In South African labour law, operational requirements are the economic, technological, structural or similar needs of an employer. They can justify dismissing employees without fault on their part, which is what retrenchment is. The Labour Relations Act (LRA) sets the process and the Basic Conditions of Employment Act (BCEA) sets the minimum severance pay.
A dismissal for operational reasons is only fair if the employer follows the consultation process and can prove that the dismissal is fair.
Business Requirements at a Glance
A retrenchment under section 189 of the LRA generally involves the following.
- A genuine reason based on the economic, technological, structural or similar needs of the employer
- Consultation as soon as the employer contemplates dismissals
- A written notice inviting consultation and disclosing the prescribed information
- A meaningful joint consensus-seeking process with the right parties
- Selection of employees on agreed criteria or, failing that, fair and objective criteria
- Severance pay of at least one week’s remuneration for each completed year of continuous service
- Notice of termination in terms of the BCEA or a more favourable contract
Registration and Legal Requirements
The employer must consult first the party named in a collective agreement. Where there is none, it consults a workplace forum and any registered trade union whose members are likely to be affected. Otherwise it consults the affected employees or their representatives. The CCMA says consultation must take place as soon as the employer contemplates retrenchment, not after the decision is made.
Consultation is a meaningful joint consensus-seeking process. The parties must try to reach consensus on ways to avoid dismissals, minimise the number, change the timing, mitigate the effects, the method of selection and severance pay. Once the dismissal is established, the employer must prove that it is fair.
Documents and Ownership Information Required
The employer must issue a written notice inviting consultation and disclose in writing:
- The reasons for the proposed dismissals
- The alternatives considered and the reasons for rejecting each
- The number and categories of employees likely to be affected, and the total number employed
- The proposed method of selection and the timing of the dismissals
- The severance pay proposed and any assistance offered
- The possibility of future re-employment
- The number of employees dismissed for operational reasons in the previous 12 months
Keep records of the consultation, the alternatives considered and the reasons for decisions. They are the evidence in a dispute.
Tax, Licence and Compliance Requirements
Employees must be selected on criteria that have been agreed. If none are agreed, the criteria must be fair and objective.
Under section 41 of the BCEA, severance pay is at least one week’s remuneration for each completed year of continuous service. A contract or collective agreement may give more. Confirm the current position and any variation of the minimum with the Department of Employment and Labour.
Process, Deadlines and Ongoing Obligations
Notice of termination under section 37 of the BCEA is one week if the employee has been employed four weeks or less, two weeks if more than four weeks but not more than a year, and four weeks if employed for a year or more, unless a collective agreement permits shorter notice. For farm and domestic workers employed for more than four weeks, the notice is four weeks.
Larger retrenchments follow section 189A of the LRA. It applies to employers with more than 50 employees who dismiss at least:
- 10 employees, where the employer has up to 200 employees
- 20, where it has 201 to 300
- 30, where it has 301 to 400
- 40, where it has 401 to 500
- 50, where it has more than 500
It also applies where that number is reached together with dismissals in the previous 12 months. Under section 189A the CCMA may appoint a facilitator to assist the parties.
Employees facing retrenchment should take part in the consultation and raise alternatives, and may refer a dispute to the CCMA.
Frequently Asked Questions
What are operational requirements?
The economic, technological, structural or similar needs of an employer. They can justify a no-fault dismissal, commonly called retrenchment.
When must consultation start?
As soon as the employer contemplates retrenchment, not after the decision has been made.
What severance pay is required?
At least one week’s remuneration for each completed year of continuous service. A contract or collective agreement may provide more.
What selection criteria are fair?
Criteria that the parties have agreed or, if none are agreed, criteria that are fair and objective.
Confirm your obligations with the Department of Employment and Labour or the CCMA. This page is general information and not legal advice, so take professional advice on your circumstances. See company registration requirements and browse all business and compliance requirements.