Restructuring and collective relations · 9 October 2026 · 7 min read · 1,622 words

Section 189 retrenchment: a roadmap for employers

By the LabourLink editorial team. Last reviewed 17 October 2026.

The short answer

A retrenchment is fair when the reason is genuinely operational and the employer consults before deciding. A full s189(3) notice, good faith consultation, agreed or fair and objective selection criteria and at least one week's severance pay per completed year of service are the baseline.

Retrenchment is a process, not a decision

Few decisions in a business are harder than letting people go for reasons that have nothing to do with how they did their jobs. South African law recognises that employers sometimes have to do it. A dismissal can be fair if it is based on the employer's operational requirements, which the Code of Good Practice: Dismissal describes as the business reasons for retrenching an employee^[2]. What the law insists on is that the decision is reached through consultation, and that the process is genuine.

The Code puts the principle directly: dismissal must be a measure of last resort, and should only take place if it cannot be avoided by alternatives identified in the consultation process^[2]. Employers must also, of their own initiative, take appropriate steps to avoid retrenchments where reasonably possible^[2].

Step one: test the reason

Before any notice goes out, write down why the business may need to reduce its workforce. Typical reasons include a loss of revenue, the end of a contract, restructuring, new technology or the closure of a site. The Code says that, to be fair, both the reason for the retrenchment and the decision to select a particular employee must relate to the employer's operational requirements^[2].

A useful test is whether the explanation would make sense to an outsider with the financial statements in front of them. If the real reason is an employee's performance or conduct, a retrenchment process is the wrong tool and will probably be found unfair.

Step two: identify who to consult

Section 189(1) of the Labour Relations Act sets out who the employer must consult, in order of priority^[1]:

any person the employer is required to consult under a collective agreement;
if there is no such agreement, a workplace forum, if the affected employees work in a workplace that has one, and any registered trade union whose members are likely to be affected;
if there is no workplace forum, any registered trade union whose members are likely to be affected; or
if there is no such union, the employees likely to be affected or representatives they nominate.

If a bargaining council covers your sector, check whether a council agreement regulates retrenchment procedures. The Code makes the same point^[2].

Step three: issue the section 189(3) notice

The consultation begins with a written notice inviting the other party to consult, accompanied by written disclosure of all relevant information^[1]. Section 189(3) lists what must be disclosed, including^[1]:

the reasons for the proposed dismissals;
the alternatives the employer considered and the reasons for rejecting each one;
the number of employees likely to be affected and their job categories;
the proposed method for selecting which employees to dismiss;
when the dismissals are likely to take effect;
the severance pay proposed;
any assistance the employer proposes to offer;
the possibility of future re-employment;
the number of employees employed by the employer; and
the number of employees dismissed for operational reasons in the preceding 12 months.

The Code adds that the notice must contain the relevant information available to the employer at the time^[2]. Draft it carefully. It is the first document a commissioner or judge will read, and an incomplete notice is a common source of procedural unfairness.

Step four: consult properly

The Act requires the parties to engage in a meaningful joint consensus-seeking process and to attempt to reach consensus on^[1]:

appropriate measures to avoid the dismissals, minimise their number, change their timing and mitigate their adverse effects;
the method for selecting the employees to be dismissed; and
the severance pay.

The employer must allow the other party to make representations, must consider and respond to them, and if it disagrees, must give reasons. Where a representation is in writing, the response must be in writing^[1]. The Code adds that the employer must consult in good faith, keeping an open mind and seriously considering proposals put forward by the union or employees^[2].

How many meetings?

Neither the Act nor the Code fixes a number of meetings for an ordinary section 189 process. The Code says the period of consultation depends on factors such as the complexity of the issues, the nature and size of the employer and the scale of the retrenchments^[2]. In practice, a small retrenchment in a small business may be properly consulted over a few meetings. A larger or more complex one will take longer.

Minutes

Keep minutes of every meeting, circulate them for comment, and file every written proposal with your written response. A consultation that looks genuine on paper is usually one that was genuine in the room.

Step five: selection criteria

The Act requires selection according to criteria agreed with the consulting parties or, if none are agreed, criteria that are fair and objective^[1]. The Code identifies length of service, retention of skills and qualifications as generally accepted fair and objective criteria^[2]. It also states that selection based on union membership or activity, pregnancy or any other discriminatory ground can never be fair^[2].

