Retrenchments: The element of Substantive Fairness

With unemployment levels as high as they are in South Africa, Employers need to be overly cautious when dismissing an Employee and taking into account that the services of the CCMA are free to parties, Employees are, more often than not, not hesitant to refer a dispute to the Commission, or even the Labour Court in the hopes of being reinstated or compensated financially.

S189 of the Labour Relations Act, as amended (LRA) governs the retrenchment process in South Africa. S189A governs mass retrenchments, however this article will focus only on the former.

 

It should be noted that a dismissal for operational requirements (retrenchment) is one of the forms of no-fault dismissals in our law, alongside incapacity for ill health or injury, or poor performance.

Most Employers find retrenchments to be a daunting task due to the overwhelming number of ‘hoops’ the LRA stipulates need to be ‘jumped through’ by an Employer to ensure a procedurally and substantively fair dismissal.

Operational requirements are defined in S213 of the LRA as being requirements based on the economic, technological, structural or similar needs of an Employer. These grounds form the basis of the reason/s for a retrenchment, which reason/s must be fair and justifiable. Employers are cautioned that reasons such as poor performance or misconduct are not lawful reasons upon which an Employer can reply to retrench an Employee.

Taking the definition of ‘operational requirements’ a step further, Item 1 of the Code of Good Practice: Dismissal based on Operational Requirements in the LRA states:

“…As a general rule, economic reasons are those that relate to the financial management of the enterprise. Technological reasons refer to the introduction of new technology that affects work relationships either by making existing jobs redundant or by requiring employees to adapt to the new technology or a consequential restructuring of the workplace. Structural reasons relate to the redundancy of posts consequent to a restructuring of the employer’s enterprise.”

 

Interestingly, the reason for the retrenchment seems to cause more matters to be referred to the CCMA or Labour Court, than the issue of whether a proper procedure was followed. This is understandable due to the fact that the LRA clearly sets out the procedure to be followed by an Employer. If an Employer follows these guidelines such an Employer should not encounter any issues at the CCMA.

Our Courts view fairness in our law as being extremely important and Employers are expected to always strive to ensure that same is adhered to when following any legal processes. The fairness in regards to the reason/s for a retrenchment, known as substantive fairness, has been dealt with often by our Court such as in the case of Van Rooyen & Others v Blue Financial Services (SA) (Pty) Ltd where the Labour Court referred to the objective enquiry dealt with in the case of BDM Knitting (Pty) Ltd v SACTWU wherein Davis AJA explained the applicable legal principle as being:

"the starting point is whether there is a commercial rationale for the decision. But, rather than take such justification at face value, a court is entitled to examine whether the particular decision has been taken in a manner which is also fair to the affected party, namely the employees to be retrenched. To this extend [sic] the court is required to enquire as to whether a reasonable basis exists on which a decision, including the proposed manner, to dismiss for operational requirements is predicated. Viewed accordingly, the test becomes less deferential and the court is entitled to examine the content of the reasons given by the employer, albeit that the enquiry is not directed to whether the reasons offered is the one which would have been chosen by the court. Fairness, not correctness is the mandated test".

Whilst there must be a fair reason for the decision to retrench staff, our law also requires that the Employer implement a fair selection criteria when following a S189 process. Last In First Out (LIFO) is the most widely accepted form of fair selection criterion by our Courts however criteria such as past performance or skills have also been considered.

Section 189(2)(b)of the LRA stipulates that the Employer and Employee/s must consult during the process (as part of procedural fairness) and therein attempt to reach joint consensus on the method for selecting the Employees to be retrenched. Section 189(7) of the LRA goes further to give substantive content to this obligation by stipulating that:

“the employer must select the employees to be dismissed according to selection criteria that have been agreed to by the consulting parties; or if no criteria have been agreed, criteria that are fair and objective.”. Employers are always encouraged to reach consensus with the affected staff than to implement their own criteria as this could cause problems in the long run for the Employer.

 

In an article by Alex Ferreira of ENSafrica titled “Selection criteria for retrenchment: The fair and objective requirement”, the writer analyses the case of National Union of Metalworkers of South Africa and others v Columbus Stainless (Pty) Ltd and summarises that:

“although the Labour Court has recognised the objectivity of length of service, it has never endorsed LIFO as the only fair and objective criterion. On the contrary, there are numerous decisions in which the court has held that an employer is entitled to adopt criteria such as experience, competency, efficiency and skills. There have also been earlier cases where the court has held that an employer is entitled to select employees on the basis of key skills retention, continued service delivery, performance appraisals and qualifications.”

 

As can be seen, retrenchments procedures and the reasons therefor are not the easiest for Employers and Employees alike, to understand. That is why you should not hesitate to contact us if you are facing a retrenchment as an Employee or wanting to embark on one as an Employer.  

Kylan Le Roux