Published by by James Fidelis

Retrenchment is a form of dismissal due to no fault of the employee whereby the employer reviews its business needs in order to increase profits or limit losses. In retrenchment, the employer terminates the employment of the employee based on the operational requirements of the Company as a result of an economic downturn provided for under Section 38 of the Employment and Labour Relations Act, 2004.

The employer must give fair reasons for making the decision to retrench and follow a fair procedure or the retrenchment may be considered unfair.

An employer may retrench employees for “operational requirements”, these are requirements based on the economic, technological, structural, or similar needs of an employer, in other words, the “business needs” of the employer: economic needs may be a drop in sales or services of the employer; technological needs could be new technology developed that can replace some employees.; structural needs can be restructuring the business.

Retrenchment is considered to be fair when it follows the procedure provided by the law. The following are the procedures laid out in the law;

  • The employer must issue a written notice inviting the consulting employees to consult and disclosing all the necessary information for such consultation.
  • The employer and consulting employees must engage in a consensus-seeking process on certain matters contained in the notice.
  • The employer must allow the consulting employees to make representations about the matters contained in the notice and other matters relating to the proposed retrenchment.
  • The employer must respond to the consulting employees’ representations. If the employer disagrees with the consulting employees, it must state the reasons for disagreeing with them.
  • The employer must select the employees to be dismissed based on a selection criterion agreed with the consulting employees or a selection criterion that is fair and objective.
  • After the consultation process has been exhausted, the employer may make its decision to retrench, and then issue a notice of retrenchment to the affected employees.


As per the International labor laws, the International Labour Organization (ILO) proposes two ways of selecting employees up for retrenchment. The LIFO (Last in First Out) method and FIFO (First in First Out) method or subject to the need to retain key jobs, experience or special skills, affirmative action, and qualifications. This is as provided under Rule 23(4) (c) of the Employment and Labour Relations (Code of Good Practice) G.N No. 42.

Whenever a contract of employment is terminated by the employer, due to operational requirements then the employee is entitled to the following benefits, Any remuneration for work done up to the time of termination. Any annual leave pay for leave not taken: Payment in lieu of Notice: an employer who has to instantly end an employment contract without issuance of notice is obliged to pay at least one (1) month salary to employees whose employment contracts are terminated. Severance pay this is paid to the employee has completed 12 months continuous service with an employer. and any Transport allowance (Repatriation) if the termination took place at a place other than a place of recruitment of the employee and lastly a Prescribed certificate of services, A retrenched employee is entitled to a certificate of service.

If the retrenchment did not follow fair reasons and procedures, then it can be regarded and unfair termination. An employee whose employment was terminated unfairly may, Refer his/her dispute to the Commission for Mediation and Arbitration (“CMA”) within 30 days from date of retrenchment.