Retrenchment & Severance in SA: Know Your Rights if You Lose Your Job

By / September 24, 2025

Losing your job is stressful. In South Africa, however, the law gives you specific protections and entitlements when a dismissal […]

Retrenchment & Severance in SA Know Your Rights if You Lose Your Job

Losing your job is stressful. In South Africa, however, the law gives you specific protections and entitlements when a dismissal happens for “operational requirements” (commonly called retrenchment). This guide explains, in plain language, what retrenchment is, how the process should unfold, what you must be paid, how severance is taxed, how to claim UIF, and what to do if things go wrong. It is written for employees, but employers will also find it useful as a compliance checklist.

Key takeaways (at a glance)

  • Retrenchment must be both substantively and procedurally fair. Your employer must have a genuine operational reason and must follow the consultation steps set out in section 189 of the Labour Relations Act (LRA).
  • Minimum severance pay is at least one week’s remuneration per completed year of continuous service under section 41 of the Basic Conditions of Employment Act (BCEA). Some contracts or collective agreements provide more generous packages.
  • You may forfeit severance if you unreasonably refuse suitable alternative employment offered by the employer.
  • Notice, leave pay, and other final payments are separate from severance. Statutory notice is typically one week, two weeks, or four weeks depending on service length. Accrued statutory annual leave must be paid out on termination.
  • Tax on severance uses the special retirement lump sum table. As at the 2025 tax year, the first R550,000 of severance benefits is tax free (lifetime cumulative), with progressive rates thereafter. Leave pay and notice pay are taxed at normal rates.
  • UIF unemployment benefits can be claimed if you are retrenched. Apply as soon as you become unemployed and within six months of termination.
  • Large-scale retrenchments (section 189A) trigger additional procedures and timelines, including the possibility of CCMA facilitation.

What counts as “retrenchment”?

Retrenchment is a dismissal for reasons unrelated to misconduct or poor performance. It happens when an employer’s economic, technological, structural, or similar needs require reducing staff or reorganising roles (for example, cost cutting, restructuring, automation, or closure of a department). The LRA calls these “operational requirements.”

To be substantively fair, the employer must be able to prove a genuine operational need. To be procedurally fair, the employer must follow the section 189 consultation process, which aims to avoid or minimise dismissals and to mitigate adverse effects.

The section 189 consultation process: your rights step by step

When an employer contemplates retrenchment, it must consult in good faith with the appropriate parties (a recognised union; a workplace forum; or, if none exists, the affected employees or their chosen representatives). The process is a joint problem-solving exercise; it is not a mere announcement.

A proper section 189 process should include:

1. Written notice starting consultations

The employer issues a written section 189(3) notice that sets out, at minimum:

  • The reasons for the proposed retrenchment;
  • Alternatives considered and why they were rejected;
  • The number of employees likely to be affected and their job categories;
  • The proposed selection criteria;
  • The timing and proposed severance;
  • Assistance that the employer proposes; and
  • The possibility of future re-employment.

2. Meaningful consultations

Parties should meet to seek consensus on:

  • Avoiding dismissals (redeployment, natural attrition, reduced hours, salary freezes, training for alternative roles);
  • Minimising the number of dismissals;
  • Changing the timing (for example, phasing);
  • Mitigating the adverse effects (outplacement support, reference letters, counselling);
  • Selection criteria; and
  • Severance pay and other payments.

3. Information sharing and representations

The employer must consider representations made by employees or unions and must provide written reasons if it disagrees. That creates a paper trail for fairness.

4. Fair selection

If there is no agreement on selection criteria, the employer must apply fair and objective criteria. Common, accepted criteria include LIFO (Last In, First Out), skills and qualifications, and sometimes performance, provided they are applied objectively and without discrimination. Exceptions to LIFO can be justified to retain scarce skills or support affirmative action targets, but the employer bears the onus to prove fairness.

5. Final decision and notices of termination

Only after completing consultations may the employer issue notices of termination on the agreed or statutory notice periods, together with details of severance and other final payments.

Section 189A: large-scale retrenchments

Section 189A applies where the employer has more than 50 employees and contemplates dismissing numbers that meet specific thresholds over a 12-month period. In such cases:

  • CCMA facilitation may be requested.
  • Minimum consultation periods apply before dismissal notices can be issued.
  • Disputes after facilitation can proceed to strike action or the Labour Court, depending on the issues.

