Updated: Jan 24, 2022
South Africa has experienced several negative economic factors including the COVID-19 pandemic that have negatively affected the performance of companies in all industries. Companies have failed to achieve budgeted revenue while significant financial losses over the past few months have increased.
This has led to an increase in employers being forced to reduce the number of staff through retrenchments by following Section 189 and 189A of the Labour Relations Act (LRA). Dismissals based on the employer’s operational requirements, includes the employer’s economical, technological, structural, or similar needs. Some employers are under the impression that retrenching an employee is as simple as issuing a notice of termination of the employment relationship based on the operational requirements of the company.
Another common mistake made by some employers is to select the ‘problem’ or ‘underperforming’ employees for retrenchment instead of using fair selection criterion. Employers must ensure that the termination due to retrenchment must be substantively and procedurally fair to avoid spending time and money at the relevant dispute resolution forums like the CCMA, Bargaining Council, and the Labour Court. When an employer is forced to enter retrenchment consultations, the selection criteria used when selecting which employees may be affected falls within the fairness of the dismissal.
The LRA in section 189(2) prescribes that a joint consensus seeking procedure must be followed and further continues in Section 189(2)(b) that an attempt to reach consensus on the method for selecting the employees to be dismissed. Section 189(7) prescribes that the employer must select employees to be dismissed according to a selection criterion that has been agreed between the parties or failing agreement a criterion that is both fair and objective.
This agreement can be agreed upon in the collective agreement between the Union and the employer and could further be agreed upon between the parties during the consultation process. Should there be no agreement between the parties, the employer should follow Section 189(7) (b), which refers to the fair and objective selection criteria. The principal of ‘LIFO’ – last in first out – that refers to the employee’s years of service is the most commonly used selection criteria in the absence of an agreement between the parties. This is however not the only alternative selection criteria that may be used, when an employer is exploring fair and objective selection criteria the employer should keep in mind that this selection criteria may not discriminate against a certain group of people.
Performance, skills and qualification or a combination of these criteria is frequently used as a selection criterion during retrenchments.
In Oosthuizen v Telkom SA Ltd  11 BLLR 1013 (LAC) the court found that the dismissal of the applicant was unfair when the respondent made use of skills, suitability and the company’s employment equity policy, without taking into consideration the appellant’s years of service. It is important that the selection criteria should be fair and objective; not only inclusive of one of the above criteria.
Pulling employees names out of a hat could be seen as objective, however this method could still be seen as unfair should an employee be selected on this basis with significant more years of service than the employee who is not affected unless this was agreed to by the consulting parties.
There are different ways and means for employers to make use of selection criteria when faced with retrenchments. The sustainability of the business going forward is of outmost importance and although ‘LIFO’ is the most commonly used selection criteria for retrenchments, there are other criteria that employers could use that would still be seen as fair and objective and in support of the vision for their business.
It is critical for employers to consult knowledge experts when they are considering restructurings or retrenchments to ensure they comply with procedural and substantive fairness. Should you need further advice or assistance, please do not hesitate to contact us.
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