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[2014] ZALCJHB 64
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Ndhlela v SITA Information Networking Computing BV (Incorporated in the Netherlands) (JS960/12) [2014] ZALCJHB 64; (2014) 35 ILJ 2236 (LC) (14 March 2014)
REPUBLIC
OF SOUTH AFRICA
IN
THE LABOUR COURT OF SOUTH AFRICA
HELD
IN JOHANNESBURG
Reportable
CASE
NO: JS 960/12
In
the matter between:
NHLAMULO
NDHLELA
Applicant
and
SITA
INFORMATION NETWORKING COMPUTING
BV
(INCORPORATED IN THE
NETHERLANDS)
Respondent
Heard:
3, 4 and 5 March 2014
Delivered:
14 March 2014
Summary:
Test for substantive fairness in dismissals for operational reasons
restated. Fairness is the yardstick;
no deference to mere say so of
the employer. Employer required to produce relevant financial data
justifying claims of cost saving
where that is a ground for alleged
operational requirements. No bright lines separating procedure from
substance. Fair procedure
serves a substantive purpose.
JUDGMENT
NGCUKAITOBI
AJ
INTRODUCTION
1.
The applicant was employed by the respondent with effect from 15
November 2010 as a Sales Director, Sub-Sahara Africa.
On 22
June 2012 he was dismissed from his position on the grounds of the
operational
requirements
of the
respondent. He has approached this court to seek an order
declaring that the dismissal was procedurally and substantively
unfair. Consequentially, the applicant seeks an order for appropriate
compensation.
2.
The respondent opposes the applicant’s claim
.
3.
During October 2013 the respondent offered the
applicant (
on a with prejudice basis
, in
terms of Rule 22A of the Rules of the Labour Court),
payment
of an amount equivalent to five (5) months remuneration, being R653
481,65 (six hundred and fifty-three thousand four hundred
and
eighty-one rand and sixty-five cents).
The
applicant rejected the offer.
4.
In its statement of defence the
respondent
admitted that
the procedure
it
followed
when dismissing
the
applicant was unfair because it did not comply with
some
of
the requirements of a fair procedure contained in the
Labour Relations Act 66 of 1995 (the “LRA”).
I
return to this later. The
respondent’s Counsel urged me
to take into account the nature and extent of deviation from a fair
process, as well as its
offer of settlement which was made with
prejudice when determining compensation
for the
admitted failure to follow a fair process in dismissing the
applicant
.
MATERIAL
FACTS
5.
The respondent is a global
company with an office
in South Africa. Although the events giving rise to this trial took
place in the South African office, they
were influenced by decisions
taken outside South Africa, at the respondent’s head office in
Geneva, Switzerland. The
primary business
of
the respondent
is the provision of information technology and
related services to the airline industry. It was established by
the major airline
companies in the world specifically to cater for
their information technology requirements. With the passage of
time, it
has commercialised
and gained financial
independence. The
major airlines
, including
South African Airways,
are now its main customers. It
has also
diversified its business and also offers
passenger
solutions,
airport
solutions
and related services
.
6.
Because the
respondent provides services to
airlines,
t
he vicissitudes of the
airline industry impact on
its
sustainability
and profitability
.
While airlines generally spend 1% to 2% of their revenues on
investment in information technology, during tough economic
times
airlines
tend to withhold
investments in
new information technology.
When this occurs the
business of the respondent can be adversely affected.
7.
Prior to the events which gave rise to the
present
dispute, the respondent was divided into
nine
regions across the world.
On 18 April 2012 the respondent
announced the introduction of a new
global
business strategy which was known as “Fit for Growth”
(the Fit for Growth strategy or the business
strategy)
.
The adoption of this strategy
was
influenced
by, among others, the
declining fortunes of the global airline industry
which
were experienced in about 2008
.
8.
The strategy resulted in the reconfiguration of
geographies or regions from the original nine to four.
