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[2020] ZALAC 43
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Skinner and Others v Nampak Products Limited and Others (JA95/19) [2020] ZALAC 43; (2021) 42 ILJ 838 (LAC) (24 November 2020)
IN
THE LABOUR APPEAL COURT OF SOUTH AFRICA, JOHANNESBURG
Reportable
Case
no: JA95/19
In the matter between:
PHIL
SKINNER & 208 OTHERS
Appellants
and
NAMPAK PRODUCTS
LIMITED
First Respondent
MAIN STREET 1301 (PTY)
LIMITED
Second Respondent
MAIN
STREET 1310 (PTY) LIMITED
Third Respondent
SACKS
PACKAGING 1301 (PTY) LIMITED
Fourth Respondent
Heard:
04 November 2020
Delivered:
24 November 2020
Summary:
Contract---Breach----Medical aid contributions----clause conferring
discretion on employer to cap employees’ post
retirement
contribution not unreasonable---Employer’s decision to cap
contribution in order to increase profitability an
entirely
legitimate commercial rationale.
Coram:
Davis JA, Murphy AJA and Kathree-Setiloane AJA
JUDGMENT
MURPHY AJA
[1]
The appellants appeal against the judgment of the Labour Court
(Moshoana J) holding
that the respondents’ decision to cap the
employer’s contribution to their post-retirement medical aid
benefits (“PRMA”)
was not in breach of contract or an
unfair labour practice.
Factual background
[2]
The appellants are or were employees of the respondents at various
workplaces throughout
the country. As part of their contracts of
employment the appellants qualified for medical aid benefits in terms
of a policy (Medical
Aid Society Contributions: Employees and
Pensioner Policy) dated 1 August 2006 which is incorporated into the
terms and conditions
of their employment. During 2015-2016, some of
them were transferred from the first respondent (“Nampak”)
to the other
respondents.
[3]
The policy states that it is Nampak’s practice to provide, as
an employee benefit,
membership of a medical aid society, as set out
in the policy. Employees are eligible to join a medical aid society
of their choice
as recognised by Nampak. While membership of a
medical aid society is not compulsory, it is recommended. Nampak
agreed to assist
with contributions towards medical aid society
membership but limited its contribution to 50% of the normal premium
payable by
a member.
[4]
The policy provides for PRMA in a limited manner for employees who
commenced employment
with Nampak before 1 June 1996. Clause 2.3 of
the policy stipulates that it is a condition of service, in respect
of all employees
engaged on or after 1 June 1996, that Nampak will
not assist with the payment of contributions for continuation of
membership of
the medical aid society after retirement. Clause 3.1.2
of the policy encourages employees who joined the company after 1
June 1996
to make provision for their own future contributions whilst
on retirement. All the appellants were employed prior to 1 June 1996
and are thus entitled to PRMA. Clause 3.3 of the policy governs PRMA.
It reads in relevant part as follows:
‘
3.3.1
No assistance will be provided on retirement in respect of any
employee who joined the Company on or after 1.6.1996. In the
case of
other eligible employees the Company will contribute towards medical
aid benefits in respect of the employee and current
dependants at
date of retirement (or death in service)
3.3.3 Subject to the
provisions of clauses, 3.3.6, 3.3.7 and 4, the Company will pay 100%
of the medical aid contribution where
the employee has at least 25
years’ continuous years’ service in the Company and 10
years’ membership of a Company
acknowledged medical aid society
at date of retirement and was employed prior to 1 June 1996 …
3.3.5 Subject
to the provisions of clauses 3.3.6, 3.3.7 and 4, the Company will pay
50% of the medical aid contributions
where the employee has been a
continuous member of a medical aid society offered by the Company for
more than 5 years and has completed
at least 5 years but less than 25
years’ continuous service in the Company and was employed prior
to 1.6.1996 …’
[5]
Clauses 3.3.6 and 3.3.7 referred to in clause 3.3.3 and clause 3.3.5
are not germane. However,
clause 4.1 of the policy is particularly
relevant. It reads:
‘
The
Company may, at its sole discretion, in respect of future pensioners,
set a maximum level at which it is prepared to contribute
towards
medical aid society benefits. The pensioner will be responsible for
the difference between the actual medical aid society
contribution
levied by the applicable medical aid society and the maximum level
set by the Company
.’
