‘A FAIR RETRENCHMENT / LAY OFF’ – OVERVIEW OF SOUTH AFRICAN LABOUR LAW

DISMISSALS BASED ON OPERATIONAL REQUIREMENTS – SECTION 189 OF LABOUR RELATIONS ACT NO. 66 OF 1995

NOTABLE JUDGMENTS BY THE SOUTH AFRICAN LABOUR COURTS

A. INTRODUCTORY SUBMISSIONS:

Pursuant to a request by a client writer selected important judgments by the South African Labour Courts wherein the Courts pronounced upon the statutory duties and obligations, in terms of the provisions of Section 189 of the Labour Relations Act (LRA) that rest on the employer party; and to a defined extent on the employee party, including an entity that represents employees as a collective, to wit, a registered trade union or a body duly authorised and mandated to act on behalf of the employees.

At the outset and as referred to in the explanatory note supra, referral was made to judgments handed down in terms of the Labour Relations Act 28 of 1956 (PLRA) in existence prior to the enactment of the Labour Relations Act, Act 66 of 1995 (LRA).

Of importance is that in the matter BALOYI vs. M&P MANUFACTURING [2001] 4 BLLR 389 (LAC) at par. 21, Davis AJA pointed out that Section 189 of the Labour Relations Act, 66 of 1995 (LRA) constitutes a codification of the principles established in terms of the previous Act, to wit, Act 28 of 1956 and repealed by Section 212 of Act 66 of 1995 – The principles established in terms of the previous Act, Act 28 of 1956 (PLRA) in cases such as MOHAMEDY’S vs. CAWUSA [1992] (13) ILJ 1174 (LAC) and ATLANTIS DIESEL ENGINES (PTY) LTD vs. NUMSA [1994] 15 (ILJ) 1247 (A).

The judgments referred to supra deal with dismissals based on operational requirements may therefore continue to serve as notable and binding authority, where appropriate, in interpreting Section 189 of the LRA.Employers and employees should take due cognizance of the authorities referred to supra, notwithstanding the fact that the judgments were handed down in terms of (PLRA) or, the previous Act.

Within the limitations of the judgments as selected and briefly discussed herein, writer would in the first instance deal with the requirements as to substantive fairness of a dismissal for operational reasons and thereafter the procedural aspects of a dismissal for operational reasons.

One of the most challenging aspects of a dismissal for operational requirements is the fact that there is no clear dividing line between substantive and procedural fairness to the same extent as other dismissals albeit for misconduct or incapacity.

Substantive and procedural issues and aspects overlap and are interwoven with each other, making it sometimes difficult to distinguish whether a certain legal requirement is procedural or substantive in substance and nature. [See: A.C. Basson et al ‘Essential Labour Law’ (2005) Labour Law Publications, 4th Edition, 156].

It was also deemed of critical importance to alert the reader that at first glance, it may seem that the provisions of Section 189 of the LRA provides nothing more than a “check list” in respect of procedural fairness and as a consequence it should be relatively ‘easy’ for an employer to comply with these provisions.

The Labour Appeal Court has, however, warned against employers adopting a “check list approach”.

In JOHNSON & JOHNSON (PTY) LTD vs. CHEMICAL WORKERS INDUSTRIAL UNION (1999) 20 ILJ 89 (LAC) at 96 – 97, the Court warned against the “check list” approach:

“But all these primary formal obligations of an employer are geared to a specific purpose, namely to attempt to reach consensus on the objects listed in Section 189(2).

The ultimate purpose of Section 189 is thus to achieve a joint consensus seeking process with the purpose to reach consensus. In this manner the section implicitly recognizes that the employer’s right to dismiss for operational reasons, but then, only if a fair process aimed at achieving consensus has failed.This is also apparent from Section 189(7) which provides that the employer must select the employees to be dismissed on criteria either agreed to, or if that is not possible, on criteria that are fair and objective …

The important implication of this is that a mechanical “check list” kind of approach to determine whether Section 189 has been complied with is inappropriate.The proper approach is to ascertain whether the purpose of the section (the occurrence of a joint consensus seeking process) has been achieved …

If that purpose is achieved, there has been proper compliance with the section.If not, the reason for not achieving the process must be solved.If the employer alone frustrated the process in some way or another, there can be no compliance.If the employer was not at fault and did all it could from its side to achieve the kind of consultation referred to above, the purpose of this section would also have been achieved.” [Emphasis added].

