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[2009] ZALCD 18
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Saunders v Waco Africa Ltd (D387/06) [2009] ZALCD 18 (4 November 2009)
D387/06/MP/CD JUDGMENT
CASE
NO
D387/06
HEARD
: 21-23
OCTOBER 2009
DELIVERED:
4
NOVEMBER 2009
REPORTABLE
In
the matter between
ROY
SAUNDERS
APPLICANT
and
WACO
AFRICA
LTD
RESPONDENT
JUDGMENT
26
OCTOBER 2009
PILLAY
D J
The applicant
employee claims reinstatement and compensation for unfair
retrenchment. The respondent employer resists the
claim,
contending that it complied with its statutory duties, and further
that it has no post available to reinstate the employee.
The
employer engaged the employee in 1998. By 2001 the employee
held the title of Divisional Director KwaZulu Natal for
the
employer. He was not a director as contemplated in Company Law.
In
August 2001 Dave Best, the Managing Director at the time,
invited the employee to establish and manage its Africa Division.
The employee accepted the invitation on the understanding that Best
had agreed that if the venture did not succeed he would return
to his
old job as Divisional Director. Best could not recall giving
such an undertaking and denied that he would have given
it.
Initially,
the Africa Division secured some lucrative contracts. Overall
it ran at a loss. By November 2004 the
management began
contemplating its closure. In the financial year ending 2005 it
had accumulated a nett loss of R399 million.
By
April 2005 the management decided that if the Africa Division
did not secure a sizable contract in excess of R10 million,
then
the division should close or be incorporated into a branch. By
October 2005 the prospect of securing large contracts
remained
remote.
As a
final effort to ascertain the viability of the division, the employee
and Brian Boyd, the Managing Director of SGB Cape
South, an
operating division of the employer, which incorporated KZN and the
Africa Division, met potential contractors in the
Middle East.
These
meetings did not secure any certainty or contracts for the Africa
Division. As the start dates for the two targeted
projects that
could have rescued the Africa Division were uncertain, the management
decided to close the Africa Division.
On
hindsight, the employee’s assessment might have conduced to a
better course of action, since the two targeted contracts
materialised six and eight months after he was dismissed. His
suggestion that the Africa Division should be incorporated into the
other divisions might also, on hindsight, have proved to be more
prudent since, after his dismissal, the employer did incorporate
the
Africa Division into the business.
However,
when the management made these decisions it did not have the wisdom
of hindsight. Acting as a collective, the management
decided in
good faith that they were in the best interests of the business.
There is also no suggestion that the management had
ulterior motives
when it took these decisions.
The
employee was a member of the management; as such, he had full access
to all relevant information and he participated in the
decisions
pertaining to all the divisions of the employer, including the Africa
Division. Although he did not agree with the closure
of the Africa
Division he was part of a collective and he was bound by the
decision.
On the
facts available at the time, namely the increasing financial losses
that the Africa Division sustained and the uncertainty
of new
contracts going forward, management decided to close down the Africa
operations. That resulted in the positions of
the employee and
his secretary, the only two employees in the Africa Division,
becoming redundant.
On
14 October 2005, before embarking on the trip to the Middle
East in search of new contracts, Boyd had discussed options
with the
employee. Although the employee had minuted that the options
discussed were his relocation or receiving a package,
and Boyd had
recorded in a letter that the options canvassed were redeployment or
retrenchment, not much turns on the difference.
Both
formulations contemplated either some form employment or termination
of employment.
On
28 October 2006 Boyd informed all the SGB South Cape
employees that there was a need to reorganise the region in light
of
the business moving away from scaffolding only to include insulation
and painting, to allow younger talent to move up in the
ranks and
hence create openings at all levels.
On
3 November 2005 the employee recorded the following to
Boyd.
“
The
decision to continue operating Waco Africa is yours. (
sic
)
I have given you my input and I believe that it is viable. As
far as my position is concerned I wish to add the retrenchment
is not
an option. I have longer service than most of my peers and in
any case an undertaking was given which provides me
with job
security, details of which I do not propose to reiterated it in this
letter.
This
leaves the only real option, if there is no future for me with SGB
(and I do not believe that is the situation) namely that
of an agreed
separation accompanied by the payment of an agreed compensation for
the loss of my job. I am now 58 yeas
old and I have
reached the stage in life when I am earning well and preparing for my
retirement and you can surely understand that
I’m not going to
give it up.”
