Employment law update – Retrenchments during business rescue

October 1st, 2020
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In South African Airways (SOC) Ltd (in Business Rescue) and Others v National Union of Metalworkers of South Africa obo Members and Others (3) [2020] 8 BLLR 756 (LAC), the Labour Appeal Court (LAC) considered whether dismissals for operational requirements during business rescue are permissible.

In this case, business rescue practitioners had been appointed following South African Airways (SAA) being placed under voluntary business rescue in December 2019. The business rescue practitioners issued the employees with s 189(3) notices to commence a retrenchment consultation process. These notices were issued prior to a business rescue plan being finalised. The business rescue practitioners also attempted to agree to reduce the time frame of the consultation period under s 189A of the Labour Relations Act 66 of 1995 (the LRA). The unions refused to participate in the consultation process and approached the Labour Court (LC) in terms of s 189A(13) of the LRA seeking a declaratory order stating that the s 189(3) notices be declared unlawful, alternatively, unfair, on the basis that the business rescue practitioners had not yet finalised a business rescue plan as required under s 150 of the Companies Act 71 of 2008. The unions also sought an order that the notices be withdrawn, alternatively, that the consultation process be suspended until the employees were provided with the draft business rescue plan.

The LC found that in terms of the Companies Act the business rescue plan must indeed be finalised before a retrenchment consultation process can be embarked on. Therefore, the LC found that the issuing of the s 189(3) notices was procedurally unfair and ordered that the notices be withdrawn. It was found, however, that SAA was entitled to offer voluntary severance packages to employees.

The matter was then taken on appeal. The business rescue practitioners argued that the LC had misinterpreted the Companies Act and that the notices could be issued prior to the business rescue plan being finalised. The unions cross-appealed against the finding that voluntary severance packages could be offered in circumstances where retrenchments are prohibited. By the time of the hearing of the appeal the business rescue plan had already been finalised and published rendering the appeal moot. The LAC nevertheless considered the appeal on the basis that it was in the public interest to resolve these issues.

On appeal, the business rescue practitioners raised the point that in terms of s 33(1) of the Companies Act legal proceedings against companies under business rescue are prohibited, in the absence of consent of the business rescue practitioners, or with leave of the High Court. This point was rejected because it had not been raised in the LC and the business rescue practitioners had instead fully participated in the LC proceedings.

SAA further argued that the LC did not have jurisdiction to determine the dispute because the notices of termination had not yet been issued and as such the LC could not be approached on the basis of s 189A(13) of the LRA. The LAC rejected this point and held that the purpose of s 189A(13) is for the LC to intervene if the employer is not complying with the requirements for a fair consultation process. Therefore, s 189A(13) can be relied on at any point during the consultation process and there is no prerequisite for the employee to be issued with a notice of termination first.

The LAC found that in terms of the Companies Act it is clear that a business rescue plan must be finalised before embarking on retrenchments. The appeal was accordingly dismissed.

As regards the cross-appeal, it was found that the LC did not make any order regarding the offer of voluntary retrenchment packages. The judgment simply stated that there is no basis in s 189 of the LRA or s 136 of the Companies Act to argue that a moratorium on retrenchments during business rescue proceedings prohibits a business rescue practitioner from offering a voluntary severance package as a measure to avoid retrenchment. Given the fact that there was no order to this effect, this was not a decision that could be appealed. The LAC did, however, remark that there is no reason in law why business rescue practitioners could not unilaterally offer voluntary severance packages to employees.

Unilateral changes to terms and conditions of employment during national state of disaster

In Macsteel Service Centres SA (Pty) Ltd v National Union of Metalworkers of South Africa and Others [2020] 8 BLLR 772 (LC), the Labour Court (LC) per Prinsloo J considered whether employees who embarked on strike action participated in a protected strike when their employer made a reduction to their salaries as a result of the national state of disaster relating to the COVID-19 pandemic.

During Alert Level 5 of the national lockdown, which took place in South Africa (SA) to deal with the national state of disaster, the employer had been unable to operate as it was not an essential service and this resulted in severe financial loss. The employees were nevertheless paid their full salaries during March and April and they were not required to use annual leave during the shutdown period. However, on 1 May the employer announced to the employees that they would all be required to have a 20% pay cut for the next three months and this would be reviewed from time to time. It was also communicated to the employees that there would be no increases and other allowances and benefits would be done away with. The employer also did not require its entire workforce to return to work after SA moved into Alert Level 4 and a number of employees were required to stay at home. The employer undertook to apply for benefits from the Temporary Employee/Employer Relief Scheme (TERS) and to pay these benefits to employees as soon as such benefits were received.

The National Union of Metalworkers of South Africa (NUMSA) objected to these measures and referred a dispute to the bargaining council seeking that the employer would not unilaterally amend its members’ terms and conditions of employment. The employer argued that these amendments were required in order to avoid drastic measures such as retrenchments. Furthermore, the employer alleged that together with the benefits that the employees would receive from TERS the employees would effectively still receive their full salary for May. NUMSA then gave notice of an intended strike if the employer did not revoke its decision. When the strike commenced the employer launched an urgent application to have the strike declared unprotected and to order the employees to resume work. The employer argued that the strike was unlawful because the salaries would not be reduced given the TERS benefits that the employees would receive and furthermore that the demands related to matters that had not yet taken place or been decided on.

The LC declined to grant an order directing the employees to return to work, as there were other means available to the employer if the strike was indeed unprotected. In determining whether the strike was protected, the LC considered whether the employees would receive their full salaries in May, June and July. The employer argued that their intention had been to ensure that all employees received a salary even those who did not return to work as it did not want to treat one group of employees more favourably than the other. Prinsloo J expressed concern with this approach and suggested that those who were working their normal hours should continue to receive their normal salary and there should be a distinction between those employees who were working their normal hours and those who were not working at all. The employer also referred to the fact that it had fully paid employees for the five weeks of lockdown during which no services had been rendered and it only applied a 20% reduction in salary despite the fact that the employer had only been permitted to operate at 50% capacity.

The LC found that a change to remuneration constitutes a change to terms and conditions of employment and the employees had not agreed to this change. Therefore, the LC found that the 20% reduction in salary constituted a unilateral change to terms and conditions of employment. The LC accordingly found that the strike was protected but noted that the decision may have been different had the employer given an undertaking that it would meet the shortfall if the TERS payment did not cover the employees’ entire salaries.

The application was dismissed.

Monique Jefferson BA (Wits) LLB (Rhodes) is a legal practitioner at DLA Piper in Johannesburg.

This article was first published in De Rebus in 2020 (Oct) DR 38.