The new
regions
were Americas, Asia Pacific, Europe
and Middle East, India and Africa. The South African
operations, whose
operating
costs and
profits are integrated with the global structure, falls under Middle
East, India and Africa. The decision to introduce
the new strategy
was taken at head office. The witness
es
who gave evidence on behalf of the respondent, Mr John Murphy
and
Ms Clair Milner
w
ere
not part of
th
at
decision making.
They
w
ere
responsib
le
for
execut
ing
the
strategy
in South Africa.
9.
The objectives of the Fit for Growth strategy included
i
mproving
responsiveness to customers
; r
educing
organisational complexity
; and d
elivering
recurring cost savings.
10.
In the Middle East, India and Africa region the respondent’s
target was to achieve a cost saving of 15% in operational
costs.
This was the lowest target among the respondent’s four
regions. The
execution of the strategy had
implications for the organisational structure of the South African
office. Certain changes were envisaged
in the Sales and Management
divisions.
The
strategy stated the
following
:-
“
Customers
with a revenue potential below [a certain figure] should fully be
managed by Sales and not by SITA’s direct sales
force.
All
account management staff must have account management
responsibilities. In addition, they may also have team management
responsibilities.
-
Apart
from the territory VP, there is no “pure” people
management role within the account management.
Sales
and account directors should report directly to the territory VP.
Account
directors should have at least R10 million revenue responsibility.
All
account management staff are on SIP.
”
11.
Of importance in the strategy was the requirement
that no position, other than
that of the Territory Vice
President should have “pure people management”
responsibility. By this, it was meant that
all positions falling
under the Territory Vice President must have both account management
and people management functions.
12.
But there was a problem with the
implementation of the strategy under the prevailing organisational
structure.
In
terms of
the old
structure, the most senior person
responsible for
sales and account management in the South African
territory
was the Sales Territory Director.
That position
was held by Mr Eta Mothlabi.
He had four positions reporting
directly under him. These were:-
12.1
The South African Airways and Southern
African Development Account Director – the position held by the
applicant. (Although
there was a dispute about the title of this
position, with the applicant insisting that it was always called Sale
Director and
the respondent contending otherwise, nothing material
turns on this.)
12.2
The Central
Eastern and West Africa Account Director (held by Mr Sam Munda).
12.3
The Business Development Director (held by
Mr Getaneh Wilder-Michael).
12.4
The Senior Account Manager for Government
Services (held by Mr Linda Ngcaba. The position of Senior
Account Manager for Government
Services however was not a director
position but a manager position.
13.
Under the
old structure
,
Mr Mothlabi had limited
sales or
account
management responsibilities. His main focus was on people management.
(The split estimate for this role was 80% people management
and 20%
account
management
. By contrast, the
applicant’s role comprised 80% account management and 20%
people management.)
14.
According to Mr Murphy, the Fit for Growth
strategy favoured a bias towards account management. Mr Murphy stated
that this
requirement resulted in the operational need for the
respondent’s decision
to “flatten the
structure” in order to reduce its managerial levels to become
closer to its customers
.
15.
Flattening the structure, however, still required
further decisions to be made including which position(s) should make
way for the
flat structure. Mr Murphy stated in cross examination,
t
hat Sales Territory Director
position,
held by Mr Mothlabi,
did not conform with the Fit for Growth
strategy. Its focus was on people management
when
the strategy required a dedicated focus to customers
. Mr
Murphy
testified
that the position
previously held by the applicant, that of Sales Director did not
conflict with the Fit for Growth strategy because
it had both account
and people management responsibilities and in any event its primary
focus was account management.
The problem,
as he saw it, was that the position of Sales Territory director, held
by Mr Mothlabi, did not comply with the Fit for
Growth strategy. Ms
Milner, who worked together with Mr Murphy on the execution of the
strategy also confirmed that the position
of the applicant was not
affected by the Fit for Growth strategy
per
se
. The affected position was that of
Mr Mothlabi.
16.
