This is a complete guide to Retrenchment in South Africa.
In this guide you will learn:
Let’s get started.
Introduction:
Hello and welcome. My name is Aslam Moolla and I am a registered Attorney at the National Legal Practice Council (Registration number 65753).
My team and I organised this guide to help you understand the CCMA process for Unfair Dismissal.
The practical steps are as follows:
At the end of this process, we hope that you will be feeling more confident about where to get help. If you still require assistance on what to do, please reach out to us, and we will help you as much as we can.
Here is what’s to come:
Contents
Chapter 1 – what does the law say on retrenchments
Chapter 2 – how should an employer retrench (the proper procedure for retrenchment)
Chapter 3 – How is a retrenchment package calculated
Chapter 4 – How should an employee challenge an unfair retrenchment
Chapter 5 – Frequently asked questions for retrenchments in South Africa
Chapter 1:
what does the law say on retrenchments
Section 189 of the Labour Relations Act allows employers to retrench employees.
However there are strict requirements that the employer has to follow before retrenching an employee.
Before we get into the requirements that need to be followed, lets take a look at the 3 reasons that an employer can use to retrench.
There are only 3 reasons why an employer can retrench employees. The employer must choose any one or more of the 3 reasons. This is called retrenchment based on operational requirements.
Basically that means that the employer has to retrench employees to continue operating his business.
The 3 reasons are:
1. for economic reasons;
2. for technological reasons; and
3. for structural reasons.
The employer cannot retrench for any other reason except the above.
Economic reasons are those that relate to the financial aspects of a business. In other words, the business can simply afford to keep the employee on the payroll. This could be because of poor economic conditions or because of a loss of key customers.
Employers are allowed to retrench employees because their business is doing bad financially. And the retrenchment will help keep the business survive.
Economic reasons are the most common form or reason used by employers.
However, employers must be able to prove their financial statements to prove that the business is really going through financial strain and that retrenchment was a necessity.
Technological reasons means when new technology is used at work which either makes existing jobs redundant or requires employees to adapt to the technology.
For example, a machine is bought by the employer which now does the work of the employee. Therefore the employee has to be retrenched because the machine is now doing that particular work.
Structural reasons relate to the redundancy of posts because of a restructuring of a business.
For example two people are doing the same job and the business only requires one person to do that job. Therefore the other person will get retrenched. Because it will be unfair to the business to keep two people doing one person’s job.
To recap: there 3 reasons for retrenchment:
1. for economic reasons;
2. for technological reasons; and
3. for structural reasons.
The employer cannot retrench for any other reason except the above.
In your situation, what reason is provided for the retrenchment?
Is it either economical? Or technological or structural?
Let’s continue to the next chapter which talks about: what are the requirements that need to be followed for a proper retrenchment in South African law.
Chapter 2: how should an employer retrench (the proper procedure for retrenchment)
What is considered to be a fair procedure for retrenchment?
The employer must consult.
The law states that consultation must take place as soon as the employer contemplates retrenchment.
Who must the employer consult with?
• with a workplace forum; or
• if there is no workplace forum then with a registered trade union whose members are likely to be affected with the retrenchment; or
• if there is no workplace forum or trade union, then to consult directly with the employees likely to be affected by the proposed retrenchment.
What does it mean to consult?
According to section 189 Labour Relations Act, an attempt must be made to reach consensus between the employer and the consulting employees to minimise the effects of the retrenchment to avoid it all together.
This means that the consulting employees have to come up with suggestions in respect of the proposed retrenchments, and the employer has to respond to each suggestion.
During the consultation there are certain matters that must be discussed, such as:
Actionable step for your retrenchment consultation:
The employee must challenge every point for the retrenchment.
Ask questions like:
Does the employer have to disclose information about the business during retrenchment consultations?
