Kenco Engineering CC v National Union of MetalWorkers of South Africa (NUMSA) obo Members (JA/29/16) [2017] (LAC) (1 August 2017)

Principle:

The duty to show that the selection criteria used for retrenchment were both objective and fair rests on the employer. The employer must prove that it selected the employees to be dismissed according to selection criteria that have been agreed to by the consulting parties, or failing that, criteria that are fair and objective.

Facts:

Kenco Engineering is an engineering company operating mainly in the mining industry. The expiry of its subcontract with an entity called Bateman heralded its financial woes. Following the expiry of this contract another company, Gauge Engineering (Pty) Ltd, stepped in and threw Kenco a lifeline by subcontracting some of its work to the embattled corporation. Gauge had set certain conditions to Kenco as part of the agreement, which included that Kenco employs skilled employees who could manufacture and install mining instruments (pipelines and valves) according to Gauge's standards.

But it appears there was still a need for Kenco to retrench some employees and it commenced a consultation process under s189 of the LRA, proposing that skills, work performance, attendance and safety records be applied as selection criteria. 23 employees were subsequently retrenched and paid severance packages, 19 of whom were included amongst the applicants in this matter. NUMSA challenged the procedural and substantive fairness of the retrenchments in the Labour Court, arguing that LIFO should have been used as selection criteria.

At the commencement of the LC proceedings, the employer took the jurisdictional point that the union ought to have brought an application under s189A(13), if it wished to challenge the procedural fairness of the retrenchments. This section provides that if an employer does not follow a fair procedure, the LC may -

  1. compel the employer to do so;
  2. interdict the employer from retrenching prior to doing so;
  3. order the employer to reinstate an employee until it has done so;
  4. make an award of compensation, if appropriate.

S189A(17) requires any application under s189A(13) to be made within 30 days of the employees having been given notice of their retrenchment, and s189A(18) goes further and prevents the LC from dealing with procedural fairness in any subsequent dispute about the substantive fairness of a retrenchment under s191(5)(b)(ii).

Applying these provisions, the LC ruled that in the absence of an application under s189A(13), it did not have the power to determine the procedural fairness of the dismissals. This ruling again stresses the importance of parties following the prescribed LRA procedures in processing disputes.

With regard to substantive fairness, the case focussed on the criteria used for retrenchment and how they were applied. The selection criteria adopted by Kenco were based on skills, work performance, attendance records and safety records. 3 evaluators were used by the employer to assess these criteria, and evidence led gave a broad description of how the evaluation process worked. This involved the evaluators giving each employee a score on the identified criteria, and if there were differences of opinion amongst the evaluators, these were discussed.

This evidence was led from a manager who had not been directly involved in the evaluation process, and none of the evaluators gave evidence. The union challenged the objectivity of the selection criteria, why the retrenched employees were selected in particular, rather than others, and why the retrenchment didn't apply solely to those employees working on the Bateman contract, who it felt should have gone first.

Whilst the LC found that the employer did establish a general need to retrench and that there were no viable alternatives to retrenchment, it concluded that even if the selection criteria might be considered fair and could have been applied in a fair and objective manner, the employer did not prove that the selection of the individual employees for retrenchment, using those criteria, was done in a fair and objective manner. The onus is on the employer to prove the fairness of the dismissals, and there was no evidence from the employer that the employees retrenched had been evaluated and found to be wanting in terms of the chosen criteria.

Taking into consideration that there was no evidence that the business conditions which had led to the retrenchments had improved, or that the retrenched employees' skills could have been used in the restructured business, the LC did not order reinstatement and awarded each of the retrenched employees 8 months' remuneration (in addition to the severance packages they had already received).

