What is a Section 189 retrenchment?

Section 189 of the Labour Relations Act governs the dismissal of employees for operational requirements — in other words, when a business needs to reduce headcount for economic, technological, structural, or similar reasons. This is distinct from dismissal for misconduct or incapacity.

Section 189A applies to large-scale retrenchments involving 10 or more employees at a single employer within a 12-month period. This triggers a more formal facilitation process and extended timescales.

The consultation obligation

Before any retrenchment decision is made final, the employer must consult with the affected employees or their representatives. This is not a tick-box exercise — it is a genuine, good-faith process aimed at exploring alternatives to retrenchment.

The consultation must cover: the reasons for the proposed retrenchments, the alternatives considered, the selection criteria to be used, the severance pay proposed, the timing and procedure, and any assistance to be offered to retrenched employees.

Disclosure requirements

The employer must issue a written Section 189(3) notice (often called a 'Section 189 letter') disclosing all relevant information to the consulting party. Withholding information or providing misleading information during consultation is a procedural defect.

Employees or their representatives may dispute the adequacy of disclosure, and this can delay or complicate the process significantly.

Selection criteria

The criteria used to select which employees are retrenched must be fair and objective. Common criteria include LIFO (last in, first out), skills and qualifications required for the restructured business, and performance. Criteria that amount to unfair discrimination are prohibited.

Selection criteria must be agreed with the consulting party where possible, or disclosed and motivated in the absence of agreement.

Severance pay

The minimum statutory severance pay is one week's remuneration per completed year of service. This is a floor, not a ceiling — many employers pay more as part of a negotiated settlement. Employees who unreasonably refuse alternative employment may forfeit the right to severance pay.

Common mistakes that lead to CCMA claims

Announcing the retrenchment before consulting. Making the decision final before the consultation process is complete. Using arbitrary or discriminatory selection criteria. Failing to consider alternatives such as short-time, reduced hours, or voluntary severance. Not providing a proper Section 189(3) disclosure letter.

Each of these mistakes can convert a legitimate operational decision into an unfair dismissal finding — with compensation of up to 12 months' remuneration per employee.