In the current economic climate, many employers struggle to stay competitive and profitable and must 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?
Employers are entitled to adopt a multi-rating selection criteria such as:
- Years of service (“Last In, First Out”) and “bumping”
- Qualifications and experience
- Direct supervisor review (including an assessment of factors such as commitment to the business 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)
- Voluntary severance package
- Retirement package
- Redeployment package
LIFO and “bumping”
Employers and consulting parties often tend to rely on the “Last In, First Out” (LIFO) principle, which is based on years of service. However, when employees are selected for retrenchment within a particular division/department as shorter serving employees in that specific division/department, these employees may in fact have longer periods of service with the employer than employees in other divisions/departments.
“Bumping” is when employees with longer service with the employer, are then transferred to positions held by employees with shorter service in other divisions/departments.
2 forms of “bumping”
- Horizontal “bumping” – where an employee is transferred to a position of similar status, conditions of employment and remuneration; and
- Vertical “bumping” – where an employee is transferred to a position with less favourable status, conditions of employment and remuneration.
An employer must first apply horizontal “bumping” before vertical “bumping”.
The Labour Appeal Court says…
The Labour Appeal Court has now made it clear that where employers choose to consider LIFO as a selection criterion, employers must consult on the application of “bumping” in selecting employees for retrenchment. Employers must be able to explain why it would not be fair and appropriate to apply “bumping”.
We strongly advise employers to implement clear rules in the workplace and follow correct procedures with regards to all labour matters. Employers must be proactive and act consistently especially with retrenchment and general discipline in the workplace.
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