Section 189 Retrenchment South Africa 2026: Process, Severance and Consultation Rules Explained

Section 189 retrenchment South Africa has moved to the top of every HR director’s and in-house counsel’s agenda as employers respond to a difficult 2026 labour market. The first half of 2026 has seen continued corporate restructuring, and the data from Statistics South Africa’s Quarterly Labour Force Survey confirms that job losses and operational reorganisation remain a defining feature of the economy. When dismissals are driven by operational requirements, the Labour Relations Act 66 of 1995 imposes a strict procedural and substantive framework that employers ignore at their peril.

This guide explains, step by step, how to run a lawful section 189 retrenchment South Africa process in 2026, covering consultation obligations, selection criteria, severance calculations and the strategies that reduce the risk of a costly CCMA dispute.

Who this guide is for: HR directors, in-house counsel, CEOs and business owners planning operational-requirements dismissals in South Africa in 2026. It is a practical, compliance-first roadmap designed to reduce CCMA risk. This is general information and not legal advice; consult counsel for case-specific guidance.

Why 2026 matters for retrenchments

The economic backdrop shapes every restructuring decision. Statistics South Africa’s Quarterly Labour Force Survey for 2026 continues to show elevated unemployment and pressure on labour-intensive sectors, which is prompting many employers to consider operational-requirements dismissals as a survival measure. The South African Reserve Bank’s Quarterly Bulletin sets out the monetary-policy environment for 2026, and interest-rate settings feed directly into corporate cash-flow forecasts and the affordability of retaining staff. When borrowing costs and input prices squeeze margins, restructuring, and therefore a section 189 retrenchment South Africa process, becomes a live commercial reality.

The critical point for employers is that economic distress does not lower the legal bar. The Labour Relations Act and the Code of Good Practice on Dismissal based on Operational Requirements apply with full force regardless of how compelling the financial case for retrenchment may be. A genuine business rationale is necessary but not sufficient: fairness of process and fairness of outcome are assessed independently. Employers who move quickly on the commercial imperative but neglect the procedural discipline of section 189 frequently find themselves defending unfair-dismissal claims at the CCMA or the Labour Court, where reinstatement, back pay and compensation orders can significantly erode the savings the retrenchment was meant to achieve.

Quick summary, Section 189 versus Section 189A

The Labour Relations Act deals with operational-requirements dismissals in two related sections. Section 189 governs the general consultation process that applies to every retrenchment, whatever its scale. Section 189A layers additional requirements on top of section 189 for larger-scale, or “mass”, retrenchments by bigger employers. Understanding which regime applies is the first strategic decision an employer must make, because it determines timelines, the possibility of facilitation, and the remedies available if the process is challenged.

Broadly, section 189A applies where an employer employs more than 50 employees and proposes to dismiss a number of employees that crosses statutory thresholds calibrated to the size of the workforce, or where the dismissals cross a threshold when aggregated over a rolling twelve-month period. Below those thresholds, the ordinary section 189 process applies. The distinction matters because section 189A introduces a minimum consultation period, the option (and in defined circumstances the obligation) of facilitation through the CCMA, and different avenues for challenging both the fairness and the procedure of the dismissals.

Comparison table: Section 189 versus Section 189A

Legal framework and key definitions

The starting point for any section 189 retrenchment South Africa exercise is the statutory definition. Section 189 of the Labour Relations Act applies where an employer “contemplates dismissing one or more employees for reasons based on the employer’s operational requirements”. Operational requirements are defined in the Act as requirements based on the economic, technological, structural or similar needs of the employer. In practice this covers business closures, mergers and restructuring, technological change that renders roles redundant, and cost-reduction programmes driven by financial pressure.

