SOUTH AFRICA: RETRENCHMENTS IN THE CONTEXT OF BUSINESS RESCUE PROCEEDINGS – THE IMPACT OF THE MORATORIUM ON LEGAL PROCEEDINGS ON EMPLOYEES’ RIGHTS UNDER SECTION 189A(13) OF THE LRA

By Chloë Loubser,Rosalind Davey Thursday, March 18, 2021
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Section 133 of the Companies Act, 2008 (Companies Act) places a moratorium on legal proceedings against companies in business rescue. This is one of the measures intended to provide the business with some breathing space in order to regain its financial viability.

However, in doing so, it also affects employees’ rights to have their claims against their employers dealt with expediently, which is one of the core principles underlying our employment laws. In the recent judgment in National Union of Metalworkers of South Africa (NUMSA) obo Members and Others v South African Airways (SOC) Ltd and Others, handed down on 8 February 2021, the Labour Court held that this moratorium extends to employment-related claims.

The question that then arises, is what impact this moratorium has on employees’ rights to a fair retrenchment process and, in particular, their ability to bring claims in terms of section 189A(13) of the Labour Relations Act, 1995 (LRA).

Section 133(1) of the Companies Act provides that, during business rescue, no legal proceedings, including enforcement action, against the company, may be commenced or proceeded with in any forum, except in limited circumstances, which include where the business rescue practitioner has provided written consent, or with the leave of the court. The definition of ‘court’ in section 128 of the Companies Act refers to the High Court.

This means that, where employees seek to bring claims against their employers who are in business rescue, they will first need to seek the written consent of the business rescue practitioner or, failing which, apply to the High Court for leave to lift the moratorium, before their claims may be considered by the applicable employment forum (be it the CCMA, a bargaining council, or the Labour Court). This creates an additional hurdle for employees to overcome.

Legal challenges

There have been legal challenges to the application of section 133(1) to employment-related claims, on the basis of section 210 of the LRA.  Section 210 states that ‘if any conflict, relating to the matters dealt with in this Act, arises between this Act and the provisions of any other law save the Constitution or any Act expressly amending this Act, the provisions of this Act will prevail’. The argument is that section 133(1) of the Companies Act conflicts with the dispute resolutions provisions of the LRA and that the provisions of the LRA must accordingly prevail – this means that the moratorium cannot extend to LRA disputes.

In the short decision of National Union of Metal Workers of South Africa obo Members v Motheo Steel Engineering CC in 2014, the Labour Court held that section 133(1) does not expressly amend the provisions of the LRA, and insofar as it might otherwise prevent legal proceedings without the leave of a court or the relevant business rescue practitioner, it did not prevent the applicant union from bringing its unfair dismissal claim on behalf of its members.

However, in numerous subsequent decisions of the Labour Court, it has held that there is no conflict between section 133(1) of the Companies Act and the dispute resolutions provisions of the LRA. The weight of authority, as considered by the Labour Court in the latest SAA case, accordingly suggests that section 133 does indeed apply to employment-related claims and, further, that only the High Court can lift the moratorium on legal proceedings, even where the Labour Court has exclusive jurisdiction to hear the merits of the claim.

Impacts on employees in a retrenchment scenario

This may have serious effects on employees in a retrenchment scenario. It has been confirmed that a struggling business in the midst of business rescue proceedings may seek to retrench employees in order to save on labour costs as one of the means to save the ailing business.

Retrenchments in such circumstances may meet the relevant thresholds set out in section 189A of the LRA, which result in a compulsory 60-day consultation process, with or without facilitation. Where section 189A applies, employees are precluded from raising procedural fairness challenges in a dispute in terms of section 191(5) of the LRA, after they have been dismissed. Section 189A(13) creates a specific avenue for dealing with disputes concerning an employer’s alleged non-compliance with a fair procedure. In such circumstances, a consulting party may approach the Labour Court for appropriate relief by way of an urgent application.

