Important Cases dealing with Retrenchments

Operational Requirements

When to start consulting

Neuwenhuis v Group Five Roads & others - It is incumbent on the employer to consult the employee as soon as it (i.e. the employer) "contemplates" the possibility of a dismissal. Kotze v Rebel, supra, at p.142C-143E. While there can be no brook with the employer's entitlement to consider a restructuring exercise and even to take a decision in principle, once the employer has identified retrenchment as a possible consequence of its restructuring process, it is obliged, at that stage, to consult the employee on the issues stipulated in the statute. In Kotze's case, supra, at p.150H, Conradie J postulated the test as follows: "[45] From a productive point of view the employer wants to be certain of his decision before facing the disruption which it is bound to cause; from an industrial relations point of view, he dare not be certain before he invites negotiation (and thereby makes his intention known). How open or closed an employer's mind was when he embarked on the negotiation process, can only afterwards be monitored by a court on whatever manifestations of the workings of his mind become available. Despite his own, for the reasons set out above, pardonably strong view, an employer must remain sufficiently flexible to conduct meaningful discussions with his employees. He is therefore obliged to invite input from the employees. If he fails to do this, and fails to give a reasonable opportunity for the employees to make their contribution, he leaves himself small opportunity for arguing before a court that his mind had not been made up."

JOHN WILLIAM STRAUSS & MICHAEL STEVENSON v PLESSEY (PTY) LIMITED J2192-2000 Labour Court - Kotze v Rebel Discount Liquor Group (Pty) Ltd [2000] 2 BALR 138 (LAC) the Labour Appeal Court reaffirmed the rights of senior managerial employees to be fully consulted before being retrenched. The Court noted that implicit in the requirement of a free opportunity to make meaningful proposals in the negotiation process is the duty to give employees reasonable notice of the proposed retrenchment. The Court stated: "Such notice must allow them time and space to absorb the shock brought about by the daunting prospect of losing their job. As a general proposition, no employee can reasonably be expected to constructively and effectively engage the employee on such a serious matter from the very minute the bad news is broken to him or her. He or she must be afforded the opportunity to come to terms with the situation, to reflect on the matter, to seek guidance and prepare for negotiation and then only can a fair and genuine negotiation begin. What constitutes such reasonable time would depend on the circumstances of each case."

Consensus seeking

Johnson & Johnson (Pty) Ltd v CWIU [1998] 12 BALR 1209 (LAC) at 1216J-1217A - The achievement of a joint consensus-seeking process may be foiled by either one of the consulting parties. The employer may obviously frustrate it by not fulfilling its obligations under s. 189(1), (3), (5), (6) and (7). The other consulting party may do it by refusing to take part in any of the stages of the negotiation process, or by deliberately delaying the whole process (cf. NEHAWU v University of Fort Hare [1997] 8 BALR 1054 (LC); UPUSA and others v Grinaker Duraset [1998] 2 BALR 190 (LC) at 204D; Fowlds v SA Housing Trust Ltd and another, case no. J 561/98 (LC) at para.[11]). It may also appear that any one of the parties simply went through the entire formal process with no intention of ever genuinely reaching agreement on the issues discussed. These different possibilities depend on the facts of each particular case. [29] The important implication of this is that a mechanical, "checklist" kind of approach to determine whether s. 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 (cf. Maharaj and others v Rampersad 1964 (4) SA 638 (A) at 464; Ceramic Industries Ltd t/a Betta Sanitaryware and another, above, at 701G-702H (BALR), 676B-677C (ILJ); Ex parte Mohuloe (Law Society Transvaal intervening) 1996 (4) SA 1131 (T) at 1137H-1138D. [30] If that purpose is achieved, there has been proper compliance with the section. If not, the reason for not achieving the purpose must be sought. 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 negotiation referred to above, the purpose of the section would also have been achieved.

Use of Checklists

Neuwenhuis v Group Five Roads & others - In embarking upon the statutory negotiation process, the employer is not required to follow the wording of the LRA as if it were a checklist which had to be strictly adhered to. Rather, the Court (in reviewing a party's purported compliance) should consider whether the ultimate purpose of the section has been achieved. Johnson & Johnson (Pty) Ltd v CWIU [1998] 12 BALR 1209 (LAC) at 1216J-1217A. The point of departure in the section is a process of joint problem- solving by way of consensus.