Apply the criteria to the whole affected pool, record the scores, and be ready to show the working.

Step six: notice and severance

Once consultation is complete and the employer decides to proceed, give notice of termination. The minimum notice periods are set by section 37 of the Basic Conditions of Employment Act, as amended: one week if the employee has been employed for six months or less, two weeks if employed for more than six months but not more than a year, and four weeks if employed for a year or more^[3]^[4]. A contract or collective agreement may provide for longer notice.

Severance pay is set by section 41 of the Basic Conditions of Employment Act. An employer must pay an employee dismissed for operational requirements severance pay equal to at least one week's remuneration for each completed year of continuous service^[3]. A collective agreement, bargaining council agreement or the employer's own policy may provide for more.

Large-scale retrenchments

Section 189A applies to employers with more than 50 employees when the number of contemplated dismissals reaches set thresholds^[1]. It brings additional rules, including the possibility of a CCMA facilitator and specific time periods. Large-scale processes deserve their own planning. Our separate guide on section 189A explains them.

A worked example

A manufacturer with 35 employees loses its largest customer and expects production to fall by a third. Management prepares a section 189(3) notice proposing six retrenchments in the packing department. Before sending it, the HR manager lists the alternatives considered: short time, a recruitment freeze, voluntary separation packages and the transfer of two employees to a vacant maintenance role. The notice explains why short time was rejected and invites proposals. At the second meeting, the employees propose a four-day week for three months. Management costs it, finds it workable for part of the department, and reduces the proposed retrenchments to three. Selection uses length of service and skills, scored and shared. Notice and severance follow the statutory minimums, and the employer adds a month's salary as an ex gratia payment. The process takes five weeks and every step is on record.

A checklist

Write down the operational rationale and test it.
Identify the consulting parties under section 189(1)^[1].
Prepare and send a full section 189(3) notice^[1].
Consult in good faith and minute every meeting^[1]^[2].
Respond in writing to written representations^[1].
Agree, or set, fair and objective selection criteria^[1]^[2].
Give notice and pay at least the statutory severance^[3]^[4].
Issue certificates of service.

Disclosure disputes

The quality of consultation depends on the quality of information. The Code says that, to ensure meaningful engagement, the employer must disclose relevant information, and points to section 189(4) of the Act, read with section 16, as the provisions that regulate disputes about disclosure^[2]. In practice, expect the consulting party to ask for financial statements, management accounts, organograms and the costing of alternatives. Prepare those documents before the first meeting, decide what is genuinely confidential and be ready to explain why.

Who receives the notice in a small business

Small employers sometimes assume that, without a union, there is nobody to consult. That is not the case. The Code says that employers, including small employers, without a collective agreement on retrenchment consultation should send the notice to a registered trade union whose members are likely to be affected or, if there is no such union, to each employee whom the employer proposes to retrench^[2]. The Code uses an Annexure A form for the notice^[2], which is a useful template to follow.

Alternatives worth costing

Consultation is more convincing when the employer has costed the obvious alternatives before the first meeting. Common examples are a freeze on recruitment and overtime, short time or reduced hours for a defined period, voluntary separation or early retirement packages, redeployment into vacancies, training for alternative roles and temporary unpaid leave. Each has a cost and a risk, and some will not suit your business. The point is to show that you looked, and to be able to explain the numbers.

Key points

Consultation starts when retrenchment is contemplated, not after it is decided^[1]^[2].
The section 189(3) notice and disclosure set the tone for everything that follows^[1].
Selection criteria must be agreed, or fair and objective^[1]^[2].
Severance is at least one week's remuneration per completed year of service^[3].

When to get specialist help

Retrenchment is the area where early advice saves the most money. Book a LabourLink consultation before the notice goes out. A consultant can test the rationale, draft the notice and the disclosure, facilitate meetings, design selection criteria and prepare outcome letters. If the process may be large-scale under section 189A, get help at once, because the thresholds, timetable and facilitation rules change^[1].

Sources

Official and primary sources, each checked on 17 October 2026. Last reviewed 17 October 2026.

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