The fall of SAA: A wage increase demand during economic strain

September 1st, 2020
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Picture source: Gallo Images/Getty

On 15 November 2019, a strike instituted by the National Union of Metalworkers of South Africa (NUMSA) and the South African Cabin Crew Association (SACCA) began at South African Airways (SAA). The strike resulted from two separate but collateral issues, namely:

  • A dispute over a wage increase with the trade unions demanding an 8% increment while SAA only offered 5%, which was not an immediate increase. The wage increase dispute came as a surprise as the airline had not been able to make a profit since 2011. The unions, however, contended that the mismanagement of the airline should not bear consequences on the employees.
  • The second cause of the strike was the announcement by SAA management to restructure the airline and consequently retrenched a large number of employees during the process.

It was reported that the strike casted doubt on the survival of the airline, which had not been profitable for close to a decade (Alexander Winning and Emma Rumney ‘Strike pushes South African Airways to brink of collapse’ (www.reuters.com, accessed 13-8-2020)). Following a series of negotiations, it was agreed that the wages would be increased by 5,9% over a period of time but that would not be done immediately. However, the possibility of a wage increase being actualised remains obscure as SAA lost about R 50 million a day due to the strike, which thereby worsened SAA’s financial crisis.

An analysis of the situation whereby employees demand wage increases, while the workplace is under economic strain and the possibility of retrenchment for operational reasons is considered herein.

The process of increasing wages under the Labour Relations Act

Previously, neither the Basic Conditions of Employment Act 75 of 1997 (BCEA) or any other law stipulated minimum wages for employees. However, minimum wages are now governed by the National Minimum Wage Act 9 of 2018. In addition, wages are determined in collective agreements or ministerial and sectoral determinations. Under the Labour Relations Act 66 of 1995 (the LRA), wages form part of the terms and conditions of a work contract and form an essential part of the contract. The alteration or increment of wages is normally dealt with through collective bargaining. When there is a failure to reach an agreement through collective bargaining, the parties may resort to conciliation or arbitration. The parties may also resort to industrial action, but they may not do both. In the case of SAA, we submit that the strike option might have caused more harm in deterring the wage increment as a result of the losses incurred than actually increasing the chances of a wage increment.

SAA on life support

SAA confirmed its decision to embark on a restructuring process on 11 November 2019. Out of an approximate 10 000 employees employed by SAA, approximately 944 employees are likely to be affected. The decision to embark on a restructuring process follows a number of years after the airline reported that it has been under financial distress. SAA incurred accumulated losses of R 31,64 billion since reporting as a corporatised entity in 2000 until 31 March 2017. By this time, the debts of SAA exceeded its assets by R 17,802 billion, thus rendering the airline technically insolvent. SAA’s road to liquidation was cut short by the government through its financial support. Government recapitalised the Airline by R 10 billion for that fiscal year and by another R 10 billion early in 2018. Despite these efforts, it can be argued that SAA has taken a few steps back on its road to profitability as evidenced by the losses incurred preceding the strike that took place in 2019.  Furthermore, according to Hassan Isilow ‘S. African Airways suspends int’l flights over COVID-19’ (www.aa.com.tr, accessed 14-8-2020)) the position of SAA on non-profitability has recently been exacerbated by COVID-19, resulting in the company’s operations being suspended until further notice.

The retrenchment process under the LRA

Section 189 of the LRA allows an employer to dismiss employees due to operational reasons, such as the financial well-being of the business. The crucial question to be determined is whether SAA will be able to fairly dismiss some of its employees in accordance with s 189A of the LRA and to ascertain the borderlines to dismissals authorised under s 189A of the LRA.

Under s 213 of the LRA, situations necessitating dismissal for operational reasons include the financial well-being of the business, the implementation of new technology that essentially makes certain positions redundant or requires employees to adapt to new technology or changes in the organisational structure of the business. SAA must prove the existence of a need to embark on retrenchments and that such need is sufficiently important to justify the dismissals. One predominant requirement necessitating dismissals of employees from SAA is an economic one, namely the need to ensure the continued operation and long-term survival of SAA. Considering the recent decision subjecting SAA to business rescue, the inability to fulfil its salary obligations on time due to cash flow problems, the estimated R 50 million that SAA lost per day due to the industrial action, in addition to debts it accumulated since the year 2000. All the above factors would suffice to show that dismissals are operationally justifiable on rational grounds.

It is evident from the above factors that retrenchments are required for sound economic reasons. In National Union of Metalworkers of South Africa and Others v Aveng Trident Steel (A Division of Aveng Africa (Pty) Ltd) and Another [2019] 9 BLLR 899 (LAC) the Labour Appeal Court (LAC) accepted the decline in sales volumes and an increase in base costs as a sound economic reason. Additionally, seeing that the industrial action in support of wage increment put a nail in the coffin, in SACWU and Others v Afrox Limited [1998] 2 BLLR 171 (LC), the court found that even operational requirements caused by a protected industrial action may justify a dismissal. In NUMSA v Driveline Technologies (Pty) Ltd and Another [2000] 1 BLLR 20 (LAC) the court accepted the employer’s inability to pay for transport allowances as an economic necessity falling under the scope of operational requirements.

Apart from the duty to ensure that operational requirement dismissals are implemented in a fair manner, for operational reasons, SAA has the duty to ensure that the employees are retrenched in accordance with the strict provisions of the LRA. Section 189 of the LRA sets the procedure for dismissals for operational requirements and requires a notice to be issued, disclosing all the relevant information including the reasons for the proposed dismissals, any alternatives that SAA considered before proposing dismissals and the reasons for rejecting each of the alternatives. A notice must also contain a date on which the consultation will take place.

