Can employers retrench based on poor performance?

With retrenchments on the rise, it is important for employers to be aware of the risks associated with the selection criteria they apply in choosing which employees to retrench.

23 May 2016 3 min read Employment Alert Article

A question that comes up regularly is whether employers can retrench employees who are poor performers. Although this question has been previously considered, the Labour Court recently had an opportunity to revisit the question in Louw v South African Breweries (Pty) Ltd [2016] ZALCJHB 156.

In this case, subsequent to a restructuring at the employer, the employee’s position became redundant. The employee unsuccessfully applied for a position in the new structure and after parties were unable to find a suitable alternative to retrenchment, the employee was dismissed.

The employee challenged the fairness of his dismissal and his main complaint was based on the inclusion of his performance rating in the selection criteria.

The selection criteria that was applied by the employer was as follows:

“... to select the best candidate for the job based on the top profile; taking into account skills, historically agreed performance ratings, qualifications and experience and thereafter length of service.”

The employer took the employee’s performance rating into account in assessing the employee’s application for the position in the new structure. The success of the employee’s application had an impact on whether the employee would be retrenched.

In terms of s189(2)(b) of the Labour Relations Act (LRA), the employer and other consulting parties must either agree on the method for selecting the employees to be dismissed or, if they cannot agree, the employer has the right to adopt selection criteria which is fair and objective.

The problem with including performance ratings in selecting employees for retrenchment is that performance ratings are, generally, not ‘objective’. This is because it involves the scoring or rating of an employee’s performance by their manager which entails the exercise of a discretion. The exercise of a person’s discretion includes an element of subjectivity. In addition, it brings into the selection criteria the element of fault on the part of the employee, in circumstances where retrenchments are regarded as ‘no fault’ dismissals in our law.

Our courts have previously held that productivity and conduct can be regarded as fair selection criteria provided that the affected employees are given the opportunity to challenge the assessment.

The employer argued that the inclusion of the performance rating was fair because the employee had not appealed against his performance assessment. In considering procedural fairness, the court found that the fact that the employee did not appeal against the performance rating was irrelevant as the employer was aware long before it formulated the selection criteria that the employee was unhappy with his performance rating. The court held that the employer should for this reason not have included the employee’s performance rating into the selection criteria before allowing the employee an opportunity to be heard regarding his rating. This rendered the dismissal procedurally unfair.

Notwithstanding the authority that performance can be regarded as a fair selection criterion provided employees are given an opportunity to challenge the assessment, it remains a risk which may result in a dispute.

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