Brief Summary

Labour Law — Unfair Dismissal — Substantive unfairness in retrenchment — The appellant, MTN Group Management Services (Pty) Ltd, retrenched the respondents, Mweli and Nakedi, from its Group Business Risk Management division following a restructuring process recommended by Ernst & Young. The respondents claimed their dismissals were substantively and procedurally unfair, alleging inadequate consultation and discriminatory practices. The Labour Court found the retrenchments substantively unfair due to the lack of fair and objective selection criteria applied during the process. The appeal court upheld the Labour Court's decision, confirming the substantive unfairness of the dismissals and the order for re-employment and compensation.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter concerned an appeal in the Labour Appeal Court against a judgment of the Labour Court (Moshoana J) in which the retrenchment (dismissal for operational requirements) of two employees was found to be substantively unfair. The appeal was heard and determined by the Labour Appeal Court (Davis JA, Murphy AJA and Savage AJA), with judgment delivered on 8 December 2020.

The appellant was MTN Group Management Services (Pty) Ltd (“MTN”). The respondents were two former employees in MTN’s Group Business Risk Management division (“BRM”), namely Mr Sphiwe Mweli (first respondent) and Ms Olga Nakedi (second respondent).

The procedural history was that, following an internal restructuring process conducted under section 189 of the Labour Relations Act 66 of 1995 (“LRA”), the respondents were retrenched with effect from 30 May 2016. They challenged their dismissals in the Labour Court. The Labour Court held the dismissals to be procedurally fair but substantively unfair, granted re-employment relief to Mr Mweli and 12 months’ compensation to Ms Nakedi, and made no costs order. MTN appealed (with leave of the Labour Appeal Court). On appeal, the Labour Appeal Court was required to determine whether the Labour Court was correct on substantive fairness and, if not, what the correct order should be.

The general subject-matter of the dispute was the fairness of selection for retrenchment in the context of a restructuring where affected employees were invited to apply and compete for posts in a new structure, and where the selection outcome (non-appointment) was used as the basis for retrenchment.

2. Material Facts

MTN employed the respondents in its BRM division, with Mr Mweli commencing employment on 1 October 2010 as Senior Manager: Risk Support, and Ms Nakedi commencing on 12 January 2009 as Senior Manager: Audit and Risk Support. The BRM division included internal audit, fraud risk management, and risk management.

During 2015, Ernst & Young (“EY”) reviewed the BRM division following MTN’s decision to strengthen governance and controls. EY recommended that the BRM function be strengthened and restructured, and MTN’s audit committee accepted this recommendation on 27 November 2015. The existence of a restructuring rationale was accepted by the Labour Court on the evidence, and the commercial rationale for restructuring was not pursued as an issue on appeal.

On 5 February 2016, MTN issued a notice in terms of section 189(3) of the LRA to the 15 BRM employees inviting them to consult on the proposed restructuring. The notice recorded that the restructuring was aimed at addressing “gaps and inefficiencies”, responding to MTN’s evolving business model and strategy, and realigning BRM with business and governance needs. It indicated that nine employees were likely to be affected and that it was expected that at least five might be retrenched. The notice proposed a selection method directed at retaining skills best suited to the positions in the new structure, and, where candidates were considered equal, applying LIFO (last-in-first-out).

Consultations took place on 11 February 2016, 25 February 2016, and 10 March 2016. MTN finalised a new organisational structure and engaged a consultant to map old positions into the new structure. The mapping methodology was that where there was a 60% or more overlap between old and new positions, incumbents would be placed into corresponding posts in the new structure. Where there was not such overlap, the employee would not be automatically placed and would become an affected employee. It was common cause in the appeal judgment that no employee objected to the mapping process during consultations.

Nine employees, including both respondents, were not mapped into the new structure and became affected employees. On 14 March 2016, MTN circulated job profiles for new positions and conducted one-on-one consultations. Affected employees were invited to apply for posts in the new structure. Mr Mweli applied for three posts, namely Senior Manager: Business Continuity and Crisis Management, Senior Manager: Risk Management, and Senior Manager: Risk Analytics and Modelling. Ms Nakedi applied for General Manager: Operations and Shared Services and ERM Senior Manager: Risk Management.

Both respondents were interviewed by a panel comprising subject-matter experts and human resources representatives, using interview guides. The panel used a standardised scoring approach for all candidates, and MTN obtained psychometric reports from an external organisation in line with its recruitment approach for senior roles. Following interviews, the respondents (described in the judgment as risk management generalists) were found not suitable for the specialised roles for which they applied and were not appointed. MTN’s evidence was that no other suitable positions could be found for them within MTN South Africa (and that efforts were made within the broader MTN Group), and the respondents were retrenched with effect from 30 May 2016.