[1]
On
10 November 2005 Boyd discussed this letter with the
employee and pointed out that the decision had been made to close
the
Africa Division. He informed the employee that he had
investigated and found no alternative employment for him and that
his
dismissal would be an “operational retrenchment not subject to
LIFO” (last in first out). The employee’s
option, he
said, was to “receive legal allowance and contest” or to
“negotiate an agreeable package.”
Boyd
presented a draft calculation of the employee’s package for
discussion. In settlement, he offered to pay severance
pay at
the rate of two weeks per year of service; otherwise, the policy of
one week per year would apply.
The
employee pointed out errors in the calculation of the notice and
leave pay, and his years of service, which was, on his calculation,
not 14 years but 18 years in his view. He
rejected retrenchment as he believed that he had an undertaking
on
job security. As he had six years left to retirement, he
proposed that the employer meet him half way and pay him three
years
salary and he would leave. Boyd undertook to revert. They
parted on the note that it was in the best interests
of both parties
to resolve the matter amicably.
On
21 November 2005 Boyd reaffirmed that the Africa Division
would close. Regarding the employee’s situation
he wrote,
“
You
state that retrenchment is not an option as you have longer service
than your peers. As the whole branch is being closed
for
operational reasons the LIFO principle is not applicable. Both
yourself and the company have been unable to identify
a viable and
suitable position for yourself in the company and unfortunately there
is no other option but to notify you that your
position will become
redundant, and notice is hereby given that your employment with the
company will terminate on 28 February 2006.
As per
the Basic Conditions of Employment Act the severance pay payable will
be one weeks’ remuneration for every completed
year of
service. Your concern over your starting date has been
addressed and your service with Proscaff starting 1 March 1998
has been accepted. The severance pay applicable is 17 weeks,
that is 3.93 months at R58 555 = R230 109.30
…..and
excludes any leave pay due to you.
However,
you have indicated that there are other issues of job security
arrangements that we are not aware of and in the spirit
of
recognition for your service, and in order to make this termination
as pleasant as possible, we are prepared to make an agreed
separation
of a lump sum of R500 000 before tax, in full and final
settlement. This includes all benefits and payments
such as
leave due and notice pay and only excludes any provident fund
payments due. This package proposal would also include
for a
waiver of your restraint of trade agreement. (
sic
)
Agreement on this proposal would be subject to agreeable signed
documentation and your last working day would be 30 January 2006.
November, December and January salary payments would be in addition
to the above amount.
If
this is not appropriate, we reserve the right to apply the conditions
stated in the Basic Conditions of Employment Act.
As you
are over 55 years of age, you are able to retire from the
provident fund.
Should
a separate Africa scaffolding branch with a full time requirement for
a separate regional manager be implemented within the
next 12 months,
you will be considered for the position. Your decision on the
full and final settlement is required
by latest 30 November 2005.”
The
employee engaged an attorney to demand that the employer withdraw
this notice to dismiss. In response, the employer’s
attorney’s made a concerted effort at curing deficiencies, if
any, in the retrenchment procedure.
It
invited the employee to suggest alternative positions to which he
might be appointed, simultaneously clarifying that as the division
was closing, only the two employees were likely to be affected,
thereby implying that the option of finding alternative positions
was
limited to vacant posts. As there were no vacant posts, finding an
alternative was not an option.
A
further consequence of the “proposed” method of selecting
employees was that all employees in the division were likely
to be
affected.
The
employer undertook to pay all statutory entitlements to severance,
leave and notice pay. It refused to withdraw the dismissal
letter and concluded with a further invitation to the employee to
adduce any further aspect of the retrenchment for the employer’s
consideration.
On
8 December 2005 the employee’s attorney persisted
that the employer had not complied with sub section 189(3)
of the Labour Relations Act No. 66 of 1995 (the LRA), allegedly
because it was attempting to consult after issuing the notice of
dismissal. He contended that the retrenchment was a
fait
accompli
.
In
reply, the employer’s attorney threatened that the employee
acted to his peril by not taking up its invitation to make
further
proposals which might even cause it to amend its decision to
retrench.
Unconvinced
of the sincerity of the employer, the employee disputed the fairness
of his retrenchment. Eventually, the dispute
was ventilated at
trial.
Submissions
Mr Malan
for the employer, contended that the retrenchment was effectively
fair. As the employee was a member of the management,
he was fully
informed about the financial status of the business and all the
considerations that conduced to the decision to close
the Africa
Division. The employer invited the employee repeatedly to make
proposals to avoid or ameliorate the effects of
the retrenchment.
