One of the ways in which the Competition Act, No 89 of 1998 (Act) differs from similar legislation in other jurisdictions is the inclusion of, what has been termed, an unusually explicit public interest test for purposes of merger evaluation criteria.
The South African competition authorities' role should be understood in light of the purpose of the Competition Act, namely to encourage and maintain competition in South Africa to, amongst others, promote employment and advance the social and economic welfare of South Africans. The Competition Act specifically requires the competition authorities to consider, regardless of the outcome of the traditional competition enquiry, whether a merger can or cannot be justified on public interest grounds, including the effect that a merger will have on employment.
The Competition Commission recently conditionally approved a merger in the steel pipe industry. In its analysis of the possible effects of the merger on employment, the Commission found that the target firm had endured poor financial performance over the past three years and that, irrespective of the merger, approximately 285 jobs were going to be lost (retrenchment letters had already been served on these employees prior to the merger). The Commission engaged with both the trade unions representing the employees of the target firm and the merger parties on the employment effects of the transaction. The parties subsequently agreed to reduce the number of retrenchments to only 95 employees. Considering the counterfactual, the merger thus resulted in a saving of 190 jobs.
The conditions only applied for a period of two years from the effective date of the transaction and did not apply to voluntary retrenchments and/or separation agreements, voluntary early retirement packages and unreasonable refusals to be redeployed in accordance with the provisions of the Labour Relations Act, No 66 of 1995 (LRA).
Strangely, the conditions to the merger approval required the parties to ensure that the number of retrenchments "as a result of the merger" did not exceed 95, in line with the principle that the competition authorities may only interfere in employment issues within the scope of their statutory mandate encapsulated in the public interest test. However, the Commission's reasons specifically record that the job losses would not be the result of the duplication of roles but rather due to the financial predicament of the target firm, which appeared to exist regardless of the merger.
Typically, job losses in mergers occur as a result of restructuring, duplication of roles or a desire to downsize. In this merger however, job losses appeared to be due to the historical and on- going financial difficulty of the target firm. Thus, notwithstanding the fact that the retrenchments did not appear to be directly as a result of the merger, the Commission saw an opportunity to negotiate a condition with the parties which served to limit the total number of retrenchments for a period of two years from implementation of the merger.
In conclusion, whilst the LRA remains the primary source of protection for employees in South Africa, it is clear that the Commission is intent on vigorously confronting the challenge of employment issues through the merger analysis forum.