In the Labour Court proceedings, the respondents’ pleadings were characterised in the appeal judgment as unclear and confused, including references to unfair labour practice and discrimination allegations. However, the pre-trial minute distilled the dispute as concerning whether they were dismissed unfairly for operational requirements, including complaints about consultation, selection, and the appointment process. The Labour Court found procedural fairness but substantive unfairness. On appeal, the procedural fairness finding and the commercial rationale were not in issue, and the appeal focused on substantive fairness, including selection criteria and alternatives to retrenchment.

3. Legal Issues

The central legal questions before the Labour Appeal Court were whether the Labour Court was correct in holding that the respondents’ retrenchments were substantively unfair on two bases. The first was that the selection method used (non-appointment into the new structure) was not fair and objective as required by section 189(7) of the LRA. The second was that alternatives to dismissal existed, because the Labour Court had reasoned that there were multiple vacancies available.

The dispute primarily concerned the application of law to fact: whether the factual process followed by MTN, including competitive interviews and selection for posts in the new structure, satisfied the statutory and jurisprudential standard of fair and objective selection criteria for retrenchment, and whether the evidence supported a finding that reasonable alternatives to retrenchment existed.

The appeal also raised an evidentiary-evaluative issue about the consequences of the respondents’ failure to challenge or put certain allegations to MTN’s witnesses in cross-examination, and how that affected the sustainability of the Labour Court’s findings.

4. Court’s Reasoning

The Labour Appeal Court identified that the appeal turned on the correctness of the Labour Court’s conclusion that substantive unfairness had been established, specifically regarding the fairness and objectivity of the selection method and the Labour Court’s finding about available alternatives to dismissal. It emphasised that the procedural fairness finding and the commercial rationale for restructuring were not before it.

On selection, the Labour Appeal Court accepted that the operative selection criterion in this restructuring was that an affected employee who was not appointed to a position in the new structure would be selected for retrenchment. It considered that the Labour Court’s approach had relied on Industrial Development Corporation of South Africa Limited v Wolfaardt [2002] ZALC 61, but held that the facts in the present matter were distinguishable. In Wolfaardt, employees were not invited to compete for positions and management handpicked staff and made block appointments, which created arbitrariness and denied employees the opportunity to present facts in support of retention.

By contrast, in the present matter the respondents were required to compete with other affected employees and they chose which posts to apply for. They were interviewed in a competitive process by a panel using a standardised approach, with subject experts scoring candidates and with psychometric evaluation reports considered in accordance with MTN’s global standard for senior roles. The Court recorded that the evidence of MTN’s witness (Mr Singh) on the process and the basis on which candidates were assessed—expertise, experience, qualifications, and psychometrics—was unchallenged.

The Labour Appeal Court addressed the Labour Court’s concern that panel members did not testify and that the Labour Court was therefore not appropriately appraised of a fair appointment process. It held, however, that Mr Singh’s evidence on the recruitment process was not disputed and that the respondents had not challenged the interview process, the scoring, or the justification for the scores in cross-examination. The Court treated this omission as significant, noting the established principle that where a disputed point is not challenged in cross-examination, the party calling the witness is entitled to assume that the witness’s testimony is accepted as correct, relying on President of the Republic of South Africa and Others v South African Rugby Football Union and Others [1999] ZACC 11; 2000 (1) SA 1; 1999 (10) BCLR 1059 (CC) (at paragraph 61).

The Court further reasoned that there was no evidentiary basis for concluding that the panel acted unfairly, subjectively, capriciously, or in bad faith, or that appointment criteria were unfairly applied against the respondents. It accepted MTN’s evidence that the new structure required a greater degree of specialist skills, moving away from generalist skills, and recorded that the material aspects of this evidence were left undisputed in cross-examination. On that evidentiary record, the Labour Appeal Court concluded that the Labour Court’s finding that non-appointment was not fair and objective was unsupported by the evidence.

In addressing section 189(7), the Labour Appeal Court accepted that where selection criteria are not agreed, the statutory requirement is that criteria must be fair and objective. It interpreted MTN’s section 189(3) notice as having proposed a selection method centred on skills retention, with LIFO operating only where candidates were equal in skills and suitability, and considered it “clear” that the underlying mechanism was that non-appointment into the new structure would trigger retrenchment. It rejected the Labour Court’s view that, after the respondents were not appointed, MTN was obliged to propose further selection criteria, reasoning that MTN had contemplated retrenchments at the start of the restructuring (the point at which section 189 consultation must commence) and had already proposed a method at that stage. In the absence of evidence showing that non-appointment, as applied through the competitive appointment process, was unfair or non-objective, the statutory requirement was met.

