Retrenchment is the termination of an employee without fault.
Prior to downsizing, the management of a company evaluates its business needs to increase its net earnings or minimize its losses to become financially solvent. The latter usually occurs due to instability in the economy, seasonal fluctuations in the market, shortages of supplies, or lack of market demand.
When implementing the retrenchment, the employer must provide pay separation benefits to the affected employees. He must also provide a valid reason behind the decision and stick to a fair procedure.