In making the structural changes required by the
Fit for Growth strategy Mr Murphy and Ms Milner did not address the
affected position
of Mr Mothlabi. Instead, they decided to create a
new position, which would comprise three main functions: all of the
applicant’s
former functions; some of Mr Mothlabi’s
functions; and the government services functions. This new position
effectively replaced
the position of the Applicant. Mr Mothlabi’s
previous position was removed from the structure, altogether. This
achieved
the flat structure and the close proximity to the customers.
It also achieved the cost saving which was required by the
respondent.
17.
Because of the creation of the new position, a
choice had to be made to declare either the applicant’s
position or that or
Mr Mothlabi as redundant.
The
decision was made to make the applicant’s position redundant. A
new structure was then created, between the end of May
and beginning
June 2012. Mr Mothlabi’s previous role of Sales Territory
director was removed from the structure.
A new position,
including all the functions previously performed by the applicant was
created at the same level as the applicant’s
previous position.
18.
Mr Murphy and Ms Milner discussed the
restructuring and the new structure with Mr Mothlabi. That occurred
during the first week
June 2012. At that discussion, which Ms Milner
said was not a “consultation” under section 189 of the
LRA, Mr Mothlabi
was informed of the changes in the structure. In
addition, he was advised that since there were two potential
employees for the
new role, the principle of Last In First Out (LIFO)
would be applied. It was also common cause that nothing
distinguished
the Applicant from Mr Motlhabi in terms of status,
qualifications and experience. It was also known that Mr Mothlabi had
been in
employment longer than the applicant. Accordingly, for all
intents and purposes the position was given to Mr Mothlabi. He did
not
have to compete for it.
This is
the most sensible construction of the evidence, otherwise the advice
given to Mothlabi that LIFO would be applied because
he had longer
service than the applicant would make no sense.
19.
On 11 June 2011 Mr Murphy and Ms Milner consulted
with the applicant.
At that meeting, the applicant was
informed for the first time of the restructuring decision
;
its impact on his position
;
and most
significantly that his position had become redundant. There are
no minutes of
this
meeting
.
The pleadings and the pre-trial minute
record that the
applicant was informed that his position
had
become
redundant.
Although Ms Milner stated
that the applicant was informed that his position was “at
risk”, I did not understand there
to be a dispute that what is
recorded in the pleadings and the pre-trial minute is an accurate
reflection of what transpired, namely
that the applicant was told
that his position had become redundant.
20.
On 12 June 2012 the respondent wrote a letter to the applicant.
The
title of the letter is “Proposed
Restructure and Possible Termination for Operational Reasons”.
The letter purported to invite the applicant to
consult on the possibility of the redundancy of his position and his
dismissal for
operational reasons. In paragraph 4 of the letter,
under the heading “Selection Criteria” it is stated:
“
[T]he
criterion that has been applied is based on the restructuring
exercise under the Fit for Growth programme, which has lead
[sic] to
your position being redundant.
”
21.
T
hree things are clear from this letter and the
evidence. First, the letter confirmed what the applicant had been
verbally advised
of on 11 June 2012, namely, that his position was
redundant. Second, the letter made it clear that the reason for the
redundancy
is the restructuring exercise “under the Fit for
Growth programme.” Third, the letter made it clear that the
selection
criterion “had been applied”. At this stage the
new position was no longer vacant and had been given to Mr Mothlabi,
ostensibly by the application of the LIFO principle.
22.
On 14 June 2012 the respondent met with the applicant. The applicant
proposed a reduction in salary and a reconfiguration of
his position
to focus on the business of South African Airways in order to avoid
his dismissal. The respondent undertook
to consider the
proposal made by the applicant and to revert to him in that regard.
(During the trial there was a debate
as to whether the respondent had
ever informed the applicant at this meeting that one of the reasons
for the redundancy of his
position was the flattening of the
structure because of the Fit for Growth strategy. The applicant
denied this and stated that
the reason given to him for the
redundancy of his position was the saving of costs by the respondent.
