The Principle Of “Last In, First Out” And Its Application During The Retrenchment Exercise Of A Company

Introduction:

Primarily, an organization or a company as an artificial or juristic person operates through the instrumentality of natural persons employed to serve as its brain and mind in carrying out some business activities and day to day running of the said organization or company.

However, it is an established fact that, the income of the organization determines the number of staffs it needs to employ. In other words, the organization vomits based on the level or quantity of what it swallows; in order to smoothly run the activities and exists for long. Thus, a company due to some compelling factors such as shortage of works, economic downturn, excess production capacity or low consumption of the company’s production may find it necessary to downsize the number of its employees.

One of the cardinal principles applied if not always, to determine the retrenchment of employees in an organization whenever there is a factor calls for it, is what is called ” Last in, First out ”.

 Meaning of the principle ” Last in, first out:

The principle of ‘Last in first Out’ (LIFO) may be referred to as last come, first go. It means that a company or an organization should retrench employees in an ascending order. That is, the last person employed should be the first person to be retrenched[1].

Put differently, the principle of “last in, first out”  is a way of carrying out the retrenchment exercise when there is a need to discharge some staffs or employees of the company who their services are not longer required or because of over employment.

Purpose of using the principle as a Measure:

The company may find itself in a situation where by it has no other option left for it than to downsize or reduce the number of employees; in order to keep the company going. In whatever colour the situation shows, the employer cannot randomly choose which employees to be retrenched by whatever reason necessitates the retrenchment of employees. Thus, to justify the action of the employer, the modes of retrenchment which may be resorted to, is very essential. One of the procedures provided by law is the principle of ‘last in, first out’.

Modes of Application of the principle “Last in, first Out”

In a situation whereby a company or an organization is confronted with some challenges caused by recession in a particular country or any other circumstances lead to those challenges, the employees live unrest as nobody wants to be laid off by his employer. In this situation, the company resorts to different mechanisms to stay afloat by reducing costs, either by cutting down production, employee benefits, or reducing its labour force.

When an employer chooses to dispense with the services of some of its employees because their services are no longer required, which is referred to as redundancy, there are laid down procedures to be followed in carrying out such decision.

To appreciate the applicability of the principle of ‘last in, first out’, it is paramount to know what redundancy is all about. Redundancy in service was defined in the case of P.A.N vs. Oje[2]  read thus:

 “Redundancy in service in my view is a mode of removing off an employee from service when his post is declared “redundant” by his employer. It is not a voluntary or forced retirement. It is not a dismissal from service. It is a form unique only to its procedure where an employee is quietly and lawfully relieved of his post.”

According to section 20 (3) of Labour Act[3] the redundancy is defined as follows;

“an involuntary and permanent loss of employment caused by an excess of manpower.”

Redundancy may not occur only for the reasons of excess manpower as the Act provides, it may also be as a result of unstable economic policies, corporate restructuring, exorbitant cost of doing business, change in technology, outrageous tax regime, epileptic power supply, high bank interest rates, lack of patronage, insecurity, and recession.

By virtue of section 20 (1) (a) of Labour Act, the conditions precedence for the retrenchment exercise are provided for, in which the principle of ‘Last in, first out’ is mentioned as one.

(1) In the event of redundancy-

(a) the employer shall inform the trade union or workers’ representative concerned of the reasons for and the extent of the anticipated redundancy;

(b) the principle of “last in, first out” shall be adopted in the discharge of the particular category of workers affected, subject to all factors of relative merit, including skill, ability and reliability…”

The subsection (1) (b) of the Act specifically mentions the principle of “Last in, first out” which is the topic this paper aims to address. The Act spells out that, in the event of redundancy the employer should apply the principle of Last in, first out in discharging some employees of the company when the company is confronted with one of the aforementioned circumstances. It is very apt to read the subsection (1) (b) to an end; in order to arrive at the proper application of the provision and appreciate the true intent of the law.

The subsection read thus: ….Subject to all factors of relative merit, including skill, ability and reliability. What this subsection is saying in essence, is that while applying the principle of Last in, first out, an employer must also put into consideration, some relative merits such as the skills of the employees, ability of the employees, reliability and the likes. Breaking it down as follows;

1- An employee may be the last person to come in but he may be a skillful chap to help the business of the company,

2- He may also have ability (both physical and mental ability) to work while his senior in the company may not have that quality.

3- He, the last person employed in the company may be a reliable person through his loyalty, honesty and the full interest to render the service for the smooth running of the company.

Note that, the relative merits the Act refers to, extends to some other qualities that are very peculiar and unique to the business of the company which a young employee in the office may possess, such would serve as a justifiable ground for his retention.

Put differently, the provision made it explicit that the application of the principle of Last in, first out (LIFO) must be done meritoriously by considering the skill, ability and reliability of the employees that would be affected. Thus, the principle is not to be applied rigidly or with partiality.

Now, the yardsticks to be considered in measuring the skills, ability and reliable as it is provided should be known to the retrenched employees and the decision thereafter is left to the company and such is expected to be done with justice.

