The obligation to furnish security in order to stay the enforcement of an arbitration award pending the outcome of review proceedings can be onerous. The requirement is aimed primarily at preventing meritless review proceedings. Whether public sector employers are obliged to provide security or are prohibited from doing so in terms of the Local Government: Municipal Finance Management Act, No 56 of 2003 (MFMA) or Public Finance Management Act, No 1 of 1999 (PFMA) was the question answered by the Labour Appeal Court (LAC) in a judgment handed down in March 2019 in the case of City of Johannesburg v SAMWU obo Monareng and Another (JA 120/2017).
The City of Johannesburg (City) applied to review and set aside an arbitration award. Pending finalisation of the review proceedings the City applied to the Labour Court to stay the arbitration award. The application was granted on condition that the City furnish security in terms of s145(8) of the Labour Relations Act No, 66 of 1995 (LRA). The City appealed against the condition arguing that as a municipality it was automatically exempt from providing security because:
1 section 48 of the MFMA prohibits municipalities from furnishing security in terms of s145(8) of the LRA; and
2 Free State Gambling and Liquor Authority v CCMA and Others (2015) 36 ILJ 2867 (LC) is authority for public sector employers, specifically those regulated by the PFMA, being exempt from furnishing security.
In considering whether a public sector employer regulated by the MFMA is exempt from furnishing security, the LAC found:
- firstly, that the purpose of furnishing security is to prevent employers making meritless review applications, a consideration which applies to public and private employers alike;
- secondly, s48 of the MFMA does not prohibit the City furnishing security to stay an arbitration award; and
- thirdly, while the Labour Court in Free State Gambling held that public sector employers are automatically exempt from furnishing security, a contrary and correct view was held in Rustenburg Local Municipality v South African Local Government Bargaining Council and Others (2017) 38 ILJ 2596 (LC).
The LAC found in favour of the approach adopted in Rustenburg Local Municipality. It held that the Free State Gambling ruling was incorrect and public sector employees regulated by the MFMA have no automatic exemption from furnishing security. Instead, and as with any other employer, security must be furnished unless the court exercises its discretion and finds otherwise. An employer must show good cause for a court to exercise its discretion in this manner. In this instance, the LAC found that the City showed good cause not to provide security given the financially stability of the municipality, that the quantum of the security it would be required to furnish would be staggering and policy considerations suggest that public funds should not be encumbered as security.
Given the finding of the LAC there is no automatic exemption for public sector employers when it comes to furnishing security and any employer, whether public or private sector, that seeks exemption must apply for and show good cause for not furnishing security.