Retrenchment Process in South Africa: Step-by-Step Guide

In South Africa, you retrench by first inviting affected employees (or their union or workplace forum) to consult in writing, then consulting in good faith to look for ways to avoid or reduce job losses, and only after that issuing final notice and paying what is owed. The steps come from section 189 of the Labour Relations Act. The order matters: the most common mistake is deciding first and consulting afterwards.

This guide walks you through each step in plain language, explains what severance and notice pay look like, and shows where a Retrenchment Pack can give you a starting point.

Key takeaways

• Retrenchment is a “no-fault” dismissal. It is based on the business’s economic, technological, structural or similar needs, not on anything the employee did.
• You must consult as soon as you contemplate retrenching, and you must start with a written notice that discloses relevant information.
• Severance is at least one week’s pay for every completed year of service, and notice pay and leave pay may also be due.
• Larger retrenchments can fall under section 189A, with extra steps and time periods.
• Employees generally have 30 days to refer an unfair dismissal dispute to the CCMA.

Table of Contents

• What retrenchment means in South Africa
• How retrenchment differs from a disciplinary process
• Step 1: Decide whether retrenchment is really needed
• Step 2: Work out who you must consult
• Step 3: Issue a written notice inviting consultation
• Step 4: Consult in good faith
• Step 5: Agree how people will be selected
• Step 6: Make the decision and give final notice
• What you owe an employee who is retrenched
• Documents you need to keep and hand over
• Retrenching a few people or many
• If an employee challenges the retrenchment
• Where the Retrenchment Pack fits
• Common mistakes to avoid
• FAQ
• Sources

What retrenchment means in South Africa

Retrenchment is a dismissal for reasons linked to how the business operates. Section 189 of the Labour Relations Act 66 of 1995 applies when an employer contemplates dismissing one or more employees for reasons based on operational requirements: economic, technological, structural or similar needs. It requires a fair process before any dismissal takes place.

The word “contemplates” is important. The duty to consult starts when you are thinking about retrenchment, not when you have made up your mind. Under the 2025 Code of Good Practice: Dismissal, retrenchment remains a no-fault dismissal and employers must explore all possible alternatives to dismissal.

Typical reasons include a drop in income, losing a major customer, closing a branch, buying new machinery that replaces manual work, or merging two roles after a restructure. A reason on its own is not enough. You must also be able to show that the process you followed was fair.

How retrenchment differs from a disciplinary process

Many employers mix these two up, and it is easy to see why: both end in a possible dismissal and both need a fair procedure. But they have different purposes.

The 2025 Code now brings these under one shared framework, and says a fair procedure should allow genuine dialogue and time for reflection, in a form that suits the circumstances. Still, they stay distinct in purpose. If the real problem is that one person is not meeting the standard of the job, retrenchment is the wrong tool. Our guide to handling poor work performance explains a support-first approach instead.

Step 1: Decide whether retrenchment is really needed

Before you write anything, ask yourself honestly what is driving the problem and whether something other than job losses could solve it. The CCMA describes section 189 consultation as a process where you try to reach consensus on avoiding dismissals, reducing them, changing the timing, and softening the impact.

Sensible alternatives to put on the table include:

• A freeze on new hiring
• Reduced overtime
• Shorter working hours or short-time arrangements, agreed with employees
• Voluntary options employees might choose
• Moving people into other open roles
• Training so people can fill different positions

Write down every alternative you considered and why it did or did not work. You will have to share this reasoning with the people you consult.

Step 2: Work out who you must consult

The law sets an order. You consult the following, in this order:

1. A workplace forum, if there is one.
2. If there is no forum, a registered trade union whose members are likely to be affected.
3. If there is neither, the employees likely to be affected, or their representatives.

The CCMA’s information sheet on small-scale retrenchment sets out this priority order. If a collective agreement says something different about who is consulted, that is a point to check with a labour lawyer.

Step 3: Issue a written notice inviting consultation

This is the document that starts the process. It must be in writing, and it must say that you are contemplating retrenchment, not that you have decided. Per Labour Research Service guidance, the notice should disclose relevant information, including:

• The reasons for the proposed dismissals
• The alternatives you considered and why you rejected them
• The number of employees likely to be affected and the job categories they hold
• The proposed method of selecting who goes
• When the dismissals are expected to take place
• The severance pay you propose
• Any help you will offer affected employees
• The possibility of future re-employment
• The total number of people you employ
• How many operational-requirement dismissals you have made in the previous 12 months

The notice should also say when and where the first meeting will take place. Keep a copy, and keep proof that each person received it.

Step 4: Consult in good faith

Consultation is a real conversation, not a announcement. The Labour Research Service describes it as a meaningful, joint, consensus-seeking process where avoiding job losses comes first, followed by reducing them, changing the timing and softening the effects, before you get to selection and severance.

In practice, that means:

• Holding one or more meetings, not a single tick-box session
• Giving people time to read the information and prepare
• Letting them make proposals, and meaningfully considering each one
• Responding to each proposal. If you disagree, explain why. If the proposal was made in writing, reply in writing
• Recording what was said and agreed at every meeting

A short, factual record of each meeting is one of the most useful documents you can have later. It shows what was disclosed, what was proposed and how you responded.

Step 5: Agree how people will be selected

If some jobs must go despite the alternatives, you need a selection method. It should be agreed with the people you are consulting. If you cannot agree, the criteria must be fair and objective. Common examples are “last in, first out” (LIFO), where the most recently hired go first, or keeping people with particular skills or qualifications. Many employers use a combination, for example skills first and LIFO to settle ties.

