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[2013] ZALCD 16
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National Union of Metal Workers of South Africa (NUMSA) and Another v Ching Lung Electron (Pty) Ltd (D915/08) [2013] ZALCD 16 (10 May 2013)
REPUBLIC OF SOUTH AFRICA
IN THE LABOUR COURT OF SOUTH
AFRICA, DURBAN
JUDGMENT
Reportable
Case no: D915/08
In the matter between:
NATIONAL UNION OF METAL WORKERS OF
SOUTH AFRICA (NUMSA)
......................................................................
First
Applicant
C MATHABA AND 6 OTHERS
.......................................
Second
to Further Applicants
and
CHIN LUNG ELECTRON (PTY) LTD
..........................................................
Respondent
Heard: 17 September 2012
Delivered: 10 May 2013
Summary: Retrenchment –
fairness of - decision to retrench based upon sound economic
considerations will not be interfered
with if it was taken with a
view to, for instance, cutting losses or even to improving profits.
___________________________________________________________________
JUDGMENT
CELE J
Introduction
[1] This claim raises the question
whether there was material compliance with the provisions of section
189 of the Act
1
by the respondent when it retrenched
the second and further applicants in this matter. According to the
respondent, there was material
and effective compliance. The
applicants dispute the contention and called on the respondent to
prove its assertion.
Factual Background
[2] The second to further applicants
(the employees) were in the employment of the respondent, a close
corporation or the CC, with
Mr David Wu as a Manager. In 2008, the CC
operated a manufacturing facility in Isithebe area for turning
components which it supplied
to the electrical and motor industry.
Prior to August 2008, the CC employed, apart from the administrative
staff, some 21 persons
in the factory, comprising of:-
seven machine operators in what was
called the "first process";
eleven machine operators in the
"second process"; and
a packer, a driver and a cleaner.
[3] The first process required more
skills as it involved the ability to read drawings and to check
dimensions. The second process
required less skill and was more
manual in nature.
[4] Prior to August 2008, the CC
realised that it was cheaper to import finished goods than to
manufacture goods in South Africa
and it began importing more goods
than it manufactured. By importing more goods, the need to
manufacture locally was reduced and
production was reduced. That led
to the CC no longer having work for the night shift which used to
work from 18h00 to 06h00, thus
limiting its production to a dayshift.
The CC also embarked on periodical short time.
[5] Mr Wu said that he compared the
various prices of certain goods which he imported on a regular basis
and the cost of manufacturing
those goods locally. The differences
were significant and represented a big saving. As a result of
importing more goods, production
dropped and the CC did not need the
same number of machine operators in its production facility.
[6] The CC contemplated retrenchments
and it engaged the services of labour consultants, SEESA, to assist
with proposed retrenchments
process for its machine operators. At the
request of the CC, SEESA prepared notices of anticipated retrenchment
and an invitation
to consult and sent one to the union and a similar
one to the CC. On 25 August 2008, he received a copy of the
invitation to consult
and he noticed that, included in the reasons
for the proposed retrenchment, it was stated that "orders have
dropped".
This, he said, was an error as orders had not dropped.
He said that he instructed his Administrative Assistant, Ms Sindy
Naidoo,
to contact SEESA and to remedy the defect in the letter,
which they duly did on 26 August 2008.
[7] On 26 August 2008, Mr Wu, together
with Ms Naidoo, tried to hand the notices to employees, in groups,
according to employee
work number, but this process was stopped by a
shop steward Mr Senzo Mathaba. Mr Mathaba was handed a copy of the
notice to give
to the union. The reasons given for the retrenchment
were that "production halved due to nightshift coming to an end
and now
employer is able to import stock at cheaper prices".
[8] In terms of the notice, 9 machine
operators were identified as likely to be affected, and the selection
criteria was LIFO. A
meeting was scheduled for 3 September 2008 but
was postponed to 9 September 2008, and a second notice was sent to
the union on
2 September 2008, with the same terms as the earlier
letter. The consultative meeting was held on 9 September 2008 and all
affected
employees attended with Mr Simon Makhanya an official of the
union. Mr Shannon Sukhu of SEESA and Mr Wu attended for the CC. There
is a dispute about the attendance of Sindy Naidoo and about the time
when Mr Wu’s brother arrived at the meeting.
[9] In the meeting, the union
suggested that there was a possibility of employees being transferred
to a “sister” company
of the CC called Cogra, owned by
the brother of Mr Wu. Cogra operated a similar business to that of
the CC, but they used different
machinery requiring different skills
and expertise. Mr Wu and his brother discounted that possibility by
distancing the business
of one company from that of the other.
