Enterprise Foods (Pty) Ltd v Allen and Others (CA13/2002) [2004] ZALAC 5; [2004] 7 BLLR 659 (LAC); (2004) 25 ILJ 1251 (LAC) (11 May 2004)

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[2004] ZALAC 5
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Enterprise Foods (Pty) Ltd v Allen and Others (CA13/2002) [2004] ZALAC 5; [2004] 7 BLLR 659 (LAC); (2004) 25 ILJ 1251 (LAC) (11 May 2004)

IN THE LABOUR APPEAL COURT OF SOUTH AFRICA
HELD IN
JOHANNESBURG
Case
No. CA 13/2002
In the matter
between:
ENTERPRISE
FOODS (PTY) LTD.
Appellant
and
ALLEN &
11 OTHERS
Respondent
JUDGMENT
DAVIS
AJA
INTRODUCTION.
[1] This is an appeal against a judgment of
Cheadle AJ
sitting
in the Labour Court which was delivered on 11 June 2002 in which the
learned Acting Judge found that the dismissal of respondents
was
substantively and procedurally unfair. The Court a quo ordered that
the appellant pay each respondent an amount equal to twelve
months’
remuneration. Appellant has now appealed against the whole judgment
and order which was granted.
THE FACTS
.
[2] Appellant operates a business in the processed meat industry and
manufactures polony, viennas, spreads, bacon, ham and other
canned
meat products. In 1993 appellant merged with Renown Foods which
resulted in the acquisition of several abattoirs and processing
plants across the country. In particular, it acquired a processing
plant located in Pietersburg that focused on emulsion products,
a
plant in Germiston which focused on muscle cut products and a plant
in Maitland, subsequently moved to Montague Gardens, which
manufactured a range of processed meat products and ‘Herti’
meats.
[3] As a consequence of the merger it appeared that there was a
duplication in function at various of the plants and for this reason
the operations of the merged company were in need of a process of
rationalisation. A project team worked on a rationalisation plan
during 1997 together with an American consultant, Mr Brett Thompson.
The team examined all the factories and plants within appellant’s
organisation and Thompson in particular recommended that appellant
should look closely at establishing ‘focused factories’.
According
to Mr Scholtz, who testified on behalf of appellant, the
project team made no specific proposal, was not approved by the
board and
‘it was left unshelved’.
[4] In 1998 appellant decided to upgrade its Pietersburg plant which
was over 40 years old and where the machinery was in urgent
need of
replacement. In July 1998 appellant purchased new machinery at a
cost of R40 m. The new production facility in Pietersburg
was
completed with great speed and the first viennas were manufactured
at the plant in June 1999.
[5] According to Mr Scholtz, it was always part of appellant’s plan
to upgrade the Pietersburg plant to divert the production of
polonies
and viennas from the Montague Gardens factory to the newly
commissioned Pietersburg plant.
[6] Mr Scholtz testified that appellant did not plan to close down
the Montague Gardens plant, albeit that approximately 40% of its
production would have been so diverted to Pietersburg. Appellant’s
case was that the decision to close Montague Gardens was precipitated
by a shareholder demand to reduce costs in order to ensure the
achievement of a profit target, namely a 25% return on appellant’s
funds. At this stage, Mr Scholtz established a project team to
investigate measures to ensure that appellant’s return on funds
for
that year, being 9%, could be increased so as to meet shareholder
expectations. A business plan was developed and presented
to
appellant’s executive committee on 25 May 1999 and to the board of
directors on 9 June 1999.
[7] According to the evidence presented to the court
a quo,
the presentation to the board included the view that appellant’s
performance had been negatively affected by exchange rates, interest
rates, trends in consumer behaviour and low chicken prices. There
was an unnecessary duplication of production facilities within
the
organisation and the new automated process at Pietersburg meant that
there was now space capacity which could be used at far
less cost
than retaining production elsewhere. The rationalisation plan
prepared by Mr Scholtz’s team included the recommendation
that the
Montague Gardens facility be closed and the plan contained the
estimate that 733 employees would be rendered redundant of
which 394
were employed at Montague Gardens.
[8] A minute of an executive committee meeting of 25 May 1999
confirms that this committee analysed and then approved of the plan.

On 9 June 1999 the board of directors approved the plan.
