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Retrenchment: An opportunity to retain star talent?
 Retrenchment: An opportunity to retain star talent?

FUTURE OF WORK



25 NOVEMBER 2024
Retrenchment: An opportunity to retain star talent?
by Jan Truter & Barney Jordaan

May an employer use behavioural characteristics (e.g. initiative, enthusiasm and determination) as criteria to select employees for retrenchment?

This was the key question before the Labour Appeal Court (LAC) in the matter of Umicore Catalyst South Africa (Pty) Ltd v National Union of Metalworkers of South Africa (Numsa) obo 5 members.

Background

Umicore, a manufacturer of catalytic converters, acquired another company in the same industry as part of a global acquisition process. Umicore decided to relocate the operations of the acquired company to its own premises. This resulted in a duplication of functions that affected 52 positions.

LIFO and skills retention

During a lengthy pre-retrenchment process in accordance with section 189A of the Labour Relations Act (LRA), ‘last in, first out’ (LIFO) with skills retention was agreed upon as the selection criterion. For employees working in the laboratory, job-related skills were assessed through a so-called ‘laboratory assessment’ which involved an assessment conducted by a panel comprising the laboratory manager and two senior managers from other departments.

‘Initiative, enthusiasm and determination’

However, midway through the process Umicore also added past job performance and factors such as ‘initiative, enthusiasm and determination’ to the list. NUMSA refused to agree to the addition of these criteria, which resulted in the company proceeding to apply them unilaterally.

While most of the 52 affected employees completed the questionnaire assessing the behavioural component, some NUMSA members refused to do so. As a result, the panel conducted their assessments in their absence and based on the outcome, they were dismissed. They challenged their dismissals in the Labour Court (LC).

Objective criteria?

In the LC the union, on behalf of the dismissed employees, challenged the fairness of the retrenchments on the basis that the introduction of the behavioural assessment was subjective and explained why the employees concerned had refused to complete the assessment.

Umicore, in turn, contended that the laboratory and behavioural assessments were necessary to give effect to the requirement of skills retention during the selection process. However, the Labour Court found the dismissals to be substantively unfair and ordered the reinstatement of the employees.

On appeal to the Labour Appeal Court (LAC), the Court focused mainly on the objectivity and fairness of the behavioural assessment.

The Court found that Umicore had failed to prove that the employees were selected based on fair and objective selection criteria and accordingly upheld the decision of the Labour Court reinstating the dismissed employees.

What can we distil from the decision?

First, in the absence of an agreement on selection criteria, the criteria used must be fair and objective. This is to ensure that redundancy is not used as a pretext for getting rid of employees whom some managers wish to get rid of for other reasons.

Second, the onus rests on the employer to prove that the criteria used are fair. Any exceptions to LIFO – an objective criterion – should be treated with caution.

Third, criteria relating to the employees’ personality characteristics, including initiative, enthusiasm and determination, are inherently subjective and should be avoided.

Fourth, although past performance could be a valid criterion, there must be evidence of on-the-job evaluations on an individual basis; e.g. employees’ ability to work independently and without supervision.

Conclusion

The judgment makes it clear that there is a difference between grading employees based on the opinion of their superiors and an assessment based on observations of their actual performance. In order to be objective, the latter should be determined based on facts and measurable, verifiable information pertaining to the skills required for a position.

An employer’s desire to retain the most talented employees during a restructuring exercise is understandable. However, despite their best efforts to be objective in using work performance as a selection criterion, the risk of subjective elements infiltrating the retrenchment process remains notably high.
Useful resources:

LabourWise
 LabourWise provides user-friendly information and documentation about labour relations and labour law in South Africa. Visit our InfoCentre or website.

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