An employer has to disclose relevant information in writing to the consulting party, including the —
• reasons for retrenchment;
• alternatives considered and why they were rejected;
• number of employees likely to be affected and their job categories;
• proposed method of selection;
• the time or period when dismissals are likely to occur;
• severance pay proposed;
• assistance that the employer will be offering (examples could include offering employees time off to attend interviews, early release should a new job be found, issuing letters of reference, psychological counselling);
• possibility of future re-employment;
• the number of employees employed by the employer; and
• the number of employees that the employer has dismissed for reasons based on its operational requirements in the preceding 12 months.
Chapter 3: How is a retrenchment package calculated
Section 35 (4) of the Basic Conditions of Employment Act states that if employees earn a basic salary plus commission and/or periodic incentive bonuses, the employer is required to calculate the employee’s average remuneration over the preceding 13 week period, and then use this average to calculate the severance pay.
In other words severance pay calculation must include:
How much of severance?
The company must pay an employee who is to be dismissed severance pay equal to one week’s salary for every completed year of continuous service with the company.
So, for example, an employee who has worked for a company for four years would be entitled to four weeks’ salary.
In the situation where employees have worked for the company for less than a year, the amount of severance pay is at the discretion of the employer.
The payment of severance pay does not affect an employee’s right to any other amount of pay owing such as leave pay, notice pay or commission.
HOW IS A RETRENCHMENT PACKAGE CALCULATED
The following payments need to be made –
• Outstanding leave to be paid out.
• Notice pay (where applicable)
If employed for less than six months – one week’s notice;
if employed for more than six months but not more than one year – two weeks’ notice and if employed for more than a year – four weeks’ notice.
Domestic and farm workers, who have been employed for more than six months, must receive four weeks’ notice. The employer may require employees to work/not to work during the notice period.
• Other payments – depending on the employment contract, the following may be relevant — pro rata payment of bonus, pension and provident fund.
Now we move onto how to challenge an unfair retrenchment at the CCMA.
Chapter 4 How should an employee challenge an unfair retrenchment
Step 1: First identify if the employer used a correct reason for the retrenchment.
In other words, check if the retrenchment was either for economic, technological or structural reasons.
If the employer did stipulate any of the reasons, then there is a possibility that the retrenchment was done for an unfair reason.
Step 2: check if the employer followed the correct procedure for retrenchment by complying with the requirements for a consultation.
1. Is there a correct lawful reason for the retrenchment? (i.e. check the definition above for lawful reasons)
2. Has proper consultation taken place between employer and employee?
3. Is there an agreement on who will be retrenched?
4. Has the employer allowed for feedback from the employees?
If you believe that your retrenchment was done unfairly, then you have a right to approach the CCMA.
HOW TO REFER AN UNFAIR RETRENCHMENT CASE TO THE CCMA – step by step process explained
To open a case at the CCMA, do the following steps:
You may have to go to the Bargaining Council and not the CCMA. This depends on the industry you are working in, you will have to contact the CCMA or the respective bargaining council if there is one in your industry.
For clarity on whether it should be the CCMA or a bargaining council, you may approach the CCMA directly and/or phone the national call centre on 0861 16 16 16.
Please read further below for a detailed step by step guide on how to refer your case to the CCMA or Bargaining Council.
Step 1: Get your case registered
The first step is to get your case registered at the CCMA.
Practically, go to your local CCMA (check their website for one closest to you) and ask for a CCMA case referral form (also known as LRA Form 7.11.). These forms are available from the CCMA offices and from our website. Once you have the form, fill in the information as shown on the form.
Step 2: Deliver a copy of the referral form to your ex-employer
Once you have completed the form, you have to deliver a copy to your ex-employer.
This can be done via fax, registered mail, and courier or delivered in person.
It’s very important that you are able to prove that a copy was delivered to them – in case they say they did not get it. So keep a copy of proof that you served the form.
Step 3: File your referral form at the CCMA and attach proof of delivery on the employer
You do not have physically deliver the filled in referral form to the CCMA. You can also fax the form or post it back to the CCMA.
Make sure that a copy of the proof that the form had been served on the ex-employer is also attached.
