Determining Substantive Fairness in Operational Requirements Dismissal matters

INTRODUCTION 2012 was a challenging year with large job losses partly related to protracted strikes in the mining and transport industry and to the domestic and international economic climate. Unfortunately, retrenchments are not always undertaken for the fair reasons recognised by the LRA, namely economic, technological, structural or similar needs of employers. ‘Problem employees’ are often first on the list. . . Commissioners thus need to have a good understanding of the requirements for substantive fairness.

THE LRA Section 188 - A dismissal is unfair if the employer fails to prove that the reason for dismissal is a fair reason based on the employer's operational requirements. Section 189(1) - the employer to consult with employees or their representatives when it contemplates dismissals. Section 189(2)(a)(i) - parties to attempt to reach consensus on appropriate measures to avoid dismissals. Section 189(3)(b) - employer to provide written reasons for the proposed dismissals, the

THE ECONOMIC RATIONALE • The LAC requires there to be a sound commercial rationale for a decision to retrench – and a reasonable basis for such a decision. • A court should not defer to the employer in answering the question as to whether the dismissal is fair or not. • The employer needs to prove that an operational requirement exists for retrenchment. • An employer may utilise the selection criteria agreed to with a consulting party – must be fair and objective.

COURT DECISIONS The LAC has adopted different tests or approaches at different times. These are some of them: Decision must be bona fide and business-like. Dismissal as a last resort. Rationality – reasonable decision and not a ‘sham’. Fairness/ reasonableness - fair to both parties.

COURT DECISIONS Consideration of the operational needs that gave rise to the retrenchments. E. g. Cost reduction, a drive towards competitiveness, etc. Is retrenchment the only way to achieve such operational needs? Are there not other ways to reduce costs? Consideration of alternatives? E. g. re-skilling employees in order to take up alternative positions, offering transfers, voluntary severance packages, training layoff scheme, etc. Method of selecting employees? ‘All the bad eggs out in one basket’ under the guise of

COURT DECISIONS • Item 9 of the Code of Good Practice: Dismissal states that the selection criteria that “are generally accepted to be fair” include length of service, skills and qualifications. • The most generally applied criteria are a mixture of LIFO and skills retention. Bumping – an extreme force of LIFO. • Bumping could lead to the disruption of the workforce and the loss of younger employees. • “First-in-first-out” (FIFO) has been rejected by the LAC on the basis that it is open to abuse and therefore unfair.

CONCLUSION q It is clear that employers must do considerably more than merely indicate compliance with the procedural steps outlined in section 189 of the Labour Relations Act. q Labour Court and the Labour Appeal Court requires employers to present evidence relating to: • how a certain business decision had been taken; • what the employer’s reasoning was; • especially, what alternatives were considered; and • why these alternatives were not applied instead of resorting to dismissal.

CONCLUSION q In large-scale retrenchments, section 189 A(19) now requires a court to consider whether a retrenchment was economically justifiable on rational grounds — in this specific case, the approach of the Labour Appeal Court has now been turned into legislation. q The Labour Court and the Labour Appeal Court are still reluctant to second-guess the employer’s business decisions (especially if technical or expert knowledge is required), but in many instances, employers may find themselves measured against the Court’s standards. .