The inherent danger by adopting a mechanical “check list approach” to consultation and by adopting such approach, the consultation process may be in substance and nature ‘cosmetic’, meaning a process where either of the parties merely “go through the motions” as if there was compliance with the law. However, the ‘real’ intention is to effect dismissals with undue haste; alternatively to frustrate the finalization of consultations, in order to exercise respective statutory rights in terms of the LRA, that may include adjudication or resorting to industrial action.

It was deemed apposite to refer to the observation by Seltzner AJ in WHEELER vs. PRETORIA PROPSHAFT CENTRE CC [1999] 11 (BLLR) 1213 (LC) where the Court ruled that adopting a mechanical “check list” approach cannot justify non-compliance with the clear requirements of Section 189.It means that, instead of accepting mere compliance on paper, “one has to go further and check whether or not the employer has in fact fulfilled the purpose of a section”. [Emphasis added].

Of further importance, as regards substantive fairness of a dismissal based on operational requirements, has been the “changing view” of the Labour Courts, insofar as substantive fairness of a dismissal for operational requirements is concerned.

For some time, the Labour Court and the Labour Appeal Court took the view that the function of the Court is ‘not to second-guess employers’ decisions – it was not up to the Court to ask whether it was the “best decision under the circumstances, but only whether it was rational, commercial or based on an operational reason or decision”.

In SATWU vs. DISCRETO (a division of Trump & Springbok Holdings [1998] 12 (BLLR) 1228 (LAC) held as follows :

“The function of a Court in scrutinizing the consultation process is not to second-guess the commercial or business efficacy of employers’ ultimate decision …, but to pass judgment on whether the ultimate decision arrived at was genuine and not merely a sham …. It is important to note that when determining the rationality of the employers’ ultimate decision … it is not the Court’s function to decide whether it was the best decision under the circumstances, but only whether it was a rational, commercial or operational decision, properly taken into account what a emerged during the consultation process.”

Basson et al 155 observes that the approach in Springbok Holdings now appears to be something of the past and the Courts would take a closer view of the employers’ business decisions or commercial rationale.

In what remains to be an important judgment on the subject matter of substantive fairness, the Labour Appeal Court in CHEMICAL WORKERS INDUSTRIAL UNION & OTHERS vs. ALGORAX (PTY) LIMITED (2003) 24 (ILJ) 1917 (LAC) at 1939, the Court considered itself to be entitled to scrutinize the employer’s business, reasoning and decision – making in considerable detail:

“The question whether the dismissal was fair or not must be answered by the Court. The Court must not defer to the employer for the purpose of answering that question … Furthermore, the Court should not hesitate to deal with an issue which requires no special expertise, skills or knowledge that it does not have, but simply requires common sense or logic …Accordingly where … the employer had chosen a solution that results in a dismissal … when there is an obvious and clear way in which it could have addressed the problems without any employees losing their jobs … and the Court is satisfied, after hearing the employer on such a solution, that it can work, the Court should not hesitate to deal with the matter on the basis of the employer using that solution, which preserves jobs rather than one which causes job losses.This is especially so because resort to dismissal, especially a so-called no-fault dismissal … is meant to be a measure of last resort.”

Having regard to the ratio as recorded in the selected judgments supra andwith specific reference to procedural fairness and substantive fairness these statutory requirements should be analyzed and assessed as well as the statutory principles contained therein.

B. SUBSTANTIVE FAIRNESS:

CWIU & OTHERS vs. ALGORAX (PTY) LIMITED [2003] 11 BLLR 1081 (LAC).

As was observed supra the Labour Courts initially took the view that the function of the Court is not to second-guess the employer’s decision, to wit the employer’s justification for dismissing employees based on operational requirements.

In the majority of reported cases to date it is very much apparent that the Courts would scrutinize not only the procedure followed by the employer in effecting the termination or dismissal of employees for operational requirements, however, also take a closer look at the employer’s business decisions and more specifically the fairness of the reason to both the employer and the effected employees.