However, the employee persisted that Best had given him an
undertaking that he could have his old job back
if the Africa
Division “didn’t take off”.
The
employee made no proposals other than to ask for a package. As
a result the consultation slipped into the mode of establishing
whether there was an undertaking to give the employee his old job
back.
As
the employee came up with no alternative position, it was common
cause that there were no positions available for him.
Besides,
the employee had previously indicated that he was not prepared to
relocate to Johannesburg. He had also turned down
the option of
working with Peter Erasmus because they did not get along.
At
the start of the trial, Mr Stewart, for the employee, withdrew
the employee’s claim, based on age discrimination in
response
to the employer’s exception that the employee pleaded no facts
to support his mere assertion that he had been discriminated.
The
employee persisted that he had an undertaking that he would revert to
his old job. To this end he called two witnesses
who were
present when Best allegedly gave the undertaking in 2001.
Was
there an undertaking?
Eight
years after the meeting at which the undertaking was allegedly given,
the memories of the witnesses had faded and their recollection
is
predictably unreliable. Best’s stance that he could not recall
giving the undertaking and his expatiation that he would
not have
given it, imports a measure of ambivalence. The manner in which
he gave is evidence was also hesitant and tentative.
The
employee testified that Best had used the words “
status
quo
” when giving the
undertaking. His witness, John Charles Page Warren, testified
that it was common knowledge that the
“
status
quo
” would apply. According
to Warren, when the employee had mentioned that he would return to
his old job if the Africa
Division did not work out, Best had
remained silent. Michael Gormley testified that when the
employee raised his concerns
at the meeting, Best replied that he
would continue working in Durban and that everything would remain the
same. He recalled the
words “
status
quo
” being mentioned, but he
could not say who used them.
The
employer sought to discredit these witnesses because they allegedly
had axes to grind with it. Mr Malan highlighted differences
in the
detail of their evidence as to exactly who said what during the
meeting.
Given
the passage of time and the nature of the issue they were called upon
to testify, they can hardly be expected to recall word
for word who
said what. At best, they could recall the gist of what was said.
Differences in how Warren and Gormley communicated
the gist negate
neither the probability that there was an undertaking nor the
credibility of these witnesses. The Court
found nothing
in their testimony to suggest that they were untruthful. If
they were disgruntled, it did not impair their
credibility. Theirs
was a genuine effort at assisting the Court to make a decision.
Nevertheless,
the Court exercised the caution in evaluating the evidence of Best,
Warren and Gormley on this issue, because of their
loss of memory
over time. The employee, however, had made notes
contemporaneously with his discussion with Boyd. At the meeting
the
employee had asked: “What will happen to me should the new
venture not work?” He noted Best’s reply as follows:
“Status quo, I go back to my old position.”
[2]
Notwithstanding
this exchange at the meeting in 2001, Best made his position explicit
when he wrote to the employee on 17 January 2003
as
follows:
“
1.2
Your reference to a “status quo” undertaking, which you
have raised several times, and as I previously stated (including
at
our June/July meeting in Johannesburg) I have no recollection of
saying this, however….
1.2.3 You obtained and
carried out work successfully and profitably in several African
countries so the possible “worst case
scenario” fell
away.
1.2.3
You also need to bear in mind it is completely unrealistic to expect
the Company to give you an unequivocal undertaking that
you would
revert back to your previous position at Director KZN.
”
[3]
In
2003 the Africa Division was successful and profitable; the “worst
case scenario” had fallen away. Furthermore, in
that letter,
Best’s support for the Durban branch manager who replaced the
employee is unmistakeable. Given this scenario
in 2003, adhering to
any “
status quo
”
undertaking he gave in 2001 was not in the employer’s best
interests; reneging on the undertaking was also tenable
because the
venture was successful. However, by 2004 the “worst case
scenario” reared its head and by 2005 it became
a reality,
along with the undertaking.
To
Best’s letter, the employee replied that he had “no doubt
in (his) mind about the status quo undertaking” and
reserved
his rights. Later, with the disagreement about the undertaking
hovering, Boyd called a meeting with the employee and Best
to clarify
whether Best had given the undertaking. As far as Best and Boyd
were concerned, that meeting put the matter to
rest on the basis that
Best had given no undertaking. The employee disagreed.
The
Court prefers the evidence of the employee and his witnesses over
that of the employer’s witnesses. The employee
kept the
best and most reliable record of the discussion with Best in 2001.