[6]
Medical aid at Nampak was initially provided through a company
medical aid scheme,
the Nampak SA Medical Scheme (“the Nampak
scheme”) which was established in 1971. Membership by employees
was compulsory
until 1988.
[7]
From about 2009, the financial position of the Nampak scheme
deteriorated due to a
combination of factors including the ageing
profile of the members of the scheme, the drop in the number of
principal members,
the increasing costs of claims in excess of budget
and a steep decline in the number of members. Over the years, and as
a result
of selling businesses, Nampak had reduced in size and by
2012 there were only 5000 members in the Nampak scheme, most of whom
were
managerial employees.
[8]
The trustees of the Nampak scheme accordingly proposed that the
Nampak scheme amalgamate
with the Discovery Health Medical Scheme
(“the Discovery scheme). In a communication addressed to the
membership dated 12
July 2012, the trustees of the Nampak scheme
explained the position and proposed amalgamation with the Discovery
scheme subject
to a vote of approval by the membership. The letter in
relevant part read:
‘
The
Nampak SA Medical Scheme was established in 1971. Nampak SA Medical
Scheme’s financial position has deteriorated in the
last three
years largely due to increasing claims cost in excess of budget.
This trend of very high
claims has continued, resulting in a year end loss ratio i.e. claims
+ expenses/net contributions of 102%
before expenses and a net
deficit before investment income of R13,34 million for 2011 year. As
a consequence of successive net
deficits Nampak SA Medical Scheme’s
solvency level reduced from 98,3% at the end of 2008 to 50,5% (84,3%
including unrealised
gains) at the end of 2011.
Therefore, as a result of
Nampak SA Medical Scheme’s deteriorating financial profile,
ageing profile, and drop in principal
members, the Board of Trustees
has considered various options….
The outcome is that the
Board of Trustees of both Nampak SA Medical Scheme and Discovery
Health Medical Scheme approved the amalgamation.
The proposed date for the
amalgamation is 1 January 2013. The date is subject to approval
through a voting process of the Nampak
SA Medical Scheme membership
and the Competition Commission……
If the majority of
members (at least 50% of the votes) vote
FOR
the change, the
amalgamation will continue subject to the approval of the Council for
Medical Schemes and the Competition Authority…
If the majority of
members (at least 50% of the votes) vote
AGAINST
the change,
the amalgamation with Discovery Health Medical Scheme will not
continue. This means the Board will have to re-visit
other options to
ensure the financial sustainability of the Scheme.’
[9]
An opinion in respect of the amalgamation was obtained from a
consulting actuary,
who gave an assessment of the proposed
amalgamation which was made available to the relevant employees. A
presentation was given
to the employees concerning the implications
of the amalgamation which had the advantage that there would be no
waiting periods
(normally 3 months) for members who transferred and
also no prejudice to them in respect of pre-existing conditions.
[10]
The majority of members voted for the amalgamation which was then
effected in 2013.
[11]
Not long after the amalgamation the PRMA liability increased
significantly and posed a foreseeable
problem for profitability.
Medical aid inflation was considerably in excess of the consumer
price index (“CPI”). Nampak
then decided to exercise the
discretion in clause 4.1 of the policy to limit the PRMA liability in
respect of future pensioners
by setting a maximum level at which it
was prepared to contribute to PRMA. Instead of paying the full amount
of the increase in
premiums levied by the Discovery scheme from year
to year, as it had up to that point, Nampak opted to limit its
contribution to
the amount of the premiums plus the annual percentage
increase in the CPI as determined by Statistics South Africa. The
limitation
was in accordance with the general increase in costs
within Nampak, the increase in premiums in the previous medical aid
scheme,
and the increases in the salaries of the relevant employees.