Several concepts recur throughout the process and are worth defining precisely:

• Retrenchment. A no-fault dismissal for operational requirements. Unlike misconduct or incapacity dismissals, the employee has done nothing wrong; the role, not the person, is being removed.
• Operational requirements. The economic, technological, structural or similar needs that justify the dismissals. The employer must be able to articulate and evidence these needs.
• Consultation. A genuine, joint problem-solving process in which the employer engages affected parties before any final decision is taken, not an announcement dressed up as engagement.
• Consulting parties. The persons the employer must consult, in the order of preference the Act sets: any person required by a collective agreement, then a workplace forum and any registered union whose members are affected, then registered unions whose members are affected, and finally the affected employees themselves.

The Code of Good Practice and CCMA expectations

The Code of Good Practice on Dismissal based on Operational Requirements gives content to the fairness standard. It emphasises that consultation must begin as soon as the employer contemplates retrenchment, that the employer must genuinely consider alternatives raised by employees, and that selection criteria must be fair and objective. The Constitutional Court’s decision in Sidumo and Another v Rustenburg Platinum Mines Ltd and Others confirmed that the question of fairness is decided by asking whether the decision reached is one that a reasonable decision-maker could reach, a standard that arbitrators and courts apply when reviewing dismissal outcomes. In practice, a paper-trail of genuine engagement, disclosed information and reasoned decisions is among the most important factors in surviving scrutiny.

Step-by-step retrenchment process South Africa employers must follow

The section 189 process is chronological and cumulative: each step builds on the last, and skipping or truncating a stage is a common cause of procedural unfairness findings. The following sequence reflects the statutory requirements and the expectations of the Code of Good Practice.

1. Identify the operational rationale. Before contemplating dismissals, document the economic, technological or structural drivers. Prepare the underlying financial or operational data that will support the case, because relevant information must later be disclosed to consulting parties.
2. Issue the written section 189(3) invitation to consult. The Act requires the employer to issue a written notice inviting the other consulting party to consult and to disclose, in writing, all relevant information. This notice starts the process and is the foundation document on which fairness will be judged.
3. Disclose all relevant information. The employer must set out the reasons for the proposed retrenchment, the alternatives considered and why they were rejected, the number and categories of employees likely to be affected, the proposed selection criteria, the proposed timing, the severance offered, any assistance offered to affected employees, and the possibility of future re-employment.
4. Consult meaningfully. Hold consultation meetings in which the parties attempt to reach consensus on ways to avoid the dismissals, minimise their number, change their timing, mitigate their effects, and agree the selection method and severance.
5. Consider and respond to representations. The employer must genuinely apply its mind to proposals from the consulting party and give reasons in writing where it disagrees. A refusal to engage with a workable alternative is a classic procedural failure.
6. Apply the agreed or fair selection criteria. Once consultation is complete, apply objective criteria to identify the employees to be retrenched.
7. Issue notices of termination and pay severance. Provide the required notice of dismissal, calculate and pay severance, and issue certificates of service and UIF documentation.

Drafting the section 189 letter, required content and sample language

The section 189 letter, formally the section 189(3) written notice, must be comprehensive. It should identify the business rationale, invite consultation, and disclose the full suite of statutory information. A short sample opening might read:

“The company contemplates dismissals based on its operational requirements arising from [describe economic/structural driver]. In accordance with section 189 of the Labour Relations Act, we invite you to consult with a view to reaching consensus on: the measures to avoid the dismissals; the measures to minimise their number; the method for selecting employees for dismissal; and the severance pay to be offered. The information relevant to these proposals is set out below and attached.”

The letter should then itemise the reasons, the alternatives already considered, the number and categories of affected employees, the proposed criteria, the timing, the proposed severance, and any offered assistance. A template for the section 189 letter should be adapted to each restructuring rather than used verbatim, because a generic letter that fails to disclose real, specific information is itself a ground for challenge.