[10] At the meeting, it was suggested
by the union that two Chinese employees, Mr Han-Bin Lin and Mr
Yung-Min Chen should be retrenched
as they were employed later than
the affected machine operators. Mr Wu explained that the two
individuals were employed in a completely
different capacity and were
not machine operators. Mr Lin was said to be the Overseas
Administrator/Quality Controller, who was
required to deal directly
with clients from whom the CC imported its goods, and who needed to
know the Chinese language. Mr Chen
was said to be the Factory Manager
whose duties were production planning, dispatch control and servicing
machines, and was also
required to liaise in Chinese. The union asked
the contracts of employment of the two Chinese employees, to be
furnished at the
end of the meeting. Parties are in dispute as to
whether such contracts were furnished. The respondent said they were
given to
the union but the applicants dispute being given them.
[11] On 22 September 2008, the CC
proceeded to implement the retrenchments. The applicants were given
notice pay until the end of
October 2008, plus an extra week’s
bonus, which according to the respondent but disputed by the
applicants, had been agreed
upon at the meeting. The business of the
CC was transformed into an almost entirely import-based enterprise.
Only one machine operator
remained with the CC. Sometimes employees
of the CC would assist at Cogra. However, on 05 March 2011, the fifth
applicant, Mr Sibiya,
was re-employed by the CC and in April 2012,
the sixth applicant Mr Shandu was also re-employed by the CC.
[12] In September 2009, the Production
Manager, Mr Chen, left the CC to go and set up his own business. On
11 September 2009, 10
machine operators from the CC were transferred
to Mr Chen’s new business. The business of Mr Chen was run with
only seven
machine operators.
[13] The applicants referred an unfair
dismissal dispute for conciliation which failed to resolve the
dispute and they referred
it to this Court by means of the statement
of case. The respondent opposed the claim with its statement of
defence. On 12 September
2011, parties filed their pre-trial-minute
which they dated 26 July 2011. In terms of the directive on
retrenchments, each party
had to state whether there was a need to
retrench and the following was recorded in the minute:
‘
1.1
The Applicants allege that there was no general need to retrench.
1.2.
The Respondent alleges that there was a general need to retrench. The
orders received by the Respondent dropped, production
had decreased
as a result of which income dropped. The Respondent had no option but
to cut costs, and also started importing stock
rather than
manufacturing. Operationally, the Respondent required only one
machine operator per 15 machines, rather than two operators.’
[14] The dismissal of the second to
further applicants by the respondent remained common cause between
the parties. In terms of
paragraph 16 of the statement of case, the
relief sought by the applicants was a declaration that the
respondent’s dismissal
of the second to further applicants was
procedurally unfair. They sought retrospective re-instatement and
compensation as an alternative.
The pre-trial-minute described the
issues in dispute as whether the dismissal of the applicants by the
respondent was substantively
and procedurally fair, with
re-instatement as the relief sought. According to the statement of
case, in the meeting of 9 September
2008 the representatives of the
respondent proceeded to announce to the workers in front of the union
official that it was proceeding
with the retrenchments. The union
officials intervened by calling for a proper procedure to be followed
before any retrenchment
could be carried through. At the trial, the
respondent had to prove that it had a fair reason to dismiss the
applicants due to
its operational reasons and that it followed a fair
procedure. Two witnesses testified for the respondent and two
testified for
the applicants.
Evidence
Respondent’s version
[15] Mr Wu and Ms Naidoo testified
that in the meeting of 9 September 2008 the minutes were taken by Mr
Sukhu. They confirmed that
they had read the minutes and that such
minutes accurately recorded what transpired on that day. Both said
that it was during the
course of the meeting, that Mr Wu’s
brother was called to the meeting and that Cogra was located next
door to the CC. Mr
Wu said that he had informed the meeting that
Cogra had no vacancies. According to Mr Wu, the attitude of the union
throughout
the meeting was that they would simply dispute every
aspect of the retrenchment. He said that at the end of the meeting,
in addition
to the job descriptions, he furnished the union with a
copy of the cost comparison document. According to him, subsequent to
the
meeting, there was no feedback from the union whatsoever.
[16] Mr Wu further led evidence that,
in July, August and September 2008, the CC sold machinery from its
production facility, as
a result of importing more goods. In addition
to the documented sales, the CC disposed of a substantial amount of
machinery as
scrap.
[17] In respect of the proposed
retrenchments, Mr Wu testified that he utilised the services of SEESA
in order to ensure that the
procedure was correct, and he said that
he went to the meeting prepared to hear what the employees’
representations were.