[12]
On 25 September 2014, Nampak addressed a letter to relevant employees
which stated:
‘
In
an attempt to ensure the long term future of Nampak and its
employees, Nampak will, with effect from 30 September 2014, determine
the value of the monthly subsidy that each qualifying employee will
receive after his or her retirement. This amount will be equal
to 50%
or 100% (as applicable) of the cost of the monthly medical scheme
contribution for the applicants and their spouses (if
applicable) as
at 30 September 2014, and the annual amount increase will be capped
by a percentage equal to the annual change in
consumer inflation as
measured by the official Consumer Price Index (“CPI”)
published by Statistics South Africa.’
[13]
A few months later in November 2014, Nampak’s employees were
advised that Nampak was selling
its tissue, corrugated and sacks
businesses to the other respondents. In terms of the sale agreements,
the PRMA liability of Nampak
was retained by Nampak and did not
transfer to the purchasers of the relevant businesses. The employees
became concerned that the
sales of the businesses, coupled with the
retention of the PRMA liability, had a negative effect on Nampak’s
capacity to
pay the PRMA.
[14]
In response to employee concerns Nampak made presentations to the
employees explaining the rationale
of the capping and considered
their representations. During the consultation, a suggestion was made
by employees that Nampak should
offer to buy out its PRMA liability.
The consultation process culminated in Nampak making an offer to the
relevant employees on
24 April 2015. The relevant part of the offer
letter reads:
‘
Comments
from a range of employees during Nampak’s consultative process
have indicated that the nature of the subsidy itself
is not ideal for
all employees as, for example, some employees are unlikely to reach
retirement with Nampak and others believe
they will be able to
achieve better benefits themselves at retirement with the current
value of the benefit…
Nampak has therefore
decided to make eligible employees a settlement offer in respect of
this post-retirement subsidy benefit, based
on the value of the
benefit that has accrued with service to date, being the value that
is currently carried by Nampak in its books.
However, where an
employee’s current value is less than R100 000, Nampak has
agreed to increase the amount offered to
R100 000…..
In return for you waving
all future medical scheme subsidy benefits for you and your
dependants, Nampak is offering to pay the settlement
value for
employees who qualify on one of two options: i) payment to the member
in cash (which is taxable); ii) payment into the
employee’s
pension/provident fund account (which is a non-taxable transfer)….
Acceptance of the
settlement offer is voluntary and eligible employees can choose to
continue with the current subsidy policy in
place….
This is a once-off offer
and completely voluntary – you do not have to accept it.
However, it must be emphasised that the
offer will not be repeated.
Eligible employees who do not accept the offer will receive a subsidy
on retirement form Nampak, subject
to the CPI cap as communicated to
employees in October 2014.’
[15]
The letter of 24 April 2015 gave a clear indication of the manner in
which the settlement value
was calculated individually for each
eligible employee. The value of the offer was calculated in the same
way that Nampak valued
its obligation for the purposes of its annual
financial statements. The letter pointed out that the exact value of
the future subsidy
could not be precisely known, but constituted an
estimate based on rational assumptions regarding: i) future
investment returns;
ii) future levels of CPI; iii) the probability of
each member reaching retirement age with Nampak; and iv) the number
of years
that the subsidy will be paid after retirement.
[16]
In excess of 70% of the relevant employees accepted the offer –
at a cost of R236 million
to Nampak. An offer in respect of the PRMA
liability was also made to the retired employees, pensioners, who
remained members of
the scheme. About 75% of the pensioners accepted
the offer at a cost of about R500 million to Nampak. The appellants
did not accept
the offer. They instead opted for the default option
and sought to challenge the decision to cap the PRMA benefit.
