One of the most significant recent changes in the South African Labour landscape is the introduction of the new Code of Good Practice on Dismissal. While this code covers all forms of dismissal, its provisions on managing retrenchment and dismissal for operational requirements are particularly crucial.
The New Framework for Retrenchment
The previous Code of Good Practice, which has been around for more than two decades, provided a framework for managing dismissals. However, the new Code of Good Practice on Dismissal, which was gazetted on September 4, 2025, unifies the various forms of dismissal – misconduct, incapacity, and operational requirements (retrenchment) – into a single, cohesive document. This consolidation provides much-needed clarity and a more comprehensive guide for employers.
So, what does this mean for retrenchment? The new code reaffirms that retrenchment must be a last resort. It’s a no-fault dismissal, meaning the reason for the separation isn’t the employee’s poor performance or misconduct, but rather the business’s economic, technological, or structural needs. The process remains rooted in the principle of fairness, both substantively and procedurally.
The Pillars of a Fair Retrenchment Process
The new code places a strong emphasis on a transparent, consultative, and well-documented process.
1. The Consultation Process
The employer must engage in a joint, consensus-seeking process with the affected employees or their representatives (such as a trade union or an elected employee representative). This isn’t just a box-ticking exercise; it’s a genuine effort to find alternatives to dismissal.
The employer must provide a written notice inviting the parties to consult. This notice must contain all relevant information, including:
- The reasons for the proposed retrenchment.
- The alternatives to retrenchment that were considered, and why they were rejected.
- The number of employees likely to be affected and their job categories.
- The proposed selection criteria.
- The proposed severance pay.
- The employer will offer, such as opportunities for re-employment or assistance with job searching.
The goal is to explore every possible option to avoid or minimise the need for retrenchment. This can include anything from reducing working hours and eliminating overtime to offering early retirement packages.
2. Fair and Objective Selection Criteria
If retrenchment is unavoidable, the selection criteria used to decide who is retrenched must be fair and objective. The new code encourages employers to reach an agreement on the criteria during the consultation process. Common criteria include:
- Last-In, First-Out (LIFO): This is often seen as the most objective criterion, as it is based purely on an employee’s length of service.
- Retention of key skills: The business may need to retain employees with specific, critical skills.
- Performance: An employee’s performance record can be considered, but it must be applied fairly and consistently.
Using a combination of these factors is often the most sensible approach. Remember, the criteria must not be discriminatory on any basis, such as race, gender, or age.
Key Procedural Steps and a Quick Guide
The retrenchment process can feel complex, but breaking it down into logical steps makes it more manageable. Here’s a quick guide to the core stages, along with some added information to help you manage the process.
Step | Description | Key Legal Requirement | Phakisa’s Value-Add |
1. Contemplation | The employer identifies the need for retrenchment based on operational requirements. | A final decision must not be made at this stage. The duty to consult is triggered. | Our experts can help you analyse your business needs and identify potential alternatives to retrenchment. |
2. Invitation to Consult | The employer issues a written notice to affected parties inviting them to consult. | The notice must contain all relevant information as per Section 189(3) of the LRA. | We can help draft a legally compliant notice and guide you on what information to disclose. |
3. Joint Consensus-Seeking | Parties meet to consult on the reasons, alternatives, and selection criteria. | This must be a genuine, good-faith effort to find solutions and agree on a fair process. | Our experienced HR professionals can act as facilitators, ensuring the consultation is productive and legally sound. |
4. Final Decision & Notice | If retrenchment is unavoidable, the employer makes a final decision and issues notices to the selected employees. | The notice must be in writing, specifying the reason for dismissal and the effective date. | We can help you manage the notice period and ensure all final payments are calculated correctly. |
5. Severance Pay & Final Payments | The retrenched employee receives their severance pay and other final payments. | Severance pay must be at least one week’s remuneration for each completed year of service. | We ensure accurate calculation of severance pay, outstanding leave, and other entitlements. |
This process, while challenging, is essential for maintaining a positive work culture. By handling it with empathy and transparency, you can mitigate the negative impact on both the departing employees and those who remain.
The Role of a Strategic HR Partner
Navigating the complexities of the new Code of Good Practice on Retrenchment and Dismissal requires a deep understanding of labour law and a commitment to fair procedure. For many HR teams, especially in small to medium-sized businesses, this can be overwhelming. This is where a strategic partner like Phakisa comes in. At Phakisa, we don’t just provide legal advice. We partner with you to develop human capital strategies that build resilient and productive workforces. By focusing on fostering a positive work culture and improving productivity, when it becomes necessary, we guide you through every step of the process, ensuring compliance and fairness.
Conclusion: Partner with Phakisa for a Resilient Workforce
The new Code of Good Practice on Dismissal is more than just a legal document; it’s a call for a more humane and professional approach to managing change. By embracing its principles, HR professionals can transform a difficult process into a demonstration of the company’s core values.
Phakisa can help your business thrive by ensuring your human resources practices are not only legally compliant but also strategically aligned with your goals. Our expertise in flexible workforce solutions can help you build a resilient workforce ready to face any challenge. Contact Phakisa Holdings today to learn how we can empower your business.