It is clear, however, that
both reasons were advanced to the
applicant, although not necessarily in the same meeting. The letter
of 12 June 2012 says that
the reason for the redundancy is the
restructuring caused by the Fit for Growth strategy. The minutes of
the meeting of 14 June
2012 reveal that the reason for the redundancy
of the applicant’ position was the need to reduce costs.)
23.
On 18 June
2012 there was a further meeting between the applicant and the
respondent. The proposal concerning the salary reduction
on the
applicant’s side was rejected on the basis that “
[t]
he
entire role costs relating to this role needed to be cut”.
The minutes of this meeting also record that there was
a possibility
that a position at a lower grade – Grade 6
[1]
– could become available at the respondent’s office in
Addis Ababa, Ethiopia. The applicant refused the proposal
to
consider him for
this
possible
position
because it would entail the lowering of his grade. However, Mr
Murphy accepted in evidence that this position did
not constitute an
alternative to dismissal. This was because the applicant would
be retrenched first and, if a position became
available in the
future, would be entitled to apply
for
it
.
The position was accordingly not being offered to the applicant as a
measure to avoid his dismissal. Ms Milner, on the other
hand,
testified that as far as she was concerned there was a real
likelihood of the position being confirmed. But she did not mention
this to the applicant because no final decision had been taken.
In
light of the ambivalent stances taken by the respondent in regard to
this offer, the applicant’s refusal to consider the
offer is of
no moment.
24.
The further business discussed on 18 June 2012 pertains to payment of
the commission and the severance package of the applicant.
Although
the applicant expressed some dissatisfaction with the commission paid
to him, the issue of the commission is not before
me.
25.
The final meeting held with the applicant was on 22 June 2012.
On this date the applicant was informed of the decision
to terminate
his services on operational grounds. The decision was confirmed in
writing on the same date.
26.
The respondent led evidence concerning surveys conducted about
customer satisfaction and increased profitability subsequent
to the
implementation of the Fit for Growth strategy and the dismissal of
the applicant. It is not clear that this evidence is
relevant to the
issue of the fairness of the dismissal of the applicant. On the
assumption, however, that it is relevant, the evidence
shows higher
levels of customer satisfaction and
higher
profitability margins
compared to the targets set
by the respondent
. However, it seems to me that the evidence
does not prove the success of the respondent’s business
consequent upon the removal
of the applicant from his position or the
success of the Fit for Growth strategy
necessarily
.
That is because no evidence
was
led showing
the levels of customer satisfaction or indeed profitability levels
before
to the introduction of the Fit for
Growth strategy or before the dismissal of the applicant. Moreover,
the evidence is not specific
to the South African situation where the
applicant was employed. It is of a generic nature, covering the whole
of the respondent’s
global enterprise.
27.
Mr Murphy
led some evidence about
the
financial position
of the respondent
before
the dismissal
. He stated
that in 2008 the
“revenues were flat, and operating costs were increasing”.
However, even this evidence was not specific
to the South African
operations
, but pertained to the global business
.
Furthermore, Mr Murphy’s evidence was that between 2009 and
2010 the respondent’s South African office experienced
a
“buoyant” year as a result of the demand for its services
associated with the FIFA Soccer World Cup.
A
lthough
a contract was lost in 2011, no evidence has been led to demonstrate
the financial impact of that loss of contract. And
finally, the
evidence was that the respondent gained a new contract in 2012.
Ms Milner stated that she was not aware of any
loss of contract in 2011.
THE
LAW
28.
The point
of
departure
is
s
ection
23(1) of the Constitution. Th
is
section
provides that “everyone has the right to fair labour
practices”.
The
LRA gives effect to this right
.
[2]
It provides, in
s
ection
185, that every employee has the right not to be unfairly dismissed.
In
s
ection
188 the LRA provides that a dismissal is
not
fair
if the employer fails to prove
,
inter alia,
that “the reason for dismissal is a fair reason” based on
the employer’s operational requirements
.
[3]
section
188(1)(b)
provides
that a dismissal which was not effected in accordance with the a fair
procedure is unfair
.
