How to Retrench Fairly: The Section 189 Process, Step by Step

Retrenchment feels like the one dismissal where the employer clearly has the upper hand — the business needs to cut costs, so the jobs go. That is exactly the trap. In South African law a retrenchment is a no-fault dismissal, and because the employee has done nothing wrong, the law scrutinises the process even harder than in a misconduct case. Genuine financial distress does not excuse a defective consultation. Get the process wrong and the CCMA or Labour Court can order compensation of up to twelve months' pay, or reinstatement, no matter how real the commercial reason was.

What “operational requirements” actually means

Section 189 of the Labour Relations Act allows dismissal for operational requirements — defined as requirements based on the economic, technological, structural or similar needs of the employer. In plain terms: the business, not the person, is the reason. That covers a genuine downturn in revenue, restructuring a department, automating a function, closing a branch, or merging roles.

The reason must be real and commercially rational. You cannot dress up a performance problem or a personality clash as a “restructure” to avoid running a disciplinary or incapacity process. Commissioners regularly see a single “redundant” position that happens to belong to the one employee management wanted gone, followed by a new hire into a near-identical role a month later. That is not a retrenchment — it is an unfair dismissal wearing a costume, and it is easy to expose.

Section 189 vs 189A: which process applies

Which version of the process you follow depends on the size of your workforce and how many people you intend to retrench. Ordinary Section 189 applies to smaller retrenchments. Section 189A — the “large-scale” process — kicks in when a larger employer (50 or more employees) proposes to retrench above a sliding threshold, and it adds extra machinery: a possible facilitator appointed through the CCMA, a minimum 60-day consultation period, and the right to strike over the retrenchment in certain circumstances.

Misjudging which track you are on is a common and expensive error. If you are anywhere near the 189A thresholds, count your numbers carefully before you issue a single notice, because the large-scale rules change your timelines and your obligations completely.

It starts with a written notice, not a decision

The single most important idea in Section 189 is this: when you begin, you must be contemplating retrenchment, not have already decided on it. The process opens with a written notice inviting the affected employees (or their union, or elected representatives) to consult. If you have already picked who is going and simply announce it, you have skipped the heart of the section and the dismissal is procedurally unfair from day one.

The section 189(3) written notice must disclose, in writing, all the relevant information: the reasons for the proposed retrenchment, the number and categories of employees affected, the proposed selection criteria, the timing, any proposed severance pay, and what alternatives you considered. Vague notices that hold back the real numbers undermine the whole consultation, because the other side cannot engage meaningfully with information they do not have.

Consultation means a genuine attempt to reach consensus

Consultation is not a meeting where you inform people of a done deal. The Act requires a joint consensus-seeking process — both sides must apply their minds to ways of avoiding the retrenchments, reducing the numbers, changing the timing, and softening the impact. You must consider and respond to the representations employees make. You do not have to agree with them, but you do have to genuinely engage, and be able to show you did.

Practical alternatives worth exploring on the record include short time, a freeze on hiring and overtime, voluntary retrenchment or early retirement, redeployment to other roles, salary sacrifices, or unpaid leave. Even where none of these work in the end, the fact that you seriously canvassed them is a large part of what makes the process fair. Keep minutes of every consultation meeting.

• Ways to avoid the retrenchments entirely
• Ways to minimise the number of employees affected
• The timing of the dismissals
• Measures to mitigate the impact — redeployment, retraining, references
• The method of selecting who is retrenched
• Severance pay

Selection criteria: fair, objective and applied consistently

How you choose who goes is where many retrenchments fall apart. Selection criteria must be either agreed with the consulting party or, failing agreement, fair and objective. The classic objective standard is LIFO — “last in, first out” — but skills, qualifications and operational needs are also legitimate provided they are measurable and honestly applied.

The danger zone is subjective criteria like “attitude” or a manager's general impression, which are almost impossible to defend and can mask discrimination. Whatever criteria you use, apply them consistently across the affected pool. If you deviate for one employee, you need a defensible reason — the same consistency principle that governs discipline applies here too.

Severance, notice and the final steps

A retrenched employee is entitled to severance pay of at least one week's remuneration for each completed year of continuous service, on top of normal notice pay and any accrued leave that must be paid out. An employee who unreasonably refuses a reasonable offer of alternative employment can forfeit severance — but the bar for “unreasonable” is high, and you should take advice before withholding it.

Only once genuine consultation is exhausted may you make the final decision, issue notice of termination, and settle the payments. If a dispute follows, an employee typically refers an unfair dismissal claim to the CCMA (or, in a 189A matter, may head to the Labour Court). A tidy paper trail — the 189(3) notice, dated minutes, the alternatives you weighed, the criteria and how you applied them — is what stands between you and a compensation award. If you are weighing a restructure, it is far cheaper to get the process right first time than to defend a rushed one afterwards.

Frequently asked questions

How long does the Section 189 consultation process take?

There is no fixed period for an ordinary Section 189 process — it must simply be a genuine consultation, which in practice often runs over a few weeks with several meetings. For large-scale retrenchments under Section 189A, a minimum 60-day consultation period applies before notice of termination may be given.

Can I retrench an employee who is on probation or was just hired?

Yes — retrenchment is about the business's needs, not the employee's tenure. But length of service matters for LIFO selection and for severance pay, so a recently hired employee is often the first out under fair criteria. The consultation process still applies in full.

How much severance pay is legally required?

At least one week's remuneration for each completed year of continuous service, in addition to notice pay and any outstanding leave. A contract, policy or bargaining council agreement may require more, and you cannot pay less than the statutory minimum.

What happens if I skip the consultation and just retrench?

The dismissal will be procedurally unfair even if the commercial reason was genuine. The CCMA or Labour Court can order compensation — up to twelve months' remuneration — or reinstatement. The reason being real does not cure a defective process.

Can I hire someone into a retrenched role afterwards?

Rehiring into the same or a near-identical role shortly after a retrenchment strongly suggests the position was never genuinely redundant, which exposes the dismissal as unfair. If the need genuinely returns, a fair approach is to offer the role back to the retrenched employee first.

This article is general information on South African labour law and is not legal advice on your specific situation. Speak to us about your facts.