Redundancy vs Retrenchment

Feb 2, 2022

Many times redundancy occurs when employers restructure in order to improve efficiencies. Redundancy does not necessarily lead to retrenchment. There is often a misconception by employers.

Employers often make the mistake when selecting employees for dismissal due to a restructuring process, that if a position is redundant, it follows automatically that the employee who filled that position may be retrenched. This mistake was highlighted in the Labour Court case of Mweli and Another v MTN Group Management Services (Pty) Ltd (2019). This case makes it clear that redundancy and selection for retrenchment are two different things, even if someone cannot be placed in an available position.

The employer still has to apply agreed or fair selection criteria supported by a process of consultation with the individual(s) concerned before the dismissal can be considered substantively and procedurally fair.

Background 

MTN decided to restructure its group business risk management division. The new structure contained more positions than the existing one. The court accepted that the company had a good business case for doing so and that it had consulted properly about the new structure.

Applying for new position

When filling positions in the new structure, MTN used a ‘mapping’ process to compare the positions in the old structure with those in the new one. If the mapping of the position in the old and new structure was less than 60%, the position in the new structure would effectively be considered to be a new role, which people had to apply for.

Two applicants could not be absorbed into the new structure despite applying for a number of positions. They were then dismissed for operational reasons (retrenched).

Objective selection criteria

The court held that in redundancy, not only must there be a good reason for dismissal, there must also be evidence that the employer had applied either agreed or otherwise fair and objective selection criteria and had also applied them fairly. Making an employee apply for a position does not qualify as a selection criterion if the employee fails to secure a position.

No concrete evidence was presented to the court to demonstrate in which respects the two applicants, who both had long service, did not meet the requirements.

Subjective selection criteria

As mentioned above, selection criteria must be objective (last-in-first-out, or ‘LIFO’ being the clearest example). The court added that any selection criterion that cannot be measured objectively, such as skills, performance, experience, or qualifications for the position, will be closely scrutinised by the court because there is always an element of subjectivity involved in judging compliance with those kinds of criteria. The court said that in this case all it heard was that a panel had interviewed the applicants and found them to be ‘unappointable’. This was never explained.

Principles

The lessons from this case are clear:

  • First, for there to be a fair reason for dismissing someone for operational reasons, the employee’s position must be redundant. Employees cannot be asked to re-apply for their existing jobs; only for new positions. This is a misconception held by many employers.
  • Second, while redundancy of the position puts the employee concerned ‘on hold’, it is still only the position that is redundant, not the employee himself/herself.
  • Third, if the employee is eventually dismissed, this must be based on the fact that he/she is not suitable for any position that remains. This has to be proven with reference to selection criteria that have (preferably) been agreed with the employee or, in the absence of an agreement, are demonstrably fair and objective.
  • Finally, whatever criteria are decided upon, they must also be applied consistently to all employees who find themselves in a position of potential redundancy.

It can be costly if an employer fails to adhere to these principles and can even result in an employer’s efforts at restructuring not being accomplished. In the case referred to the court found the dismissals to be unfair and ordered the employer, MTN, to re-employ one of the applicants, while the other was reinstated.

Author:

Wallace Albertyn

Wallace Albertyn is a Senior Associate and Legal Advisor at LabourMan Consultants.

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