Last In First Out? Why Your Retrenchment Criteria May Be Unlawful

When employers approach retrenchments, one of the first questions is: who goes?

The most common answer is simple: last in, first out (LIFO).

Many employers assume that applying LIFO automatically makes the process fair and legally compliant. In practice, that assumption is often wrong and can expose the business to unfair dismissal claims and costly disputes.

Selection criteria are one of the most scrutinised aspects of any retrenchment process. Getting them wrong can undermine the entire exercise, even where the need to retrench is clear.

The Appeal of LIFO

LIFO is widely used because it appears:

• Objective

• Easy to apply

• Fair on its face

The principle is straightforward. Employees with the shortest service are selected for retrenchment first.

In some cases, this approach may be appropriate. But it is not a default solution and it is not risk-free.

What the Law Actually Requires

South African labour law does not prescribe a single selection method.

Instead, the requirement is that selection criteria must be:

• Fair

• Objective

• Applied consistently

Importantly, selection criteria should also be consulted on during the section 189 process.

This is where employers often get into difficulty. LIFO is treated as a given rather than something that must be justified in the context of the business.

When LIFO Becomes Problematic

LIFO can create risk in several common scenarios.

1. Skills and Operational Needs Are Ignored

A strict LIFO approach may result in the loss of:

• Critical skills

• Key institutional knowledge

• High-performing employees

If the outcome undermines the business, employers may attempt to deviate from LIFO without properly justifying it.

That inconsistency can be challenged.

2. Arbitrary Deviations from LIFO

Employers often apply LIFO selectively, for example:

• Retaining certain employees based on perceived value

• Excluding certain roles from the pool

• Making exceptions without clear criteria

If these decisions are not based on objective and defensible factors, they may be viewed as unfair.

3. No Proper Consultation on Criteria

Selection criteria must form part of the consultation process.

If LIFO is simply imposed without engagement, employees may argue that:

• The process was predetermined

• The criteria were not properly considered

• The outcome was unfair

This creates procedural risk, even if LIFO itself could have been justified.

4. Hidden Discrimination Risks

In some cases, LIFO can have unintended consequences.

For example:

• Newer employees may disproportionately fall within certain demographic groups

• The outcome may indirectly disadvantage certain categories of employees

This can open the door to discrimination claims, particularly if the impact is not considered.

The Real Risk: Undermining the Entire Retrenchment

Selection criteria are not a minor detail.

If the criteria are found to be unfair or inconsistently applied:

• The dismissal may be substantively unfair

• The entire retrenchment process may be challenged

• Employers may face reinstatement or compensation claims

This applies even where the business clearly needed to restructure.

A Practical Example

An employer applies LIFO across a department without considering skills.

As a result, several high-performing employees with critical technical expertise are selected for retrenchment, while longer-serving but less effective employees remain.

The employer then attempts to “correct” this by retaining certain individuals outside of LIFO.

Outcome:
The process becomes inconsistent and open to challenge. Employees may argue that the criteria were applied arbitrarily and unfairly.

LIFO With Qualifications: Not a Free Pass

Employers sometimes refer to “LIFO with skills retention”.

While this can be legitimate, it is not a shortcut.

To rely on this approach, employers must be able to show:

• The skills being retained are genuinely necessary

• The criteria are objective and measurable

• The approach was part of the consultation process

Without this, “skills retention” can look like a subjective preference.

Common Mistakes Employers Make

Employers frequently expose themselves to risk by:

• Treating LIFO as automatically compliant

• Failing to consult on selection criteria

• Applying criteria inconsistently

• Making exceptions without justification

• Ignoring the operational impact of selection decisions

These mistakes often only become apparent once a dispute is referred.

How Employers Can Reduce Risk

To protect the integrity of a retrenchment process:

• Treat selection criteria as a key legal issue, not an administrative step

• Engage meaningfully on criteria during consultation

• Ensure criteria are objective and defensible

• Apply criteria consistently across affected employees

• Align selection decisions with the operational needs of the business

Most importantly, the rationale for selection must be clear and capable of withstanding scrutiny.

Final Thoughts

LIFO is not inherently unlawful, but it is not automatically safe.

Employers who rely on it without proper consideration often discover too late that it does not protect them from challenge. Selection criteria must be fair, objective and properly applied in the context of the business.

In retrenchments, it is often not the reason for the restructure that creates risk. It is how the employer decides who is affected.

Need Advice on Retrenchment Criteria?

Barter McKellar advises employers on section 189 processes, selection criteria, restructuring strategies and Labour Court disputes.

If your business is considering retrenchments, ensuring that your selection criteria are legally defensible can make the difference between a smooth process and a costly dispute.

Contact our team for practical, commercially focused labour law advice.