Justifying Retrenchment – Clarification from the Labour Court

labour-guideBy Neil Coetzer, Senior Associate, Employment Law, Benefits & Industrial Relations, Cowan-Harper Attorneys

Several industries in South Africa are experiencing difficulties due to both micro and macro-economic factors.

As a result, employers are re-evaluating their positions and are considering restructuring – either in order to increase their profitability or to remain viable in the current adverse economic climate.

A glance at the law reports will reveal that a restructuring exercise can become a minefield for employers.

As a point of departure, employers who intend to restructure must ensure that a justifiable reason exists for doing so.

In the recent case of SATAWU v G4S Aviation Secure Solutions (JS49/12) [2016] ZALCJHB 10, the Labour Court confirmed the principle that an employer is entitled to engage in a restructuring exercise in order to remain competitive in its industry.

The dispute involved a claim for unfair dismissal of 26 employees. In 2009, the Union and the employer concluded a collective agreement dealing with, inter alia, wages.

The wage rates contained in the collective agreement were higher than the wage rates applicable to the rest of the employers and employees in the relevant industry.

By 2011, it became apparent to the employer that as a result of the higher wage rates, its business was not able to compete effectively with other businesses in its industry.

On 22 September 2011 the employer issued a notice to the Union in terms of section 23(4) of the Labour Relations Act (“the LRA”), giving notice of its intention to cancel the collective agreement.

Approximately one week later, on 30 September 2011, the employer issued notices in terms of section 189(3) of the LRA in which it contemplated the dismissal of 60 employees.

Following several consultations facilitated by the CCMA in terms of section 189A of the LRA during October and November 2011, only 26 employees were ultimately retrenched.

Although it is not clear from the judgment, the reduced number of dismissals appears to have been achieved through the consultation on and implementation of various alternatives, including reductions in remuneration and alternative employment for some employees with one of the employer’s sister companies.

SATAWU referred a dispute to the CCMA on 19 December 2011 and, following an unsuccessful conciliation in January 2012, the matter was referred to the Labour Court. At the Labour Court, the Union alleged, inter alia, that the employer’s reason for the retrenchment (i.e. the need to be competitive) was neither fair nor reasonable as its competitiveness had more to do with its competitors than with its own business.

To that end the Union contended that the dismissals had been predetermined, since the employer’s intention was to pay the same as or lower wages than its competitors.

The employer however contended that the wages paid to employees in terms of the collective agreement were excessive when compared to the employees of its competitors and accordingly it was not able to be as competitive as it could be. As a result, the employer had experienced a lack of profitability, which necessitated a restructuring exercise.

In order to right the ship, the employer relied on the principle established in General Food Industries Ltd v FAWU where the Labour Appeal Court accepted the proposition that an employer was permitted to retrench employees in order to maximise its profits.

The Court found that the only issue for determination before it was whether the reason for the retrenchment was fair and whether it constituted a sound commercial rationale.

The Court found that it had a duty to investigate the cogency of the employer’s reasons, rather than simply deferring to the reasons given by the employer. Fairness was the overriding criterion the Court was concerned with in determining the issue.

The Court then considered the cases of General Food Industries and Fry’s Metals v NUMSA which both held that an employer was entitled to dismiss in order to increase profits as such a decision fell within the definition of ‘operational requirements’ set out in section 213 of the LRA.

The Court found that the reason for the retrenchment related to the employer’s desire to increase its profits and, in the long term, to avoid further retrenchments. The Union had also failed to show any ulterior motive in retrenching the employees.

As a result the Court found that the decision taken to retrench the 26 employees was fair, logical and rational. The Union’s claim was accordingly dismissed, with no order as to costs.

For more information contact Neil Coetzer at ncoetzer@chlegal.co.za  or (011)  783 8711 /(011) 048 3000

Article published with the kind courtesy of Cowan-Harper Attorneys www.cowanharper.co.za

Share Button

About southcapenet

Adding value to my domain hosting and online advertising services.
View all posts by southcapenet →