29.
The term “operational requirement” is defined in section
213 of the LRA to mean “requirements based on the
economic,
technological, structural or similar needs of an employer.”
This definition is further expanded upon in the Code
of Good Practice
on Operational Requirements passed under the LRA. The Code says:
“
As
a general rule, economic reasons are those that relate to the
financial management of the enterprise. Technological reasons refer
to the introduction of new technology which affects work
relationships either by making existing jobs redundant or by
requiring
employees
to adapt to the new technology or a consequential restructuring of
the workplace. Structural reasons relate to the redundancy
of posts
consequent to a restructuring of the employer’s enterprise.
”
30.
Dismissals based on the employer’s operational requirements are
covered by
s
ection 189 of the LRA.
That section provides for the following:-
30.1
When an employer contemplates dismissing an employee based on
operational requirements, the employer is required to consult
the
person whose dismissal is contemplated.
30.2
The consultation process envisaged in section 189(1) – which
must be “a meaningful joint consensus seeking process”
–
must attempt to reach consensus on several items which include
measures to avoid dismissals; changing the timing of the
dismissal;
and the mitigation of the adverse effects of the dismissal. The
consultation process must include discussions
on the method for
selection of employees to be dismissed and the severance pay of those
employees to be dismissed.
30.3
The employer is required to issue a written notice inviting the
person whose dismissal is contemplated to a consultation. The
employer must make a full and adequate disclosure on relevant
information which must include the reasons for the proposed
dismissals;
the alternatives considered before the proposal to
dismiss; the reasons for rejecting each of the alternatives; the
proposed method
for selecting employees to be dismissed; and several
other items which are not germane for the present matter.
30.4
The employer must allow the person whose dismissal is contemplated an
opportunity to make representations about the subject
matter of the
consultation. Representations must be considered and where they
are rejected, reasons for the rejection must
be provided.
30.5
An employee to be dismissed must be selected according to criteria
which are to be agreed and if no criteria have been agreed,
criteria
which are “fair and objective” must be agreed upon. The
LIFO principle is regarded as a fair selection criterion.
31.
Section 189 of the LRA sits alongside a cluster of
statutory
rights
which
give practical meaning to the right not to be unfairly dismissed
which is contained in section 185 of the LRA
.
Although crafted in procedural terms,
the
object of section 189
is substantive.
[4]
It is
aimed
at the retention of jobs
and
if the
jobs
cannot be retained
,
at ensuring that
any
proce
sses
resulting in job losses are fair
and
the adverse effects
of
job losses
are
mitigated.
In
N
ational
E
ducation
H
ealth
and
A
llied
W
orkers
U
nion
v
University of Cape Town & Others
[5]
the
Constitutional
Court stated that the
LRA
must be
interpreted
in a manner which respects
security
of employment
a
s
a “core value” of the Constitution.
[6]
Fair
reason for dismissal based on employer’s operational
requirements
32.
To return to section 189 of the LRA, I have to
decide the substantive and
procedural fairness of the
dismissal. It is trite that the employer bears the onus
to
prove the fairness of a dismissal
. An issue which was
debated before me concerns the
parameters of
judicial examination of
the substantive justification provided
by
an
employer
in a
dismissal based on operational requirements
. Counsel for
the employer argued that it is sufficient for the employer to show
that it intended reducing costs and decided
to reduce headcount as a
result. I
t
was also argued that
a court is not entitled to enquire into the reasons
which
informed the employer’s decision to
reduc
e
costs
. Cost reduction, it was said, is always a
rational business strategy.
33.
The employee’s Counsel took a contrary view. He
stated that it is not sufficient for an employer
to
say that it
intended to reduce costs
and
identif
ied
headcount
reduction
as a means
to give effect
to its decision.
He submitted that the fact
that there was ultimately a cost saving achieved should not influence
the court in relation to its decision
to assess the substantive
fairness of the decision. A court must enquire whether there was in
fact a genuine reason behind the
decision to reduce operating costs.