JOHN WILLIAM STRAUSS & MICHAEL STEVENSON v PLESSEY (PTY) LIMITED J2192-2000 Labour Court - The Labour Appeal Court has noted that a mechanical "check list" approach to determine compliance with s 189 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. (See Johnson and Johnson (supra) at 1217A).

See also:

·         Eyre v Hough t/a Miller Eyre Travel (1999) 20 ILJ (LC) at 1051D-F;

·         Imperial Transport Services (Pty) Ltd v Stirling [1999] 3 BALR 201 (LAC) at 206B-C;

·         Kotze v Rebel Discount Liquor Group (Pty) Ltd [2000] 2 BALR 138 (LAC) at 142. 18.

Referral of issue in dispute to advisory arbitration

Neuwenhuis v Group Five Roads & others - applicant requested that the issue over which they had deadlocked be submitted to advisory arbitration. The Applicant proposed a quick and speedy arbitration to be presided over by an IMSSA arbitrator (or someone similar) to be conducted "in house". The Applicant was so bold as to say to the Respondent that he would stand or fall by the outcome of any such advisory arbitration. The company, however, refused to be drawn into this dispute resolution mechanism and did not, at the time, provide any trenchant reason for its refusal. The Court found this to be an acceptable approach - "While the Respondent's reluctance to go to advisory arbitration is notionally grounded in principle, I consider that the Applicant's approach was a mature and non-confrontational way of attempting to reach consensus in terms of the statute."

Bumping

Neuwenhuis v Group Five Roads & others - Section 189 does not prescribe the so-called employment "universe" across which the selection criteria should be applied, i.e. whether by department, branch, division, company, corporate group or whatever. Apparently the coining of the phrase "universe" is derived from an article by André van Niekerk in Contemporary Labour Law, August 1992, entitled "Selection Criteria - the 'bumping' debate". The distinction implicit in this phrase was accepted by the Industrial Court in Raad van Mynvakbonde en Andere v Harmony Goudmyn- maatskappy Beperk (1993) 14 ILJ 183 (IC) at 198C, where the following extract from van Niekerk's article is quoted: "The application of LIFO on a plant basis would, it is suggested, be fair in respect of those employees whose employment universe is the plant. In respect of the personnel managers, it would be clearly unfair to apply LIFO on a plant basis, thereby selecting the personnel manager for retrenchment on the basis of a month's service at the plant, irrespective of his 20 years' service with the company. The employment universe in this instance is the head office and the three plants - the personnel manager with least service in that universe ought to be selected for retrenchment."

Neuwenhuis v Group Five Roads & others - Amalgamated Workers' Union of SA v Fedics Food Services [1999] 2 BALR 123 (LC) - Landman J recognised the necessity to "bump" as a matter of principle. "[19] Although it was not the practice in the industry to "bump" employees, nevertheless there was an obligation on the employer to consider whether it should do so because, if it was able to do so in a fair manner which was not injurious to itself and to other employees, then it should have given serious consideration to doing so, to avoid the consequences of retrenchment. I have considered the evidence as to why Fedics decided not to "bump" employees. It appears to me that fair reasons have been provided." The Learned Judge then considers the arguments advanced in that case and finds that "bumping" would not have been practical or workable in the prevailing circumstances. 21. As I have pointed out above, no real reasons were advanced for the refusal to "bump" other than the issue of company policy. 22. To the extent that it may be necessary to determine whether "bumping" should have occurred in the present case, I have had regard to the following facts and circumstances: 1. The Applicant's natural career path may well have taken him to one of the other profit-centres or the Divisional head office (his contract of employment expressly provided for this); 2. The Respondent failed to prove that the "bumping" of Neser would have caused disruption to either "North" or the Roads Division based on the relative skills of the parties involved; 3. The Respondent failed to prove the existence or danger of any so-called "domino" effect as only a handful of managers were involved in the exercise; 4. The Applicant was prepared to relocate and adapt to the new position; 5. The new position (whether filled by Neser or the Applicant) would have entailed human resources work in the geographical areas previously covered by both "North" and "South" in fairly equal proportions. The transferral of such a workload to Neser would no doubt have caused some disruption in any event. 23. In the light of the aforegoing, I cannot find that the Respondent has established that "bumping" would have led to impractical and unworkable consequences. 24. For the reasons set out above, it is my considered opinion that the Applicant was not chosen for selection in terms of fair selection criteria and for that reason, too, his dismissal is to be regarded as unfair.

