Q1: No – an employer can’t retrench employees without incurring a liability to pay at least the statutory minimum severance package of 1 year for each completed year of service. Section 41 (2) of the BCEA makes the payment compulsory. However, the employer can delay payment if it can’t afford to pay immediately. It must commit to an agreed payment plan or to pay when it can afford to. The retrenched employee in this case remains a creditor of the employer after the date of retrenchment.
Q2: Yes – an employer can legitimately use s189 as the primary mechanism for cutting costs. The Con Court confirmed this in its recent judgement in Numsa v Trident Steel in October 2020. In making this seminal judgement, the Con-Court took account of the context in which businesses must compete to survive and prosper in the modern economy. It said –
“In an ever-changing economic climate characterised by increasing global competition, operational reasons not only relate to the downsizing of the workforce, but also to restructuring the manner in which an existing workforce carries out its work.”
However, the court stressed that the primary reason must be for genuine operational reasons – it must not be a substitute for wage negotiations in the traditional collective bargaining process. It warns employers that
“Courts must guard against disguised retrenchments that take place where collective bargaining prevails. Courts can police opportunistic or disingenuous employers by determining the true reason for the dismissals.”
