would need to look at the employees’ contract of employment. In the event that short time is not provided for in the employee’s contract of employment, the employer has a duty to first consult with the employee, and try and reach an agreement.

Should the correct procedure not be followed, and the employer unilaterally enforces short time on his employees, the employer may be penalised and legal action may be taken against the employer.

Where employers and employees cannot reach an agreement, and if there is no other option, or if the business is shutting down, employers may then follow the retrenchment proceedings.

Retrenchment procedure

Section 185 of the Labour Relations Act 66 of 1995 (LRA) provides that every employee has the right not to be unfairly dismissed. A dismissal will only be fair if it is for a valid and fair reason (substantive fairness) related to the employee’s conduct, the employee’s work performance or the employer’s operational requirements. The employer needs to ensure that the procedure followed is also fair, and correct.

Notice in terms of section 189 of the LRA

Prior to retrenchment, certain procedures would need to be followed. According to the LRA, a notice in terms of section 189 of the LRA should be sent as a starting point for the consultation process. The purpose of a notice in terms of section 189 of the LRA is to empower employees to consult and engage meaningfully in a joint consensus seeking process.


Section 189 and section 189A of the LRA have the purpose of engaging both the employer and employee in a meaningful consensus seeking process prior to retrenchments. The employer is required to consult on various issues including the reason for the proposed retrenchment. Such consultations may be in person, or to assist with social distancing may be via Zoom, Skype other video conferencing system.

Consultation is a joint consensus-seeking process. It requires the employer to allow the employees an opportunity to suggest ways to minimise the effects of the proposed retrenchments.

Persons affected by proposed retrenchments

Section 189(1) of the LRA requires the employer to consult with any person affected by the retrenchment and there is a hierarchy of parties with whom the employer must consult with:

  • a workplace forum and registered trade union, if the employees are employed in a workplace which has a workplace forum and/or who are members of a registered trade union; and
  • if there is no workplace forum or trade union, then the employer must consult the employees likely to be affected by the proposed dismissals or their representatives nominated for that purpose.

Severance package

Once retrenchment has been decided, and the various consultations have take taken place, the employer has a legal duty to provide the employees with a severance package. In terms of section 41 of the Basic Conditions of Employment Act 75 of 1997 (BCEA), an employer must pay an employee who is dismissed for operational reasons, severance pay equal to at least 1 week’s remuneration for each completed year of continuous service with the employer.

Although the BCEA provides the minimum severance pay that becomes due and payable upon an employee’s retrenchment, employers must consult their internal policies and procedures to determine whether they would like to reimburse their employees more than required.

Certificate of service

In good faith, and/or on request by an employee, an employer may give an employee a certificate of service.

In terms of section 42 of the BCEA an employee is entitled to a certificate of service reflecting the details of his or her employment, the nature of the work done and the remuneration paid to the employee.

Article Disclaimer

This article is not intended to provide legal advice. This article is a general information sheet and should not be used or relied on as legal or other professional advice. This article is based on research regarding the UIF and may be subject to change. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

For further information, please contact Rajaram Mvulane Attorneys at

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