RETRENCHMENT, LIFO AND BUMPING

The LRA requires employers who intend to dismiss employees for reasons related to their operational requirements to select employees for dismissal on the basis of criteria that are either agreed, or that are fair and objective. The courts have long held that the LIFO (last in first out) principle is by definition both fair and objective. This does not mean that LIFO is the only acceptable criterion, or that it is not subject to qualifications. An employer is certainly entitled to make exceptions to the rule, for example, to retain employees with special skills, or to apply some other criterion or matrix of criteria in preference to LIFO.

In those cases where LIFO is employed, the question of the universe within which service is to be determined is inevitably raised. In a recent judgment by the Labour Appeal Court, Porter Motor Group v Karachi (unreported CA 3-01 7 February 2002), the Labour Appeal Court had to consider the fairness of the retrenchment in circumstances where the employer had decided to close one of its branches in the Cape Town area. Most of the effected employees were transferred to other branches and in the case of the applicant in the proceedings, it was proposed that she be moved to the Noordhoek branch and that the incumbent employee at that branch be bumped to the Deep River branch to replace an employee who would be retrenched. The employee effected by the closure agreed to the proposal, but the incumbent of the job in the Noordhoek branch refused to be bumped. The employer then proposed that the employees in the branches be retained by applying the LIFO principle. This would have had the effect of the employee being transferred directly to the Deep River branch, with reduction in remuneration of some R800.00 per month. She refused, and was subsequently retrenched.

The Labour Appeal Court held that while it is not clear whether bumping was an accepted practice in this instance, bumping may be required as part of a fair retrenchment procedure. The court correctly placed bumping within a context of the application of the LIFO principle and seems to have approved of the distinction previously drawn between horizontal and vertical bumping. Vertical bumping, as the name implies, involves a bumping of employees with lesser service in broadly the same job categories and would therefore have the consequence of a continuation of a similar status, conditions of service and pay. Horizontal bumping on the other hand, occurs when a longer serving employee displaces an employee with less service in a lower job category, and by definition, always involves a lowering of status, and less favourable conditions of employment. The court noted that bumping should always take place horizontally, before vertical bumping is applied.

Employers are often not in favour of bumping on any large scale since it by definition causes dislocation, inconvenience and disruption. The court acknowledged these consequences, and noted that one of the purposes of negotiation was to achieve fairness to employees while minimising any disruption to the employee. This being so, where minimal benefits accrue to the effected employees while a great deal of inconvenience may be caused to the employer, considerations of fairness require that fewer employees should move. The court also noted that there will always be geographical limits to bumping but importantly, these did not exclude long distance relocation as a factor that would in itself avoid any obligation to bump. This position is consistent with that previously adopted by the Labour Court, which in the case of more senior employees who during the course of their employment have been required to relocate, have tended to define the employment universe within which LIFO is to be applied in appropriately broader terms. (See, for example, Neuwenhuis v Group Five Roads & others [2000] 12 BALR 1467 (LC)). The courts specifically acknowledged this by noting that the career path of an employee in the company will often be a "useful indication" of the scale of mobility that might be applied in the context of bumping.

On the facts of the case, the court found that the retrenchment was substantively unfair because the employer ought to have allowed the employee to take the position at its Noordhoek branch.

The judgment reinforces the principle that it is not the employees who are actually doing the jobs or occupying posts that are identified as redundant who necessarily form the group of employees to be selected for retrenchment. As the court observed, long service is an objective tribute to the skills and industry of employees effected by a closure or other redundancy and in the absence of other factors, their service is alone is sufficient reason for them to remain and others to be retrenched.