Consultation meetings, topics to cover and minutes

Consultation is the heart of the retrenchment consultation process. Meetings should be minuted contemporaneously, and the minutes should record who attended, the proposals tabled by each side, the employer’s responses, and the outcomes. At minimum the meetings must address avoiding the dismissals, minimising numbers, changing the timing, mitigating the effects, the selection method, and severance. Where the parties reach agreement on any of these, the agreement should be recorded in writing and signed. Where they disagree, the employer should record its reasons. This minute-book becomes the primary evidence of a genuine process if the matter is later referred to the CCMA.

Alternatives to retrenchment to consider

The Code of Good Practice expects the employer to have genuinely explored alternatives before resorting to dismissal. Practical alternatives that should be tabled and considered include:

• Redeployment. Moving affected employees into vacant roles elsewhere in the business, with reasonable training where required.
• Reduced hours or short time. Temporary reductions in working hours to preserve headcount through a downturn.
• Voluntary severance packages. Inviting volunteers to leave on enhanced terms, which can reduce or eliminate the need for compulsory selection.
• Pay freezes or deferrals. Temporary compensation adjustments agreed through consultation.
• Natural attrition and hiring freezes. Allowing headcount to fall through resignations rather than dismissals.

Demonstrably considering and, where feasible, adopting these alternatives is central to defending both the substance and the procedure of a section 189 retrenchment South Africa process.

Selection criteria and scoring matrix

Once consultation has run its course, the employer must select which employees will be retrenched. The law requires that selection criteria be fair and objective. Where the parties agree criteria during consultation, those agreed criteria govern. Where they do not, the employer must apply criteria that are fair and objective, commonly last-in-first-out (LIFO), skills and qualifications, disciplinary and attendance records, and operational needs such as the retention of scarce skills.

A weighted scoring matrix helps to make selection transparent and defensible. The example below illustrates how an employer might score employees within an affected pool.

In this worked example, Employee B scores lower and would be selected for retrenchment ahead of Employee A, notwithstanding B’s longer service, because the composite of objective factors favours retaining A. The matrix must be applied consistently across the affected pool and the scoring records retained.

Avoiding discrimination and disparate impact

Selection criteria must never be a proxy for unlawful discrimination. Criteria that appear neutral can produce a disparate impact, for example, criteria that systematically disadvantage employees on the basis of age, race, gender, pregnancy or union membership. Automatically unfair dismissal findings may follow where retrenchment is used to target employees for a prohibited reason. Employers should test their matrix outcomes against the demographics of the affected pool and be prepared to justify any pattern that emerges. Where union membership or the exercise of a protected right correlates with selection, the risk of an automatically unfair dismissal claim is acute.

Severance pay calculation and worked examples

Severance pay is a statutory minimum entitlement in a genuine retrenchment. The Basic Conditions of Employment Act establishes a baseline of at least one week’s remuneration for each completed year of continuous service. Employers may improve on this through contract, collective agreement or custom, and severance is frequently a key negotiating point during consultation. It is important to distinguish the statutory floor from any enhanced package agreed during the section 189 retrenchment South Africa process.

Two worked examples illustrate the calculation:

• Junior employee. An employee earning R6,000 per month (approximately R1,385 per week) with 4 completed years of service. Statutory severance at one week per year equals 4 × R1,385 = R5,540, in addition to notice pay, outstanding leave and any pro-rata bonus.
• Senior employee. An employee earning R60,000 per month (approximately R13,846 per week) with 12 completed years of service. Statutory severance equals 12 × R13,846 = R166,152, again in addition to notice pay, accrued leave and contractual entitlements.

Beyond severance, employers must account for notice pay, the payment of accrued but untaken annual leave, and any pro-rata thirteenth-cheque or bonus entitlement that applies. Retrenchment lump sums are taxed under the retirement/severance-benefit lump-sum regime administered by SARS, which affords more favourable treatment than ordinary income, subject to the prevailing thresholds and the employee’s cumulative use of the tax-free portion. Employers and employees should confirm the current SARS treatment before finalising figures. The employer must also finalise the employee’s UIF documentation so that the retrenched employee can claim unemployment benefits. Where an employee unreasonably refuses an offer of alternative employment, the statutory severance entitlement may be lost, a point worth flagging clearly during consultation.

