Retrenchment

UNDERSTANDING WHAT IS "RETRENCHMENT" AND "REDUNDANCY"

An employee is said to be "retrenched" when his or her job becomes redundant and the employer either cannot offer the employee any alternative position or, any alternative position offered by the employer cannot be accepted by the employee.

The concept of "retrenchment" is usually linked with "redundancy" and also with the concept of "severance" or "severance pay".

The following is a brief explanation of what these various expressions mean in practice.

An employee is often referred to as "redundant" but a more accurate description is that the job the employee was employed to perform is redundant (that is, the employer does not want the job performed by anyone, anymore) and the employee's employment is then terminated by reason of that redundancy. That is, a job becomes redundant, not an employee.

"Retrenchment" is the expression to describe what occurs to an employee whose employment is terminated by reason of his or her job becoming redundant.

"Severance" is the expression, usually seen as "severance pay", referrable to the amount or amounts an employee receives upon being retrenched.

In cases of termination by reason of redundancy (that is, retrenchment), the law requires an employer to treat the employee fairly and lawfully. For example, an employer is not allowed to single out an employee for retrenchment as an easy means of avoiding a process of performance review of the employee or to avoid a claim of unfair dismissal by the employee.

Furthermore, since 1982 that part of the workforce that is regulated by awards has certain protections in relation to termination by reason of redundancy. Employees not regulated by awards (e.g. executive level employees) do not have the same specific protections, but there are court precedents that now recognise that employers nevertheless do have obligations to such employees in circumstances of redundancy.

Redundancy and unfair dismissal laws interact in such a way that a retrenched worker can make a claim for unfair dismissal. However, the court will take the view that provided the employer has acted in good faith then the employer's needs must be respected. However, a claim can be made that the dismissal by way of redundancy is harsh, unjust or unreasonable on the grounds that:

  • worker was unfairly selected for redundancy;
  • the worker was selected for redundancy because of work performance without having been given the opportunity to respond to the employer's concerns about his ability or performance;
  • the worker was not properly consulted before the decision to retrench was made;
    in some cases non-award employees can attack the adequacy of the redundancy payments made to them.

    Read on about Retrenchment.

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