Retrenchment – who stays and who goes

All employers have two goals: to make a profit and be sustainable. Employers should therefore consistently evaluate all factors that can have an influence on the long term success of the business in order to create a cost effective environment enabling the business to stay competitive with in the market. In the current economic climate, many employers struggle and consider different options to adjust to a changing environment. Retrenchment is a no fault dismissal, as the employee did nothing wrong and dismissal is due to operational requirements. As with all dismissals, the retrenchment process must be both substantively and procedurally fair. But how does an employer decide who stays and who goes?

It is very difficult question to answer on which is the best selection criteria to apply in the retrenchment process.

In terms of Section 189(7) there are two types of section criteria recognised that an employer may use to select the employee to dismiss namely:

  • one that has been agreed to by the consulting parties; or
  • one that is fair and objective.

During the retrenchment process, an obligation is placed on the employer in terms of Section 189(2) of the Labour Relations Act and the other consulting party/parties to engage in a meaningful, joint consensus-seeking process in an attempt to reach a consensus on the method for selecting the criteria to be applied when determining which will stay and which will go.

To the extent that the consultation on selection criteria does not result in an agreement, it is then left to the discretion of the employer to unilaterlly decide on a selection criteria to be used. Provided that the employer will then have to prove that the criteria used was fair and objective.

Traditionally employers and consulting parties tend to rely on the “last in, first out” (“LIFO”) principle. This principle is generally accepted as a selection criteria according to the CCMA Code of Good Practice on Operational Requirements. It is also the criterion associated with the least risk, even though that it has never been endorsed as the only fair and objective criterion. Employers and consulting parties however fail to give consideration to the other available fair and objective criteria’s. The failure to give due consideration to other criteria’s might result in the court finding that a fair criteria was not applied and that the retrenchment process was procedurally unfair.

There are numerous decisions in which the Labour Court has held that an employer is entitled to adopt a multi-rating selection criteria such as:

  • Years of service (“First in, First out”)
  • Qualifications and experience
  • Direct supervisor review (including an assessment of factors such as commitment to company and team goals, teamwork and dependability, attendance, flexibility, initiative and career potential)
  • Competency, efficiency, key skills retention
  • Continued service delivery
  • Performance appraisals and past performance (or discipline, for that matter) and
  • “Bumping”
  • Voluntary severance package
  • Retirement package
  • Redeployment package

As long as the aforementioned criteria’s are applied fairly, consistently, objectively, clear and transparent, and applied in such a way that the process does not degenerate into a dismissal for misconduct, poor performance or incapacity. The Labour Court referred to these as “procedural safeguards”.

This multi-rating selection criteria may cure a certain amount of subjectivity attached to the selection criteria themselves. This would also most probably be found to be consistent with the requirements of the Labour Relations Act.

We strongly advise employers to implement clear rules in the workplace and follow correct procedures with regards to all labour matters. Employers should especially focus on retirement and general discipline in the workplace, by acting proactively and consistently.

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LWO Regsadviseur - LWO Legal Advisor

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