Question:
What is the reasoning behind the “Last in first out” rule about retrenchment?
Answer:
It is a “rule of thumb” rather than a legal regulation, and is usually followed by the words: “all things being equal”. The most obvious reason is that companies owe a greater measure of loyalty to longer-serving employees that have worked for the company’s interests for a longer time. Those employees tend to be more experienced and have a greater knowledge of institutional history and culture and should therefore be more valuable as employees. You will notice I said: “tend to” since longer-serving employees can also be less productive, less disciplined and less valuable than more recent hires. The “all things being equal” assumes equal value, equal discipline, equal productivity.”
The second reason is the cost of severance pay. Since severance pay must, by law, be paid to retrenched employees, and it is calculated according to length of service, retrenching long-serving employees is very expensive.