In the much debated case namely Algorax the Labour Appeal Court considered itself to be entitled to scrutinize the employer’s business reasoning and decision-making in considerable detail and held at [69]:

“Sometimes it is said that a Court should not be critical to the solution that an employer has decided to employ in order to resolve a problem in his business because it normally would not have the business knowledge or expertise which the employer as a business person may have to deal with problems in the work place.”

“This is true; however, it is not absolute and should not be taken too far. When either the Labour Court or this Court is ceased with a dispute about the fairness of a dismissal, it has to determine the fairness of the dismissal objectively.The question whether the dismissal was fair or not must be answered by the Court.The Court must not defer to the employer for the purpose of answering that question.In other words, it cannot say the employer thinks it is fair, and therefore, it is or should be fair.”

The Court furthermore held at [70]:

“Furthermore, the Court should not hesitate to deal with an issue which requires no special expertise, skills or knowledge that it does not have, but simply require common sense or logic, especially where the employer has had an opportunity of commenting on such an issue and has not said anything that indicates that any special knowledge or expertise is required.”

“This is such a case. The Respondent’s problem required simple common sense and did not involve any complicated business transaction or decision.”

Accordingly, where, as in Algorex, the employer chose a solution that results in a dismissal or in dismissals of a number of employees where there was an obvious and clear way in which it could have addressed the problems without any employees losing their jobs or with a fewer job losses, and the Court is satisfied, after hearing the employer on such a solution, that it could work, the Court would not hesitate to deal with the matter on the basis of the employer using that solution which preserved jobs rather than one which caused job losses.

The Court observed in Algorex that dismissal based on operational requirements, especially a so-called no-fault dismissal, ‘which some regard as the death penalty in the field of Labour and Employment Law’, is meant to be a measure of last resort.

In NUM & OTHERS vs. FREE STATE CONSOLIDATED GOLD MINES (OPERATIONS) LIMITED (1996) (1) SA 422 (A) AT 448 H-I ….., the reason for the lawmaker to require all of these things from the employer was to place an obligation on the employer to only resort to dismissing employees for operational requirements as a last resort. If that is correct, the Court is entitled to intervene where it is clear that certain measures could have been taken to address the problems without dismissal for operational reasons, or where it is clear that dismissal was not resorted to as a measure of last resort.

The evidence showed that the Company did not consider the measure [dismissal a measure of last resort] referred to above.

And then finally the Court in Algorax held at [71]:

“It seems to me therefore, that the dismissal of the individual Appellants was not warranted because the problems that the Respondent sought were addressed when it demanded that the individual Appellants agreed to work the rotating shift, could have been adequately addressed without the implementation of the rotating shift system and without harming the Respondent’s business in any manner or in any significant manner. If the dismissal was unwarranted, it was without a fair reason and was, therefore, unfair.”

It is expected that in accordance with the Court’s approach in Algorax employers would increasingly be called upon to convince the Court that it has not only considered alternatives to dismissal, but that it had chosen the only possible option, and that this option made the best possible business or commercial sense. However, the seemingly stifling or rigid legal obligations of the employer do have limitations as expressed in the quotation recorded hereunder by Van Niekerk J in Welch v Kulu Motors Kenilworth (Pty) Ltd & others (2013) 34 ILJ 1804 (LC) para 33:

‘There is no principle which requires shareholders or directors of an increasingly insolvent company to fritter away their own resources to keep the entity afloat. It is not for this court to interfere with a reasonable decision by a shareholder to consolidate his losses, even if that has the effect of the closure of a business.’

C. PROCEDURAL FAIRNESS:

NATIONAL UNION OF METAL WORKERS OF SA vs. ATLANTIS DIESEL ENGINES (PTY) LIMITED (1994) 15 ILJ 1247 (A)

Section 189 of the LRA is primarily concerned with procedural fairness. In the publication by AC Basson et al supra [158], the learned authors are of the opinion that the consultation process between the employer and employees (or their representatives) is at the heart of procedural fairness in the case of dismissal for operational requirements.

Section 189 (1) requires that consultation must take place when the “employer contemplates dismissal”. The word “contemplate” indicates that the employer must consult at the stage when a final decision to dismiss had not yet been reached, but the possibility of dismissal has only been foreseen. At most, therefore, the employer must have an intention to retrench at the stage when consultation commences.