Selection for dismissal

Neuwenhuis v Group Five Roads & others (2000) 12 BALR 1467 (LC) where the Court held that seniority across the divisions of the group, and what was in effect bumping, should have been taken into account, rather than simply retrenching the relevant manager in the division to be closed down.

·         Karachi v Porter Motor Group (2000) 21 ILJ 2043 (LC).

·         Grieg v Afrox Limited (2001) 8 BALR 799 (P) - redundancy - requiring all employees to reapply for positions

‘Caution must be applied when an employer declares all jobs to be redundant because, unless the employer is closing down or moving, that clearly cannot be an accurate description of what changes the employer is seeking to make. After all, it would be difficult to sustain an argument that the CEO's position was ever threatened by redundancy. Modifying a job or its responsibilities does not make that job redundant because jobs are normally constantly being redefined and adapted).

·         Kock Enviroserve Waste Management (2001) 7 BALR 765 (LC).

Negotiations with managers

The fact that senior employees are often involved in the deliberations that result in decisions being taken that may affect their own jobs may mean that the negotiation process with them may take an attenuated form.

·         Peach & Hatton Heritage (Pty) Ltd v Neethling & others (2001) 5 BALR 528 (LAC)

·         Visser v Sanlam (2000) 8 BALR 969 (LC).

Severance benefits

Insurance & Banking Staff Association v Old Mutual Life Assurance Company (2000) 9 BALR 1030 (CCMA) - the employee was held, by virtue of the provisions of s 84 of the BCEA, to be entitled to a severance package based on his full period of employment with the employer, despite the fact that he had a break in service.

Secker v Beacon Sweets & Chocolates (Pty) Ltd (2000) 21 ILJ 2767 (CCMA) - the commissioner held that she had the jurisdiction to arbitrate disputes as to whether an employee is entitled to a severance benefit in excess of the statutory minimum set out in s 41 of the BCEA. Nine day break in service – employees still entitled to severance benefits. However, this was rejected in SA Typographical Union obo van As & others v Kohler Flexible Packaging (Cape) (a Division of Kohler Packaging Ltd) (2001) 22 ILJ 1892 (LC). This decision is also authority for the view that a shift allowance is part of remuneration for the calculation of severance pay.

Franks v University of the North (2001) 22 ILJ 1158 (LC) - the Court upheld a contractual right to a voluntary severance package.

Bona fide offers of reinstatement

Several decisions have dealt with the position where an employer, realising that it has retrenched an employee unfairly, tenders unconditional reinstatement but the employee refuses to accept such a tender. In most of these decisions the Labour Court has refused to order the payment of compensation to the employee because of this refusal. See, for example –

·         Basson v Cecil Nurse (Pty) Ltd (2001) 22 ILJILJ 673 (LC)

·         Scholtz v Sacred Heart College (2001) 22 ILJ 722 (LC)

·         Van Niekerk v Check Guarantee Services (Pty) Ltd (2001) 22 ILJ 728 (LC)

·         But see Hedley v Papergraphics Ltd (2001) 22 ILJ 935 (LC)

Pre-trial Conferences

JOHN WILLIAM STRAUSS & MICHAEL STEVENSON v PLESSEY (PTY) LIMITED J2192-2000 Labour Court - Peach and Hatton Heritage (Pty) Ltd v Neethling & others [2001] 5 BALR 528 (LAC). In that matter, Joffe AJA, who wrote the judgment in which Zondo JP and Mogoeng JA concurred, stated the following: "Generally speaking the function of a pre-trial conference is to limit issues and not widen them. In so far as first respondent contends in paragraph 5 that he persists in his claim that there was no commercial rationale for his retrenchment, such claim did not form part of his statement of case. Whilst it may have been the respondent's legal representative's intention to raise the substantive fairness of the dismissal of the respondents, it was not an issue on the statement of case. The assertion by the respondents' legal representative that the respondents persist in their claim that there was no commercial rationale for his retrenchment in the pre-trial minutes, does not result in it being a triable issue. The pre-trial minute does not go far enough to evidence the existence of an agreement to widen the issues. … in considering that the reasons for the dismissal were not based on the appellant's operational requirements, the Court a quo widened the dispute between the parties. It was not entitled to do so." (At paragraphs [16] and [17].)