Retrenchment during the Coronavirus lockdown

The recent decision made during March 2020 by the South African Government declaring the Coronavirus pandemic (“Coronavirus”) a National Disaster has left many independent contractors and employees uncertain as to their income and employment security in the work place.

The national lockdown and the recent credit agency downgrades have left many business owners with very few options as uncertainty prevails and the risk of mass retrenchments becomes a very real possibility.

One of the implications of the lockdown is that employers, independent contractors and employees have been left “between a rock and a hard place.” Economists have warned that the Coronavirus will have far reaching effects on the South African economy and South Africa will be hard hit with no economic growth and large scale job losses forecast.

Who is an independent contractor?

In the matter of SABC v McKenzie (1999) 20 ILJ 585 (LAC), the Court found that a person is an independent contractor in the following instances:

  • The objective of the contract with an independent contractor is based upon the production of a specified result.
  • An independent contractor may perform through others.
  • An independent contractor works only subject to the contract.
  • The time for performance of the independent contractor is specified.
  • The contract does not necessarily terminate on death of the independent contractor.
  • The contract terminates on completion of or production of the specified result.

It is of paramount importance to note that independent contractors are explicitly excluded from the definition of an employee under the Labour Relations Act 66 of 1995 (“the LRA”), and they are therefore not afforded any protection offered to employees by the LRA, specifically in instances of termination.  

Who is an employee as defined in the Labour Relations Act?

An employee is:

  • any person, excluding an independent contractor, who works for another person or for the State and who receives, or is entitled to receive, any remuneration; and
  • any other person who in any manner assists in carrying on or conducting the business of an employer.

Section 200A of the LRA provides that, unless proven otherwise and irrespective of the wording or form of the contract concluded; a person is presumed to be an employee if any one of the following circumstances exists in the employer / employee relationship:

  • The manner in which the person works or his/her hours of work is/are subject to the direction or control of another person;
  • The person forms part of the organisation;
  • The person has worked for the other person for an average of at least 40 hours per month for the last three months;
  • The person is economically dependent on the other person;
  • The person is provided with tools of trade by the other person; and
  • The person only provides services to one person.

The effects of retrenchment

Retrenchment occurs when the employer dismisses one or more of its employees for reasons based on the employer’s operational requirements. This is dealt with at section 189 of the LRA.

Independent contractors

As mentioned above, independent contractors are not afforded the same protection as employees by the LRA with the result that should the employer need to terminate an independent contractor’s contract, the employer will have to terminate the contract in accordance with the termination clause of the particular contract. Although independent contractors are not afforded protected under the LRA, they do have legal recourse under the common law.

As an independent contractor, it is vitally important to ensure that proper consideration is given to the terms of the contract, as certain clauses may allow for the  termination of the contractual relationship at the sole discretion of the employer with very little warning to the independent contractor (even if a breach of the agreement has not occurred).


An employee who finds themselves in a retrenchment situation would first have to ascertain whether the dismissal was both procedurally and substantively fair. If the employer acts in good faith and practices procedural fairness within the provisions of Sections 189 and 189A of the LRA, the employee has no grounds for legal recourse against the employer, however, if the dismissal is deemed to be procedurally and / or substantively unfair, the employee will have full protection under the provisions of the LRA

If proper retrenchment procedures are followed, retrenchment packages may come in various forms, namely, but not limited to:

  • Severance pay;
  • Leave pay;
  • Notice pay;
  • Pro-rata payment of a bonus; and
  • Pension

Should an employee find themselves in a position where they have been unfairly retrenched, they have the right to refer their dispute to the Commission for Conciliation and Arbitration (“the CCMA”) or the applicable bargaining council within 30 days of the date of retrenchment. If the employee is successful at the CCMA, the employee may be entitled to re-instatement, back pay, re-employment, compensation or any other remedy which the CCMA or applicable bargaining council may deem fit.

Coronavirus implications on retrenchment and other remedies employers should consider

The long lasting prevailing implications of the Coronavirus are at this point unknown. Many businesses currently find themselves in a situation where they may not be able to fulfil their contractual obligations or pay salaries due to the lockdown put in place by the South African Government.

As a temporary measure, the South African Government has made funds available from the Unemployment Insurance Fund (“the UIF”) for those employees who will not receive salaries, or rather receive a percentage of their salaries during the lockdown period; this is in order to circumvent lay-offs. Unfortunately the same cannot be said for independent contractors who are not afforded the same protection and relief.

Employers are encouraged to seek alternative remedies to termination or retrenchment, which could include remote working arrangements, enforcing annual or special leave, demotion of employees, placing independent contractors or employees on shorter working hours or not to increase salaries.

The harsh reality is that many businesses will have to close their doors or implement vast reaching cost cutting policies as a result of the lockdown.

Should you require any assistance in the retrenchment process as a result of the Coronavirus, we recommend that you contact one of our experienced attorneys who will be able to assist you through the process.

*** Please note that this article (and the information contained herein) is to be used to inform members of the public. This article (and the information contained herein) should not be construed as being legal advice, and members of the public are advised to consult their legal practitioner where possible. Harris Billings Incorporated will not be held liable for any damages suffered as a result of reliance on this article (or the information contained herein). ***