R1.8 Million Unfair Dismissal Cap: What Employers Must Know

For three decades, one principle has anchored unfair dismissal law in South Africa: reinstatement is the primary remedy. Section 193 of the Labour Relations Act (LRA) instructs the CCMA and Labour Court to put a wrongly dismissed employee back in their job, unless reinstatement is impractical, the employee does not want it, or the relationship has broken down irretrievably. A proposed R1.8 million unfair dismissal cap is about to change that default dramatically for the country’s highest earners, and every senior executive, HR head, and remuneration committee needs to understand what is coming. The Labour Relations Amendment Bill, published in the Government Gazette on 26 February 2026 following the NEDLAC negotiation process, introduces this change through a new section 193(2A).

What the R1.8 Million Unfair Dismissal Cap Would Change

In plain terms, employees earning above a threshold set initially at R1.8 million a year, and adjusted annually with CPI, would no longer be entitled to reinstatement or re-employment for an ordinary unfair dismissal. Their remedy would instead be limited to compensation, capped by the Minister under a new section 208B, at an amount linked to that same threshold. This is a sharp departure from section 194, which currently caps compensation at 12 months’ remuneration for ordinary unfair dismissals and 24 months for automatically unfair ones, but applies that formula to every employee regardless of salary. Consequently, a high earner’s remedy would look fundamentally different from everyone else’s for the first time under the LRA.

Reinstatement Remedy Unfair Dismissal: Why It Matters Here

The reinstatement remedy has sat at the centre of South African unfair dismissal law for three decades, and the policy rationale for changing it, set out in the Bill’s memorandum, is that reinstating a senior executive after a serious breakdown of trust is frequently unworkable. Both the CCMA and Labour Court have wrestled with exactly this tension for years in disputes involving C-suite and senior management dismissals. The drafters also invoke ILO Convention 158, Article 12, as authority for differentiating higher-paid employees, though several employment law commentators have pointed out that Article 12 actually concerns severance pay, not dismissal remedies. This is a contested point worth watching, since it is likely to be tested in court if the Bill proceeds to enactment in its current form.

The Automatically Unfair Dismissal Exemption

Importantly, the proposed cap does not touch automatically unfair dismissals under section 187, meaning dismissals for reasons such as discrimination, exercising a constitutional right, or whistleblowing under the Protected Disclosures Act. High earners dismissed on those grounds keep full remedies, including reinstatement and uncapped compensation. This distinction matters enormously in practice: a senior manager retrenched unfairly or dismissed for alleged poor performance would fall under the new capped regime, while one dismissed for raising a discrimination complaint would not. As a result, expect increased scrutiny of whether a dismissal can be characterised as automatically unfair, since that classification alone will determine whether the cap applies.

Executive Dismissal Risk South Africa: Practical Implications If Enacted

For employers, executive exits become commercially predictable, since a business can budget for capped compensation exposure rather than face the operational disruption of a reinstatement order against a senior employee it no longer trusts. For high-earning employees, however, leverage in a dismissal dispute changes fundamentally, because getting a job back, historically a powerful bargaining chip even where an employee ultimately preferred a payout, would no longer be on the table for ordinary dismissals. Consequently, careful attention to employment contracts, restraint of trade provisions, and any severance or golden parachute arrangements becomes more important, not less. It is also worth noting that a separate, updated BCEA earnings threshold, which governs different protections such as overtime and automatic CCMA referral under section 189A, came into effect on 1 May 2026. That mechanism is easily confused with the proposed R1.8 million cap but works independently of it.

How LBD Consultants Reviews Employment Contract Compliance South Africa

As at August 2026, the R1.8 million cap is not yet law. The Bill completed its public comment phase earlier this year, but it still needs to be formally introduced in and passed by Parliament, then assented to by the President, before it takes effect. Employers and senior employees should therefore not restructure exit arrangements on the assumption this is already in force. Nevertheless, it is close enough that anyone negotiating an executive employment contract or a senior exit package today should be drafting with one eye on where the law is headed. LBD Consultants’ Labour Law Division reviews executive employment contracts, restraint of trade clauses, and severance arrangements now, so IT and engineering-sector employers with senior technical and executive staff are positioned correctly whichever way the automatically unfair classification boundary develops. Contact LBD Consultants today to review your executive contracts and exit packages.