Selection criteria: what is “fair and objective”?

A common point of dispute is who is selected. The LRA requires agreed criteria, or, if no agreement, fair and objective criteria. In practice:

  • LIFO remains a widely used and court-endorsed default because it is objective.
  • Skills, qualifications, and experience can be appropriate where objectively defined and consistently scored.
  • Performance may be used only if based on objective, consistent, and recent metrics, not subjective ratings.
  • Affirmative action considerations may be legitimate if aligned with Employment Equity goals and applied in a principled, non-discriminatory manner.
  • Bumping (consideration of transferring a more senior employee into a junior role to preserve service length) must be reasonably considered in appropriate cases.

What must you be paid if you are retrenched?

Think of your final package as three separate buckets:

1. Severance pay (statutory minimum)

  • One week’s remuneration per completed year of continuous service.
  • Includes salary and regular allowances that form part of remuneration.
  • More generous packages apply if promised in contracts or collective agreements.
  • You lose entitlement if you unreasonably refuse suitable alternative employment.

Example:
Zinhle has 7 years of service, with monthly remuneration of R25,000. Weekly remuneration ≈ R25,000 × 12 ÷ 52 = R5,769. Minimum severance = 7 × R5,769 = R40,383. If a policy grants two weeks per year, it becomes R80,766.

2. Notice pay

  • 1 week: employed 6 months or less
  • 2 weeks: employed more than 6 months but less than 1 year
  • 4 weeks: employed 1 year or more
  • May be worked or paid in lieu.

3. Other termination payments

  • Accrued annual leave pay-out.
  • Salary and overtime due.
  • Pro-rata bonuses if contract provides.
  • Pension or provident fund withdrawals/transfer options.
  • Commission already earned.

Tax on retrenchment packages

Severance pay is taxed using the retirement lump sum table:

  • R0 – R550,000: 0%
  • R550,001 – R770,000: 18% of excess
  • R770,001 – R1,155,000: R39,600 + 27% of excess
  • Above R1,155,000: R143,550 + 36% of excess

Notes:

  • The R550,000 exemption is lifetime cumulative across severance and retirement lump sums.
  • A SARS tax directive is required before payment.
  • Leave pay and notice pay are taxed at normal PAYE rates.

UIF benefits after retrenchment

If you contributed to UIF, you may claim unemployment benefits:

  • Apply within six months of termination.
  • Register as a work seeker.
  • Submit ID, UI-19 form, bank details, payslips, and proof of termination.
  • Claims may be made via uFiling or labour centres.

Practical timelines

  1. Day 0: Employer issues section 189(3) notice.
  2. Days 1–30: Consultation meetings and exchange of information.
  3. After consultations: Employer issues termination notices.
  4. Last day of employment: Final pay-out made.
  5. Within 6 months: UIF claims window.
  6. Within 30 days: If challenging dismissal, referral to CCMA.

If you are offered alternative employment

Refusing reasonable offers may disqualify you from severance. Consider:

  • Comparable pay and benefits.
  • Job security and location.
  • Suitability to your skills.
  • Whether changes are permanent or temporary.

Common employer mistakes

  • Treating consultation as a formality.
  • Using subjective selection criteria.
  • Ignoring bumping or redeployment.
  • Underpaying severance or forgetting leave pay.

Your response:
Document everything, request written reasons, and escalate disputes promptly.

Should you sign a settlement agreement?

Settlement agreements can be useful but check:

  • Is severance at least statutory minimum?
  • Are waiver clauses reasonable?
  • Has a SARS directive been obtained?

Always take time to review or seek advice before signing.

Challenging an unfair retrenchment

If the process or reason is unfair, you can:

  • Refer to the CCMA for unfair dismissal.
  • Remedies include reinstatement or compensation (up to 12 months’ remuneration for ordinary unfair dismissal).

UIF claim checklist

  • Certified ID copy.
  • UI-19 form from employer.
  • Payslips.
  • Bank statement/proof.
  • Service certificate.
  • Registered as work seeker.

Practical tips

  • Engage proactively in consultations.
  • Scrutinise selection criteria.
  • Verify all payment calculations.
  • Consider long-term tax impact.
  • Claim UIF promptly.

Final word

Retrenchment is never easy, but South African labour law provides meaningful protection. Understanding the process, payments, and remedies empowers you to protect your rights and make informed decisions. Always document everything and seek advice when needed.

Sources

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