Selection criteria

In selecting employees to be dismissed, SAA would have to make use of the methods agreed on during the consultation process. If there were no selection criteria that was agreed on, then SAA would be obliged under s 189(7)(b) of the LRA to conduct the selection according to a method that is fair and objective, namely, inter alia, considering factors such as ‘the last in, first out’ principle, special skills, experience, length of service, qualifications etcetera. Failure to use a fair selection criterion will result in the dismissal being unfair.

Severance pay negotiation

Given the reports that SAA was unable to fulfil its salary obligations, s 41 of the BCEA makes provision for payment of not less than one week’s remuneration for every year the employee has worked for the employer. Additionally, the selected employees would be entitled to other benefits including notice pay and to receive any accrued leave.

Consequences of strikes on the South African economy as a whole

Section 23(2)(c) of the Constitution provides every worker with a right to strike. This makes the right to strike a fundamental right entrenched in the South African constitutional democracy. A strike is protected when the dispute at hand has been referred to the Commission for Conciliation, Mediation and Arbitration or a bargaining council and a certificate has been issued stating that the dispute remains unresolved for a period of 30 days or any extension of that matter as agreed by the parties. Employment strikes have had an impact on the South African economy.

During the SAA strike, the company lost about R 50 million per day. When considering that the company has been relying on the government to continue with its operations, and that it will continue to rely on the government to recover its losses, it can be said that there is a detrimental consequence of the SAA strike on the South African economy.

While strikes are firmly protected in the Constitution, strikes especially in the mining sector have recently been shown to cause unintended consequences to the economy. During the Sibanye-Stillwater gold mine strike over the extension of a collective agreement by a majority union, the mine suffered daily losses and  R 2 billion in total over the course of five months (see Association of Mineworkers and Construction Union and Others v Sibanye Gold Ltd t/a Sibanye Stillwater and Others [2019] 8 BLLR 802 (LC)). The strike by the SAA employees caused losses of close to R 200 million in total. With these types of losses, one wonders whether new measures or labour laws may need to be put in place to balance the right to strike while not destabilising the economy and minimising the losses incurred by companies during strikes.

Recommendations

Since SAA is currently under voluntary business rescue, the business rescue practitioner acting in terms of s 136 of the Companies Act 71 of 2008 may as part of its business rescue plan retrench SAA’s employees, however, such retrenchments must be consistent with s 189 of the LRA and other relevant employment legislations as stated in Solidarity obo BD Fourie and Others v Vanchem Vanadium Products (Pty) Ltd and Others; In re: NUMSA obo Members v Vanchem Vanadium Products (Pty) Ltd and Another (LC) (unreported case nos J385/16; J393/16, 22-3-2016) (Lagrange J) where the court found that a business rescue practitioner can embark on a retrenchment exercise provided that it complies with the LRA and it can prove that the retrenchments are fair and justifiable on operational grounds.

One may recommend the strategy adopted in the Aveng case. In the Aveng case, Aveng experienced a decline in profitability, it realised that its operational issues required more than reducing the number of its staff members. It adopted a strategy of changing the job descriptions, combining functions into single positions, effectively declaring certain jobs redundant. In CWIU and Others v Algorax (Pty) Ltd [2003] 11 BLLR 337 (LC), the court held that the notion of operational requirements includes the desire to reduce cost without it being necessary to do so. Therefore, SAA, as a cost saving measure, may demand that its employees work short time.

With regard to strikes causing dire economic consequences to the South African economy it is suggested that the government put in place effective measures to safeguard against unintended economic losses. In NUMSA and Others v Bader Bop (Pty) Ltd and Another 2003 (2) BCLR 182 (CC), O’Regan J strongly emphasised that the right to strike must not be unnecessarily limited. Keeping this judgment in mind, however, we submit that strikes should not be permitted to bring the South African economy into a downturn.

We recommended that when it comes to strikes, the ballot system must be reconsidered as well. This is because trade union representatives might act in their own interests or decide on strikes, which not everyone supports. This could be seen by the way some workers of SAA wanted to work while others were striking. Therefore, in order to avoid confusion, the balloting system must be amended back into the LRA. At the time of writing this article, the aspect of secret balloting was under discussion with the probability of an amendment to the LRA, which includes such balloting. Lastly, we recommended that the system of majority in the workplace be made less stringent so that among other things, strikes do not affect those employees from minor unions who do not consent to striking but may be forced to do so because of majority rule.

Conclusion

In conclusion, there are no specific laws that govern a situation where the employees of a workplace demand a wage increase at the verge of the company’s liquidation or were there are clear economic difficulties. However, the law permits dismissals for sound economic reasons, such as a company failing to make a profit over a long period of time and as held in Afrox Limited, even operational requirements caused by a protected strike may justify a dismissal. This means the dire economic losses suffered by SAA due to the strike coupled with their dependency on the government, their inability to realise a profit for close to a decade and the recent suspension on the airline’s operations can justify dismissal of their employees based on operational requirements. We submit that a common-sense approach would lean on the conclusion that workers or trade unions and employers should negotiate such matters for the benefit of all parties, instead of taking measures that might worsen the situation. We submit that trade unions must always serve the best interests of the employees. As retrenchment seems inevitable during the present time, we submit that SAA should follow the correct procedures when resorting to such retrenchments.

Koshesayi Madzika LLB LLM Criminal Justice and Labour law (NMU) is a student and Zimbini Mnono LLB (NMU) is a Post Graduate Associate at Nelson Mandela University in Port Elizabeth.

This article was first published in De Rebus in 2020 (Sept) DR 19.