Retrenchment and mutual termination are not the same

By Ivan Israelstam, chief executive of Labour Law Management Consulting

Where a separation package offer is accepted by the employee the parties might agree that the amount of the payment will be calculated on the number of years of service of the employee in a similar way to that used for calculating a retrenchment package in terms of section 41 of the Basic Conditions of Employment Act (BCEA).

However, this does not mean that the employee has been retrenched in terms of section 189 of the Labour Relations Act (LRA). In terms of that section, if the employer has operational requirements that might necessitate terminations, the employer is required to consult with the employees who may be affected or with their representatives. Section 189 allows the employer to retrench employees if there is a good enough basis for this and if the consultation process has been conducted properly.

In a section 189 retrenchment the employer needs to comply with the provisions of the LRA. However, where there is a mutually agreed separation this, by definition, involves an agreement outside of the LRA. A section 189 retrenchment is concluded by a unilateral letter from the employer giving the employees notice of termination of employment. However, a termination by mutual consent is concluded by a legal agreement.

Employers are warned that they should not get these two types of termination confused. A termination concluded by a genuine and legally binding contract is not classed as a dismissal in the LRA. Whereas a section 189 retrenchment is a type of dismissal and may, in certain cases, be viewed as an unfair dismissal.

In a case decided by the Labour Appeal Court [ABSA Investment Management Services (Pty) Ltd vs Crowhurst 2006, 2 BLLR 107] Ms Crowhurst’s employment was terminated. She went to Labour Court claiming unfair retrenchment. ABSA lost the case and, on appeal, claimed that the employee’s employment had been terminated via mutual agreement. Ms Crowhurst claimed that she had been led to believe that her position had become redundant and that she would need to be retrenched as there were no other positions available for her. However, she then discovered that there were several vacancies that would have suited her qualifications.

The employer claimed that Ms Crowhurst had been offered two alternatives to retrenchment. The Court had to look closely at the document that implemented the termination of Ms Crowhurst’s employment. It stated that, due to the redundancy of her position, her employment was being terminated. The letter neither bore content that indicated a mutually agreed termination nor referred to the alternatives to retrenchment that the employer had claimed had been offered to her.

The Court decided that Ms Crowhurst had in fact been retrenched and that this dismissal was unfair. The employer was therefore required to pay Ms Crowhurst six months’ remuneration in compensation and also to pay her legal costs.

As the stakes are high when employment is terminated employers are warned:

  • To formulate their mutual termination documents to make it clear that the termination is not a dismissal
  • Record their retrenchment consultations so as to make sure that they are able to prove to the courts what really was and was not said
  • Avoid leaving termination strategies and processes to those not fully versed in labour law.

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