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South Africa: Employment equity goals and targets as retrenchment selection criteria: fair and objective or a no-go?

The detrimental impact of the Coronavirus (COVID-19) and the nationwide lockdown has forced many employers to consider retrenchment in order to stay afloat. In a Notice to Designated Employers issued on 4 May 2020 (“the CEE Notice”), the Commission for Employment Equity (“CEE”) acknowledged the “catastrophic impact of [COVID-19] on the various sectors of the economy, including the threat posed by the pandemic on…economic growth, job creation and retention,” but reminded employers that during the organisational restructuring or configuration processes, they remain bound by the relevant employment laws and are required to ensure that there is no unfair treatment and unfair discrimination in their policies and practices. The Notice further states that “all designated employers are requested to strive not to reverse the previously attained transformation gains, including to, where reasonably practical, achieve their initially planned annual EE targets.”  

Thus, in the face of COVID-19, employers must not forget their legal obligations particularly in respect of workplace transformation. Arising out of this, there are two questions to be considered:

  1. Can employers, when selecting employees for retrenchment, take into account the need to meet the goals set in their employment equity plan (“EE goals”); and
  2. What happens if the retrenchment impacts an employer’s workforce to such an extent that its EE plan becomes unachievable?

We deal with each of these in turn below.

EE goals as a retrenchment selection criteria?

The method for selecting the employees for retrenchment is one of the topics on which the consulting parties must attempt to reach consensus. If selection criteria are not agreed to, however, selection must be on the basis of fair and objective criteria. The Code of Good Practice on Dismissal Based on Operational Requirements (the “Retrenchment Code”) confirms that EE considerations may indeed fall within the ambit of “fair and objective criteria”. It does so implicitly by recognising that the “last in, first out” (“LIFO”) principle, which is generally considered to constitute fair and objective selection criteria, could undermine an agreed affirmative action programme. Importantly, however, this is coupled with the warning that such exceptions must be “treated with caution”.

The short answer appears to be that there is no absolute bar to taking into account EE considerations and that the application of such a selection criterion could be defensible. A strict application of the generally accepted LIFO principle as a selection criterion, which could discriminate directly or indirectly on the grounds of race or sex, could, in certain circumstances, be seen as an “employment barrier” and a measure designed to eliminate or mitigate this barrier could be seen as an affirmative action measure as envisaged in section 15 of the Employment Equity Act, 1998 (“EEA”).

Whether an employer would be entitled to take such an approach would be very fact-specific. Compliance with EE goals is in itself an important justification for adopting this selection criterion. However, it is possible that further justification may be required. For example, if compliance with EE Goals is a requirement for being able to successfully tender for contracts or acquiring or retaining the right to operate in certain sectors of the economy, it would also be necessary to show that the EE policy on which reliance is placed is a rational, properly considered, policy that meets the requirements of the EEA itself. Furthermore, the criterion would have to be applied in a fair and flexible manner.

One important way for employers to mitigate against claims that the use of EE as a sole criterion falls foul of the requirement that it is fair and objective, is to use a combination of selection criteria, one of which would be an employer’s EE goals and targets. This should, if applied properly, go a long way in achieving a fair and equitable selection process, whilst advancing an employer’s EE objectives. Against this backdrop, an attempt to maintain EE targets using retrenchment selection criteria could likely be successfully defended if it is done in a flexible and balanced manner.

But what if an employer who has already undertaken the retrenchment process and its EE goals and targets are no longer realistic?

In this regard, the CEE Notice recognises that, “in the midst of all the organisational configuration processes…it would be inevitable that the achievement of the initially planned annual employment equity targets would not be left unscathed.” If EE goals and targets are no longer achievable due to any tangible impact occasioned by retrenchments, employers are able to amend their EE plans to ensure that they are more realistic or relevant to their changed workforce. This is endorsed by the CEE Notice which provides that “employers may consider reviewing and amending their EE Plans in consultation with the EE Consultative Forums, but must document all the reasons for the changes as prescribed in the Employment Equity Regulations, 2004.” This consultation would be done in accordance with section 16 read with section 17 of the EEA.

Despite the economic hardship the COVID-19 pandemic has provoked, it is vital that employers remain cognisant of their EE obligations, even if it means amending initially planned EE targets due to massive reductions in a workforce. Should an EE plan be taken into account for purposes of retrenchment selection criteria, a context-responsive approach that delicately balances the objects of compliance with EE requirements and the interests of adversely affected employees is essential.

Should you need assistance with reassessing your EE plan or employing EE as a selection criteria, you are encouraged to contact your legal advisor.

Lauren Salt
Employment | Executive
+27 84 509 6494

Jessie Moore
Employment | Candidate Attorney
+27 71 125 6135