The Employment Equity Act, 1998 obliges designated employers to implement affirmative action measures, which include ensuring the equitable representation of suitably qualified people from designated groups in all occupational levels in the workplace and retaining and developing people from designated groups.
A retrenchment exercise may have a positive result on an employer’s bottom-line yet it may at the same time adversely affect an employer’s efforts to ensure an equitably represented workforce.
An employer must thus give proper consideration to the consequences of the selection criteria to be used to select employees for retrenchment as such criteria may impact upon the diversity of the workforce.
The Labour Relations Act, 1995 (the "LRA") obliges parties to consult on the selection criteria to be used to select employees to be retrenched. This selection criterion must either be agreed upon by the consulting parties or if no criteria have been agreed, the criteria must be fair and objective.
Item 9 of the Code of Good Practice on Dismissals based on Operational Requirements, published under the LRA (the "Code"), provides that the use of the Last-In-First-Out (LIFO) principle as a selection criterion will generally satisfy the test for fair and objective criteria.
The Code does however recognize that there may be instances where the LIFO principle needs to be adapted in order not to undermine an agreed affirmative action program. The Code warns that exceptions to the LIFO principle should be treated with caution because criteria that infringe a fundamental right protected by the Employment Equity Act can never be fair.
The use of transformation as part of selection criteria is also supported by item 18.1 of the Code of Good Practice on the Integration of Employment Equity into Human Resource Policies and Practices, published under the Employment Equity Act, which provides that “employers may consider negotiating retrenchment criteria that deviate from the "last in first out" principle, where the implementation of this principle will detrimentally affect the representivity of designated groups in that workplace”
The Code provides a basis on which to justify taking race into account when selecting employees in a retrenchment exercise. From a fairness perspective, it would not be sensible for employment equity to be the sole selection criterion.
Consequently, to ensure that an employer’s efforts complies with employment equity targets are not detrimentally affected, the criteria to be used should not unfairly discriminate against any group of employees.
The Labour Court has confirmed that there is no legal obligation on an employer when taking any particular appointment or dismissal decision to give preference to suitably qualified employees from a designated group.
Although the Labour Court in Robinson & others v PriceWaterhouse Coopers
 5 BLLR 504 (LC) has held that “affirmative action is not and never has been legitimate ground for retrenchment”, it has not made an express decision on whether affirmative action may be incorporated into any selection criteria for a retrenchment process to address the consequences of a specific selection criteria on its employment equity targets.
The Labour Court has accepted that selection criteria can be multi ranged provided that it is objective and fair. Therefore an employer may use any objectively fair selection criteria coupled with affirmative action to ensure that a retrenchment process does not affect its employment equity compliance target. In order for the retention of a designated candidate as opposed to their white counterpart to be viewed as fair, rational and non-arbitrary, affirmative action must be applied in terms of a clear plan.
An employer’s employment equity plan or retrenchment policy should support the use of or the incorporation of affirmative action along with other selection criteria. An employer will also be required to show that any employment equity targets would be jeopardised or undermined if the affirmative action measures are not taken into consideration during a retrenchment exercise.
 Thekiso v IBM South Africa (Pty) Ltd (2007) 28 ILJ 177 (LC) – the Labour Court held that Section 15(2)(d)(ii) of the EEA which requires an employer affirmative action measure to include measures designed to further diversity in the workplace based on equal dignity and respect of all people, does not impose an obligation on an employer contemplating retrenchments to retain black employees in preference to white employees it believes better meet its needs.
 National Union of Metalworkers of South Africa and Others v Columbus Stainless (Pty) Ltd, unreported (case number JS529/14) (30 March 2016) unreported
Gordon v Department of Health: Kwa-Zulu Natal  11 BLLR 1023 (SCA)