A holistic retrenchment playbook for employers in South Africa - Section 189
In April 2025, the Labour Court issued judgment in the case of Duverge v Spanish Farm Guest House Lodge CC t/a Sky Villa Boutique Hotel and Another. The Court assessed the consequences for an employer that failed to follow the law book regarding a dismissal for operational requirements. The judgment is a reminder of the key principles governing the fairness of a retrenchment.
Background
Mr Duverge was originally employed by Sky Villa Boutique Hotel, as a General Manager for two hotels, Sky Villa and Bungalow. His employment contract was subsequently transferred to Sky Villa (Pty) Ltd (Sky Villa). Sky Villa and Sky Villa Boutique Hotel are part of the Wiehahn Group (Group). In April 2019, the Group announced that Duverge had been promoted to Group General Manager based on its intention to expand its hospitality business. Duverge was not issued a new employment contract.
Approximately four years later, Duverge was informed that due to financial reasons, the Group had decided not to expand the hospitality business and to make his position as Group General Manager redundant. He was issued with the notice contemplated in section 189(3) of the Labour Relations Act, 1995 (LRA), informing him of his possible retrenchment. The reasons for retrenchment were related to a partnership to be entered into with a specialised company, which was to provide ’specialised services’ for the hospitality industry that went beyond the scope of the current Group General Manager.
During the initial consultation meetings, the employer informed Duverge that the retrenchment was due to economic factors that led to the redundancy of his position as a result of not expanding the hospitality business. These reasons did not appear in the section 189(3) notice. He mentioned various alternatives to retrenchment (including existing vacancies) and sought clarity on the selection criteria to be used. Duverge was met with aggression. The amended reasons for the retrenchment were provided to Duverge some days later, and the employer maintained that no selection criteria were applicable, as the retrenchment affected a single position.
Duverge noted his dissatisfaction with the consultation process and the treatment he received during the consultation meetings, where he was called dishonest and had his proposed alternatives to his retrenchment dismissed without consideration.
Duverge proposed to be placed back in his original position, and this was rejected on the basis that this position no longer existed—it had been determined that each hotel required its own general manager. As for the possibility of bumping out the General Manager of Bungalow (Ms Bouwer), the employer reasoned that the ‘last-in-first-out’ principle meant that Duverge could only potentially bump out the General Manager for Sky Villa (Ms Kemp), as she had the shortest service. Duverge was accordingly offered this position, as the only viable alternative, at a non-negotiable salary of R28 000 per month. Duverge had been earning R 80 250 per month and rejected this offer. He was subsequently dismissed. No severance pay was paid to him on the basis that he had unreasonably refused an offer of alternative employment.
Substantive fairness
The Labour Court emphasised that an employee whose position is made redundant is not automatically dismissed, and the employer has an obligation to genuinely consider alternatives short of dismissal, exercising dismissal as a measure of last resort. It considered section 189(7) of the LRA, which required the employer to dismiss an employee for operational requirements according to selection criteria that is, absent an agreement, fair and objective.
The Court observed that the employer incorrectly rejected the proposal of bumping without justification. It did not contend that bumping would have presented operational difficulties or that it would have been unfair. It simply dismissed the idea of bumping because Bouwer was not the last person employed. However, had the employer implemented bumping principles correctly, it would have bumped Bouwer, who would have, in turn, bumped Kemp. The Court found bumping would have satisfied the requirement of fair and objective selection criteria. There was thus an obvious alternative to dismissal that ought to have been implemented. On this basis, Duverge’s dismissal was found to be substantively unfair.
Procedural fairness
The Court held that section 189 of the LRA sets out certain obligations for the employer for the specific purpose of ultimately achieving a joint consensus on issues such as measures to avoid dismissals or to mitigate against the adverse effects of dismissal.
Referring to various Constitutional Court decisions on procedural fairness in retrenchment, the Court found the consultation process fell short of a ’meaningful joint consensus seeking process’. Duverge was insulted, had his proposed alternatives summarily rejected, and was accused of obstructing the process, distorting facts, and being disingenuous where he had legitimate questions.
The Court found that the employer had adopted a checklist approach to the consultations without genuinely engaging on selection criteria and exploring alternatives. Therefore, the dismissal was found to be procedurally unfair.
Reasonable refusal
According to section 41(4) of the Basic Conditions of Employment Act 1997 (BCEA), an employee who unreasonably refuses to accept the employer’s offer of alternative employment, either with that employer or any other employer, is not entitled to severance pay.
The Court noted that Item 11 of the Code of Good Practice on Dismissal based on Operational Requirements clarifies that reasonableness is determined by considering the reasonableness of the offer of alternative employment and of the employee’s refusal. In the former case, objective factors such as remuneration, status, and job security are relevant. In the latter, the employee’s personal circumstances are considered.
The Court found that the alternative employment proposed by the employer meant that Duverge would have had to take an approximately 65% reduction in his remuneration. He also believed that this offer was made in bad faith when there were still possible alternatives. Therefore, the Court found that the offer of alternative employment was unreasonable and Duverge could not have been expected to accept it. Duverge’s refusal was found to be reasonable, and he was entitled to the payment of the minimum severance pay as set out in section 41(2) of the BCEA.
Appropriate relief
Noting that Duverge did not seek reinstatement or re-employment, the Court considered various guidelines and principles developed by our courts in exercising its discretion to determine what is just and equitable compensation in line with section 193(1)(c) of the LRA.
The Court considered the unfairness of the dismissal, length of service, brief unemployment and severe disruption to Duverge’s career path, as well as the treatment received by Duverge during the consultation process. Duverge was awarded compensation equivalent to eight months’ remuneration (three months for procedural unfairness and five months for substantive unfairness).
Key takeaways
• It is imperative that the rationale for the retrenchment exercise is clearly articulated in the section 189(3) letter and explained to potentially affected employees. Affected employees should also be provided with sufficient time to consider the rationale and test its legitimacy.
• Employers are statutorily obliged to consider fair and objective selection criteria, even when a single employee is affected by the retrenchment exercise. When bumping is suggested, it should be carefully considered.
• Box-ticking exercises during retrenchment consultation should be avoided, with space made for debate, where each party’s input is genuinely considered. The aim is to reach consensus.
• An employee who reasonably refuses an offer of alternative employment would be entitled to the severance pay envisaged in section 41(2) of the BCEA. The reasonableness of the offer and the refusal must be considered.