[17]
On 26 June 2015, the attorneys of the appellants addressed a letter
to Nampak requesting it to
reverse the capping decision alleging that
it had unilaterally changed the appellants’ terms and
conditions of employment
or alternatively had committed an unfair
labour practice as contemplated in section 186(2)
(a)
of the Labour Relations Act
[1]
(“the LRA”). The dispute was eventually referred to the
Labour Court in July 2016. It appears that the Labour Court
accepted
jurisdiction in respect of the contractual claim in terms of section
77(3) of the Basic Conditions of Employment Act
[2]
(“the BCEA”). Objection was taken at the hearing to its
jurisdiction in respect of the alleged unfair labour practice.
The
Labour Court rejected the jurisdictional point for reasons that are
opaque and badly formulated in the judgment. However, there
is no
cross-appeal against the finding. Consequently, we will assume that
the Labour Court had jurisdiction in relation to the
unfair labour
practice dispute.
[18]
The appellants sought orders declaring the capping of the PRMA
benefit and the decision of Nampak
to retain the liability to be
breaches of contract and unfair labour practices. They requested
specific performance, contractual
damages and/or compensation in
terms of section 194 of the LRA. In pre-trial proceedings, it was
agreed that only the issue of
substantive fairness would be
determined in relation to the unfair labour practice claim. The
Labour Court dismissed the application
in its entirety holding in
effect that the exercise of the discretion in clause 4.1 of the
policy and the retention of the PRMA
liability by Nampak were
reasonable (thus not in breach of contract) and fair.
The validity and scope
of clause 4.1 of the policy
[19]
The appellants raise various grounds of appeal. They contend firstly
that clause 4.1 of the policy,
conferring the discretion to cap the
PRMA benefit, is void for vagueness. Although not pleaded, the legal
point is deserving of
consideration.
[20]
The intention of the relevant clauses of the policy is clear. Clause
3.3.3 conferred on employees
who commenced employment before 1 June
1996 and who reached retirement age with at least 25 years continuous
years’ service
and 10 years membership of an acknowledged
medical aid scheme the right to receive 100% of their medical aid
contributions post-retirement;
while clause 3.3.5 conferred on
employees who had been continuous members of a medical aid society
for more than five years with
at least five years but less than 25
years continuous service the right to receive 50% of the medical aid
contributions. These
entitlements were expressly made “subject
to” clause 4 of the policy. Clause 4.1 of the policy bestows on
Nampak a
“sole discretion” in respect of
future
pensioners
, being all its employees who had not reached
retirement age, to set a maximum level at which it is prepared to
contribute towards
medical aid society benefits post-retirement. In
other words, Nampak reserved to itself the right to alter the PRMA
benefit in
respect of employees in whom the benefits under clauses
3.3.3 and 3.3.5 of the policy had not vested.
[21]
The appellants argued that a term purporting to afford Nampak a sole
discretion to determine
its own performance is void. They relied in
this regard on
NBS
Boland Bank Ltd v One Berg River Drive CC and Others
[3]
to submit that “no promise can be valid if it lies wholly
within the choice of the promissor.” A careful reading of
the
judgment discloses that it is not authority for the proposition
advanced by the appellants.
[22]
The question before the Supreme Court of Appeal (“the SCA”)
in
NBS Boland Bank Ltd v One Berg River Drive
CC and Others
was whether a clause in a mortgage bond
conferring upon the mortgagee the right to unilaterally increase the
original rate of interest
payable by the mortgagor is valid. Lower
courts had concluded that such a clause was invalid because a term of
a contract leaving
it to the will of one of the parties to determine
the extent of his or the other party’s presentation is void for
vagueness.
The SCA conceded that such was undoubtedly the view of
Roman Dutch Law writers, but only in regard to the determination of
the
price in a sale and the rental in a lease. However, it felt that
the principle, even narrowly applied to sales and leases, did not
accord with modern legal systems. It is thus doubtful that courts
should continue to follow the principle. The SCA considered it
unnecessary to decide the point because the rule does not apply to a
contractual power to fix a prestation other than a price or
rental.
It held there was no reason to extend the common law rule to other
types of contractual discretions.