34.
As I see it, the issue is not so much whether a
court must consider the rationality of business strategies taken by
employers. Business
decisions taken by employers may be economically
rational. But they are not insulated from judicial scrutiny on that
account alone
where they affect employment security. The issue is the
appropriate level of judicial scrutiny. The Constitution and the LRA
install
fairness as the touchstone in this regard.
35.
Until the
decision of the Labour Appeal Court in
BMD
Knitting Mills (Pty) Ltd. v SA Clothing & Textile Workers’
Union
[7]
various terms had been employed to articulate the test for assessing
the substantive fairness of an employer’s decision to
dismiss
based on operational grounds.
[8]
In
BMD
Knitting Mills
,
Davis AJA departed from the approach in
SA
Clothing & Textile Workers Union & Others v Discreto-A
division of Trump & Springbok Holdings
[9]
and stated:-
“
I
have some doubt as to whether this deferential approach which is
sourced in the principles of administrative review is equally
applicable to a decision by an employer to dismiss employees,
particularly in light of the wording of the section of the Act,
namely, ‘The reason for dismissal is a fair reason’.
The word ‘fair’ introduces a comparator, that
is a reason
which must be fair to both parties affected by the decision.
The starting point is whether there is a commercial
rationale for the
decision. But, rather than take such justification at face
value, a court is entitled to examine whether
the particular decision
has been taken in a manner which is also fair to the affected party,
namely the employees to be retrenched.
To the extent the court
is entitled to enquire as to whether a reasonable basis exists on
which the decision, including the proposed
manner, to dismiss for
operational requirements is predicated. Viewed accordingly, the
test becomes less deferential and
the court is entitled to examine
the content of the reasons given by the employer, albeit that the
enquiry is not directed to whether
the reason offered is the one
which would have been chosen by the court. Fairness, not
correctness is the mandated test
”.
[10]
36.
On the facts of that case the reason for the dismissal was cost
saving. And the reason behind the cost saving was a downturn
in
production. Clear figures were presented to the court to prove
the claim of downturn in production. Based on this the
LAC could draw
the connections between the operational justification and the
decision to dismiss. The court concluded:-
“
Appellant
thus placed evidence before the court which substantiated its reason
for retrenchment, namely the downturn in production
which
necessitated a saving of costs. To the extent that the reason
for cost saving was disputed by the respondent, a cogent
explanation
was given … namely when the services offered by Combat Force
was compared to the amount which such service would
have cost
appellant to run internally, there was a clear cost saving
”.
37.
This issue
was also considered in
Forecourt
Express (Pty) Ltd. v SA Transport & Allied Workers Union &
Another
[11]
.
Zondo JP
[12]
(as he then was)
considered the evidence which was presented before him as
justification for the employer’s decision and
concluded:
“
[39]
I have in effect said above that the appellant was entitled to choose
the manner in which it would run its business provided
that it did
not change the terms and conditions of employment of the employees
without their consent, and provided that, if it
contemplated the
dismissal of the employees, it complied with its obligations provided
for in sec 189 of the Act. If it is accepted
that the appellant was
entitled to decide to run the Fauna operation in a way that was
different from the manner in which the Krugers
had run it and was
entitled to insist on running it in the way it proposed to run it,
then there can be no doubt that a necessary
consequence of such
decision or choice was that it had no work for the second and further
respondents. … Incontestably the
fact that an employer has no
work itself to give to workers to perform is a fair reason to
dismiss.
”
38.
From this
passage, it is apparent that a court is not entitled to dictate to an
employer as to the most commercially viable way
of running its
business. But this does not mean the path chosen by an employer
should not be tested for justification, it should.
This is clear from
the finding of Zondo JP when stating that it could not be fair for an
employer to choose a solution to its operational
needs which would
lead to job losses when another solution which would not lead to job
losses was available.