Furthermore, establishing the Africa Division was Best’s
idea,
not the employee’s. Best had approached the employee to
establish it. In so initiating the new venture
the employer
carried the risk. The employee could have refused the offer.
If there was any suggestion that he shared
the risk of the new
venture the employee would have refused. He accepted the
challenge without any change to his remuneration.
His
remuneration therefore did not reflect a new risk profile for his job
security.
The
Court is satisfied that the employer did give the employee an
undertaking that he could return to his old job as Director KZN.
Even if the Court is wrong in pitching the 2001 discussions as high
as amounting to an undertaking, there was at the very least
an
implicit commitment that the employee’s job security was not at
risk.
Procedural
Fairness
Irrespective
of whether the employer gave an undertaking or commitment to retain
the employee in his old job, it had a statutory
obligation to ensure
that the retrenchment was procedurally and substantively fair.
For
procedural fairness the notice to retrench in terms of section 189(3)
is usually scrutinised. Sometimes the notice
can be a façade
for procedural compliance. At other times it is immaterial
whether the notice was issued because the
objective of the notice is
achieved in other ways. In either instance the Court has to
peruse the form of what was done to
assess precisely what was
actually done to seek consensus.
In
this case it was immaterial whether the employer issued the notice in
terms of section 189(3) at all. The employee
was a
management member and had full access to all relevant information for
purposes of consulting. Such information that he did
not have, the
employer would have given. Besides, as a manager he would also
have been aware of his entitlements under section 189(3).
That
the employer’s attorneys issued the notice after the employer
decided to dismiss the employee therefore is of no moment.
However,
whether the section 189(3) notice was a paper trail to create a
façade of compliance emerges from the following
analysis:
Although
the employee participated and was bound as a member of the collective
to the management decision to close the Africa Division,
he did not
participate in the decision about what should happen to him. He was
merely told what would happen to him. Because
the division was
closing he was told that only the employees in the division would be
affected. He was told that LIFO would
not apply because all the
posts in the division became redundant. This much is self
evident from the correspondence. On these
issues fundamental to job
security the employer stonewalled him, giving him, during the
consultations, no reasons why only the
employees in the division
would be affected and why LIFO would not apply merely because all the
posts in the division became redundant.
In
court, however, the employer’s witnesses testified that it had
considered engaging the employee in his old job but had
rejected the
idea because the incumbent was doing a better job. The employee
was an excellent salesman, they said, but he
lacked management
expertise.
Most
importantly, however, the nature of the skills required for his old
job had expanded beyond scaffolding to include insulation
and
painting. The incumbent had acquired these skills on the job
over time. Although the employer conceded the employee could
also
acquire the skills, returning to this position would have been
disruptive, they said.
If
the employer had considered, but decided not to return the employee
to his old job, then the employer canvassed none of these
considerations with the employee during the consultation. For
instance, the employee was not invited to say whether he had the
new
skills required. Even if they knew that he did not have the skills,
they did not know how long it would have taken him to acquire
them.
The employer assessed his competence as a manager without affording
him an opportunity to comment on its negative assessment.
Whether the
succession plan to allow “younger talent to move up the ranks”
apparent in 2006 influenced the decision
taken in 2005 was not
canvassed either during the consultations or in evidence at the
trial.
The
employee’s stance had always been that he was entitled to his
old job. For that reason alone the employer owed him
a detailed
explanation during the consultation about why it could not accede to
his proposal. The employer is therefore not correct
in contending
that the employee made no counter proposals other than to ask for
more money in the form of a larger settlement package.
The employee
was unwavering in his quest for his old job and not to be
retrenched.
In
the absence of a genuine attempt at seeking consensus, the
retrenchment was procedurally unfair.
Substantive
Fairness
The
nature of the procedural unfairness is such that it also contaminates
the substantive fairness of the dismissal. This
litigation is
not the moment for the Court to assess the skills and competence of
the employee for his old job. That assessment
should have been
undertaken during the consultations. Furthermore, the employer
did not plead these as reasons for not appointing
him to his old job
either in its statement of defence or the pre trial minutes.
Mr Malan
suggested to the employee that during the consultations neither party
had mentioned or contemplated “bumping”.
That may
be so. Bumping is an industry term for a method of applying LIFO to
avoid retrenchment. Even though they did not use the
term during the
consultations, the employer could have had no doubt whatsoever that
the employee wanted his old job back, that
he did not want to be
retrenched six years before retirement and that only if the employer
insisted on retrenching him did he want
a package amounting to three
years’ remuneration.
