2 months ago
RETRENCHMENT: WHAT’S IN THE LAW
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Richard has been working at a factory for the past five years.

One day, the owner of the factory called a meeting to tell the staff that there was no more work and that at the end of that month, they would no longer have to come to work.

At the end of the month they received their last salary and UI-19 forms in order to claim UIF and nothing else. Richard feels that this is unfair as he is now left unemployed and was not given proper notice.

Richard is correct, the way that the employment came to an end is indeed unfair. Section 189 of the Labour Relations Act provides for the correct procedure that needs to be followed where a company can no longer keep its employees and needs to let them go. This is referred to as Retrenchment.

Retrenchment is embarked on when a company needs to minimise its staff due to operational requirements, meaning that the economical, technological or structural needs of the company call for a staff reduction.

Operational requirements can be brought up by a reduction in profit, or a loss of a contract or the closing down of a business, the reason for retrenchment needs to be a genuine one.

In addition to the reason, in order for a retrenchment to be fair, it needs to follow a fair procedure, which is achieved through the following steps:

  • The employer needs to issue a written notice, inviting all the employees that will likely be affected by the retrenchment, to consult. The notice needs to have all the relevant information regarding the retrenchment.
  • The consultation between the employer and employees needs to take place with the aim of reaching consensus regarding matters that are set out in the Notice, but is not limited to seeking ways to avoid retrenchments.

Employees should therefore be given an opportunity to make representations regarding matters that are set out in the notice, and the employer needs to respond to the representations that are made by the employees and if he disagrees with them, he needs to provide reasons.

  • At the conclusion of the consultations, should retrenchments be found to be unavoidable, the staff that is to be retrenched needs to be selected based on a criteria agreed upon in the consultation, or based on a criteria that is fair and objective, such as Last In First Out.

Once the consultation process is completed, employees who are to be retrenched, are entitled to a severance package.

A severance package is made up of:

  • One week’s salary for every year of service completed,
  • Notice pay, which is calculated based on how long the employee has been employed for.
  • Six months or less, notice pay will be the equivalent of one week’s salary
  • More than six months, but less than a year will be two weeks’ salary.
  • More than a year will be four weeks’ salary.
  • Leave pay for the annual leave days that were due to the employee at the time of the retrenchment.
  • Any pro-rata bonus that may be due to the employee.

I t should be noted however, that if the employer, as part of the consultation process, offered the affected employee alternative employment and the employee refused this offer, then that employee won’t be entitled to a severance package.

An employee, such as Richard who feels that they have been unfairly retrenched, has the option to refer his matter to the Commission for Conciliation, Mediation and Arbitration within 30 days of the retrenchment. In referring the matter, the employee needs to claim either reinstatement or compensation.

Reinstatement can only be claimed in situations where the company is still in existence, if the retrenchment took place because of the company closing down, then the only compensation will be available to the employee, the amount of which will be decided by the Commissioner.

This after having looked into the matter.

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