Dharmen : Retrenchment is yet another guise of termination of employment. Just like the other types of termination, an employer who retrenches his staff will be required to show that the retrenchment was with just cause or excuse if the employee files a representation under section 20 of the Industrial Relations Act 1967.

What would amount to just cause or excuse in the case of retrenchment? There are three criteria.

In the first place, there must be a valid case for retrenchment. Many assume that the case for retrenchment necessarily involves financial loss. This is not so. It normally is but it is not a pre-requisite.

Outsourcing or automation may be the reason for retrenching. Indeed, a company may actually increase profits as a result of outsourcing or automation. So long as the decision to retrench was made in good faith, the Courts would not normally interfere. It must be stressed that this does not allow the employer to use the “notion” of retrenchment to wantonly get rid of staff. Such actions would give rise to the Court concluding that the employer had acted in bad faith and this would be fatal to the employer’s case.

The second criterion is that there must be proof that as a result of the decision to retrench, the employee’s services are redundant or surplus to requirement. If the services of a particular employee is still needed post-restructuring, then clearly the services of the employee in question cannot be terminated. Ideally, the fact that the services of the selected employee are redundant should be demonstrable in Court.

Finally, the selection process of employees to be retrenched comes under scrutiny.

Of course, in a situation of a total closure, there will be no selection process because all employees will be retrenched. But, more likely than not, the retrenchment will be due to a downsizing exercise rather than a complete closure. Some employees will be retrenched and others will continue to serve the employer. Who goes and who stays will be in issue. The most recognisable process of selection of employees is the LIFO principle. This stands for Last-In-First-Out i.e. when selecting one of two employees to be retrenched, the employee with the greater years of service ought not to be retrenched.

Many are under the misimpression that the LIFO principle is etched in stone and nothing short of complete adherence to it will suffice. That is not so.

LIFO may be departed from, provided there are valid reasons to do so. There are many reasons that can justify deviation from LIFO. Some of the reasons are: age (especially if the longer serving employee is close to retirement), particular skill sets, qualifications, performance, etc. However, any departure from LIFO must be provable with satisfactory evidence.

It always amuses me that most companies would want to depart from LIFO on grounds of performance. They are so quick to tell me that between two employees, one is clearly better than the other. Alas, upon checking the most recent performance appraisal for the two employees, both are rated equally. Obviously, such evidence would counter the argument that LIFO can be departed from, on grounds of performance.

In addition to the above, in the event of retrenchment, employers may be obliged to pay termination benefits to employees according to the law. Furthermore, the employer is required to inform the Labour Department about the impending retrenchment and provide some details about the retrenchment exercise.