[13]
This shows, in my view, that a court is required to conduct a
qualitative examination of the reasons – and the evidence
tendered in support thereof – given by the employer in support
of its claim that a dismissal based on operational requirements
is
fair.
[14]
39.
The purpose of this exercise is not to determine whether the employer
is making economically rational business decisions. It
is to
establish factually the existence of a genuine operational
requirement for the restructuring. Once this has been done, the
court
must consider the fairness of the decision to dismiss based on the
proven operational requirement. It is here that an employer’s
decision must be compared to other available measures other than a
dismissal which could address the operational requirement but
were
not considered. This approach strikes a fair balance between the
interests of employees who will be affected by the decision
and the
interests of the employer which may be affected by a genuine
operational need to dismiss employees.
40.
I
have also been referred to the recent decision by the LAC in 4Seas
Worldwide
(Pty) Ltd. v The Commission for Conciliation Mediation &
Arbitration & Others
.
[15]
In that case, the LAC confirmed that in a retrenchment dispute the
employer bears the onus to prove that the dismissal was fair
and that
a fair process was followed before the termination. Discharging
the onus to prove the fairness of the dismissal
includes proving
that, “the redundancy … and the termination of [the
employment] is not a
fait
accompli
…”
[16]
.
41.
Although the LAC referred to the test in
SACTWU v Discreto
, it
is clear that in applying the test, the LAC did not defer to the mere
say so of the employer. This is apparent from its
treatment of
the evidence when it stated:-
“
In
this matter, no-one of the appellant, who had direct and personal
knowledge of its commercial or financial dealings, testified.
Beukes was clearly not such a person. Consequently, the
appellant could not even establish a proper and legally acceptable
rationale for the decision to dismiss van den Berg.
”
[17]
42.
Therefore,
the correct approach is that laid down in
BMD
Knitting Mills
,
which has received explicit endorsement by the Constitutional
Court
[18]
the LAC
[19]
and has been followed in this Court.
[20]
The LAC decision in
4Seas
did not change this. Its reference to
Discreto
must be placed in proper context. In substance,
4Seas
did not
defer to the views of the employer. In any event, Murphy AJ in
SATAWU
v Old Mutual Life Assurance Company, South Africa
[21]
has
correctly observed that
BMD
Knitting Mills
and
Discreto
are not
necessarily at odds with each other. Both are “elucidations of
the governing principle” namely that a decision
to dismiss must
be premised by operationally rational grounds. An employer is
required to prove that the dismissal of an employee
based on
operational reasons is for a fair reason. Unless there is a proper
explanation of the reasons for the dismissal, supported
by credible
evidence, the employer will not discharge the onus to prove the
existence of a substantively fair reason for the dismissal
of an
employee.
43.
This does not entitle the court to decide if the reasons given by an
employer are the best reasons available. The Labour
Court is
constitutionally and statutorily required to supervise the fairness
of reasons given by employers where they dismiss employees
on
operational grounds. This cannot happen
in vacuo
. Where an
employer contends that the operational justification for its decision
to dismiss is reduction of operating costs, it
must at least put
forward evidence showing the actual operating costs which it sought
to reduce. This can be done by producing
financial information which
demonstrates the relevant operating costs. This should not been an
onerous task. Any sensible employer
wishing to reduce costs must
first know what costs are to be reduced.
44.
In addition, where an employer wishes to cut operating costs by
reducing its headcount, it must at least produce evidence of
the
costs associated with the headcount and how this will meet the
overall target of cost reduction. In the absence of this
information, it is not possible for a court to decide if the decision
is not arbitrary or capricious. Nor is it possible to decide
if the
decision is a rational or reasonable one, based on the information
which was available to an employer at the time it decided
to embark
on a restructuring exercise.
In
accordance with a fair procedure
45.
Although as a matter or practice, we tend to
separate process from substance, there are no bright lines
distinguishing process from
substance in the area of dismissals for
operational requirements. The procedure mandated by section 189 has a
substantive purpose.