On alternatives to dismissal, the Labour Appeal Court held that the Labour Court erred in reasoning that dismissal was not the only viable option because “22 other vacant positions” were available. It relied on Mr Singh’s unchallenged evidence that MTN sought vacancies for the respondents within MTN and the broader MTN Group by circulating their CVs, but no suitable positions were found. The Court stressed that the mere existence of vacancies did not establish that such posts were suitable for either respondent and did not, without more, show a viable alternative to retrenchment. It also noted that the respondents did not put to Mr Singh any details of specific positions said to be available. On the undisputed evidence, the Labour Appeal Court concluded that no viable alternative employment existed and that the Labour Court’s contrary conclusion was erroneous.

Having found that the evidence established substantive fairness, the Labour Appeal Court held that the Labour Court’s orders granting re-employment and compensation could not stand. It then considered costs and, applying considerations of law and fairness, made no order as to costs.

5. Outcome and Relief

The Labour Appeal Court upheld MTN’s appeal and set aside the Labour Court’s order. It substituted it with an order declaring that the dismissal of Mr Mweli and Ms Nakedi for operational requirements was procedurally and substantively fair.

As a consequence, the Labour Court’s relief of re-employment for Mr Mweli (with repayment of severance) and 12 months’ compensation for Ms Nakedi fell away. The Labour Appeal Court made no order as to costs.

Cases Cited

South African Breweries (Pty) Ltd v Louw [2017] ZALAC 63; [2018] 1 BLLR 26 (LAC); (2018) 39 ILJ 189 (LAC).

Industrial Development Corporation of South Africa Limited v Wolfaardt [2002] ZALC 61.

President of the Republic of South Africa and Others v South African Rugby Football Union and Others [1999] ZACC 11; 2000 (1) SA 1; 1999 (10) BCLR 1059 (CC).

Legislation Cited

Labour Relations Act 66 of 1995, section 189(1), section 189(2), section 189(3), and section 189(7).

Basic Conditions of Employment Act 75 of 1997, section 77(3).

Employment Equity Act 55 of 1998, section 6.

Rules of Court Cited

No specific rules of court were cited in the judgment.

Held

The Labour Appeal Court held that the Labour Court erred in concluding that the retrenchments were substantively unfair. On the undisputed and unchallenged evidence, MTN’s selection method—selection for retrenchment based on non-appointment into posts in the new structure following a competitive, standardised interview and assessment process—was not shown to be unfair or non-objective, and therefore satisfied the requirement in section 189(7) of the LRA.

The Court further held that the Labour Court erred in finding that alternatives to retrenchment existed merely because vacancies were said to be available. The unchallenged evidence was that MTN attempted to source alternative roles but found no suitable positions for the respondents, and the existence of vacancies did not itself establish suitability or a viable alternative to dismissal.

The appeal succeeded and the dismissals were declared procedurally and substantively fair, with no costs order.

LEGAL PRINCIPLES

Section 189 of the Labour Relations Act 66 of 1995 requires consultation when an employer contemplates retrenchments, and where selection criteria are not agreed, section 189(7) requires that the employer select employees for dismissal according to criteria that are fair and objective.

In a restructuring where affected employees are required to apply for posts in a new structure, selection for retrenchment based on non-appointment may be consistent with fair and objective criteria, provided that the appointment process is not shown on the evidence to be arbitrary, subjective, capricious, or conducted in bad faith, and provided that employees are afforded a fair opportunity to compete for the posts.

A court’s finding that a process was unfair must be supported by the evidentiary record. Where a party does not challenge material evidence in cross-examination, the opposing party may be entitled to treat that evidence as accepted, in accordance with the principle affirmed in President of the Republic of South Africa and Others v South African Rugby Football Union and Others [1999] ZACC 11; 2000 (1) SA 1; 1999 (10) BCLR 1059 (CC).

The existence of vacancies does not, without evidence of suitability and availability for the affected employees, establish that viable alternatives to retrenchment existed. Unchallenged evidence that suitable alternative positions could not be found may defeat a claim that the employer failed to avoid dismissals through available alternatives.

MTN Group Management Services (Pty) Ltd v Mweli and Another (JA78/2019) [2020] ZALAC 72; (2021) 42 ILJ 775 (LAC) (8 December 2020)