Employment law update – A precondition for a business rescue practitioner issuing s 189(3) notices

July 1st, 2020
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NUMSA and Another v SAA and Others (LC) (unreported case no J424/20, 8-5-2020) (Van Niekerk J)

‘Can a business rescue practitioner appointed under the Companies Act [71 of 2008] dismiss employees for reasons related to operational requirements before a business rescue plan that contemplates retrenchments has been prepared and presented?’ This was the central question before the court in this application.

The answer, as will be detailed below, turns on the interpretation of s 136 of the Companies Act.

Prior to addressing the merits of the case and to the extent that the two trade union applicants sought to declare the s 189(3) notices invalid and unlawful for being issued in contravention to s 136 of the Companies Act. The respondents challenged the Labour Court’s (LC) jurisdiction to pronounce on whether a party has lawfully complied with certain provisions of the Companies Act.

The respondents challenge was dispensed with on the basis that the unions approached the court in terms of s 189A(13) of the Labour Relations Act 66 of 1995 (LRA) seeking an order that the issuing of the s 189(3) notices were procedurally unfair.

Section 189A(13) affords a party involved in large scaled retrenchment consultations, to approach the LC for an appropriate remedy, under circumstances where the other party has failed to follow a fair procedure.

Background

On 9 March, the business rescue practitioners, the second and third respondents respectively, issued s 189(3) notices to all relevant trade unions and employees. In terms of the prescribed procedures, the consultation process would endure for a 60-day period within which time South African Airways (SAA) was prevented from dismissing any employee for operational reasons. The end of the 60-day period corresponded with the day on which this application was heard. It was common cause that at the time the s 189(3) notices were issued, the business rescue practitioners had not finalised and presented a business rescue plan.

On 23 April the business rescue practitioners informed all relevant stakeholders, including the employees, that in light of government’s decision not to provide additional funding to the practitioners, there were only two options open to pursue; firstly to develop a business rescue plan or to file an application to liquidate SAA.

The first option entailed a winding down process wherein employees would be terminated by mutual consent because of SAA’s operational requirements and would receive agreed on severance packages. To this end, the business rescue practitioners provided all unions and non-union employees with a draft collective agreement and gave them until 8 May to accept a termination of employment by mutual agreement, which included a relevant retrenchment package.

As at 4 May, non-unionised managers accepted the offer whereas other employees, including members of the two applicant unions had rejected the offer.

Legislative framework

Section 136(1) of the Companies Act, under the heading ‘Effect of business rescue on employees and contracts’ reads:

‘Despite any provision of an agreement to the contrary –

(a) during a company’s business rescue proceedings, employees of the company immediately before the beginning of those proceedings continue to be so employed on the same terms and conditions, except to the extent that –

(i) changes occur in the ordinary course of attrition; or

(ii) the employees and the company, in accordance with applicable labour laws, agree different terms and conditions; and

(b) any retrenchment of any such employees contemplated in the company’s business rescue plan is subject to section 189 and 189A of the Labour Relations Act, 1995 (Act No 66 of 1995), and other applicable employment related legislation’.

The court reaffirmed the approach to interpreting statute – words should be afforded their ordinary grammatical meaning save when this leads to an absurdity. The three interrelated riders to the general principle were that statutes must be –

  • interpreted purposively;
  • properly contextualised; and
  • construed in a manner, which is consistent with the objectives of the Constitution.

Approaching s 136(1) in this manner, the court noted that the default position in terms of s 136(1) was that during business rescue proceedings, employees continue to be employed under the same terms and conditions, which they worked under immediately prior to the business rescue proceedings.

Section 136(1)(a)(i) is the first exception to the default position, which for the duration of the business rescue proceedings, relates to the changes that occur in the ordinary course of attrition. The word ‘attrition’, as per the Oxford English Dictionary 2ed (Oxford University Press 1989), includes ‘the gradual reduction of the workforce by employees leaving and not being replaced’. This definition, as accepted by the court, displaced SAA’s argument that the term ‘ordinary course of attrition’ included employees being retrenched for operational reasons – a view, which was expressed by the LC as obiter dictum 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 no J385/16; J393/16, 22-3-2016) (Lagrange J).

The second exception, s 136(1)(a)(ii) was an agreement reached between employer and employees with regard to changes of terms and conditions of employment and which included termination by consent of the parties.

It was s 136(1)(b), which held the answer to the question before the court and, which states that retrenchments as ‘contemplated in the company’s business rescue plan’ are subject to the provisions of s 189 and s 189A of the LRA.

On this footing the court held:

‘Section 136(1)(b) requires that any need to retrench must necessarily be rooted in the business rescue plan. It is the contemplation at that point that there is a prospect that employees will be retrenched as an element of the plan that brings s 189 and s 189A of the LRA into play. There is no provision in s 136(1), or anywhere else in Chapter 6 of the Companies Act, that empowers a business rescue practitioner to retrench employees in the absence of a business rescue plan. … While s 136 might not provide for an absolute moratorium of retrenchment during business rescue proceedings, it locates the right to retrench in the business plan. It follows that the giving of any notice to commence a consultation process in terms of s 189 or s 189A of the LRA, given by a business rescue practitioner in the absence of a business rescue plan, would be premature and thus constitute an act of procedural unfairness’.

The court further held that nothing prevented the business rescue practitioners from offering employees voluntary separation packages as a measure to avoid possible retrenchments.

Following the above, an order in the following terms was handed down:

  • The second and third respondents’ conduct in issuing a s 189(3) notice of invitation to consult is procedurally unfair.
  • The second and third respondents are directed to withdraw the notices.
  • Nothing in this order precludes the second and third respondents from offering, nor any employee of the first respondent from accepting, any offer of voluntary retrenchment.

Moksha Naidoo BA (Wits) LLB (UKZN) is a legal practitioner holding chambers at the Johannesburg Bar (Sandton), as well as the KwaZulu-Natal Bar (Durban).

This article was first published in De Rebus in 2020 (July) DR 41.