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Retaining Diversity in a Cost Cutting Environment

5 January 2016
– 4 Minute Read


With transformation being one of the key strategic imperatives of every South African business is it possible for employers to consider race when selecting employees to be retrenched?

In South Africa the most widely used criteria in retrenchment exercises are last in first out (commonly referred to as LIFO), skills and performance. LIFO and skills are viewed as being objective and fair criteria. However, using these criteria could impact negatively on the diversity of your organisation as generally speaking there is greater diversity amongst employees who have recently entered your business or who are still acquiring skills.

As lawyers we have always advised our clients to avoid using any discriminatory ground (race, gender, sexual orientation etc) as a selection criterion in a retrenchment exercise. Discriminatory dismissals are viewed by our law as being “automatically unfair”, a term used in the Labour Relations Act to denote that category of dismissals which carry a more severe penalty than “ordinary” unfair dismissals.

A court may award reinstatement or compensation up to a maximum of 24 months’ remuneration in the case of an automatically unfair dismissal whereas in an “ordinary” unfair dismissal a court may award reinstatement or compensation up to maximum of 12 months’ remuneration. In the case of a discriminatory dismissal an employer could also face a claim brought in terms of the prohibition against discrimination contained in the Employment Equity Act.

This question has also been considered in other jurisdictions and for the most part the conclusion reached is that taking race into account in dismissal decisions, as opposed to hiring decisions or promotion decisions, is too heavy a burden to place on innocent parties. There is, for example, an Australian decision where the court stated that in eradicating racial discrimination, “… innocent persons may be called upon to bear some of the burden of the remedy.” The court said though that requiring innocent parties to be first in line for firing, over and above being last in line for hiring and promotion, is too heavy a burden to require them to bear.

As far as I’m aware this particular question has never been considered by our courts. There is a decision where the courts had to consider the fairness of an employer retrenching women only on a LIFO basis and the court found the retrenchment to be automatically unfair.

Considerations of the nature taken into account by the Australian courts will no doubt be borne in mind by our courts when balancing the provisions of the Labour Relations Act and the Employment Equity Act. What also may be considered are the provisions of the Code of Good Practice on Dismissals Based on Operational Requirements. On selection criteria the Code states that “There may be instances where the LIFO principle or other criteria need to be adapted. The LIFO principle for example, should not operate so as to undermine an agreed affirmative action programme.” This provision hints at an argument that may be made when attempting to retain diversity in a cost cutting environment.

The Employment Equity Act prohibits unfair discrimination but specifically states that it is not unfair discrimination to take affirmative action measures consistent with the purposes of the Act. Certain employers [those that employ more than 50 people or those that employ fewer than 50 people but which have a turnover exceeding stated thresholds] are obliged to consult their employees in an attempt to agree on the affirmative action measures to be implemented in their organisation.

If an employer wants to make the argument that transformation should be considered in retrenchment selection the employer’s employment equity plan would need to specify this as an affirmative action measure. In addition, the employer would need to show that targets set for specific levels or occupational categories in the employment equity plan would be jeopardised if transformation is not considered.

Bear in mind though that it remains to be seen how our Labour Court will deal with this question and whether the burden of justification required is as high as in other jurisdictions.