[23]
Hence, generally, a stipulation conferring upon a contractual party
the right to determine a
prestation is unobjectionable. There is
accordingly no basis to hold clause 4.1 of the policy invalid and the
Labour Court did
not err in making that finding. This does not mean,
as the Labour Court correctly understood, that an exercise of such a
contractual
discretion is necessarily unassailable. In terms of our
common law, unless a contractual discretionary power was clearly
intended
to be completely unfettered, an exercise of a contractual
discretion to alter a prestation must be made
arbitrio
bono viri
(reasonably).
[4]
The essential question in this case, therefore, is whether Nampak
exercised its discretion under clause 4.1 of the policy reasonably.
[24]
Before turning to that question, we need first to consider another
preliminary argument advanced
on behalf of the appellants.
The
appellants maintain that Nampak had already exercised its discretion
to set a maximum level of benefit long before it decided
to implement
the cap in 2014. They claim that when Nampak exercised its discretion
in 2006 to confer the benefits in clauses 3.3.3
and 3.3.5 of the
policy it did so for all its employees for all time. Once the
discretion was exercised (by adopting clauses 3.3.3
and 3.3.5),
neither clause 4.1, nor any other clause in the policy, expressly or
impliedly entitled Nampak to indefinitely retain
a right to
unilaterally amend the employment contract from time to time.
[25]
The argument is untenable. If the predicate were correct, clause 4.1
of the policy would be without
purpose. The object of clause 4.1 of
the policy is self-evident and unambiguous. Nampak reserved to itself
the discretion to cap
its PRMA liability in respect of future
pensioners, being those employees in whom the right to PRMA had not
vested. The benefits
in clauses 3.3.3 and 3.3.5 of the policy vested
in employees only on their retirement. Clause 4.1 of the policy
reflects a clear
intention to permit adjustment (on legitimate or
reasonable grounds) of the PRMA benefit of employees still in
employment prior
to their retirement.
The exercise of the
discretion in terms of clause 4.1 of the policy
[26]
The requirement that a contractual discretion should be exercised
reasonably,
arbitrio bono viri
, means that the relevant party
must not act in bad faith, arbitrarily or capriciously and should
endeavour proportionally to balance
the adverse and beneficial
effects of the proposed decision or action. A court reviewing the
justifiability of such an exercise
of discretion should permit the
holder of discretion a margin of appreciation in balancing the
relevant interests and considerations
and avoid substituting the
discretion with its own merely because it might have exercised it
differently.
[27]
The only witness to testify on behalf of the appellants was Mr
Skinner. He worked for Nampak
for 42 years before retiring in 2015.
Prior to his retirement, he received a cash offer of R892 996 to
buy his PRMA liability.
He declined the offer as he believed it was
not reasonable. He valued his benefit actuarially at about R1,3
million. He essentially
maintains that the capping and retention
decisions were unreasonable because Nampak retained the PRMA
liability while implementing
the cap to make the sale of the
businesses attractive so that it could sell the businesses (without
the PRMA liability) to the
new owners; and that the effect of the
sale to reduce Nampak’s profits in South Africa thus posing a
risk to the funding
of the PRMA liability.
[28]
Mr Skinner contended that Nampak did not act in good faith (or
reasonably) for the following
reasons: i) it conducted insufficient
consultations with employees before implementing the cap and
presented it as a
fait
accompli
;
ii) the cash offers were not reasonable; iii) it did not disclose the
sale of the businesses until after it implemented the cap
or the fact
that Nampak would retain the PRMA liability after the sale; and iv)
it failed to protect its financial position which
supports the
payment of the benefit, because it intended to invest the money
received from the sale in the rest of Africa. Thus,
in his opinion,
Nampak did not exercise its discretion in good faith, did not make a
reasonable offer, and did not protect the
financial position to
support payment of the benefit.
There
was moreover no reason why Nampak could not afford to finance the
uncapped PRMA benefit or pay 100% of the actuarial liability.
