Retrenchment is one of the most challenging situations any workplace can face for both employers and employees.

It’s emotional, it’s complex, and it’s something no one wants to go through. But when handled correctly and transparently, it can be a fair process that respects everyone involved.

In South Africa, retrenchments (also known as dismissals for operational requirements) are strictly regulated under the Labour Relations Act (LRA) 66 of 1995. This means employers can’t simply reduce staff, there’s a clear, legal process that must be followed to ensure fairness and compliance.

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| Let’s unpack how that process works, step by step

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1. What is a retrenchment?

A retrenchment happens when an employee’s position becomes redundant because of the employer’s operational needs. In simpler terms, the business needs change,
and certain roles are no longer required.

Common reasons include:

  • Financial strain or declining sales

  • Restructuring or mergers

  • New technology that automates tasks

  • Closure or relocation of operations

Remember: Retrenchment isn’t about poor performance or misconduct, it’s a no-fault termination caused by business circumstances, not personal ones.

2. The legal framework: sections 189 and 189A of the LRA

The retrenchment process is guided by two main sections of the LRA:

  • Section 189 — for smaller-scale retrenchments (usually fewer than 50 employees)

  • Section 189A — for larger-scale retrenchments (50 or more employees, depending on company size)

Both require consultation in good faith before any decisions are made. This means employers must engage meaningfully with employees or their representatives
to explore alternatives and ensure the process is fair from start to finish.

3. The retrenchment process: step by step

Step 1: The section 189(3) notice

The process begins with a written Section 189(3) notice. This isn’t a dismissal letter, it’s a formal invitation to consult about possible retrenchments.

The notice must outline:

  • The reasons for the proposed retrenchment

  • Alternatives considered (and why they were rejected)

  • The number of employees likely to be affected

  • The selection criteria to be used

  • Timing of the process

  • Severance pay and support options

This step is about transparency, setting the stage for open, fair discussions.

Step 2: consultation

Consultation is the heart of the retrenchment process. It’s not just a meeting, it’s a genuine effort to find solutions that could prevent or reduce job losses.

During consultations, the parties should discuss:

  • Alternatives to retrenchment (like reduced hours or transfers)

  • Fair selection methods (often “Last In, First Out” or agreed criteria)

  • Severance pay options

  • Possible re-employment in other roles

The goal? To work together, not against each other.

Step 3: considering representations

Once employees or their representatives have shared feedback, the employer must carefully consider all suggestions and respond in writing. This step shows that the consultation was meaningful, not just a formality.

Step 4: final decision and notification

Only after proper consultation can the employer make a final decision. If retrenchments are unavoidable, affected employees must receive formal notices of termination detailing:

  • The reason for dismissal (operational requirements)

  • The date of termination

  • Severance pay and benefits due

Step 5: severance pay and final payments

Under Section 41 of the Basic Conditions of Employment Act (BCEA), retrenched employees are entitled to:

  • Severance pay: at least one week’s remuneration for every completed year of service

  • Notice pay (if not worked)

  • Accrued leave pay

  • *Any other contractual entitlements

If an employee refuses a reasonable offer of alternative employment, they may lose their severance pay, so both sides should keep communication open and honest.

Step 6: post-retrenchment support

While not legally required, many responsible employers go a step further by offering:

  • Reference letters

  • Counselling or financial guidance

  • Assistance with job placements or retraining

These gestures show compassion and help employees transition with dignity while protecting the company’s reputation as an ethical employer.

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4. Fairness Is Key

For a retrenchment to be fair under South African law, two elements must always be present:

Substantive fairness:
The reason for retrenchment must be real and based on legitimate business needs.

Procedural fairness:
The correct steps, including consultation, must be properly followed.

If either of these is missing, the process could be deemed unfair and challenged at the CCMA or Labour Court

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Final Thoughts

Retrenchment is never just a legal process, it’s a human one. For employers, it’s about doing what’s necessary for the business while treating people with dignity.
For employees, it’s about knowing your rights, asking the right questions, and ensuring you’re treated fairly.

Handled correctly, retrenchment doesn’t have to end in conflict, it can be managed with empathy, fairness, and respect on both sides.

–I.Mokgwatleng