It has been emphasised in a number of recent cases that such application must be brought as soon as an irregularity arises during the consultation process itself, in order for the Labour Court, acting as a supervisor of the process, to bring the consulting parties back on track (see for example the cases of Transport and Allied Workers' Union of South Africa (TAWUSA) and Another v Barloworld Transport (Pty) Ltd and Solidarity obo Members and Another v Barloworld Equipment).

The Labour Court has, accordingly, been reluctant to provide relief to consulting parties who bring claims in terms of section 189A(13) after the consultation process has ended and employees have been dismissed. In the Barloworld Equipment case the court remarked that the primary relief in section 189A(13) is that of compelling compliance with the LRA and that it would serve little or no purpose to make an order to compel or interdict ‘once the horse has bolted’.

This is so even though section 189A(17)(a) provides that an application in terms of section 189A(13) must be brought not later than 30 days after the employer has given notice of dismissal or, if notice is not given, the date on which employees are dismissed. The Labour Court has interpreted this 30-day period as being the ‘outer period’ in which a claim must be brought. 

Accordingly, it is clear that claims in terms of section 189A(13) are intended to be determined whilst retrenchment consultations are underway, which, in the context of business rescue proceedings, are likely to occur before the end of such proceedings.

Potential conflict between section 133(1) and section 189A(13)

Our Labour Court has not yet been required to decide on the issue of the applicability of the moratorium in the context of a section 189A(13) claim (in the SAA case decided last year concerning the timing of retrenchments with reference to the publication of the business rescue plan, the Labour Appeal Court refused to entertain the business rescue practitioners’ arguments regarding the moratorium, as they had not been fully ventilated before the Labour Court).

However, with the above principles in mind, we are of the view that there may be scope to argue that section 133(1) of the Companies Act conflicts with section 189A(13) in particular and that, whilst the moratorium may extend to employment-related disputes in general, it should not extend to procedural challenges under this section.

We note that part of the rationale for the view that there is no conflict between section 133(1) and the LRA, as explained by the Labour Court in Sondamase and Another v Ellerine Hodings Ltd and Another is that employees are not deprived of their rights to continue with their claims against the company at a later stage – their claims are only suspended during the period of business rescue proceedings. (In this regard, we note that in terms of section 133(3), any time periods prescribed to bring a claim against the company are suspended.)

This rationale may not hold true for claims in terms of section 189A(13), because such claims generally cannot be brought at a later stage. Doing so would defeat the purpose of the provision – that is, to bring the consulting parties back on track.

That being said, the Labour Court may well be prepared to entertain section 189A(13) claims that are brought after the retrenchment process, in circumstances where the employer has been under business rescue. We note that, whilst the Labour Court has previously emphasised the fact that the primary relief in terms of section 189A(13) is to compel compliance, section 189A(13)(d) provides that an award of compensation can be made if the alternative relief provided for is not appropriate.

What this means is that it is possible for a consulting party to bring a claim for compensation against an employer that has been under business rescue, within 30 days after the business rescue proceedings end (assuming that they end after employees have been retrenched, or notices of termination issued).  

Further, it is important to remember that section 133(1) is not an absolute bar to section 189A(13) claims. Business rescue practitioners may well provide their written consent to such claims in circumstances where the claims themselves will have no significant effect on the company’s ability to regain its financial health.

Alternatively, and whilst this may result in additional legal costs for the applicant, it remains open to employees and trade unions to approach the High Court for leave to lift the moratorium so that a section 189A(13) claim may be pursued in the Labour Court. 

The interplay between company law and employment law in the business rescue context is still fairly new territory for our courts and it remains to be seen how they will deal with section 189A(13) claims. However, even if the risk of urgent applications in terms of section 189A(13) may be reduced in circumstances where the employer is in business rescue (due to the hurdles potentially created by section 133(1) of the Companies Act), employers should not be complacent or disregard the rights of employees. There are still avenues available to employees to seek relief.