H v Secequip (Pty) Ltd (JA91/2014) [2016] ZALAC 53 (22 November 2016) per Savage AJA (Waglay JP and Phatshoane AJA concurring)

All dismissals have to be procedurally and substantively valid and fair apart from being lawful.  In particular dismissals related to conduct and capacity require employers to prove the validity of the reason and then that it would be fair to rely on that reason to dismiss.  This requires proof of an adverse impact on the employment relationship.  In other words that the relationship of trust or confidence has been seriously damaged or destroyed.  But when the reason for dismissal is based on ‘operational requirements’ there is no such requirement.  Senior management must have a valid and rational commercial reason and  act in good faith and in the best interests of all stakeholders.  Notice must be given or paid.  The right to severance pay is only forfeited upon an unreasonable refusal to accept alternative employment.

LexisNexis textbooks: Darcy du Toit et al

LAC summary:

Dismissal of appellant on grounds of operational requirements following the transfer of business as a going concern found not automatically unfair under s 187(1)(g) by the Labour Court, with alternative claims of procedural and substantive unfairness dismissed with costs.  On appeal held that dismissal not automatically unfair but with alternatives to retrenchment not appropriately considered, a process of meaningful joint consensus-seeking had not occurred and dismissal on grounds of operational requirements was substantively unfair.  Compensation of six months ordered with costs. 

Excerpts without footnotes

[11]   On 17 April 2012 the appellant referred an unfair dismissal dispute to the Commission for Conciliation Mediation and Arbitration (CCMA) for conciliation and thereafter to the Labour Court for adjudication. He claimed that his dismissal was automatically unfair in that in terms of s 187(1)(g) of the LRA it related to “a transfer, or a reason related to a transfer, contemplated in section 197 of 197A”.

In the alternative, the appellant claimed that his dismissal arose as a result of an ulterior purpose and was mala fide.

As a further alternative, the appellant alleged that his dismissal on grounds of operational requirements was substantively unfair in that it was for reasons unrelated to the respondent’s operational requirements, alternatively without valid, bona fide or fair reason.

The appellant also took issue with the procedural fairness of his dismissal on the basis that the provisions of s189(3) of the LRA had not been complied with, the respondent had not consulted with him in the bona fide manner required and there had not been a meaningful joint consensus-seeking process engaged in,

alternatively that the selection criteria used had not been agreed between the parties and were not fair and objective.

. . . . .

Dismissal on grounds of operational requirements

. . . . .

[28]   A fair reason is one that is bona fide and rationally justified,[1] informed by a proper and valid commercial or business rationale.[2] The enquiry is not whether the reason put up is one which would have been chosen by the court but whether the reason advanced considered objectively is fair.[3]

[29]   The respondent’s evidence was that its profits had declined over the previous six-month period, spanning both before and after the transfer of the business which required cost-cutting measures to be implemented in order to improve profitability. The appellant did not dispute or challenge this evidence and there was nothing before the Labour Court to suggest that the restructure and possible retrenchment process embarked upon was not based on a bona fide rational commercial and operational need to cut costs so as to improve profits.  It follows that considered objectively on the evidence before the Court this decision was reasonable, bona fide and informed by a proper and valid commercial rationale.

[30]   Section 189(1) requires that the employer, when contemplating the dismissal of one or more employees for reasons based on the employer’s operational requirements, consult the employees likely to be affected.[4] S 189(2)[5] requires a meaningful joint consensus-seeking process with the parties engaging constructively in an attempt to agree on appropriate measures inter alia to avoid and minimise dismissals; and identify the employees to be retrenched. This requirement has both a procedural and a substantive content.  The proper approach of the Court is to ascertain whether the purpose of the section, being the occurrence of a joint consensus-seeking process, has been achieved.[6]

[31]   Consultation must be genuine and may not be a sham with the purpose of seeking alternatives to dismissal being to avoid dismissal if reasonably possible.[7] Doing so requires that alternatives put forward by consulting parties should be appropriately considered, with the employer obliged by s189(6) to respond to those alternatives to dismissal proposed by an employee or consulting party. In SACWU v Afrox Ltd,[8] it was stated that:

‘If an employer wishes to show that it considered appropriate options other than dismissal it must present evidence to that effect and explain why it chose a particular course and not another.  If an employee wishes to challenge that evidence it must do so by proper cross-examination on the relevant issues and, if considered necessary, by leading rebutting evidence.  If this shows up the untenability of the employer’s position, it will have a material effect on the final assessment of fairness .  .  .  As assessment on ‘moral’ considerations not based on evidence led at the trial will be impermissible.’[9]

[32]   A key purpose behind consultation is the protection of employment, with security of employment being a core constitutional value protected through the LRA.[10] In Supergroup Trading (Pty) Ltd v Janse van Rensburg[11] this Court criticised the consultation undertaken by an employer as a “charade” and “purposeless insofar as it deprived the Respondent of a chance to save his post or avoid his being selected for retrenchment. His representations on that score were to be fruitless because restructuring was a fait accompli.” It was emphasised that –

