Retrenchment in South Africa: The Process, Your Severance, Your Rights

By Onah Attorneys Inc • Updated July 2026 • Legal information, not a substitute for advice on your specific matter.

Retrenchment is the only dismissal that punishes the innocent — no misconduct, no poor performance, just operational requirements. Because of that, the LRA wraps it in strict procedure: genuine rationale, real consultation, fair selection and severance pay. Employers who shortcut any leg lose at the CCMA; employees who know the steps can tell a lawful retrenchment from a disguised dismissal.

Step 1: The Section 189 notice

Retrenchment begins with a written invitation to consult disclosing the reasons, alternatives considered, proposed selection criteria, number of affected employees, proposed severance and assistance offered. Verbal warnings of ‘restructuring’ are not the process — the written s189(3) notice is, and its absence alone can make the retrenchment procedurally unfair.

Step 2: Genuine consultation, not announcement

Consultation must be a joint consensus-seeking process on avoiding, minimising and timing retrenchments — before any final decision. A ‘consultation’ held after positions were already advertised or decisions taken is theatre, and commissioners see through it. Employees (or their union) may propose alternatives: short time, salary cuts, redeployment, voluntary packages — each must be considered and answered.

Step 3: Fair selection criteria

LIFO (last in, first out) is the default fair criterion; skills-retention adjustments are permissible if objective and applied consistently. Selection that targets the pregnant, the vocal, the expensive or the union members converts retrenchment into automatically unfair dismissal territory — with 24-month compensation exposure.

Severance pay: the formula and the traps

Minimum severance: one week’s remuneration per completed year of service (better contracts and policies may promise more) — plus notice pay, accrued leave, and pro-rata bonus where applicable. An employee who unreasonably refuses a reasonable alternative position forfeits severance; ‘reasonable’ is measured objectively, not by the employer’s convenience. Severance enjoys favourable tax under the retrenchment tables (first R550,000 lifetime at 0%) via a SARS directive.

Large employers: Section 189A

Employers with 50+ employees retrenching at scale trigger s189A: 60-day facilitated process (CCMA facilitator), strike rights or Labour Court challenges, and stricter timelines. Mass retrenchments announced and executed in a fortnight are usually unlawful ab initio.

Challenging an unfair retrenchment

Procedural or substantive unfairness (no real rationale, sham consultation, biased selection) is referred to the CCMA within 30 days; single-employee retrenchments may elect arbitration, larger ones head to the Labour Court. Remedies: reinstatement or up to 12 months’ compensation. The paper trail — notices, minutes, proposals, answers — decides these cases almost entirely.

Frequently asked questions

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