[9] On 12 July 1999 Mr Scholtz together with Mr Korff, the human
resources director of appellant, traveled from Johannesburg to Cape
Town to inform employees at Montague Gardens of these developments. A
presentation was made to the management team and thereafter
to all
salaried staff and shop stewards of the unionised workforce. A
written notice summarising the presentation was also put on
the
notice board at the Montague Gardens plant. In this written notice,
employees were informed that it was with regret that the
appellant
was required to announce that, owing to extremely poor economic
conditions and resultant operational requirements, management
had
little choice but to restructure appellant. They were also informed
that the process ‘may regretfully result in the closure
of the
plant’. Employees were informed that management would be available
for consultation with employees and/or their representatives
as from
12 July 1999 and that the consultation process should ideally be
finalised by 31 July 1999 and, if no alternative to retrenchment
could be found, the notice month would be August 1999.
[10] On 12, 13, 20, 22 and 27 July 1999 consultations were held with
individual members of management at Montague Gardens. At the
termination of this process, respondents were given notice on 31 July
1999 that they would be retrenched with effect from 31 August
1999.
The
finding of the Court
a quo
.
[11]
Cheadle AJ
found that the conduct of appellant had been
both substantively and procedurally unfair. He found that the
decision to close down
the Montague Gardens plant had been directly
attributable to the shareholders’ requirement for a 25% return on
funds. Thus Cheadle
AJ said ‘It was that requirement that
triggered the establishment of the project team under Mr Scholtz. No
evidence was led on
why 25% was required. There may have been very
good reasons for doing so. But in the fact of the closure of a
profitable plant,
the retrenchment of 733 employees and the fact that
the restructuring plan was not a long-term solution, the company was
required
to explain why the shareholders’ demand for a 25% return
was operationally required.’
[12] As
Cheadle AJ found that the appellant was unable to provide a
satisfactory explanation, he held that appellant had failed to
prove
that its primary reason was either operationally required or fair.
[13] Regarding procedural unfairness,
Cheadle AJ
found that
the consultation process had in effect taken place after the
shareholders’ approval for the restructuring had been given
on 9
June 1999. At the very least the document tabled at a meeting of the
executive committee of appellant on 25 May 1999 illustrated
the
desire of appellant to ensure that the new plant at Pietersburg
became operational before any announcement was made regarding
Montague Gardens for ‘this timing will give Pietersburg at least a
month to sort out start up problems before the Montague Gardens
announcement’. In short, the process of consultation had taken
place long after the appellant had contemplated a restructuring
of
its organisation in general and the closure of Montague Gardens in
particular.
SUBSTANTIVE
FAIRNESS
.
[14] Mr Van der Riet, who appeared on behalf of appellant, submitted
that the court
a quo’s
focus on the
shareholders’ intention to earn 25% return on capital missed the
fundamental basis upon which the restructuring was
predicated. He
submitted that the unchallenged evidence of appellant’s witnesses
was that in the 1998/1999 financial year various
factors, including
lower sales volumes, resultant pressure on prices, an exchange
control crisis in South Africa and a world surplus
of protein had
impacted negatively on the profitability of appellant. As a result
of these factors, by May 1999 the return on capital
had decreased
from 19% at the end of the previous financial year (at the end of
August of that year) to 9%. Appellant was clearly
concerned with
falling profit margins and accordingly appointed a project team to
investigate the restructuring of its organisation
during which period
the team revisited a rationalisation plan produced by Mr Thompson in
1997. Mr Van der Riet contended that the
investment of R40 m in the
Pietersburg plant did not entail an automatic closure of the Montague
Gardens plant. He submitted that
nothing on the record supported the
conclusion to the contrary. However, with the subsequent but rapid
deterioration of market conditions,
a further consideration of
possible duplication of production facilities was undertaken.
Following this, appellant decided to concentrate
facilities in the
Gauteng area which was the source of the vast bulk of appellant’s
business. It was these developments that necessitated
the
reconsideration and ultimate decision to close down certain
facilities, including Montague Gardens.
[15] Significantly Mr de Klerk, who appeared on behalf of
respondents, did not contest the existence of ‘justifiable
grounds’
for the restructuring of appellant’s organisation. He
submitted, however, that the need to restructure had initially been
triggered
when appellant merged with Renown Foods in 1993. The
‘Thompson’ report in 1997 clearly indicated the need to reduce
unnecessary
duplication of production and to focus appellant’s
business in the area where its largest market was located. Mr de
Klerk submitted
further that the adverse economic conditions in 1999
might have played a role but were not the overriding cause for the
closure of
the Montague Gardens plant.
[16] On the basis of Mr de Klerk’s submission, it appears that
respondents’ complaint had less to do with the existence of
justifiable
objective reasons for the restructuring of appellant’s
business than with the manner in which appellant had sought to argue
its
case in respect of the substantive fairness of the dismissals. In
fact the respondents accepted that there were justifiable economic
reasons for closing the plant.
