Retrenchment: is LIFO the only way to go?

Kenco, an engineering firm, retrenched the individual applicants on 29 May 2011. The individual applicants alleged that their retrenchment was substantively unfair and that they were retrenched because of their union membership. The principle reason for the retrenchments was that Kenco’s major sub-contract with Bateman, an industrial engineering firm contracted to the Foskor mine in Phalaborwa, came to an end on 31 March 2011. In selecting which employees to retrench, Kenco adopted selection criteria in line with the requirements needed to perform the manufacturing and installation work secured from Gauge, a firm of design engineers, without which Kenco could not have survived. These criteria were based on skills, work performance, attendance records and safety records as Gauge required a skilled workforce consisting of teams where a team member was seldom absent. Had Kenco not used these criteria, Gauge would probably have employed another company to perform the work. In the process of selection, employees were evaluated with reference to the abovementioned criteria.

Mr van Pittius, a business consultant to Kenco at the time of the retrenchment, assisted in advising on the staff capabilities required for the work with Gauge. He indicated that skills were given a weighting of 40% because of the risks of employing unskilled workers and that the evaluation of individuals selected for retrenchment was done by three persons who knew the individuals. If they arrived at a scoring which differed by more than 20%, they would be re-evaluated by the team with a view of reaching an agreement.

The court found that there was a general need to retrench, that there were no viable alternatives to retrenchment and that failing to apply LIFO did not render the chosen criteria unfair. However, it held that Kenco led no evidence to show that the applicants had been evaluated and were found wanting in terms of the chosen criteria. No one who conducted the evaluation process led evidence to show that the applicants had been evaluated and that their scores were lower than employees who were retained. Had someone verified Van Pittius’ evidence, in particular how the applicants scored compared to other employees that the applicants believed were more suitable for retrenchment, it could have been said that the criteria had been fairly and objectively applied. In light of the above, the court held that the retrenchment was substantively unfair and awarded each individual applicant eight months’ remuneration.

This judgment demonstrates that although an employer can use alternative selection criteria to LIFO, in selecting employees for retrenchment an employer must ensure that such criteria is fairly and objectively applied. The employer must be able to prove this fact to avoid the risk of damages or possible reinstatement, as failure to do so affects the substantive fairness of the dismissal.