Keep your reasoning on paper. Avoid anything that looks personal, such as selecting someone you simply get along with less. If you cannot explain a selection criterion in one plain sentence, it needs more work.

Step 6: Make the decision and give final notice

Only after consultation, and after you have considered everything raised, do you decide whether to proceed. If you do, the final notice goes to each affected employee. It should be clear about:

• The last working day
• How accrued leave will be handled
• The severance amount and when it will be paid
• Help with UIF
• A reference, if you are giving one

Do not issue this notice early. A termination letter sent before consultation is finished is the single quickest way to undermine the whole process.

What you owe an employee who is retrenched

A retrenchment package is usually made up of several parts.

Severance pay. The CCMA says severance should be at least one week’s remuneration for each completed and continued year of service. You can offer more, and many employers do, but not less.

Notice pay. The same CCMA sheet gives the minimum notice periods:

Domestic and farm workers employed for more than six months must receive four weeks’ notice. A contract may give a longer period, so check the employment contract.

Accrued leave. Outstanding annual leave must be paid out.

Outstanding salary. Anything earned up to the last day.

A worked example

Imagine a bookkeeper who has completed six full years of service and earns R18 000 a month. Take a week’s pay as roughly R4 150 for the purpose of the example (R18 000 × 12 ÷ 52). Six years means six weeks of severance, which is about R24 900, before notice pay and leave. Your own calculation depends on how the employee’s weekly remuneration is worked out, so check it carefully against their payslips and contract.

Also check whether a SARS tax directive is needed before paying out. Severance above the tax-free threshold is taxed, and you apply to SARS for a directive so the right tax is deducted.

Documents you need to keep and hand over

A fair process leaves a paper trail. At a minimum, plan on having:

• The written consultation notice and proof it was delivered
• Records of every meeting and every proposal received
• Your written responses to those proposals
• Your record of the alternatives you considered
• The selection method and how it was applied
• The final notice to each affected employee
• Payment calculations
• A letter confirming the retrenchment and a certificate of service in the form of Annexure A3

Retrenching a few people or many

Most small businesses fall under the ordinary section 189 process. But section 189A can add extra steps. It applies to employers with more than 50 employees when the planned dismissals reach the numbers set in section 189A(1). The CCMA notes that large-scale retrenchments can involve a 60-day period, facilitation and possible strike action.

If you are near those thresholds, or a union is involved, get advice from a labour lawyer before you send anything.

If an employee challenges the retrenchment

An employee who believes the dismissal was unfair can refer a dispute to the CCMA within 30 days of the date the dispute arose. A late referral needs an application for condonation, where a commissioner looks at the reason for the delay, the prospects of success and possible prejudice.

What will matter is whether there was a real reason and a fair process. This is why your written notice, meeting records and responses are so valuable. They show what happened, rather than leaving it to memory.

Where the Retrenchment Pack fits

Writing the documents from scratch is where many small employers stall. The Retrenchment Pack is built around a section 189 Labour Relations Act process for operational requirements. It has three parts:

1. A consultation notice, which states that no final decision has been made. It covers the reasons, proposals, alternatives, affected employees, proposed selection (skills, qualifications and LIFO considered), timing, severance, assistance, employee numbers, previous retrenchments and meeting details.
2. A consultation record, for noting down what was discussed.
3. A termination notification, used only after consultation. It states dates, leave and severance of one week per year of service, paid within 7 days of a SARS tax directive, plus UIF help and a reference.

The pack uses guided fields, so you are walked through what to fill in. It is a starting point: you tailor it to your own circumstances, and you should not issue the termination notice first. It does not promise a fair or lawful outcome. Collective, contested or complex cases need legal advice.

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Common mistakes to avoid

• Deciding before consulting. If the outcome is already fixed, consultation becomes a formality.
• Vague notices. Leaving out reasons, numbers or alternatives weakens the notice.
• Skipping the record. If a meeting is not written down, it is hard to prove later.
• Ignoring proposals. Each one deserves a considered answer.
• Using retrenchment to remove a poor performer. A no-fault process is not a shortcut around a performance process.
• Forgetting the paperwork at the end. Payments, a letter and a certificate of service are part of finishing properly.

FAQ

How long does the retrenchment process take?

The law does not set one fixed length for a small retrenchment. It takes as long as genuine consultation needs, so allow for several meetings and time between them for people to consider proposals. Larger retrenchments under section 189A have set time periods, including a 60-day period the CCMA mentions.

How much do you get for retrenchment?

At a minimum, severance of one week’s remuneration for each completed year of service, plus notice pay and payment for leave owed. Your contract or a company policy may give more. The final figure depends on pay, service and what was agreed in consultation.

Does the CCMA have jurisdiction over retrenchment?

Yes. An employee who says a retrenchment was unfair can refer a dispute to the CCMA, generally within 30 days. The CCMA also runs facilitation for large-scale retrenchments.

Can I retrench one employee?

Yes. Section 189 applies even when you contemplate dismissing a single employee for operational reasons. The same steps apply: written notice, consultation, and a fair decision at the end.

Sources

• Good practice code: Termination of employment, GilesFiles
• South Africa: Constitutional Court, 2024, SAFLII
• Small scale retrenchment information sheet, CCMA
• The right way to handle retrenchments, Labour Research Service
• A trade union guide to retrenchment law and processes, Labour Research Service
• Labour Relations Act, 1995: retrenchment procedure
• Large-scale retrenchment facilitation, CCMA
• Unfairly dismissed or unfairly treated at work, CCMA
• Condonation, CCMA

This article is for educational and informational purposes only. It is not a substitute for professional legal advice. For advice on your specific circumstances, consult a suitably qualified legal professional.