The
prospect of retrenchment had been looming since 2004. The
employer did not canvass with the employee options for remaining
in
employment if the Africa Division closed. The argument that the
employee was equally well placed to offer options, including
to
transfer, does not hold in this instance because it was not the
employee who contemplated retrenchment, but the employer. The
prospect of retrenchment materialised for him only when he realised
that the employer was reneging on its undertaking. Until then,
he
understood that his job was secure. Besides, the employer bears
the onus of proving the fairness of the dismissal.
If
there genuinely was no job for the applicant then, in the
circumstances of this case in which the employer could not fulfil its
undertaking, fairness required more than strict compliance with the
statutory requirements. Although the employer offered in settlement,
to pay a retrenchment package amounting to more than a week per year
of service and to waive the three-year restraint of trade
against the
employee, it took refuge under the rules, applying them strictly when
the employee refused to settle. In so doing,
the employer lost sight
of the human factor and the intrinsic notion of fairness being more
than strict application of the rules
in certain circumstances.
Although the LRA seeks to codify lawfulness and fairness, special
circumstances as in this case may require
an employer to do more than
the minimum prescribed in the LRA.
The
employer seemed to recognise this in making a settlement offer
embodying more than the minimum allowed in law. To achieve a
greater
degree of substantive fairness the employer should have implemented
its settlement offer without stipulating that it was
conditional on
the entire dispute being resolved. The settlement would then have
served as evidence of the employer’s empathy,
humanity, good
faith and commitment to achieving substantive fairness. It could also
have had an effect similar to a payment into
court, thereby conducing
to settlement of the dispute, because the risk for an employee
pursuing a claim for unfair dismissal in
those circumstances would
have been greater. Even if the Court found that the retrenchment was
unfair despite an unconditional
offer, a reasonable offer would have
counted in the employer’s favour.
The
dismissal was therefore substantively unfair.
The
Remedy
In
devising a remedy the Court notes that the employer led no evidence
that the employment relationship has broken down. Even
if three
years ago there was no position for the employee there is no evidence
that that is still the case. The employer’s
financial
standing today is also not before the Court.
Having
found that the dismissal was procedurally and substantively unfair,
the most appropriate remedy is to reinstate the employee.
The
employer can re-do the process fairly if it now has substantive
grounds for retrenchment.
In
granting this remedy the Court was struck by the appearance of the
employee relative to his former colleagues and contemporaries.
Boyd and Best have since retired, so has Warren. They appeared
relaxed and comfortable in their retirement. Warren
was
enjoying his retirement and turned down an offer of a job because he
did not need the money.
In
contrast, the employee appeared stressed and worn. The
retrenchment and the subsequent litigation must have taken their
toll. The Court does not need medical evidence to make this
observation. Further, in 2006 and 2007 he had to find employment
outside
South Africa’s borders in order not to breach the
restraint of trade. Working in Angola involved long hours and
long
absences from home, something which he had resisted whilst in
full time employment. After 17 or 18 years’ service the
employee deserved better.
In
calculating back pay the Court takes into account the remuneration
that the employee received in 2006 and 2007, his delay in
filing the
pre-trial minute and the retrenchment package that he received on
dismissal.
COURT
GRANTS AN ORDER ON THE FOLLOWING TERMS
:
1.
The dismissal of the employee is procedurally and substantively
unfair.
2.
The employer is ordered to reinstate the
employee effective from 1 November 2009.
3.
The employer is directed to pay the
employee the equivalent of twelve (12) months’ remuneration.
4.
The employer is directed to pay the
employee’s costs.
PILLAY
D,J
IN
THE KWAZULU-NATAL LABOUR COURT, DURBAN
REPUBLIC
OF SOUTH AFRICA
CASE
NO
:
D387/06
DATE
:
26 OCTOBER 2009
ROY
SAUNDERS
versus
WACO
AFRICA LIMITED
BEFORE
THE HONOURABLE MADAM JUSTICE PILLAY
ON
BEHALF OF APPLICANT
:
MR STEWART
ON
BEHALF OF RESPONDENT
:
MR MALAN
INTERPRETER
:
NOT REQUIRED
EXTRACT
Judgment
CONTRACTOR
Sneller
Recordings
(Pty) Ltd. Durban
–
103 Jan Hofmeyr Road
–
Westville 3630
Tel
031 2665452 –
Fax 031 2665459
[1]
page 38
of Bundle A
[2]
Page
A10 of Bundle A
[3]
Page
12
of Bundle A