In Porter Motor Group v Karachi ("Karachi"), the Labour Appeal Court ("LAC") set out the principles of bumping in retrenchments. It held that the Last In First Out ("LIFO") principle is considered a fair selection method as it prioritises those employees who have served the employer for a longer period of time. It also accepted the principle of "bumping". This envisages that an employee who faces possible retrenchment, because of the application of LIFO, may request that they be placed in a position that was not necessarily targeted for retrenchment but another which is filled by persons with less length of service. The more senior employee "bumps" the less senior employee. It pointed out that bumping can either be vertical or horizontal. Horizontal bumping involves moving an employee who is affected by retrenchment to a position that has similar status, pay, and conditions of service, whereas vertical bumping involves moving the employee to a position that has a lower status, pay, and conditions of service. The LAC also stated that employers should prioritise horizontal bumping before resorting to vertical bumping, using the latter only when no suitable horizontal positions are available.
However, what happens when horizontal bumping is not a feasible alternative to retrenchment, and the employer considers vertical bumping, but the employees reject it due to the lower pay associated with the new positions? This issue was recently addressed in Fischer Tube Technik SA v Bayene and Another).
In this case, Fischer Tube Technik SA dismissed employees whose positions had become redundant after a consultation process under Section 189 of the Labour Relations Act, 1995.
During the consultation process the National Union of Metalworkers of South Africa ("NUMSA"), as the employees' representatives, proposed LIFO and bumping as selection criteria. The employer agreed to this proposal and two positions were identified where bumping could take place. The agreed-upon positions were lower-level positions in line with the principle of vertical bumping. Later in the consultation process, a dispute arose as to whether the employees who would be placed in the two posts should retain their existing salaries. NUMSA argued that the two employees who would be placed in the positions should retain their salaries linked to the higher positions that they occupied. Alternatively, it was proposed that the affected employees continue to receive the same salary but forgo their increment for the following year.
The employer rejected this proposal and set a deadline within which the employees should accept the offer of alternative employment in the form of bumping on its terms. When the deadline expired without a response, the employer terminated their employment.
The Labour Court accepted that, as a general rule, employers must attempt to find alternative positions for employees whose roles become redundant. Further, it held that the employer had failed to provide persuasive evidence as to why horizontal bumping was not a viable option. The result was that the dismissal of the employees was procedurally fair but substantively unfair. The employees were each awarded compensation equivalent to ten months' salary.
The employer lodged an appeal with the LAC and argued that the Labour Court erred in determining that the employer should have applied the principle of horizontal bumping. The employer also argued that the amount of compensation awarded by the Labour Court was excessive.
The LAC held that the Labour Court's finding that the employee's dismissal was unfair due to the lack of persuasive evidence presented by the employer to the effect that horizontal bumping was not feasible, overlooked key issues. Firstly, the Labour Court had misinterpreted the Karachi judgment and found that, while employees are entitled to refuse an offer of vertical bumping (especially due to the inevitably lower salary associated with the lower position), this does not mean that any dismissal consequent on that finding is necessarily unfair.
Secondly, the Labour Court mistakenly equated horizontal bumping with a situation where an employee retains the same terms and conditions of employment and vertical bumping with a situation where there is a reduction in those terms and conditions. As noted in the Karachi judgment, bumping is fundamentally about the employer's organisational structure, not the salary impact on the employees placed in new positions. The terms and conditions of bumping should be separately negotiated.
The LAC found that the dismissals had been fair in the following terms:
"[19] I thus fail to appreciate how it can be said that the appellant's conduct can be described as unfair. Ultimately, the employees were not retrenched on account of any failure by the appellant to apply horizontal bumping. There was an agreement with NUMSA on the application of the principle of vertical bumping. NUMSA must have realised at the time that it made the bumping proposal that the employees would be placed in positions of a lower status, with a commensurate lower rate of pay. Despite this agreement, NUMSA belatedly demanded that the employees be retained at their existing salaries. It was not unfair for the appellant to refuse to agree to that demand, and the ultimate retrenchment of the employees was not unfair. The appeal thus stands to be upheld."
Comment
This judgment is an interesting one illustrating the principles regarding bumping that were formulated in the Karachi judgment and enunciated in case law following Karachi. Employees generally have the right to decline any offer of vertical bumping, especially if such an offer involves a demoted position and inevitable reduction in compensation. However, a dismissal that follows a refusal to agree to vertical bumping will not necessarily be unfair. Fairness remains a two-way street, and both parties must attempt to reach a consensus on alternative measures to retrenchment, but agreement is not a precondition for fairness.
Also of interest is that it is evident from the judgment's conclusion and remarks that the LAC may have been influenced by the fact that there was an agreement between NUMSA and the employer that vertical bumping would be applied. The issue then arises: would the LAC's findings have been different if the parties had not reached an agreement on vertical bumping? This would not necessarily been the case in circumstances where the employer was able to justify why horizontal bumping was not a feasible alternative to retrenchment.
Reviewed by Peter le Roux, an Executive Consultant in ENS' Employment practice.
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