He indicated that if their proposals had been
reasonable, he would have accepted them. When it was suggested to Mr
Wu that, at
the conclusion of the meeting, there were a substantial
number of issues on which the CC was to revert to the union, he
denied
that the assertion was true, stating that the CC dealt with
all the union representations at the meeting itself, and that the
information
regarding the Chinese employees had been handed to the
union after the meeting.
[18] When it was suggested to him that
Mr Chen was in fact a machine operator Mr Wu denied the assertion and
he described the nature
of the functions of Mr Chen and how they
differed from those of machine operators. He reiterated that he had
explained those differences
to the union at the meeting of 9
September 2008.
[19] Mr Wu said that the documents
drawn by him to explain the advantage of importing goods as opposed
to producing them locally
had not somehow been “doctored”
for the purposes of the trial, in anticipation of the CC’s
failure to show Court
that its orders had dropped. Mr Wu and Ms
Naidoo denied the theory on the fabrication of evidence, explaining
how it was not possible
to have doctored the said documents, saying
one of them was the original fax received in September 2008, and had
the facsimile
transmission report of the same day.
[20] He contested a suggestion that he
had no valid reason to retrench the employees, and that he simply
wanted to get rid of 9
of them. Regarding the time period prior to
his consideration of retrenchment, and considering that he knew that
imports were cheaper
than local manufacturing, it was put to him that
it was odd that he had known about cheaper imports for so long, but
had not retrenched.
He explained that he had not yet established
stable suppliers. He also needed to look at factors such as exchange
rates, import
costs, and he waited until 2008 to do the viability
study. He said that he did not really want to retrench employees, and
that
it was unfortunate that this had occurred.
[21] It was suggested to Mr Wu that,
when Mr Chen formed his business, there was a more efficient way to
produce goods in South
Africa and that Mr Chen’s business was
nothing more than a “disguised” CC of Mr Wu. Mr Wu denied
the contention.
It was put to him that the union had proposed that
Cogra was to take some employees from the CC, and that Mr Wu had
refused to
do so simply on the basis that they were two independent
companies. He denied this, reiterating that the minutes of the
meeting
at which the representative from Cogra was in attendance, had
indicated that there were no vacancies at Cogra.
Applicants’ version
[22] Mr Mathaba gave evidence and said
that the notice of anticipated retrenchment had been affixed on the
notice board at the workplace.
He could not explain why his evidence
had never been put to either of the respondent’s witnesses. He
said that he had been
informed by Mr Simon Makhanya, as union
official who was the recipient of all the correspondence from SEESA,
and who was the applicants’
representative and a spokesman at
the consultation meeting, that the reason for the retrenchment was
because imports were cheaper
and because orders had dropped. He
confirmed that they had had short time at work since 2005/2006. He
denies any knowledge about
any change to the notice of retrenchment
as testified to by Mr Wu and Ms Naidoo.
[23] He stated that at the meeting on
9 September 2008, the reasons for retrenchment that were raised were
that it was cheaper to
import and that orders had dropped. He denied
that Ms Naidoo was at the meeting and that any minutes were taken of
that meeting,
thus disputing those produced by the respondent at
trial. He said that he did not take any notes either as to what
transpired at
that meeting. According to him, Mr Wu’s brother
attended the meeting from its start and was not called later.
[24] He said that they also wanted to
know what selection criteria would be used for retrenching employees.
He confirmed that they
had raised the issue of the two Chinese
employees but that, after the meeting, they had never had any
feedback in that regard,
nor did they receive copies of the Chinese
employment contracts. He indicated that he knew the work done by Mr
Chen was that of
an operator and that it was not possible that Mr
Chen did something else unbeknown to him. Mr Mathaba could not
explain why Mr
Chen was not included, as a “machine operator”
in the notice of short time of 11 September 2008 which included all
the machine operators.
[25] He indicated that, at the end of
the meeting, they were to arrange a date for a further meeting and
that there were four issues
that had not been concluded. He could not
explain why, if there were so many issues outstanding after the
meeting, neither he nor
the union ever followed up on the outstanding
information or on the next meeting. Nor could he explain why the
union, upon receiving
the letter confirming retrenchment of the
employees, also did not raise any objection regarding outstanding
information or the
alleged follow-up meeting.
[26] He said that Mr Makhanya left the
meeting about five minutes after it had concluded, and he said that
he had been with Mr Makhanya
until he left. He was not in a position
to dispute that the respondent might have had communications with the
union, through Mr
Makhanya by telephone, fax or e-mail without him
knowing. According to him, a severance package was never discussed at
the meeting
on 9 September 2008 as alleged by Mr Wu. He was given a
chance but could not explain why his evidence, that at the meeting of
9
September 2008 the union had requested proof that orders had
dropped, was never put to Mr Wu in cross-examination.
