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South Africa: Labour Appeal Court addresses bumping in retrenchments

4 June 2024
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Overview

  • On 21 May 2024, the Labour Appeal Court (LAC) handed down a judgment in which it considered the fairness of the dismissal of two employees, following a retrenchment process in terms of section 189 of the Labour Relations Act.
  • The National Union of Metalworkers of South Africa, acting on behalf of both employees, agreed with the employer that the applicable selection criteria would be ‘Last In First Out’ (commonly known as ‘LIFO’), by way of bumping.
  • The LAC found that the employees’ dismissals were fair, and that there was no obligation upon the employer to come to an agreement with the union as to how to apply bumping.

On 21 May 2024, the Labour Appeal Court (LAC) handed down a judgment in which it considered the fairness of the dismissal of two employees following a retrenchment process in terms of section 189 of the Labour Relations Act 66 of 1995 (LRA). The National Union of Metalworkers of South Africa (NUMSA), acting on behalf of both employees, agreed with the employer, Fischer Tube Rednik SA (Company) that the applicable selection criteria would be ‘Last In First Out’ (LIFO) by way of bumping. The LAC found that the employees’ dismissals were fair, and that there was no obligation upon the employer to come to an agreement with the union as to how to apply bumping.

The facts

In September 2016, the Company initiated a restructuring process by issuing its employees with notices in terms of section 189(3) of the LRA, inviting them to consult on the prescribed issues. During consultations about the proposed selection criteria, NUMSA proposed that LIFO, through vertical bumping, apply. The Company agreed.

In consultation with NUMSA, the Company investigated whether there were individuals who could be bumped out of their positions. The positions were identified and offered to the two employees at the rates associated with those new positions. The employees refused to accept the positions, instead demanding to remain on their existing salaries (although they undertook to forego a wage increase in the following year).

The Company declined the employees’ proposal and because the employees (duly represented by the union) refused to take up the new positions, the Company dismissed the employees for operational reasons.

Consequent to the dismissals, the union referred an unfair dismissal dispute for conciliation at the Commission for Conciliation, Mediation and Arbitration (CCMA). When that failed, the dispute was referred to the Labour Court for adjudication. The Labour Court found the employees’ dismissals to be substantively unfair because, according to the Court, the Company ought to have applied horizontal bumping. This was based on the Labour Court’s understanding of a previous decision of the LAC, being that ‘employees may refuse the vertical bumping and if this is imposed on them then the dismissal becomes unfair’ . The Labour Court awarded compensation to the employees.

The Company appealed the Labour Court’s judgment at the LAC.

The Labour Appeal Court

The LAC upheld the Company’s appeal, holding that the employees’ dismissals were substantively fair. In coming to this decision, the judgment, penned by Van Niekerk JA, explained the following:

  • Bumping is most applicable when LIFO is the selection criterion in a retrenchment process. It contemplates the dismissal for operational requirements of an employee who was not initially selected for retrenchment in order to make way for another employee.
  • Horizontal bumping occurs when an employee in a redundant post displaces an employee with shorter service at the same or a similar level. Vertical bumping occurs when an employee in a redundant post replaces an employee with shorter service engaged in a lower position in the occupational hierarchy. An employer engaged in a restructuring process must canvass whether bumping applies if the LIFO selection criterion is used.
  • The Labour Court erred in its understanding and application of the legal position. Whilst an employer must raise and discuss the issue of bumping, it need not come to an agreement with consulting parties. In the absence of agreement, the employer must justify its decision not to bump or to bump either horizontally or vertically. Ultimately, that decision is based on fairness to the employer, the employee and, if applicable, the displaced employee.
  • The Labour Court also erred on the facts when it found that the Company had not presented any persuasive evidence as to why horizontal bumping was not viable. One of the Company’s witnesses had testified, among other things, that there were no positions on a horizontal level in which the employees could be accommodated. This evidence was not seriously challenged.
  • The Labour Court also erred when it equated NUMSA’s position – that any bump was to be effected without prejudice to the employees’ existing terms and conditions of employment – with horizontal bumping. Bumping is a concept that ties to the employer’s organisational structure, and not the effect that placement in an alternative position may have on the salary of an employee who benefits from the application of bumping.

For these reasons, the LAC overturned the judgment of the Labour Court. The employees’ dismissals were ruled to be substantively and procedurally fair.

Conclusion and takeaways

This case is important for employers who are embarking on a restructuring process. It reaffirms that bumping must be discussed as an option if the parties agree to LIFO as the selection criterion. Furthermore, although the circumstances of this case were that there was an agreement between the consulting parties to apply vertical bumping, it is also clear that the only standard by which an employer is bound is fairness. Thus, if an employee suggests that bumping be applied and the employer disagrees, it must be able to justify why that proposal is unsuitable in the circumstances.