CONSTITUTIONAL COURT: RETRENCHMENTS VS AUTOMATICALLY UNFAIR DISMISSALS

By Yonela Sicam Tuesday, November 03, 2020
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The Facts

In the months leading up to April 2014, Aveng faced harsh economic conditions and needed to restructure to survive and avoid the wholesale loss of jobs of its entire workforce. It proposed to remedy this by restructuring which entailed, inter alia, the proposed redundancy of certain roles.

On 15 May 2014, Aveng initiated the consultation process by issuing the section 189(3) letter to the required consulting parties and requested facilitation of the process by the Commission for Conciliation, Mediation and Arbitration (CCMA). In the letter, Aveng indicated that about 400 jobs might be affected, but that it hoped that employees would agree to work in the redesigned positions to avoid the necessity of forced retrenchments.

On or about 29 August 2014, a consultation meeting was held, at which employees were invited to apply for voluntary severance packages (VSPs) or early retirement. During consultations, NUMSA proposed a five-grade structure as an alternative to the redesigning of the job descriptions. At that time, Aveng had a 13-grade structure in place. NUMSA’s understanding was that the five-grade structure would allow for a redesigning of the job descriptions without interfering with Aveng’s organisational structure and reduce costs beyond those provided for in a collective agreement. Following further consultations, employees who opted for VSPs were given notice of termination of employment which took effect on 10 October 2014.

During October 2014, NUMSA and Aveng concluded an interim agreement in terms of which employees agreed to work in accordance with Aveng’s redesigned job descriptions until the five-grade structure was further explored, which was contemplated to only be in March 2015.

The employees worked in the re-designed jobs for a period of six months. Then, on 13 February 2015, NUMSA reneged on the interim agreement and sent an email to Aveng informing it that its members would no longer perform the redesigned jobs. According to NUMSA, this was because Aveng had not yet negotiated the five-grade structure. It became clear to Aveng that NUMSA had no desire to engage in a meaningful consensus-seeking consultation process to resolve the five-grade structure issue, but rather sought to use the consultations to demand wage increases. Aveng thus addressed a letter to NUMSA on 30 March 2015 informing it, that after considering its proposals, it was unable to accommodate its demands any further and could not increase its costs.

On 31 March 2015, the parties met and Aveng refused to withdraw its letter dated 30 March 2015. The parties met again on 16 April 2015 where NUMSA expressed its confusion over Aveng’s letter. NUMSA asserted that it was led to believe that the forced retrenchments had ended following the termination of the contracts of employees who had accepted the VSPs and those who were on limited duration contracts.

The parties were unable to resolve their differences and, on 17 April 2015, Aveng addressed a letter to NUMSA similar to that of 30 March 2015 in which NUMSA was informed that the consultation process had been exhausted and that Aveng would continue to implement its new redesigned job descriptions structure to address its operational requirements, as the jobs that existed prior to the consultations had now become redundant. As employees of NUMSA had been performing the redesigned jobs, Aveng offered them an opportunity to remain in those jobs, but ‘should they reject it, they [would] unfortunately be retrenched’.

Aveng’s offer was accepted by 71 employees, while approximately 733 employees rejected the offer. They were retrenched.

NUMSA referred a dispute to the Bargaining Council and after the dispute remained unresolved, it approached the Labour Court.

The Judgment

The crux of NUMSA’s case was that the dismissals were automatically unfair in terms of section 187(1)(c) of the LRA.

Prior to 1 January 2015, this section read as follows:

‘(1) A dismissal is automatically unfair if the employer, in dismissing the employee, acts contrary to section 5, or if the reason for the dismissal is—
. . .
(c) to compel the employee to accept a demand in respect of any matter of mutual interest between the employer and employee’.

After the 2015 amendments to the LRA, section 187(1)(c) provides: 

‘(1) A dismissal is automatically unfair if the employer, in dismissing the employee, acts contrary to section 5, or if the reason for the dismissal is—
. . .
(c) a refusal by employees to accept a demand in respect of any matter of mutual interest between them and their employer’.

In considering NUMSA’s claim, the Labour Court held that NUMSA had to produce credible evidence to show that there was a demand followed by a refusal to accept such a demand that led to an automatically unfair dismissal in terms of section 187(1)(c). NUMSA failed to provide such evidence. The Labour Court accordingly held that the dismissal of the employees was not automatically unfair. Aggrieved by the outcome, NUMSA appealed to the Labour Appeal Court.