[29]
As discussed earlier, Mr Skinner also mistakenly believed that Nampak
was in breach of contract
because his contract provides that after 25
years of service he would get 100% subsidy on his medical aid
contribution. When it
was put to Mr. Skinner that the benefit was not
immutable, he responded that any change would have to be agreed upon.
[30]
The respondents called two witnesses to testify as to the reasons and
justification for the decisions
to cap the PRMA and retain the
liability with Nampak after the transfers of business, namely Ms
Kidd, the compensation and benefits
manager, and Mr O’Brien,
the former Group Legal Adviser and company secretary.
[31]
Ms Kidd testified that the PRMA liability on Nampak’s balance
sheet increased significantly
after the amalgamation of the Nampak
scheme and the Discovery scheme. She elaborated on the gradual
deterioration of the Nampak
scheme and the process of consolidation
with the Discovery scheme. As membership of the Nampak scheme
was not compulsory
there was a decline in the membership. In
addition, the number of employees at Nampak decreased as a result of
the sale of businesses
over time. Between 2004 and 2013 the trustees
of the Nampak scheme were able to manage the contributions and
benefits in such a
way as to keep the liability within control. When
the Nampak scheme amalgamated with the Discovery scheme, Nampak had
less control
over the increasing PRMA liability. She confirmed the
PRMA liability was projected to increase from R1.8 billion in 2014 to
about
R3 billion in 2019.
[32]
Accordingly, various options to control the liability were looked at:
i) the purchase annuities
for the pensioners who were prepared to
accept same; ii) capping the liability of Nampak at an increase at
the rate of CPI; and
iii) making cash offers to existing and future
pensioners. Capping the future contributions to CPI would have
speedily reduced
the balance sheet liability for the active employees
from R517.6 million to R397.9 million.
[33]
Eventually, the cash offers to both pensioners and future pensioners
amounted to R736 million
being the equivalent of approximately 47% of
the price of the sale of Nampak businesses in 2014-2015.
[34]
Ms Kidd further testified that the uncontrollable nature of the PRMA
liability would have drastically
eroded Nampak’s performance
and profitability over time. From 2010 to 2014 Nampak’s
business performed well and at
some point during that period its
share price was approximately R45. However, due to competition, very
tough economic trading conditions
and low barriers to entry for some
of its products, Nampak’s profitability decreased
significantly, cash reduced and its
ability to meet commitments
changed. The share price at the time of her testimony was
approximately R10.
[35]
The growth of the PRMA liability had implications for the income
statement because it had to
be reflected as a matched expense. The
resultant decline in profitability would impact on investors, banks
and financial institutions
willingness to provide cash and loans. It
would also weaken Nampak’s balance sheet, making it difficult
to borrow and invest
in growth assets. The capping would reduce the
matched expense significantly and profitability would improve.
[36]
Ms Kidd indicated during cross-examination that when the PRMA
liability originally was R1 billion,
the matched expense to the
income statement was around R92-million. If the PRMA liability had
grown to R3 billion, as Nampak feared,
the matched expense would have
been three times that amount. Thus, it would have reduced the profit
after tax of 2019 for Nampak,
being R1.3 billion, by as much as R300
million. However, as a result of the cap on the PRMA benefit and the
cash offers, the PRMA
expense on the income statement has been kept
at R100 million. When it was put to Ms Kidd that the test is
whether Nampak
could afford the benefit, Ms, Kidd replied that
affordability is an issue for the employer and that Nampak had
engaged in extensive
restructuring, the sale of businesses, and “a
multitude of strategies” to protect profitability and the
concomitant
capacity to meet the PRMA liability.
[37]
Mr O’Brien confirmed Ms Kidd’s evidence concerning the
rationale for the capping
decision and explained the reason behind
the decision for Nampak to retain the PRMA liability after the sale
of the businesses
in 2015. The purchasers of the businesses were
simply not willing to take over an uncapped or open-ended liability
when medical
inflation was increasing at an extraordinary rate. He
also described how Nampak had previously sold a business with the
medical
aid liability and had transferred an amount equal to the
actuarial value of the liability to the purchaser. Shortly
afterwards,
the purchaser retrenched a number of employees who were
potential beneficiaries of the PRMA and took some of the money
transferred
for the PRMA and “put it back into profits”.