Managing mass retrenchments, Section 189A triggers and facilitation

Where an employer employs more than 50 people and the proposed dismissals cross the statutory thresholds, section 189A applies and adds a further layer of procedure. The central features are a structured minimum consultation period before notice of termination may be given, and the availability of facilitation conducted by a facilitator appointed through the CCMA. Either the employer or the consulting parties (subject to representivity requirements) may request facilitation, and in defined circumstances it may be required. Facilitation is designed to bring a neutral chair to the consultation and improve the prospect of consensus.

Section 189A also changes the remedies. Employees affected by a mass retrenchment may, in certain circumstances, engage in industrial action over the substantive fairness of the dismissals or refer the procedural fairness of the process to the Labour Court, rather than pursuing an ordinary unfair-dismissal claim. Because the stakes and complexity are higher, mass retrenchments demand early planning, meticulous information disclosure and, frequently, external legal support. The detailed timelines, thresholds and facilitation mechanics warrant dedicated legal advice for each matter.

Dispute risk and CCMA strategy

The most common grounds on which retrenchments are challenged are failure to consult genuinely, unfair or subjective selection, inadequate consideration of alternatives, and insufficient disclosure of information. A CCMA retrenchment dispute typically turns on whether the employer can produce a documented, genuine consultation record. Employees generally have 30 days from the date of dismissal to refer an unfair-dismissal dispute; the employer’s best protection is a contemporaneous file that evidences each statutory step. In Sidumo, the Constitutional Court confirmed that a commissioner assesses fairness by asking whether the outcome is one a reasonable decision-maker could reach, so a well-reasoned, well-documented process is far more likely to survive review than a defensible outcome reached through a flawed process.

Pre-hearing preparation should include assembling the section 189(3) notice, the disclosed information, the signed minutes, the completed scoring matrix, and the correspondence recording the employer’s responses to employee proposals. Where the risk of an adverse finding is real, a negotiated settlement or an enhanced severance offer may be commercially preferable to litigation. Employers should assess this exposure early, before positions harden.

Practical templates and checklist

Standardised documents reduce risk and speed up compliance. Employers running a section 189 retrenchment South Africa process should maintain a suite of assets, including:

• A section 189 letter template covering all statutory disclosure requirements.
• A consultation meeting minutes template to record proposals, responses and outcomes.
• A weighted selection matrix spreadsheet for transparent, defensible scoring.
• A severance-pay calculator that captures statutory minima, notice, leave and tax treatment.

These templates should always be adapted to the specific facts of each restructuring rather than used unchanged, and should be reviewed by employment counsel before deployment.

Key takeaways and compliance checklist

A defensible retrenchment turns on discipline at every stage. Before, during and after the process, employers should ensure they:

• Document a genuine operational rationale and gather the supporting data before contemplating dismissals.
• Issue a complete written section 189(3) notice disclosing all statutory information.
• Consult genuinely, minute every meeting, and respond in writing to employee proposals.
• Apply fair, objective selection criteria and retain the scoring records.
• Test selection outcomes for discriminatory or disparate impact.
• Calculate and pay statutory severance, notice, leave and finalise UIF documentation.
• Confirm whether section 189A and facilitation apply before setting timelines.
• Retain a full evidentiary file in case of a CCMA referral.

Sources

1. Statistics South Africa, Quarterly Labour Force Survey 2026
2. South African Reserve Bank, Quarterly Bulletin June 2026
3. Labour Relations Act 66 of 1995
4. Code of Good Practice: Dismissal based on Operational Requirements (issued under the Labour Relations Act)
5. Commission for Conciliation, Mediation and Arbitration (CCMA)
6. Sidumo and Another v Rustenburg Platinum Mines Ltd and Others [2007] ZACC 22
7. Department of Employment and Labour
8. South African Revenue Service (SARS)