Selection criteria for retrenchment: The fair and objective requirement

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18 Apr 2016

One of the issues an employer is obliged to consult on during a potential retrenchment process is the selection criteria to be applied when determining which employees will be dismissed and which will be retained. In doing so, the employer should aim to reach agreement with the other consulting party/parties on what the selection criteria should be. But what happens if an employer reaches agreement with one or some of the consulting parties, but fails to reach agreement with all of them? Furthermore, to the extent trade unions typically tend to rely on the “last in, first out” (“LIFO”) principle during consultation, can an employer deviate from LIFO in instances where relying on it may jeopardise the company’s ability to remain competitive? If this is the case, may an employer instead use selection criteria that contain an element of potential subjectivity?

The recent judgment of the Labour Court in National Union of Metalworkers of South Africa and others v Columbus Stainless (Pty) Ltd (JS529/14), handed down on 30 March 2016, provides useful guidance on these questions.

National Union of Metalworkers of South Africa and others v Columbus Stainless (Pty) Ltd

In this case, Columbus Stainless (Pty) Ltd (the “Company”) was confronted with weak demand, low prices and significant cost pressures. In order to counter these factors, it proposed a reduction of approximately 220 positions across the entire business. The Company issued a formal section 189(3) letter to the relevant parties and, because a large-scale retrenchment was proposed in terms of the Labour Relations Act 66 of 1995 (“LRA”), section 189A was invoked and the consultation process was chaired by a facilitator requested by the Company.

The Company proposed multi-rating selection criteria, which, in essence, involved a multifaceted assessment comprising various components, each weighted differently. These included:

  • past performance (weighted at 50%);
  • qualifications (20%);
  • years of service (15%); and
  • direct supervisor review (including an assessment of factors such as commitment to company and team goals, teamwork and dependability, discipline, attendance, flexibility, initiative and career potential) (15%).

During the facilitated consultation process, certain amendments were negotiated with some of the consulting parties and conceded to by the Company. The final multi-rating selection criteria were ultimately agreed to with the representatives of approximately two thirds of the workforce. However, the National Union of Metal Workers of South Africa (“NUMSA”), representing approximately one third of the workforce, challenged this selection criteria and insisted on the application of LIFO only.

The requirement to consult on selection criteria stems from section 189(2)(b) of the LRA. Furthermore, section 189(7) provides 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.” It is clear from this formulation that agreed selection criteria enjoy primacy, and only where no agreement is reached will the secondary dual requirements of fairness and objectivity be triggered.

Section 189(7) does not, however, expressly and unequivocally address situations whereby an agreement is reached with only some of the consulting parties. However, the Labour Court has now provided some clarity to this aspect by finding that the multi-rating selection criteria applied by the Company were consistent with the requirements of section 189(7). The criteria were fair and objective in terms of that section, despite a measure of apparent or potential subjectivity attached to at least some of the criteria applied.

The following principles can be gleaned from the judgment:

  • 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 appraisalsand qualifications.
  • when selecting employees for retrenchment, it is important to remember that retrenchment is a “no-fault dismissal”. Therefore, if an employer takes into account past performance (or discipline, for that matter), the criteria need to be clear and transparent, and applied in a way that the process does not degenerate into a dismissal for misconduct, poor performance or incapacity. This points to the importance of the methodology applied by the employer. The assessment or rating system itself must be applied fairly, consistently and objectively. This suggests that if the methodology is fair, consistent and objective, this may cure a certain amount of subjectivity attached to the selection criteria themselves. The Labour Court referred to these as “procedural safeguards”.
  • if the above reasoning is applied to the wording in section 189(7)(b), it is clear that the requirement for objective criteria is not absolute: a measure of subjectivity may be allowed, as long as the criteria are, for the most part, objective. The Labour Court held that the Company “met the threshold of objectivity and fairness”, which also suggests that the concept is not absolute.
  • By the same reasoning, it is clear that the fairness required by section 189(7) is also not absolute, and must be assessed with reference to all affected parties, including the employer. The Labour Court illustrated this principle as follows:

“For an employer not to implement criteria agreed with the majority of representatives in a consultation process would in all probability be unfair; it would be equally unfair to apply a disparate range of selection criteria depending on a particular consulting party’s preferences or demands. In the present instance, in the context of the retrenchment process as a whole and the need to balance fairness amongst all of the various consulting partners, including the [employer], the [employer’s] decision was clearly a fair one.”

Practical measures for retrenchment selection

If an employer’s business and operational needs require it to make use of multi-rating selection criteria during a retrenchment exercise, we suggest that the following practical measures should be followed to increase the likelihood of the employer meeting the threshold of objectivity and fairness:

  • attempt to reach agreement on the selection criteria with as many of the consulting parties as possible (preferably the majority).
  • be open to the idea of amending or tweaking the criteria if this will facilitate agreement with the other consulting parties.
  • ensure that the selection criteria are rationally connected with the operational reasons for the retrenchment and/or the ultimate purpose of the retrenchment exercise.
  • be careful of applying criteria that contain an element of potential subjectivity. If aspects such as experience, skill, adaptability, attitude and potential, are used, then ensure that a rating system that is applied fairly, consistently and objectively is used.
  • performance or past conduct should preferably be used only in circumstances where there is already an assessment system in place, preferably in terms of a pre-existing collective agreement (i.e. pre-dating the retrenchment exercise), and that same system should be used, preferably with reference to pre-existing assessments of performance and/or conduct.
  • ensure that employees have an opportunity to dispute and/or object to their assessments.
  • describe each selection criterion as clearly as possible, and measure it in a transparent, fair and consistent manner, as objectively as practically possible.
  • if there is an element of subjectivity to the assessment, or there is the potential for this, appoint a panel of multiple supervisors to moderate any potential subjectivity.

* ENSafrica acted for Columbus Stainless (Pty) Ltd in this matter.

Pieter Moll is a candidate attorney in the employment department at ENSafrica.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)

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