Due to our prevalent economic challenges, the topic of retrenchment has become a regular discussion topic in South Africa. It is more significant for employers to thoroughly understand the retrenchment process and the options available for consideration when challenged with a decision to retrench as their last resort.

During retrenchment consultations, the generally accepted fair and objective selection criteria are the retention of employees with more length of service, commonly referred to as ‘last in first out (LIFO)’, and retention based on skills or qualifications. The employer is obligated to ensure that the implementation of a selection criteria is fair and objective as Section 189(7) of the Labour Relations Act (LRA) provides that:

“The employer must choose the employee to be dismissed according to a selection criteria-

  1. That have been agreed to by the consulting parties;
  2. If no criteria have been agreed upon, criteria that are fair and objective are required.”

A method of selection that most people are unaware of is “bumping”. This criterion must be given meaningful consideration by the employer once the employees or their representatives propose it as an alternative. Using bumping as part of the selection criteria is when employees with longer service with the employer are transferred to positions held by other employees with shorter service in different divisions/departments within the company.

There are two (2) forms of bumping, namely horizontal and vertical. Horizontal bumping is when an employee bumps into a role of similar status, pay and benefits, whereas vertical bumping is when an employee bumps into a less favourable position. A common dilemma arises regarding which bumping method must be used when implementing it. The preferred solution is for the employer to make attempts first to consider horizontal bumping. Still, if there are justifiable reasons why it is not feasible, then consideration must be given to vertical bumping as the next step.

The misconceptions around the implementation of bumping and the obligations on employers when there is no consensus between the parties were clarified in the recent matter of Fischer Tube Technik SA v Bayene and Another (JA100/23) [2024] ZALAC 25 (25 May 2024).

In this case, the employer consulted with NUMSA, the Union representing the employees, during the retrenchment process. During the consultations, NUMSA proposed using LIFO and bumping as the selection criteria. The employer agreed to the suggested criteria and identified two positions in the bumping process. The employees bumped to lower positions in a different department would take over the positions as is. This would include the salary, benefits and duties of that ‘new’ position. When the employees were offered the positions, they refused to accept them, and NUMSA only then demanded that the employees keep the higher/existing salaries in the lower positions. The employer declined their proposal and proceeded to terminate the employee’s employment contract based on their refusal to accept the position as agreed upon in the criteria. NUMSA referred the dispute and claimed that the dismissal was procedurally and substantively unfair.

The LC ordered that the dismissal was procedurally fair but substantively unfair and awarded ten (10) months compensation. The Court held that the mere selection of the criteria and identification of the positions were not enough; the parties ought to have permanently fixed the criteria by agreeing on which bumping, vertical or horizontal, to adopt. The Court further held that the mere argument from the employer that horizontal bumping was not viable was not persuasive and rendered the dismissal unfair.

The LAC overturned the LC judgment and stated that the Court overlooked a few issues, both principled and factual:

  1. The employees’ refusal to do vertical bumping does not necessarily render the consequent dismissal substantively unfair.
  2. The LC appeared to have equated the terms of horizontal and vertical bumping with retention and a diminution of the terms and conditions of employment. What is noteworthy is that the LAC made it clear that the LC erred in considering the requirements to be considered when an employer applies LIFO and bumping in that if there is no delving into horizontal and vertical bumping during the consultations, it remains the employer’s duty to justify whether or not to bump. Justifiable reasons should exist when bumping is offered, as the requirement to bump is a matter of fairness to balance the interests of the employee and the employer.
  3. The LC erred when it found that after NUMSA demanded horizontal bumping, the employer failed to provide persuasive evidence as to why the same could not be done. NUMSA must have realised this at the time it made the bumping proposal and identified the positions. Vertical bumping would have been applied, but despite this, NUMSA still demanded horizontal bumping. NUMSA blatantly demanded horizontal bumping, and it was not unfair for the employer to refuse to agree to such a demand at that stage.

The above LAC judgment provides principled and fundamental factors to be considered together with the circumstances of the employers’ reasons for retrenchment. Any retrenchment based on operational requirements is a no-fault process, so fairness and objectivity will always be viewed through a magnifying glass. Fairness will ultimately be determined by the justifiable reasons provided for the objective decision made by the employer. Therefore, it is essential for employers engaged in possible retrenchments to give specific care when considering bumping as a selection criterion before agreeing to such. Employers are reminded to obtain legal advice before and during retrenchment processes to ensure that the correct procedures are followed.

Article by Lemé Stander

Dispute Resolution Official at Consolidated Employers Organisation (CEO SA)