Step 4: Wait for a hearing date from the CCMA
The CCMA will inform both you and the ex-employer as to the date, time and venue of the first hearing – which is usually conciliation.
Step 5: Attend the Conciliation hearing
Conciliation is a flexible and informal process to see if the case can be settled between the parties. No evidence is lead.
If no settlement agreement is reached, the CCMA Commissioner will issue a certificate stating that the case is unresolved at Conciliation stage. The next step in arbitration.
Tip: Try and settle your case at conciliation because the settlement is still in your hands. Once it goes to arbitration, then its in the Commissioners hands.
Step 6: Fill in the request for Arbitration form
If the case was not settled, you must set it down for arbitration.
In order to have an arbitration hearing, you have to complete a request for arbitration form, (also known as LRA Form 7.13.). You can also get this from the CCMA or here on our website.
A copy must be served on the ex-employer just like earlier.
Step 7 Attend your arbitration
Arbitration is a formal process which involves both you and the ex-employer leading evidence like witnesses and documents to prove whose case is stronger.
This requires preparation on your part because you may have to prove that the employer treated you unfairly. This is done through evidence which you must lead. Legal representation may be allowed.
How long does it take before the CCMA gives its ruling?
The commissioner will make a final and binding decision, called an arbitration award, within 14 days.
Now we turn to advanced tips for handling retrenchments and frequently asked questions from our clients
Chapter 5 – Frequently asked questions for retrenchments in South Africa
What is retrenchment pay?
In terms of the law, when an employee is retrenched, he is legally entitled to severance pay” as compensation. The severance pay is calculated as one week’s wages for each completed year of service with the employer.
Do I have to pay tax on my severance pay?
Under the Income Tax Act, severance benefits are treated like lump sums paid to you on retirement – you get the first R500 000 tax-free and the balance is taxed depending on the amount that you received.
How do I declare the lump sum payment to qualify for the tax benefit?
Your employer must submit a tax directive application to SARS before the lump sum amount is paid to you.
Your employer will apply for a tax directive by filling in an IRP3(a) form, and sending it to SARS.
Upon receipt of this form, SARS will work out the correct amount of employees’ tax that your employer must withhold on the severance benefit, and you will receive that benefit net of tax from your employer.
Your employer will issue you with an IRP5 tax certificate reflecting the gross amount of the benefit and the employees’ tax that was deducted. You will need to declare this in your annual income tax return.
The SARS government website has more information on the tax directive. Click here for that: https://www.sars.gov.za/ClientSegments/Individuals/Tax-Stages/Pages/Tax-and-Retrenchment.aspx
What are the outcomes from a CCMA case
If the employer did not have a fair reason to retrench you and they did not follow the correct procedure, then you have a good chance of winning the case at the CCMA.
If you win the case, then you have 3 options:
ii) re-employment or
Reinstatement means you get your job back exactly as it was prior to your dismissal together with whatever money is due to you.
Re-employment means you get your job back but in a different position
Compensation means you get money paid to you. This depends on how long you worked for. The longer you worked for the more you will get. But this is capped at 12 months. You cannot get more than 12 months of your salary.
Can I present my case on my own at the CCMA?
Yes you can. But remember that winning cases at the CCMA is all about evidence. You need to have credible evidence to back up your case. Without evidence, your chances of winning are slim. Therefore please ensure that you have enough evidence to prove your case.
Good work. We covered
Essentially your preparation is now complete. You have all your bases covered.
Please review the article above. In our experience it is very important to make sure you understand this properly.
We believe that the better prepared you are – the better chance you will have of succeeding in your case at the CCMA.
We also prepared detailed articles like this on the CCMA process which covers at conciliation and arbitration. Click here to read that.
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Now we would Like to Hear From You
We hope you found this Retrenchment guide helpful.
Now we would like to hear what you have to say:
Which tip from today’s post do you want to try?
Are you going to challenge the reason for the retrenchment?
Or maybe you are a business owner that has a question.
Either way, let us know by leaving a comment below right now.