Section 189 Retrenchments: A Practical Guide for South African Employers

Retrenchment is one of the most difficult decisions a South African employer will ever make. It carries significant human cost, considerable financial exposure, and serious legal risk if the process is not followed correctly. Section 189 of the Labour Relations Act governs the procedure for dismissals based on operational requirements.

What Is an Operationally Required Dismissal?

South African law permits employers to dismiss employees for reasons based on the operational requirements of the business. The LRA defines operational requirements as requirements based on the economic, technological, structural, or similar needs of an employer. The critical point is that the reason must be genuine and must relate to the employer's operational needs, not to the employee's conduct or performance.

Retrenchment is not a substitute for a fair disciplinary process. Employers who use Section 189 to exit a difficult employee without following the correct disciplinary route face significant legal exposure.

The Consultation Requirement: The Most Misunderstood Obligation

Section 189 requires the employer to consult with affected employees or their representatives before any decision to retrench is made. Consultation is not notification. The employer cannot decide to retrench and then inform employees of that decision. The consultation must happen before the decision is finalised, and it must be genuine.

The employer must issue a written Section 189(3) notice which must disclose the reasons for the proposed dismissals, alternatives considered, the number of employees likely to be affected, the proposed selection method, the time when dismissals are likely to take effect, the severance pay proposed, and the possibility of future re-employment.

Selection Criteria: Avoiding Unfair Selection

Where more employees could be retrenched than the employer intends to dismiss, a fair selection criterion must be applied. Last in, first out (LIFO) remains the most commonly applied criterion and is generally accepted as objectively fair.

A retrenchment that uses operational requirements as a pretext for targeting a specific employee, a union member, or a pregnant employee will be found to be automatically unfair, with significantly higher compensation consequences.

Severance Pay: What the Law Requires

Employees retrenched for operational requirements are entitled to severance pay at the rate of at least one week's remuneration for each completed year of continuous service. Remuneration means the employee's total package including regular allowances, not only basic salary.

The Complete Step-by-Step Process

1. Identify the operational need and document the business reason in writing before any external steps are taken.
2. Issue the Section 189(3) notice to all affected employees, disclosing all required information.
3. Allow a reasonable period for employees to respond and propose alternatives. Thirty days is generally considered adequate for non-large-scale retrenchments.
4. Genuinely engage with and document all alternatives proposed by employees.
5. If a decision to retrench is reached, apply the agreed or fair selection criteria.
6. Issue notices of retrenchment specifying the effective date and the severance pay due.
7. Pay all amounts due on or before the last day of employment, including notice pay, accrued leave pay, and severance pay.
8. Issue a certificate of service to every retrenched employee.

See our Labour Relations Consulting page for more on how ArkKonsult supports employers through retrenchment processes.