Covid-19: A guide to the Retrenchment Process

/ / 2020, community Schemes, COVID-19, News

By Alisha Naik, Candidate Attorney and Pierre van der Merwe, Partner


Since the start of the national lockdown, the Minister of Employment and Labour has been proactive in providing employers with alternative solutions to avoid retrenching employees. However, the negative economic impact caused by the Covid-19 pandemic may be so severe that employers may still have no choice but to embark on a retrenchment process.


Section 189 of the Labour Relations Act, 66 of 1995, as amended, (“LRA”) outlines the process in relation to dismissals based on operational requirements i.e. retrenchments. Prior to dismissing employees based on operational requirements, an employer is obliged to consult with the affected employees as soon as a dismissal is contemplated and before the decision to dismiss has been made.

This article will take a closer look at the consultation process envisaged in section 189, with a particular focus on the proposed method for selecting which employees to dismiss.

The Consultation Process

The employer must embark on a meaningful, comprehensive consultation process with potentially affected employees to mitigate the adverse effects of the retrenchment process. The decision to dismiss can never be taken prior to the conclusion of the consultation process. Generally, the contents of the consultation process are confidential and may not be disseminated to the public or discussed with third parties other than legal representatives.

Section 189(3) of the LRA states that “the employer must issue a written notice inviting the other consulting party to consult with it and disclose all relevant information, including, but not limited to –

  • the reasons for the proposed dismissals;
  • the alternatives that the employer considered before proposing the dismissals, and the reasons for rejecting each of those alternatives;
  • the number of employees likely to be affected and the job categories in which they are employed;
  • the proposed method for selecting which employees to dismiss;
  • the time when, or the period during which, the dismissals are likely to take effect;
  • the severance pay proposed;
  • any assistance that the employer proposes to offer to the employees likely to be dismissed;
  • the possibility of the future re-employment of the employees who are dismissed;
  • the number of employees employed by the employer; and
  • the number of employees that the employer has dismissed for reasons based on its operational requirements in the preceding 12 months.”

The Method of Selection

Whilst each of the above factors are important, the purpose of this article is to focus specifically on section 189(3)(d) i.e. the method of selection, as this is often a legally complex aspect for both parties. This is one of the topics on which the consulting parties must attempt to reach consensus. The onus is on the employer to take the initiative in discussing the criteria used to determine the method of selection. If, during the consultation process, the employer and employee agree on a selection criterion, employees may be retrenched on the basis of same. If no criteria are agreed upon, the LRA requires that the selection be based on fair and objective criteria. 

Failure to consult on the selection criteria will render the retrenchment procedurally unfair and in the absence of an agreement, failure to apply the agreed or fair and objective criteria, will render the dismissal substantively unfair.

What constitutes fair and objective criteria?

In the absence of agreed criteria, the parties must determine criteria that are fair and objective. The mere application of objective criteria does not imply that it is fair. Objectivity in this context seeks to remove subjective opinions of decision makers, whereas fairness means to consider the relationship between the criterion and the need to retrench as well as the interests of the affected employees and the employer. As a general rule, employers must ensure that their selection criteria can be justified by an objective measure and must avoid basing their decision on subjective opinions like employee attitude, observance of company values, lack of enthusiasm and efficiency.

Different Types of Selection Criteria

There are several legally accepted types of criteria that range from length of service as calculated from commencement date of employment to the need to retain special skills within the business. Options available for employers to consider include the following:

  • First in first out (FIFO)

In this method of selection, employees eligible for retrenchment are the employees that have served the longest. Adopting FIFO criteria would be counter-intuitive as an employer would effectively be prejudicing long serving employees.

  • Last in first out (LIFO)

This is the opposite of FIFO. In this method of selection, employees are selected for retrenchment according to their length of service with the employer. More specifically, employees who have served for a shorter period of time would be eligible for retrenchment first. This type of selection criteria is regarded as the gold standard of selection criteria as it seeks to reward loyalty to the employer and ensures business continuity as well as the retention of institutional knowledge.

However, the way in which LIFO is applied can yield different results. Consider the technology industry, for instance, where newly appointed or ‘last in’ employees may have a more up-to-date skill set. By using LIFO in these circumstances, employers will lose out on the necessary skills needed to conduct business efficiently. Employers should therefore carefully consider selection options before applying LIFO.

  • Bumping

Bumping is regarded as an implicit consequence of LIFO and occurs when longer service employees are moved to take up positions of employees with less service who were not initially necessarily being considered for retrenchment. A decision on whether or not to apply bumping, and reasons thereto must be discussed, agreed and recorded in the consultation process.

The two types of bumping are horizontal bumping – which occurs when an employee in a redundant position replaces an employee in a similar position that has a shorter service period; and vertical bumping – which is the same as above, except the employee will be replacing an employee in a more junior position who has a shorter length of service. Generally, horizontal bumping takes place before considering vertical bumping.

Employers should also consider the effects of bumping as it may result in unfavourable consequences to the business. For example, large scale bumping may warrant relocation which is inconvenient and may be expensive for the employee and may result in overall business interruption. Factors such as geographical considerations, employee preferences, career path and scale of mobility, the burden placed on the employer and overall feasibility need to be considered.

Additionally, legislative obligations, such as Black Economic Empowerment may disqualify LIFO and/or bumping as a fair and objective method of selection to the extent that it may affect an employer’s duties under the Employment Equity Act 55 of 1998 (“EEA”) to implement affirmative action.

  • Professional skills, educational qualifications and competencies

The retention of professional skills, educational qualifications and competencies may be deemed as a fair method of selection provided that the metric used to assess these is objective, consistently applied and one is able to objectively ascertain whether or not the employee possesses the requisite skill set to perform in the employment position.

Job entry-level specifications, competency tests, training and other tests of language, literacy and numeracy may be objectively applied and used as selection criteria. The assessments must be rational, supported by facts and agreed upon by the selection pool.

  • Automatically unfair dismissals

Where the employer uses reasons listed in S187(1) of the LRA that relate to trade union membership, strike participation, refusal to do the work of striking workers, pregnancy, refusal to accept a demand in any matter of mutual interest, transfer, the making of a protected disclosure or whistleblowing, or any of the discriminatory grounds listed in section 187(1)(f) either directly or indirectly, it amounts to an automatically unfair dismissal based on discriminatory grounds. This will result in the employer having to compensate the affected employee(s) for up to 24 months remuneration and may open the employer to the possibility of an unfair discrimination claim under the EEA.

  • Employee’s previous conduct or performance

Generally, employers should not use the retrenchment procedure to justify the dismissal of an employee for misconduct or incapacity. Decisions to retrench should be based solely on the operational requirements of the business. For this reason, selection criteria based on poor performance, tardiness, attendance, incompetence, disciplinary history and performance appraisals should not be used unless wholly objectively justifiable i.e. the employer must be able to demonstrate that there was an investigation into the employee’s performance/conduct, and that the employee has had sufficient opportunity to dispute the relevant record but failed to do so. Furthermore, the employer must be able to show that all performance metrics are uniformly applied and procedurally sound.

  • An employee’s cost-to-company saving benefit

An employer could conceivably argue that retrenching a more “expensive” (i.e. higher earning) employee as opposed to a less expensive employee could be a fair and objective criterion.  The employer should, however, ensure that such criteria is supported by objectively determinable facts.


The method of selecting employees to retrench is legally complex. Any decision taken should therefore be supported by facts that are objectively justifiable. As many employers may begin embarking on a retrenchment process as a result of the Covid-19 pandemic, it is imperative that employers take care in consulting with their workforce prior to selecting employees for dismissal.

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