The risk that other purchasers of Nampak businesses might do the same
thus informed the decision to retain within Nampak the PRMA liability
of those employees and pensioners who did not accept the cash
offer.
[38]
Mr O’Brien explained that the money generated from the sale of
businesses was intended
to be used to generate greater returns than
what Nampak was getting from those businesses. The remaining
businesses (metal and
plastics) all required capital expenditure to
improve their competitive position. The group also intended to expand
in Africa where
it hoped for higher returns. Nampak faced a
challenging position with pressure to keep prices down, increased
labour costs, cost
pressures from suppliers, higher energy costs and
increasing PRMA liability. All of these factors impacted negatively
on the profitability
of the company.
[39]
While some of the proceeds of the sale of businesses was applied to
the cash offers to rid Nampak
of the PRMA liability, the agreements
for the sale of the businesses had not been signed at the time the
capping of the PRMA was
proposed. When asked why Nampak did not
disclose the potential sale of the businesses to employees when it
implemented the cap
to the PRMA benefit in September 2014 he
explained that Nampak would only inform employees of a sale of a
business when it was
a done deal. He added during re-examination that
the capping was a decision taken in relation to Nampak as a whole and
the increase
in costs, and was not directly related to the sale of
businesses. If the sale had not gone through then the capping would
still
have occurred.
Evaluation
[40]
The appellants’ contention that Nampak breached their contracts
of employment by not affording
them the benefits set out in clauses
3.3.3 and 3.3.5 of the policy is not sustainable. These clauses, as
explained earlier, are
expressly made subject to the provisions of
clause 4.1 of the policy. The contractual entitlement of the
appellants is restricted
by clause 4.1 of the policy which permitted
Nampak at its discretion to alter the entitlement prior to its
vesting on retirement.
The
claim of the appellants, in the light of clause 4.1 of the policy, is
essentially a claim for an entitlement they did not have
as “future
pensioners”. Accepting that they have no entitlement under
clauses 3.3.3 and 3.3.5 of the policy, their
dispute amounts to a
claim for new rights and is thus akin to a dispute of interest, in
the final analysis a matter for collective
bargaining.
[5]
[41]
There can only be a breach of contract or unfair labour practice if
Nampak is shown to have exercised
its discretion in terms of clause
4.1 of the policy unreasonably or unfairly. The appellants’
case on fairness comes down
to a contention that the PRMA liability
was affordable and capping was accordingly not necessary. As the
matched expense to Nampak
in respect of that liability was only R92
-100 million, and Nampak’s profit after tax in 2019 was R1.3
billion, in their
view, Nampak could afford, and can still afford, to
pay the uncapped PRMA benefit.
[42]
The issue of affordability is not decisive. When assessing whether
the employer has acted reasonably
or fairly in exercising its
discretion to alter its prestation, its operational requirements are
undoubtedly a relevant consideration.
An intention to increase
profitability is an entirely legitimate commercial rationale. The
unfair labour practice jurisdiction
is not meant to restrict the
proper pursuit of profit by the employer. The point was made by Zondo
JP (as he then was) in
Frys
Metals (Pty) Ltd v National Union Metal Workers of SA & others
[6]
when he said in relation to the commercial rationale for operational
requirements dismissals:
‘
[A]ll
the Act refers to, and recognises, in this regard is an employer’s
right to dismiss for a reason based on operational
requirements
without making any distinction between operational requirements in
the context of a business the survival of which
is under threat and a
business which is making profit and wants to make more profit.’