[17] Manifestly,
the executive committee of a company, such as appellant, is far
better positioned than a court to determine the basis
for a
significant business decision such as the restructuring of
operations. However, as
Zondo JP
said in
CWIU and Others v
Algorax (Pty) Ltd
[2003] 11 BLLR 1081
(LAC) at para 69 concerning
the question of fairness of a dismissal: ‘When either the Labour
Court or this Court is seized with
a dispute about the fairness of a
dismissal, it has to determine the fairness of the dismissal
objectively. The question whether
the dismissal was fair or not must
be answered by the Court. The court must not defer to the employer
for the purpose of answering
that question. In other words it cannot
say that the employer thinks it is fair, and therefore, it is or
should be fair’. The Court
must examine whether there is a fair
reason to dismiss. If as
Zondo JP
noted in
Algorax, supra
there are two rational solutions, one of which preserves jobs,
fairness as mandated by the Labour Relations Act 66 of 1995 (‘the
Act’) dictates that this is the solution that must be adopted by
the employer (at para 70).
[18] Mr
de Klerk’s concession was therefore wisely made. On the record,
there were objective reasons for the restructuring of appellant’s
organisation, which included job losses, notwithstanding that not all
elements of the reasons had been raised by appellant when it
presented its case before the Court
a quo
. In my view,
therefore, the dismissal of respondents was not substantiantively
unfair.
PROCEDURAL
UNFAIRNESS.
[19] Mr van der Riet submitted that management has a duty to manage
the enterprise as effectively as it can. In the event that
an
enterprise is confronted with difficult economic problems, there must
be an investigation and plans should be formulated to deal
with the
problem. He submitted that the law relating to retrenchment does not
prohibit management from engaging in these initiatives
before
discussing these problems with employees. On Mr van der Riet’s
submission, the law relating to retrenchment only requires
management
to present its plan as a proposal and to have an open mind regarding
alternative proposals emanating from its employees
during the
consultation process.
[20] Mr van der Riet submitted that the evidence indicated that
appellant understood that it was under a legal obligation to consult
fairly with affected employees before it could implement any
restructuring plan. The plan which was presented to employees was
described as ‘’n voorlopige besluit’ and employees were then
invited to consult about whether or not the proposal should be
implemented. Mr van der Riet also submitted that, after the
consultation process had taken place from 12 July 1999 no attempt
had been made by respondents to formulate alternative plans or to
object
strenuously
to the process which had been initiated by
appellants.
[21] Mr de Klerk submitted that the facts showed that appellant had
embarked on a restructuring exercise in 1998 when it decided
to
invest heavily in its Pietersburg plant and must have contemplated
the possibility of retrenchments at that stage when a decision
was
made to shift some 40% of Montague Gardens production to the
Pietersburg plant.
[22] Section
189(1) of the Labour Relations Act 66 of 1995 (‘the Act’)
provides:
“
When an employer contemplates dismissing one or more employees
for reasons based on the employer’s operational requirements, the
employer must consult –
any
person whom the employer is required to consult in terms of a
collective agreement;
if
there is no collective agreement that requires consultation –
a
workplace forum, if the employees likely to be affected by the
proposed dismissals are employed in a workplace in respect of
which
there is a workplace forum; and
any
registered trade union whose members are likely to be affected by
the proposed dismissals;
(c) if there is no workplace forum in the workplace in which the
employees likely to be affected by the proposed dismissals are
employed,
any registered trade union whose members are likely to be
affected by the proposed dismissals; or
if
there is no such trade union, the employees likely to be affected by
the proposed dismissals or their representatives nominated
for that
purpose.”
[23] The phrase which is required to do the key work in this section
is “
when an employer contemplates…the employer must
consult...”
In my view, the word ‘contemplate’ does not
exclude an employer from developing a preliminary approach upon which
a decision
may be based. Hence Mr Van der Riet is correct to contend
that appellant could investigate a new plan without consultation.
However as
Cheadle AJ
noted in
his judgment ‘Fundamental to
bona fide
consultations
is that the consultations precede the final decision’. Hence in
the present dispute the question that arises is
what the nature and
status of the ‘investigation,’ as Mr Van der Riet called it,
were.
[24] Mr Van der
Riet submitted that the final decision had not yet been taken when
the board made ‘a decision’ at its meeting
on 9 June 1999,
notwithstanding that there is nothing in the minutes of the board
meeting which suggests that the board contemplated
a further process
of examination, pursuant to alternative proposals having been made by
the affected employees. However, Mr Van
der Riet emphasized that,
when Mr Scholtz made his presentation to the employees at Montague
Gardens, the slides he employed reflected
that what had been taken
was ‘’n voorlopige besluit’. Thus Mr Van der Riet contended
that respondents had been presented
with no more than ‘a
provisional’ decision.
