The recent decision of the Labour Court in National Union of Metalworkers of South Africa obo members and Aveng Trident Steel (A division of Aveng Africa (Pty) Ltd) may provide some cheer to employers facing the challenges of restructuring their workforce in difficult economic times.
Since 2014, the employer in this matter has faced strong economic headwinds caused by a downturn in sales and increased costs. The result was the issuing of a notice of proposed retrenchments in terms of section 189(3) of the Labour Relations Act, 1995 (the “LRA”).
As part of the subsequent consultation process, the employer made various proposals that would alleviate the need to retrench. The most important of these was a restructuring of the workforce. In preceding years, employees had been able to narrow the scope of jobs that they performed. For example, a machine operator would refuse to clean the machine he or she operated and a crane driver would refuse to operate more than one crane. These restrictive practices meant that the employer had to hire additional employees. The employer proposed that jobs be restructured to widen their scope to include additional duties and that the new job structure conform to a five-grade job structure permitted in terms of the main agreement of the Metal and Engineering Industries Bargaining Council.
During the consultation process, an interim agreement was concluded with the National Union of Metalworkers of South Africa (“NUMSA”), in terms of which employees would work in accordance with the employer’s proposals in return for the payment of an additional 60 cents an hour until consultations in respect of adopting a five-grade job structure, as proposed by the union, had been concluded. This agreement would endure until the end of February 2015. This enabled the employer to terminate the employment of the employees who performed the additional duties that the remaining employees would undertake. The consulting parties also agreed that voluntary severance packages be offered to employees. As a result, the employer was able to agree to grant these packages to over 200 employees. This, together with an agreement on eliminating transport allowances, meant that the need to retrench was avoided, on the basis that the new job structure was adopted.
During the course of February 2015, NUMSA gave three days’ notice that it was terminating the interim agreement. This was done at a time when the employment of employees who performed the additional duties had been terminated and the employees who had taken voluntary severance packages had left. The result was that the employer was forced to agree to pay employees an additional R3 per hour in order to secure their agreement to work in accordance with the new job structure. Negotiations on the issue continued but failed when NUMSA demanded a wage increase of R5 per hour.
The employer took the position that it was implementing the new job structure and that the relevant employees’ positions had become redundant. However, all the employees were offered jobs in the new structure on the same terms and conditions of employment. A number of employees accepted this offer but another 733 employees rejected it and were retrenched.
NUMSA then referred an unfair dismissal dispute to the Labour Court. Of most importance was its argument that the retrenchments were automatically unfair. This argument was based on the provisions of section 187(1)(c) of the LRA, which provides that a dismissal is automatically unfair if the reason for the dismissal is “a refusal by an employee to accept a demand in respect of any matter of mutual interest between employer and employee”.
This section, in its previous formulation, has a controversial history and is linked to disputes and court decisions interpreting the Labour Relations Act, 1956. Prior to its amendment in 2015, the dismissal would be automatically unfair if the reason for the dismissal was to compel an employee to accept a demand as described above. In Fry’s Metals (Pty) Ltd v NUMSA & others, the Labour Appeal Court (the “LAC”) was faced with a dispute where employees argued that their dismissals had been automatically unfair because they had refused to work a new shift system. They argued that their dismissals had been automatically unfair because the dismissals had been effected in order to compel them to work the new shift system. The court rejected their claim and distinguished between the following two scenarios:
- if an employer dismisses employees in an attempt to compel them to agree to change a shift system, this constitutes an automatically unfair dismissal.
- if the employer dismisses employees after failing to persuade them to accept the change and takes the view that it will employ other employees who are prepared to work the new shift system, this will not constitute an automatically unfair dismissal. This is because the employer is self-evidently not trying to compel the employees to agree to the new shift system.
This approach was accepted by the Supreme Court of Appeal in National Union of Metalworkers of SA & others v Fry's Metals (Pty) Ltd. It was also accepted in Chemical Workers Industrial Union & others v Algorax (Pty) Ltd.
NUMSA argued that the amendment to section 187(1)(c) meant that this distinction could no longer be applied and that the dismissal of the 733 employees was automatically unfair. The court, in a lengthy and technical decision, rejected this argument and found that the approach adopted in the Fry’s Metals and Algorax decisions remained good law.
This decision is welcome news for employers. In the context of a retrenchment exercise, an employee who refuses to accept a change to terms and conditions of employment may be retrenched without falling foul of section 187(1)(c), provided that the employer terminates employment with the intention of permanently severing the employment relationship and does not do so with the intention of trying to compel employees to accept the change. There are, however, a number of caveats. The first is that even though the employees may not have been automatically unfairly dismissed, the employer must still be able to show that they were fairly dismissed and that it had a genuine operational requirement to change the condition of employment. The second is that what the intention of the employer was when terminating employment will usually be the subject of a factual dispute, and what was communicated to employees and their representatives during the consultation process will be important. Thirdly, given the importance of this issue, the last word on this matter will probably be spoken by the LAC or perhaps even the Constitutional Court.
It is important to note that this debate normally takes place in the situation where the employer has no contractual right to enforce the change or where its legal right to do so is unclear. Where an employer has such a right, dismissal on the grounds of misconduct may, in certain circumstances, be another option.
ENSafrica represented the employer in this matter.