[7]
[43]
The evidence establishes convincingly that Nampak was constrained in
its operations and pursuit
of profitability by a number of
cost-factors and adverse business conditions, including the
indisputable fact that medical inflation
was outstripping the CPI by
a considerable margin. The earlier decision (accepted by a majority
of its workforce) to amalgamate
its unviable medical scheme with the
Discovery scheme had unanticipated financial consequences. Those
consequences impacted on
shareholder value, the profitability of the
company and its ability to finance its operations. As Mr O’Brien
testified, Nampak
faced a challenging position with pressure to keep
prices down, increased labour costs, cost pressures from suppliers,
higher energy
costs and increasing PRMA liability. The difficulty it
faced was reflected in the downward trend of its share price. Nampak
consequently
engaged in extensive restructuring, the sale of
businesses and strategies to protect profits and the PRMA liability.
These are
matters falling within executive and managerial
prerogative.
[44]
The solution opted for by Nampak in relation to the PRMA was to
exercise its contractual right
to cap its liability; and after
consultations with its employees and pensioners it purchased the
individual PRMA liabilities of
willing employees and pensioners at
settlement values which although discounted were calculated fairly in
accordance with appropriate
actuarial assumptions. More than 70% of
the active employees and the pensioners accepted the cash offers made
to them, indicating
that the offers had obvious advantages, not least
being the transfer of the ownership of and control over the assets
backing the
individual PRMA liabilities from the employer to the
employees and pensioners. In such circumstances, the decision to cap
the benefit
of the employees who preferred the respondents to retain
their PRMA liability was reasonable. There is no evidence of any
illegitimate
or ulterior motive or caprice. The process was
transparent and sought fairly to balance proportionally the competing
interests
at stake.
[45]
Likewise, there is no merit in the contention that Nampak acted
capriciously or in bad faith
in the sale of businesses or by using a
portion of the selling price to buy out the PRMA liabilities. There
is no evidence gainsaying
Mr O’Brien’s testimony that the
capping was a decision taken in relation to Nampak as a whole and the
increase in costs,
and was not directly related to the sale of
businesses. If the sale had not gone through then the capping (though
perhaps not the
cash buy outs) would still have occurred. Also there
were sound commercial grounds for retaining the PRMA liability within
Nampak
in light of its negative experience with past transfers of
business. The retention of the liability within Nampak was more
likely
to protect those employees who opted not to accept the cash
offer.
[46]
Hence, the Labour Court did not err in its conclusion that the
respondents had not acted unreasonably
or unfairly in breach of
contract and had not committed a substantive unfair labour practice.
[47]
As this matter is principally a contractual claim in terms of section
77(3) of the BCEA, the
ordinary rule that costs should follow the
result applies.
[48]
In the premises, the appeal is dismissed with costs.
______________
JR Murphy
Acting
Judge of Appeal
Davis
JA and Kathree- Setiloane AJA concur in the judgment.
APPEARANCES:
FOR THE APPELLANTS:
PH Kirstein
Instructed by Marius
Scheepers Attorneys
FOR THE RESPONDENTS:
A Snider SC
Instructed
by Cliffe Dekker Hofmeyr Inc
[1]
Act
66 of 1995.
[2]
Act
75 of 1997.
[3]
1999
(4) SA 928 (SCA).
[4]
Dharumpal
Transport (Pty) Ltd v Dharumpal
1956 (1) SA 700
(A) 707 A-B;
Moe
Bros v White
1925 AD 71
,77;
Holmes
v Goodall and Williams Ltd
1936 CPD 35
,40;
Belville-Inry
(Edms) Bpk v Continental China (Pty) Ltd
1976
(3) SA 583
(C) 591 G-H; and
Remini
v Basson
1993 (3) SA 204 (N) 210 I-J.
[5]
Section 1(c) of the LRA stipulates that one of the purposes of the
LRA is to provide a framework within which employees and employers
can collectively bargain to determine wages, terms and conditions of
employment and other matters of mutual interest.
[6]
(2003)
2 ILJ 140 (LAC) at para 33.
[7]
At
para 33. See also
General
Food Industries v Food and Allied Workers Union
(2004)
ILJ 1260 (LAC) para 52