Understanding the Key Differences between Retrenchment and Severance Package

Navigating the complexities of employment termination can be challenging for both employers and employees. Understanding the difference between a retrenchment package and a severance package is crucial, as the two terms, while often used interchangeably, have distinct legal and practical implications.

Understanding Retrenchment

A retrenchment package is a legally mandated form of compensation given to employees whose jobs are terminated due to the employer’s operational reasons, such as redundancy, restructuring, or economic downturn. This is not a choice made by the employer but an obligation under Zimbabwean labour law. The process is governed by the Labour Act [Chapter 28:01] and the Labour (Retrenchment) Regulations, 2024 (Statutory Instrument 191 of 2024).

This legal framework ensures that a specific procedure is followed, which includes:

• Consultation: The employer must engage in consultations with employees, a works council, or a trade union to explore alternatives to retrenchment.
• Approval: If no agreement is reached, the matter is referred to the Retrenchment Board for approval.
• Minimum Package: The new regulations specify a minimum retrenchment package of one month’s salary or wages for every year of service. This is a significant change from previous legislation and provides greater certainty for employees.

The retrenchment process is not simply about paying a lump sum; it is a formal, regulated procedure designed to protect employees from arbitrary job losses.

Understanding a Severance Package

A severance package is a broader, often more flexible, term for benefits given to an employee upon termination. Unlike a retrenchment package, which is tied to a specific legal process for redundancy, a severance package can be offered in various circumstances, including:

• Mutual agreement: According to the Labour Amendment Act, 2023, a permanent employment contract can be terminated when the employer and employee mutually agree in writing to such termination. A severance package can be part of this agreement, often offered to avoid the complexities of a formal dismissal process.
• Involuntary termination: In cases where an employee is dismissed for reasons other than retrenchment, such as poor performance or a change in company strategy that doesn’t amount to a formal retrenchment exercise.
• Enhanced benefits: An employer may offer a severance package that is more generous than the legal minimum for retrenchment, for example, to encourage a quick and amicable departure.

While not always a legal requirement in the same way as a retrenchment package, severance packages are often outlined in an employee’s contract or a collective bargaining agreement. They can include a variety of benefits beyond financial compensation, such as continued health insurance or a positive letter of reference.

Key Differences

Feature	Retrenchment Package	Severance Package
Legal Basis	Regulated by the Labour Act and its regulations (e.g., SI 191 of 2024).	Generally based on an employment contract, company policy, or mutual agreement (MMM Law Firm, Labour Guide).
Triggering Event	Job termination due to redundancy, restructuring, or economic reasons.	Job termination for a variety of reasons, including mutual agreement or a voluntary exit.
Legal Obligation	Mandatory minimum package is legally required.	Not always legally required, but often a contractual or discretionary benefit.
Procedural Steps	Involves a formal, multi-step process with a Retrenchment Board.	Can be a simple, bilateral agreement between the employer and employee.
Purpose	To compensate employees for job loss due to a company’s financial or structural challenges.	To assist an employee’s transition from the company and avoid disputes.

In essence, a retrenchment package is a specific type of severance package. All retrenchment packages are severance packages, but not all severance packages are retrenchment packages. The key is understanding that retrenchment is a specific, legally defined process with a mandatory minimum compensation, whereas a severance package is a broader term that can be negotiated and offered in a wider range of termination scenarios. By Ashlene Moyo