[25] Significantly
the slide presentation also contained the following: ‘Bg het
genoodsaak dat die volgende besluit geneem is:….
sluit en verkoop Montague Gardens
aanleg’. Thereafter the following appears on the slide:
‘Bogenoemde besluit het niks te doen
met Montague se werksprestasie, of resultate nie. Die mark vir ons
produkte lê in Gauteng
en Natal (70%). Inteendeel, is tans en sy
span by baie geleenthede uitgewys as die span met die meeste
vaardighede. Ons verloor
uitstekende werkers voor ons julle ‘n
geleentheid gee om vrae te vra, gaan Hennie julle inlig t.o.v.
wanneer die fabriek sluit,
retrenchment pakette, ens’.
[26] While
there is little evidence to suggest that at the consultations on 12
and 13 July respondents offered any alternative to
the closure of
the plant, the minutes of the consultation meeting held on 20 July
reflects a different picture from that suggested
by Mr Van der Riet.
For example, the following appears in the minutes:
‘
Charles (Smith
):
The general consensus was that the process was not correct. The
notice of 12 July said the plant will close – the process was
decided before hand…..
Charles (Smith):
If you look at the Act,
the process of consultation with people, why wasn’t it discussed
with management two months ago? If the
process started earlier, a
management buy-out could have been possible…..If we were informed
six weeks ago, when the process was
initiated, when top management
knew that the closure was a possibility, then we could have made a
plan.’
[27] Mr
Korff is then reflected as saying the following: ‘The Labour Law
consists of a number of issues which include Labour Law,
Common Law
and judgments. There is a mechanical check list that is important.
The proper approach is to come to consensus. We
came down to
Montague to inform the people personally. We could have faxed the
notification to you but we wanted to do it face to
face and discuss
it personally.’
[28]
Kurt Rietman is then reported as saying ‘Let us come back to one
point, namely, everyone should be notified of the possibility
of
closure. This case is not a maybe, it is a cut and dry case that the
factory will close 31 August. When Mr Korff suggested that
respondents could provide appellant with alternatives Mr Smith said ‘
If the factory close, the assets must be moved before 31
August.
(sic) We do not know what are for sale. If this process was started
earlier, we could have tried’.
[29] Far
from passively accepting the decision of appellant, it appears that
respondents were aggrieved by the manner in which they
were informed
of the decision and it was their perception, as is evident from these
minutes, that a final decision had already been
made. The only
evidence which was offered to the contrary was that of Mr Korff to
the effect that he had reported to Mr Havenga,
the managing director
of appellant, as well as Mr Scholtz’s testimony that both he and Mr
Korff had reported to the shareholders
subsequent to the meetings of
12 and 13 July. Significantly, after having received that report,
shareholders wanted to bring the
date of closure forward to the end
of July but they were ultimately persuaded that this was not
possible.
[30] In
summary, there is no evidence that the decision taken at the board
meeting on 9 June 1999 which followed upon the executive
committee
meeting of 25 May 1999 was intended to be anything other than a final
decision. The manner in which the presentation by
Mr Scholtz was
phrased, is indicative that the so-called process of consultation was
nothing more than a procedure designed to inform
affected employees
of a decision already taken.
[31] Given
that the statutory obligation upon appellant was to consult employees
when it contemplate the dismissal of such employees,
the manner in
which appellant sought to discharge its obligation falls far short of
the standard demanded by section 189 in which
a
bona fide
consultation is required to precede a final decision to dismiss.
RELIEF.
[32] In
ordering that the appellant must pay each of the respondents an
amount equal to twelve months remuneration,
Cheadle AJ
preferred
the evidence of respondents over that of appellant, to the effect
that the process which began on 12 July 1999 was not
a proper
process of consultation and that respondents had ‘been presented
with
a fait au accompli
- a decision which had been made by
the company to close the Montague Gardens plant before the
announcement and the consultations.’
[33] In
my view, there is nothing on the record to disturb this finding nor
the relief which followed as a consequence thereof, namely
that each
respondent should be awarded twelve months remuneration calculated at
their respective rates of remuneration on the date
of dismissal.
[34] For these reasons the appeal is dismissed
with costs.
D.M. Davis
I agree
_____________
Zondo JP
I agree
___________
Jafta AJA
Appearance:
For the Appellant : Adv Van der Riet SC
Instructed by : Cliff Dekker INC
For the Respondent : Mr De Klerk
Instructed by : De Klerk Attorneys
Date of Judgement : 11 May 2004