In April 2025, the Labour Court delivered a significant judgment in Duverge v Spanish Farm Guest House Lodge CC t/a Sky Villa Boutique Hotel & Sky Villa (Pty) Ltd (C04/24; C252/2024) [2025] ZALCCT 24, highlighting critical aspects of retrenchment procedures under South African labour law.
The judgment serves as a cautionary tale for employers and carries significant implications for how an employer must conduct retrenchments, manage the consultation processes, structure its corporate finances, and apply its chosen selection criteria.
Case background
The first and second respondents, the Spanish Farm Guest House Lodge CC t/a Sky Villa Boutique Hotel (“Spanish Farm”) and Sky Villa (Pty) Ltd (“Sky Villa” or “the employer”) are part of a group of companies which has interests in the property development and hotel sectors.
Spanish Farm initially employed the applicant, Mr Duverge (“Duverge”). However, by the time of his dismissal, in August 2023, Duverge was employed by Sky Villa as its group general manager, overseeing two of the Group’s hotels.
On 31 May 2023, Sky Villa provided Duverge with a retrenchment notice (“the notice”) in terms of section 189(3) of the Labour Relations Act (“LRA”) citing the reason for Duverge’s possible retrenchment as follows:
“The company has decided to enter into a partnership with a specialized company which is able to provide specialized services specific for the hospitality industry. These services go above and beyond the scope of the current Group General Manager and Financial Manager. It has thus become necessary to make the position of Group General Manager and Financial Manager redundant.”
Prior to receiving the notice, on 26 May 2023, a director of Sky Villa informed Duverge that the employer had elected not to expand its hospitality business and that his position, that of group general manager, would likely be done away with due to financial reasons.
Following delivery of the notice by Sky Villa, this transpired during the consultation process:
- Duverge challenged the fact that the reasons provided in the notice as comprising the basis for the proposed retrenchment differed from those proffered during the consultation process, and further, questioned why financial considerations were not included in the notice when they were being relied on by the employer during the consultation process;
- Duverge, on more than one occasion raised the possibility of bumping as a method for avoiding dismissal. The employer rejected Duverge’s suggestions derisively and without due and proper consideration; and
- Throughout the conduct of the consultations Duverge was treated abusively and was often insulted by the employer’s representatives. This conduct fostered an environment of hostility which did not comport with the underlying principles of objective, fair, and cooperative consultation and procedural fairness.
During the final consultation, Sky Villa offered Duverge the position of general manager of Sky Villa as an alternative to retrenchment. The monthly salary offered with this position would be R28,000.00 per month, which the employer termed as “non-negotiable”. For context, Duverge’s monthly salary at the time of receipt of the notice was R80,250.00 and he rejected the alternative offer.
Duverge was subsequently dismissed and commenced legal proceedings challenging the fairness of his dismissal.
Key legal findings
Substantive fairness
A dismissal based on operational requirements must be a measure of last resort. The Court ruled the dismissal was substantively unfair because an obvious alternative existed and the employer failed to apply fair and objective selection criteria.
What is “bumping”?
In the context of retrenchments, “bumping” refers to the practice where an employee with more seniority or experience displaces a less senior employee from their position to avoid redundancy.
Proper application of bumping
Duverge’s proposal to bump a fellow employee, the general manager of the Bungalow (“Bouwer”), was rejected solely by reason of Sky Villa’s incorrect understanding that LIFO (Last-In-First-Out) only applies to the last person employed overall, or only horizontally.
The principles of bumping require considering both horizontal (similar status/pay) and vertical displacement (diminution in status/pay). Had the employer properly implemented bumping, Duverge would have bumped Bouwer who would have bumped the general manager of Sky Villa, Kemp. This would have satisfied the requirement of fair and objective selection criteria, rewarding longer service.
If an employer elects not to bump, it must be able to justify that decision based on reasonable grounds. Simply asserting that bumping is “incorrect” is insufficient, especially when small numbers of employees are involved, as operational difficulties are usually nominal.
Procedural fairness
The Court found that the consultation process conducted by the employer fell well short of the standard required by law, being a “meaningful joint consensus seeking process“, and that Sky Villa adopted a mechanistic checklist approach, and that it was demonstrably disinterested in exploring alternatives to dismissal or genuinely engaging on the issue of selection criteria.
During retrenchment processes and consultations, the employer must remain objective and professional, with due consideration for the effect that the process will have on affected employees. The use of abusive language, such as, for example, Sky Villa accusing Duverge of “talking crap” actively undermined the procedural fairness required by the LRA.
Employers must keep an open mind, disclose sufficient information, and consider all representations made by consulting parties and affected employees seriously.
In the present matter, proposals made by Duverge were summarily rejected and discussions were swiftly closed down by the employer.
Employers must ensure the reasons for retrenchment provided in the section 189(3) notice are accurate and consistent. In this case, the rationale was changed mid-consultation, leading to confusion and suggesting a lack of preparation.
Reasonable refusal of alternative employment
The employer offered Duverge the position of general manager for Sky Villa at a 65% reduction from his pre-dismissal remuneration.
An offer of alternative employment must be deemed reasonable in terms of objective factors, particularly remuneration, status, and job security. The Court held that a drastic reduction in remuneration, as in this case, renders such an offer unreasonable.
As Sky Villa’s offer was unreasonable, the Court deemed Duverge’s refusal reasonable, and he remained entitled to severance pay under Section 41(2) of the Basic Conditions of Employment Act (“BCEA”).
Outcome
The Court declared the dismissal substantively and procedurally unfair. It awarded Duverge compensation equivalent to eight months’ remuneration, comprising three months for procedural unfairness and five months for substantive unfairness.
Implications for employers
To mitigate the risk of successful unfair dismissal claims, employers must ensure that retrenchment processes adhere strictly to LRA requirements, namely genuine, professional consultation aimed at consensus, a correct legal application of selection criteria (LIFO and bumping), and scrupulous adherence to statutory payments, respecting corporate boundaries and the BCEA. Dismissal must always be treated as a measure of last resort.