[27] He was asked but could not
explain why, in the applicant's bundle of documents, there was no
attachment to the letter from
SEESA dated 2 September 2008 which was
said to be the same letter received by the respondent. Mr Mathaba was
not in a position
to state what correspondence the union had or had
not received from the CC. He was asked to identify what document he
had refused
to sign on 23 September 2008 but could not indicate it.
[28] He could not explain why, in the
pre-trial minute, no mention had been made that Chen ought to have
been retrenched instead
of the Applicants and why, it was a common
cause fact that the applicants had proposed more machine operators
per machine, yet
he had not given any evidence to this effect and
could not recall it being discussed at the meeting. He could not
explain why,
in the pre-trial minute, it was stated, on behalf of the
applicants, that "no meetings were held with NUMSA", when
clearly,
on 9 September 2008, a meeting was held with NUMSA.
[29] He was asked to but did not
explain the numerous discrepancies between his evidence and what was
contained in the pleadings
of the applicants:-
In pleadings, paragraph 12 of the
statement of case, it was stated that, at the meeting, it was
suggested that some of the employees
could be transferred to Cogra
and that the respondent did not comment on this suggestion. However,
Mr Mathaba’s evidence
stated that, at a meeting, the
respondent did in fact comment to the effect that the two companies
were separate legal entities.
In the pleadings, it was stated that,
at the meeting, discussions occurred regarding the number of men who
could operate a machine
at that particular time. However, Mr Mathaba
never mentioned this in his examination in chief and, upon being
queried as to whether
he had mentioned all the issues that were
discussed at the meeting, he replied in the affirmative. He could
not explain why he
had not mentioned the discussion regarding the
operators and the machines.
[30] Mr Alex Ngubo also gave evidence
on behalf the applicants and he confirmed that Mr Chen was the sole
owner of Wei Ching, a
business which was about 20 minute drive from
the respondent’s premises. He said that Wei Ching had seven
employees, that
it produces for the respondent only, and received all
its raw materials from the respondent. He said that he did not see
any management
from the respondent at Wei Ching premises. Mr Ngubo
said that the respondent, after retrenchment, continued operating its
business
with only 10 machine operators and that Wei Ching did so in
the same manner. He confirmed that the business could operate with
only seven machine operators.
Analysis
[31] Section 189 of the Act, provides
that, an employer who contemplates dismissing one or more employees
for reasons based on the
employer’s operational requirements
must consult with the appropriate persons and engage in a meaningful
joint-consensus
seeking process and attempt to reach consensus on a
number of issues.
2
The employer is also required to issue
a written notice inviting the other consulting party to consult with
it and disclose in writing
all relevant information, including, but
not limited to, the reasons for the proposed dismissals.
3
Further, the employer is required to
consider and respond to the representations made by the other
consulting party and, if the
employer does not agree with them, to
state the reasons for such disagreement.
4
[32] The applicants correctly
submitted that it is not sufficient for the employer, only after the
fact, that is, after dismissing,
to come up with the reasons,
satisfactory or not, to justify dismissals that have already taken
place. There can be no question
of adequate consultation over a
proposal if one party is left in the dark about the facts by which
the other party seeks to justify
it. In the retrenchment context,
employees or their representatives will clearly be unable to make
sensible suggestions about matters
over which the Act enjoins
consultation, unless they have sufficient information to appraise
themselves of or to challenge the
employer`s proposals, or to
formulate alternatives.
5
[33] The respondent had to demonstrate
through the trial of this matter that it had a fair reason and
followed a fair procedure
to retrench the second to further
applicants.
Substantive fairness
[34] Once the respondent contemplated
retrenchment, it acted through SEESA to issue the notice inviting the
union to a joint consultative
meeting of 9 September 2008. In the
notice, the applicants were called upon to consult regarding a
possible retrenchment resulting
from dropped orders, production
having decreased as a result of which income dropped and also the
fact that the respondent started
importing stock rather than
manufacturing. The same grounds featured in the statement of defence.
[35] The only two witnesses of the
respondent spoke with one voice to say that the first of the three
grounds of retrenchment was
erroneously included by SEESA in the
notice and that such error was subsequently corrected with the issue
of a second notice. In
the pleadings, the said error was repeated. At
the commencement of the trial, the respondent sought to amend the
statement of defence
so as to remove the ground that retrenchment
resulted,
inter alia
,
from dropped orders. The applicants strenuously opposed the amendment
and the application stood over until evidence was led and
submissions
were made.