On appeal, the LAC agreed with the approach adopted by the LC. The LAC confirmed that the duty to show that the selection criteria used for retrenchment were both objective and fair rests on the employer. The employer must prove that it selected the employees to be dismissed according to selection criteria that have been agreed to by the consulting parties, or failing that, criteria that are fair and objective. The employer in this case was required to place sufficient evidence before the court to enable it to assess whether or not it used and applied skills, work performance, attendance records and safety records in a fair and objective manner, thereby discharging the onus reposing on it. But it did not do so. The selection criteria used by the employer were simply not demonstrated to have been fairly and objectively applied.

This judgment highlights the clear distinction between procedural and substantive fairness in retrenchment disputes, and the need to follow the proper process in an attempt to challenge the fairness of any retrenchment.

Regarding criteria for retrenchment, this judgment recognises that LIFO is not the only possible criteria for retrenchment. But this judgment is a reminder that the onus is on the employer to prove the fairness of any selection criteria used and that they were applied in a fair and objective manner. This will inevitably require detailed evidence from the management team that applied the criteria and selected the employees to be retrenched. Cases will be won or lost on the strength of this evidence.

Extract from the judgment:

(Phatshoane AJA)

[9]   At the commencement of the trial Kenco took a point in limine contending inter alia, that the respondents ought to have applied to the Labour Court in terms of s189A(13) of the LRA for an order either compelling Kenco to comply with a fair procedure; or interdicting Kenco from dismissing the individual respondents prior to compliance with a fair procedure; or directing Kenco to reinstate the individual respondents until it has complied with a fair procedure. Having heard the argument the Court a quo concluded that, in the absence of an application in terms of s189A(13) of the LRA, it did not have the power to determine the procedural unfairness of the individual respondents' dismissal....................

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[11]   Mr Van Pittius presented the method that was supposedly used in evaluating the employees likely to be retrenched to Mr Gary McNorton of Gauge, Mr Costa of Kenco and to one general manager of Kenco, whose name he could not recall. The selection criteria adopted by Kenco were based on skills, work performance, attendance records and safety records. Mr Van Pittius also suggested that someone, whose name he could not say, at Bateman and "certain operational" employees of Kenco conduct the evaluation. When asked how he arrived at the evaluations his response was as follows: 'This is the reason why they made use of three evaluators who know the jobs done by those people. And then they give them a point between naught and ten on that specific score, skill or whatever. And they discuss; if there is a difference in the opinion, somebody, someone will give a 4 out of 5; someone will give 6. If the margin of difference is too big, it differs more than 20 percent, then the three evaluators must discuss it'".

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[15]   The Court found that there was no evidence led by Kenco demonstrating that the individual respondents had been evaluated and found to be wanting in terms of the chosen criteria. The Court was satisfied that Kenco did establish a general need to retrench and that there were no viable alternatives to retrenchment of staff. The Judge a quo was of the view that even if the criteria might be considered fair and could have been applied in a sufficiently fair and objective manner, Kenco did not demonstrate that the selection of the individual respondents for retrenchment, using those criteria, was done in a fair and objective manner. However, on the evidence available, the judge remarked, he could not go so far as to say that the individual respondents would not have been retrenched if the criteria had been fairly and objectively applied.

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[26]   The employer bears the onus to prove that the dismissal of the individual respondents was fair. The duty to show that the criteria used was both objective and fair in its application rests on the employer. The employer must prove that it selected the employees to be dismissed according to selection criteria that have been agreed to by the consulting parties, or if no criteria have been agreed, criteria that are fair and objective. Kenco was required to place sufficient evidence before the Court a quo to enable the court to assess whether or not it used and applied skills, work performance, attendance records and safety records in a fair and objective manner, thereby discharging the onus reposing on it. It did not do so.

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[28]   Without knowing what skills or special skills the employees who remained behind had; what skills the individual respondents had compared them to; what years of service they all had; what performance records, safety records and attendance records all the employees including the individual respondents had; the Court a quo was left unable to conclude on the basis of Kenco's mere ipse dixit that there was a fair reason for the selection of the individual respondents for retrenchment. The selection criteria were simply not demonstrated to have been fairly and objectively applied.