‘…the purpose of consultation is to try and save a job or position.  If this cannot be done the next aim is to avoid dismissal by placing the person, whose post has become redundant, elsewhere.  And if avoidance is not possible consultation concerns the extent to which the consequences of the retrenchment can be mitigated.’ [12]

[33]   In Chemical Workers Industrial Union and Others v Latex Surgical Products (Pty) Ltd,[13] this Court distinguished between fairness in a general and specific sense in asking whether there was a fair reason for the dismissal of any employees and for specific employees in particular. While a retrenchment process may be legitimate insofar as there exists a bona fide commercial rationale to restructure, where alternatives to the dismissal of an employee exist these are to be considered in a meaningful fashion by the consulting parties.  These are to be judged on their merits based on the evidence before the Court.  Fairness dictates that the solution which preserves jobs is to be preferred over the one that does not.[14] This is so in that it is unfair to choose retrenchment where another rational solution exists which can satisfactorily address the operational need to retrench.

[34]   The respondent gave written notice on 30 January 2012 to all employees of its intention to rationalise operations following management approval of a new organisational structure on 23 January 2012. On 31 January 2012 the appellant received a letter headed “Restructure” in which he was informed that:

‘As per the restructure discussed at the Management Meeting on Monday, 23 January 2012, your reporting structure will change as of tomorrow, 1 February 2012, reporting to John Rogers…Our immediate challenge is to get sales and GP’s back up to expected levels…’

[35]   The second letter headed “Notice of Consultation” received by the appellant on 31 January 2012 informed him that his position may be affected by contemplated restructuring and/or retrenchment and that he was to be consulted in this regard. This letter constituted written notice inviting consultation as envisaged by s 189(3).  It referred to the letter of 30 January 2012 and continued that –

‘As mentioned the economic downturn and poor trading climate requires that we introduce changes in Secequip in order to improve the financial position of the company.  It appears as though we may have to cut down on employee numbers and/or restructure.

Although no final decisions have been made yet you and the position you currently occupy may well be affected.  We, however first wish to consult you with a view to either avoiding the need to restructure and/or retrench or alternatively minimizing the number of possible retrenchments, changing the timing thereof as well as mitigating the effect on those affected.

The following will be dealt with at the consultation:

    • The reasons for the need to reduce costs by rationalization, restructure and/or retrenchment.
    • Alternatives,
    • Method of selection.
    • Severance pay (where applicable).
    • Proposed assistance to retrenchees (where applicable).
    • Possibility of future re-employment (where applicable).
    • Number of employees affected.
    • Past retrenchments…’

[36]   The letter assured in conclusion that “the meeting will be held in a spirit of joint problem-solving”.

. . . . .

[41]   While it is permissible to retrench in order to cut costs so as to improve profitability,[1] or as a consequence of the reorganisation of a business,[2] the dismissal must accord with the requirement of fairness contemplated in s189. The proper approach is to determine whether the purpose of the section, being meaningful joint consensus-seeking, has been achieved.[3] This required the respondent to show that it appropriately considered alternatives to dismissal so as to avoid and minimise the effects of retrenchment.[4]

[42]   While the fact that the Court would have preferred a particular alternative to dismissal does not in itself render the dismissal unfair, the dismissal risks being unfair where consensus has not been sought in a process which considers reasonable alternatives in an appropriate and meaningful manner.

[43]   The evidence showed that the consensus-seeking process engaged in by the respondent was flawed. This is so in that the respondent failed to engage in a meaningful manner with the appellant concerning reasonable alternatives to dismissal.  It relied on alternatives, which considered on their merits, were not reasonable given that they were premised on a dramatic amendment to terms and conditions of employment, while rejecting the reasonable alternative proposed by the appellant without further engagement.

The result was that the respondent failed to prove that meaningful joint consensus-seeking had occurred.  This coupled with the failure to produce sufficient evidence to justify the selection of the three employees singled out for salary reduction resulted in the respondent’s failure to prove that the dismissal of the appellant was substantively fair.

. . . . .

[45]   A mechanical, “checklist” approach to a determination as to whether s189 has been complied with is inappropriate.[1] While the letter of 31 January 2012 did contain the reasons for the proposed restructure and/or retrenchment in general terms, it is so that it did not contain written information regarding alternatives to dismissal, the number of employees likely to be affected, their positions, how it is proposed they are selected or issues of timing, severance pay, assistance or possible re-employment in future. Instead, consultation on these issues was invited.  While it is apparent that there were clear shortcomings in the s189(3) notice provided to the appellant, these were not of such a nature as to render the process unfair in circumstances in which the appellant was given notice of contemplated restructuring and retrenchment and had the opportunity to engage with the respondent regarding the issues set out in s189.

[46]   It follows for these reasons the dismissal of the appellant was substantively unfair. I am not persuaded that the maximum compensation should be granted in this matter on the facts and given the commercial rationale which existed to justify operational restructuring.  The appellant did not seek reinstatement into his employment with the respondent.  In the circumstances, I consider an order of six months compensation to be fair and appropriate.