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What are you entitled to when retrenched?

Retrenchment is sadly common in our weak economy. This article explains what happens when you’re retrenched, and what recourse you may have.

2 June 2023 · Fiona Zerbst

What are you entitled to when retrenched?

In our weak economy, job security is not a given, especially since forces beyond our control – such as load shedding – are affecting the ability of companies to stay in business. Retrenchments have become more common as companies are forced to downsize; or shut down operations.

We investigate what it means to be retrenched, what you’re entitled to receive, and how you can prepare for an unexpected loss of income.

Tip: In difficult times, debt consolidation can reduce expenses and give you peace of mind.

Retrenched or dismissed?

Retrenchment or “dismissal based on operational requirements” is regulated by the labour relations act of 1995. Additional forms of dismissal governed by the act include misconduct, poor work performance, and ill health or injury, says Jan Truter, managing director of Labourwise.   

These “operational requirements” refer to a business going through financial, technological, structural or similar difficulties and not making their usual profits.

Nick van Rooyen, divisional manager (legal) at the United Associations of South Africa, explains the employer’s responsibility in these situations.

“They have to scale down and consult with their employees, explain the reason for the planned retrenchments, and start the section 189 retrenchment process,” he says.

Workers can also be retrenched when they reach retirement age or are declared medically unfit, or for other no-fault reasons.

What are you entitled to receive?

If dismissed, you would be entitled to leave pay and, in the case of retrenchment, notice pay, says Truter. 

Retrenched employees would typically also be entitled to severance pay, usually at a minimum rate of one week’s remuneration per completed year of service.

Truter says that your entitlement to other payments, such as bonuses, would depend on the terms of your employment contract.

You are, irrespective of circumstance, entitled to withdraw your contributions to your pension or provident fund. You can either cash out, which is not recommended as you sacrifice the power of compound interest, or invest in an alternative vehicle. It’s best to speak to a financial adviser before deciding.

The reason for the dismissal must be substantively fair, says Van Rooyen. This means that an employer must have a just, fair, and equitable reason to dismiss you.

Alternative options

Before a final retrenchment, your employer may offer alternatives per the list below. These options would amount to a change in the terms and conditions of employment and would have to be agreed upon. If you disagree, your employer could proceed with the retrenchment, says Truter.   

The options may include:

  • A demotion to a lesser position in the company at reduced pay. The possibility of being restored to your previous post can be a point of negotiation.
  • A temporary lay-off without pay for an agreed period.
  • Short time, which means working fewer hours, with your income reduced accordingly.
  • Study leave. This is possible, but unusual.
  • A reduction in remuneration.

Van Rooyen says retrenchment must always be the last resort, whatever the alternatives.

Protect yourself against loss of income

The shock of being retrenched, together with financial stress, may leave you uncertain about how to proceed, says Lee Bromfield, chief executive officer of FNB Insurance.

You can claim unemployment benefits if you’re registered with the Unemployment Insurance Fund (UIF), which you can check with your employer. This benefit pays out as soon as you are retrenched. However, if you have retrenchment insurance, this will pay up to 70% of your taxable salary, depending on your tax bracket, for up to six months.

“Retrenchment insurance payments over six months will help you meet your financial commitments until you find a new source of income, such as a new job or starting a business,” says Bromfield.

It’s essential to do your homework as to the cover that you need, and why, to ensure that you’re adequately insured.

“If you have debt, such as a short-term loan, credit card, or car finance, there is a good chance that you already have credit insurance. In many cases, the credit insurance will cover retrenchment. Depending on your policy, it would cover between six and 12 months of your credit instalments,” Bromfield points out.

It’s important to know and assert your rights if you’re retrenched. You can approach a labour lawyer for an evaluation – many attorneys ask for a fixed fee that’s affordable to you.

Above all, ensure you secure your funds and financial future, as retrenchment can plunge you into unsustainable debt. 

Tip: If you’ve been retrenched, a personal loan may help you avoid a difficult situation while awaiting a payout.

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