[36] In their very initial document,
the statement of case, the applicants sought a relief of a
declaration that their dismissal
was procedurally unfair. They did
not concern themselves with substantive fairness of their dismissal.
Mr Wu testified that at
the end of the meeting, in addition to the
job descriptions, he furnished the union with a copy of the cost
comparison document.
According to the applicants, no document was
produced in or after the meeting of 9 September 2008 to explain the
financial position
of the respondent.
[37] From 9 September 2008 until 22
September 2008, neither the union nor the second to further
applicants sought any supporting
documentation of the respondent to
show them the financial position of the respondent. When letters of
retrenchment of the employees
were issued on 22 September 2008 the
union never took issue with the respondent on why it was dismissing
employees when there were
still outstanding issues to be resolved.
All of these considerations point to the probabilities of this matter
favouring the version
of the respondent, namely that during the
meeting cost comparison discussion was done and after the meeting a
document was produced
by Mr Wu explaining the position of the
respondent and the applicants were constrained to dispute the
presented facts. The applicants
accepted their fate and began to
consider alternative employment, such as one with Cogra.
[38] The evidence of the respondent
that importing finished products was cheaper than manufacturing them
locally stood unchallenged
throughout the trial. The implementation
of that decision by the respondent was shown to have been based on
sound economic considerations.
As such, the respondent decided to
increase the importing side to its business, as a result of which it
required less manufacturing,
which in turn resulted in less need for
the machine operators. One cannot criticise this approach to the
running of a business.
This ground alone is sufficient to justify the
reason for the retrenchment of the second to further applicants.
There shall be
no harm or prejudice in allowing the amendment of the
statement of defence to exclude, as a ground for retrenchment, an
averment
that orders had dropped. The amendment is accordingly
granted.
[39] As a general rule, once the court
is satisfied that the decision to retrench is based upon sound
economic considerations it
will not interfere with that decision if
it was taken with a view to, for instance, cutting losses or even to
improving profits
6
.
I am of the view that the respondent’s conduct in the
circumstances has been shown to be in line with this general rule.
Consequently, the dismissal of the second to further applicants was
premised on substantively fair reasons.
Procedural fairness
[40] The respondent has shown through
its discovered documents that SEESA issued the notice of anticipated
retrenchment to the union.
Two fax transmission slips show that SEESA
sent notices to the union, for the attention of Mr Simon Makhanya on
28 August 2008
and on 02 September 2008. In the absence of the
evidence of Mr Makhanya, a bare denial of the receipt of these
notices by Mr Mathaba
lacks evidential weight. The probabilities of
this case are that the union received the partly amended notice as
well. This notice
was in material compliance with section 189 (3) of
the Act.
[41] There is merit in the contention
of the respondent that proper consultation took place. The employees
were represented by the
union which made representations at the
consultation, and the respondent replied to those representations.
There is no basis to
criticise the selection criteria adopted, and
the applicants led no evidence to suggest that the selection criteria
was not fairly
applied. The position of the two Chinese employees was
explained and was not met with any serious challenge. A list of
operators
was produced and it was said it was drawn in the ordinary
business of the respondent. The two Chinese were not listed as
operators.
Their employment contracts showed that Mr Lin was an
Overseas Administrator/Quality Controller and Mr Chen was a Factory
Manager.
[42] The version of the respondent
accords with the probabilities of this matter that minutes of the
meeting of 9 September 2008
were kept and they are those on file
which were produced during the trial. The minutes reflected that the
union opposed retrenchment
throughout the consultation and made
certain counter proposals. Following the consultation meeting, the
union made no further suggestions
or representations. In the absence
of further deliberations by the union, the respondent was entitled to
implement the retrenchment.
Accordingly the dismissal of the second
to further applicants by the respondent was also procedurally fair.
[43] The order to be issued is that:
The claim of the applicants is
dismissed.
No order as to costs is made.
___________
Cele, J
Judge of the Labour Court
APEARANCES:
For the Applicants: Mr H D Matukane of
History Matukane Attorneys, Greymont, Johannesburg.
For the Respondent: Mr J R Forster of
Forster Attorneys, Durban.
1
The
Labour Relations Act Number 66 of 1995.
2
See
S189 (1) – (2).
3
See
S189 (3) (a).
4
See
S189 (6) (a).
5
Workplace
Law, Eighth Edition, John Grogan, page 232 at para 8.
6
See
Fry’s Metals (Pty) Ltd v
National Union of Metalworkers of SA and Others
(2003)
24 ILJ 133 (LAC).