In the case of Agoma v. Guinness (Nig.) Ltd[4]. The Supreme Court decided that, the respondent company complied with the provision of section 20 (1) (b) of the Act. The respondent informed its employees that there would be retrenchment because of its inability to cope with the wages. The respondent in its retrenchment process considered and rated the performance of its employees. The appellant even though she is not the last staff employed did not meet the expectation; she was retrenched with others, and paid all her benefits. Subsequently, the appellant challenged the redundancy procedure. Based on evidence of compliance with LIFO, the Court held that the redundancy was done in accordance with section 20 (1) (b) of the Labour Act.

Advantages and Disadvantages of the Principle of Last in, first out:

In every application of a particular principle, there are advantages and disadvantages. The application of this principle has some advantages and disadvantages.

Advantages:

1 – It helps the employer to easily carry out the entrenchment processes.

2- It avoids partiality as to determine who to be entrenched.

3- It gives the most senior employees the privilege to remain in the company.

Disadvantages:

1- It works against the younger employees.

2- It denies the younger ones of learning and having experience which may negatively affect the future of the profession.

3- It leads to the loss of talented and dedicated employees.

Circumstances whereby the Principle of Last in, first out may not be applied:

Though the principle of Last in, first out is meant to be adhered to, in the retrenchment exercise. However, the organization with its inherent right may choose to resort to other measures depending on the circumstances. The circumstances are as follows;

1- Where an employer has adopted an objective and reasonable selection in determining who is to be retrenched.

2- Where it can be established that there is a poor performance from the side of senior employees such as being unserious or very lazy chaps.

3- Where a junior employee in an organization possesses additional skills which are fundamental to the successful operation of the business compared to a senior employee.

In the above circumstances which are considered to be one the justifiable reasons, the employer may choose not to apply the principle[5]

This principle need not be applied in the cases where its application could result in loss of skills or disrupt the business operations. It is mostly applied to determine who to be retrenched in situation where the skills, ability and reliability of two or more employees are the same.

It was clearly stated in a judgment delivered by Ejiwumi, JSA as then was and the judgment read thus:

“In this case, I have earlier quoted the provisions of section 20 (1) (b) of the Labour Act which enjoined a company when terminating of retrenching from its services the principle of “ Last in, first out” ‘L.I.F.O.’ it is however clear from that section that the application of relative merit, including skill, ability and reliability. In my view while that section seems to preserve the rights of an employee who had been long in the employment of an employer to remain in his employment in a general retrenchment exercise by his employers, it would appear that he can only escape being retrenched if he has shown that he is relatively better, in merit, skill, ability, than the other workers who are in the same category with him.”[6]

In all sense of responsibility, the Nigeria statutes fail to provide for the retrenchment benefits when there is a compelling factor necessitates the discharge of employees from their services. Though, the Federal Minister for Employment, Labour and Productivity is empowered to make regulations which would compel the employer to pay the retrenchment benefits to the redundant workers. Section 20 (2) of the Labour Act provides thus:

“The Minister may make regulations providing, generally or in particular cases, for the compulsory payment of redundancy allowances on the termination of a worker’s employment because of his redundancy.”

This provision evinces that, if the Minister considers it necessary to make any regulation, which none is made already. In Nigeria, the retrenched employees have nothing to benefits from the company except such is included in the contract of service.

This retrenchment benefits are nothing than to compensate the retrenched employees for loss of works and also to encourage them to accept redundancy without damaging industrial relation. It is for these reasons that the law in this area deserves a comprehensive review in order to protect the employees against the dire economic consequences of joblessness, enhance job security, and provide the right atmosphere.[7]

Redundancy in Nigeria out rightly different from how it is practiced in other countries, and though some fair minded employers pay the retrenchment benefits in Nigeria.

Conclusion:

In conclusion, an organization or a company suffering from serious economic difficulties or downturn due to Covid- 19 pandemic and the likes, is expected to make use of the way out open to it; in order to avoid a suffocating event which it is going through.

To avoid any bias, the principle of “Last in, first out” is put in place subject to the factors stand as conditions precedence in applying the principle. Not only this, there may be different categories of employment in a particular organization which can also be put into consideration while resorting to the principle of “last in, first out” and at the same time, an employee should not be unfairly retrenched, this is to avoid the claim the retrenched employees may bring against the employer and court will invalidate such retrenchment process for the failure to comply with the provision of law[8].

By: Y.A. Usman Esq.

Email: rohees9090@gmail.com

Phone: 07033589425

K,K. Eleja & Co.

[1] Recession and Redundancy in Nigeria<https://chrisogunbanjo.com> accessed 29^th June,2020.2 :50pm

[2] (1997) 11 NWLR (Pt. 530) p, 625 @ 635

[3] Labour Act, Cap L1 Law of the Federation of Nigeria, 2004

[4]  (1995) 2 NWLR (Pt. 380) p.672 @ 689

[5] N. G. Atshan “The law of retrenchment in Malaysia” project paper submitted to the Ghazali Shafie Graduate School of Government in fulfillment of the requirement for the Master of Human Resources Law, University Utara Malaysia.( 2016) p.58

[6] Guinness (Nig.) Ltd. V. Agoma (1992) 7 NWLR (Pt. 256) p. 728 @  741

[7] O. Ogunniyi “Nigeria Labour and Employment Law in Perspective”- (Folio Publisher Limited, 2^nd Edition, 2004) P. 42

[8] Steyr Nig Ltd. V. Gadzama (1995) 7 NWLR (Pt. 407) 305