Item 3 of the Code of Good Practice on dismissals based on operational requirements (Appendix 2) states that “the consultation process must commence as soon as a reduction of the work force, through retrenchments or redundancies, is contemplated by the employer.”

This requirement ensures that the employees are afforded the opportunity to influence the employer in its final decision to dismiss or not. The actual timing of consultation will depend on the circumstances of each case. When considering this question, the interests of both the employer and the employees should be taken into consideration and balanced.

If an employer has already decided to proceed with the dismissal for operational requirements, it may mean that the consultation process is not worth its name or cosmetic – if employees or a trade union are confronted with an already-made, fait accompli decision, they have no opportunity to influence the final decision. In such cases the operational requirements dismissal may be procedurally flawed before it has even begun.

(See: Basson et al 157) in: JOHNSON & JOHNSON (PTY) LTD vs. CWIU [1998] 12 BLLR 1209 (LAC) the approach adopted in ATLANTIS DIESEL ENGINES (PTY) LIMITED vs. NUMSA supra was approved to the effect that:

“All these primary formal obligations of an employer are geared to a specific purpose, namely to attempt to reach consensus on the objects listed in Section 189(2)”.

A “mechanical check-list approach … could not determine whether Section 189 has been complied with.” It was held as “inappropriate”.The proper approach is to ascertain whether the purpose of the Section (the occurrence of a joint consensus seeking process) has been achieved … If that purpose is achieved, there has been proper compliance with the Section.” [Emphasis added].

Should the parties fail to reach consensus, the final decision remains that of the employer.In ATLANTIS DIESEL ENGINES supra at [1253 F-G] it was argued on behalf of the Trade Union that consultation should amount to a joint problem-solving exercise with the parties striving for consensus where possible.

The Court agreed that this is indeed the purpose of the consultation process.The Court continued to distinguish between collective bargaining – in this case, if consensus cannot be achieved, the final decision remains with the employer. [See also: SA COMMERCIAL CATERING & ALLIED WORKERS UNION & OTHERS vs. SUN INTERNATIONAL SA LIMITED (A DIVISION OF KERSAF INVESTMENT LIMITED) (2003) 24 ILJ 594 (LC) at 608.

Therefore, in order for a fair dismissal on the ground of operational requirements a sine qua non would be the willingness and positive participation by the employer and the employees in a joint consensus-seeking process; and with the purpose to attempt to reach consensus [agreement].

It can be deduced that in order to satisfy the test stipulated by the legislature in Section 189 and pronounced upon by the Courts, the parties’ conduct during the consultation process would in all probability be analyzed, assessed and measured by tribunals using as a yardstick the concept of ‘good faith’.

The question that may follow is, ‘What is ‘good faith’?’

Within the process of collective bargaining and within the legislative framework of the PLRA the pronouncements made by the Courts were informative, ‘the very stuff of collective bargaining is the duty to bargain in good faith’. [See: National Union of Mineworkers v East Rand Gold and Uranium Co Ltd (1991) 12 ILJ 1221 (A) at 1237; Standard Bank of Bophuthatswana Ltd v Reynolds NO & Others 1995 (3) SA 74G].

In short: the Courts held that a fundamental tenet of ‘bargaining in good faith’ was that parties were required to approach the negotiations with an open mind and a genuine desire to reach agreement.

This purpose was encapsulated in the expression ‘good faith bargaining. Practices which undermined the bargaining process were deemed to be unfair namely:

• unreasonable preconditions for bargaining;

• premature unilateral action;

• illegitimate pressure tactics;

• denial of union access;

• sham bargaining, inadequate substantiation of proposals and dilatory tactics;

• by-passing a recognised union and negotiating directly with employees when the union was not acting in bad faith; and

• unilaterally implementation of proposals.

It is submitted that the same or similar interpretation of the underlying principles of ‘bargaining in good faith’ supra would be applied by the Courts in determining compliance with the legislative requirement as stipulated in Section 189(2) of the LRA, ‘engaging in a meaningful joint consensus-seeking process [in order to] attempt to reach consensus’

Johann Scheepers

October 30, 2014

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