SELECTION CRITERIA, SEVERANCE PAY & ALTERNATIVES TO RETRENCHMENTS

Written by Phumzile Eliya

Few decisions are as difficult for an employer as retrenching employees. Within the hairdressing, cosmetology, beauty and skincare industry, economic pressures, declining client demand, rising operating costs, changing consumer behaviour and increasing overheads have forced many establishments to reconsider their staffing structures. While retrenchment may sometimes become unavoidable, South African labour legislation makes it clear that it must always be regarded as the last available option rather than the first response to financial pressure.

Dismissals based on operational requirements are strictly regulated under the Labour Relations Act 66 of 1995. Employers cannot simply decide to reduce staff because business has slowed down. They are legally required to follow a fair consultation process, consider alternatives to dismissal, apply objective selection criteria, and where retrenchment becomes unavoidable, ensure that employees receive their statutory entitlements, including severance pay where applicable.

Understanding these obligations is essential for every employer operating within the hairdressing, cosmetology, beauty and skincare industry.

Understanding Operational Requirements

Operational requirements refer to the economic, technological, structural or similar needs of an employer's business. In practice, this may include:

• A sustained decline in client bookings.

• Rising rental or operational costs.

• Business restructuring.

• Introduction of new technology.

• Closure of underperforming branches.

• Mergers or consolidation of operations.

• Financial losses threatening the sustainability of the business.

It is important to understand that financial difficulty alone does not automatically justify retrenchment. Employers must demonstrate that the dismissal is genuinely based on operational needs and that proper consultation has taken place before any final decision is made.

The purpose of consultation is not merely to inform employees that retrenchment is taking place. It is to engage in a meaningful joint consensus-seeking process aimed at avoiding dismissals wherever reasonably possible.

Retrenchment Must Always Be the Last Resort

One of the most common mistakes employers make is deciding to retrench before exploring other options. The Labour Relations Act expects employers to actively consider alternatives before terminating employment.

Possible alternatives include:

• Reducing overtime.

• Introducing short-time arrangements where appropriate.

• Freezing recruitment.

• Redeploying employees into alternative positions.

• Reducing working hours through consultation.

• Implementing voluntary retrenchment packages.

• Temporary lay-offs where legally permissible.

• Reviewing operating expenses before reducing staff.

• Upskilling employees to perform alternative functions.

For many salon and spa establishments, creative workforce planning can often preserve jobs while still addressing financial challenges.

The consultation process should record every alternative that was considered, the reasons why it was accepted or rejected, and the views expressed by affected employees or their representatives.

Selecting Employees Fairly

Where retrenchment cannot be avoided, employers must decide which employees will be affected. This decision cannot be arbitrary or based on personal preference. Section 189 of the Labour Relations Act requires employers to apply fair and objective selection criteria.

Commonly accepted selection criteria include:

• Last-In-First-Out (LIFO).

• Skills retention.

• Qualifications.

• Experience.

• Operational requirements of the business.

In many cases, LIFO remains the preferred method because it is objective and less susceptible to allegations of unfairness. However, employers may deviate from LIFO where retaining specialised skills or critical experience is necessary for the continued operation of the business.

What employers should never use are subjective factors such as personality conflicts, favouritism, age, race, gender, union membership, previous disciplinary action unrelated to operational needs, or any discriminatory consideration prohibited by the Constitution and the Employment Equity Act.

Every selection decision should be capable of objective justification.

Severance Pay: Understanding the Employer's Obligation

Where an employee is dismissed for operational requirements, Section 41 of the Basic Conditions of Employment Act provides for statutory severance pay. The minimum severance payment is:

One week's remuneration for every completed year of continuous service.

This represents the statutory minimum only. Employers may agree to more favourable severance packages through employment contracts, collective agreements or consultation processes.

Severance pay is separate from:

• Outstanding salary.

• Payment in lieu of notice where applicable.

• Accrued annual leave.

• Commission or incentive payments due.

• Any other contractual payments owed.

It is equally important to understand that employees who unreasonably refuse suitable alternative employment offered by the employer may forfeit their entitlement to statutory severance pay.

Employers should therefore carefully document every alternative position offered and the employee's response.

Meaningful Consultation Protects Everyone

Consultation is the cornerstone of a lawful retrenchment process. Section 189 requires employers to consult on matters including:

• The reasons for the proposed retrenchment.

• Alternatives considered.

• Measures to minimise dismissals.

• The proposed selection criteria.

• Timing of dismissals.

• Severance pay calculations.

• Assistance to affected employees.

Consultation is intended to be genuine. Employers should approach the process with an open mind and be prepared to consider proposals that may avoid or reduce dismissals.

A predetermined outcome undermines procedural fairness and significantly increases the likelihood of disputes before the CCMA.

The Role of the National Bargaining Council for the Hairdressing, Cosmetology, Beauty and Skincare Industry and the EOHCB

Employers operating within the registered scope of the National Bargaining Council for the Hairdressing, Cosmetology, Beauty and Skincare Industry must ensure that retrenchment processes are conducted in compliance with applicable labour legislation and any relevant collective agreement provisions.

Members of the Employers' Organisation for Hairdressing, Cosmetology and Beauty (EOHCB) have access to professional labour relations support throughout the consultation process. Obtaining advice before notices are issued often prevents costly procedural errors and unnecessary disputes.

Retrenchment should never become an administrative exercise. Every case must be assessed individually and handled with fairness, consistency and legal compliance.

Practical Checklist Before Retrenching Employees

Before commencing any retrenchment process, employers should ask themselves the following questions:

1. Have operational reasons been properly identified and documented?

2. Have all reasonable alternatives been explored?

3. Has consultation commenced before any decision was made?

4. Are the proposed selection criteria fair, objective and capable of justification?

5. Have severance pay obligations been correctly calculated?

6. Have all consultation meetings been properly recorded?

7. Have I obtained professional labour relations advice before issuing notices?

If the answer to any of these questions is no, the process should be paused until compliance has been achieved.

Final remarks: Retrench Responsibly, Not Reactively

Retrenchment is one of the most significant decisions an employer can make. Beyond its financial implications, it directly affects the livelihoods of employees and the future stability of the business itself.

The Labour Relations Act does not prohibit retrenchments. Instead, it requires employers to act fairly, consult meaningfully, consider every reasonable alternative, apply objective selection criteria and honour their statutory obligations regarding severance pay.

For employers within the hairdressing, cosmetology, beauty and skincare industry, following a compliant process not only reduces legal risk but also demonstrates professionalism, integrity and respect for employees during difficult circumstances.

Where uncertainty exists, employers should seek guidance from the Employers' Organisation for Hairdressing, Cosmetology and Beauty before initiating any retrenchment process. A properly managed consultation today may prevent lengthy disputes and substantial costs tomorrow.