The Labour Appeal Court (LAC) upheld the Labour Court judgment. The LAC held that Aveng had made a proposal to NUMSA, the primary purpose of which was to facilitate Aveng’s restructuring for operational reasons and NUMSA took advantage of the economic plight of Aveng and sought to convert the consultative processes into a collective bargaining opportunity for increased wages.

The LAC concluded that NUMSA’s interpretation of the section would undermine the fundamental purpose of section 189 of the LRA, which encourages engagement between employers and employees, facilitating the creation of alternatives to retrenchments, and to avoid scenarios where employers are shackled and rendered unable to propose changes to the terms and conditions of employment in terms of section 189 consultations. Again, aggrieved by the outcome, NUMSA appealed to the Constitutional Court.

In the majority judgment penned by Mathopo AJ, the Constitutional Court agreed with the LAC and Labour Court. In considering the nub of NUMSA’s argument, being that the employees were dismissed for refusing to accept a demand in respect of a matter of mutual interest, the Constitutional Court’s held as follows:

  • On NUMSA’s interpretation, if no agreement is reached in the context of retrenchment consultations, the employer is left with no means of addressing its operational requirements and may never resort to retrenchments without contravening section 187(1)(c).
  • This construction is untenable and is at odds with an employer’s right to dismiss employees on the basis of its genuine operational requirements. It also undermines the purpose of a retrenchment consultation process which, in this case, was geared at addressing Aveng’s distressed financial position.
  • In addition, this would undermine an employer’s right to fair labour practices as entrenched in section 23(1) of the Constitution, since it would take away its right to resort to retrenchments where operational requirements render them necessary.
  • The Court held that NUMSA’s submission was startling because it would perpetuate the anomaly that the 2015 amendment to section 187(1)(c) sought to cure. On that interpretation, employers engaged in section 189 consultations would be wary of proposing any changes to the terms and conditions of employment which may, if accepted, address their operational requirements and save jobs, for fear of facing automatically unfair dismissal claims if changes are rejected and retrenchments follow. NUMSA’s construction would render such consultations nugatory and undermine the fundamental purpose of section 189, which is to encourage engagement regarding viable alternatives to retrenchments.

The Court held that sole enquiry under section 187(1)(c) is whether the reason for the dismissal was the refusal to accept the proposed changes to employment conditions. A proper interpretation of the section requires a careful analysis. Simply because a proposed change is refused and a dismissal ensues thereafter, does not necessarily mean that the reason for the dismissal was the refusal to accept the proposed change. On the contrary, the true reason for the dismissal, irrespective of whether a proposed change is rejected, must be determined. Determining the reason for a dismissal is a question of fact and the enquiry into the reasons for the dismissal is an objective one.

In such cases, the court should determine what the factual and legal causes of the dismissal were by first asking whether the dismissal would have occurred if the employees had not refused the demand. If the answer is yes, the dismissal does not amount to an automatically unfair dismissal. If the answer is no, the second leg is necessary: is such refusal the main, dominant, proximate or most likely cause of the dismissal?

Turning to the facts, the Constitutional Court held that no fault could be found in the way Aveng responded to its financial crisis. Aveng conducted itself in a transparent, honest and bona fide manner. Further, during the discussions, there were continuing grounds for Aveng to argue that it had a fair reason to terminate the services of its employees on the basis of its operational requirements, but it elected not to do so. It continued to engage with NUMSA to try and avoid job losses.

Importantly, the Constitutional Court held that in an ever-changing economic climate characterised by increasing global competition, restructuring for operational reasons do not only relate to the downsizing of the workforce, but also to restructuring the manner in which an existing workforce may carry out its work. Restructuring entails a number of possibilities, including shift system changes; adjusted remuneration; and merging of jobs or duties. Generally, businesses that adapt quickly will survive and prosper. Those that do not will decline and fail.

Conclusion

This is an important case for employers. The Constitutional Court has confirmed that an employer is not precluded from retrenching employees in circumstances where roles are made redundant because their terms no longer support the genuine operational requirements of the employer, and the new suitable roles are rejected by employees.

Dismissals in these circumstances are not automatically unfair as contemplated in section 187(1)(c) of the LRA. This does not mean that employers have carte blanche and complete freedom to act as they wish to dismiss employees and the court will carefully scrutinise the real reason for the dismissal, as well as the process that preceded the dismissal.