Its purpose is to save jobs. This is done by
considering alternative means by which the operational problem
identified by the employer
can be addressed without resorting to
dismissals. In a case such as the present, where the proffered
substantive justification
is the need to reduce operating costs, the
issue to be discussed at the consultations is whether there are no
other areas of the
employer’s business where the costs can be
reduced without affecting employment security.
46.
The
purpose behind the need to discuss the selection criterion and to
implement a fair selection criterion is also the avoidance
of loss of
employment. If the job or position cannot be saved, then the focus
shifts to other means of mitigating the adverse effects
of
dismissal.
[22]
47.
It is because of this substantive angle to process
than an employer must approach any consultation with an open mind. If
an employer
approaches a consultation with a fixed outcome in mind,
the consultation is futile. It is a sham. Landman AJA has
stated:
“
If
the decision to make a post redundant is set in stone and not open to
revision or discussion then the aim of the consultation
has been
thwarted before it has begun. If the decision to retrench a certain
person has been pre-decided, consultation about whether
this person
should be chosen is a sham. What remains is consultation on the
mitigation of retrenchment.
”
[23]
48.
In order to achieve the substantive purpose
of consultation there must be a proper and timeous disclosure of
relevant and pertinent
information by the employer. It is not fair
that an employer should keep an employee in the dark about the
possibility of dismissal
until it is too late to make any meaningful
proposals, as it appears to be the case in the present matter.
APPLICATION
OF THE LAW TO THE FACTS
Was
the dismissal substantively fair?
49.
The first issue is whether the respondent
has discharged the onus to prove that the dismissal was for a fair
reason based on its
operational requirements. The justification
advanced by the respondent was two-fold. First, it was stated that
the reason for the
redundancy of the applicant’s position was
the need to align the structure with the Fit for Growth strategy.
This is according
to Mr Murphy’s evidence and the letter given
to the applicant on 12 June 2012. Second, emphasis was placed on the
need to
save costs by 15%. During argument, however, Counsel for the
respondent submitted that the justification based on the Fit for
Growth
strategy must be regarded as something of a “red-herring”
and that the focus must be on the justification based on cost
reduction.
50.
I accept that the need for the reduction of
costs might constitute a legitimate operational requirement leading
to dismissal of
an employee. But when the LRA requires a court to
decide the substantive fairness of dismissals based on operational
requirements,
it does not require abdication to mere factual
assertions by an employer. It requires a court to be satisfied, on
the evidence,
that there are genuine operational requirements and
that the dismissal based on those operational requirements is fair.
Based on
the grounds set out below, the employer has failed to prove
the existence of genuine operational reasons for the dismissal.
50.1
The respondent’s proffered basis for
the dismissal is the need to reduce costs. The evidence presented
does not establish
a fair reason based on the employer’s
operational requirements. The evidence of Mr Murphy and Ms
Milner did not establish
that the applicant’s position became
redundant as a consequence of the implementation of the Fit for
Growth strategy.
The position which became redundant was that
of Mr Mothlabi. It was his position which did not fit with the
requirement in the
Fit for Growth strategy that no position must
comprise only people management functions, except for the Vice
President of a territory.
The applicant’s position performed
both people management and account functions.
50.2
The cause of the redundancy of the
applicant’s position was the decision taken by Mr Murphy and Ms
Milner to create a new
position by stripping the applicant’s
position of all content, adding some functions of Mr Mothlabi’s
old position
and the government services functions. This decision was
not required by the Fit for Growth strategy. The functions of the
applicant
were in fact needed under the strategy and were retained
without any alterations in the newly created position.
50.3
Although I accept that the respondent was
entitled to adopt the Fit for Growth strategy, I find that the
abolition of the applicant’s
position was not a rational way of
giving effect to the strategy. Both witnesses of the respondent
accepted that the position was
not affected at all by the strategy.
If this was so, then the decision to strip the position of all its
functions was not based
on any rational explanation. The decision to
declare the applicant’s position redundant based on the
business strategy was
therefore irrational and unfair.
51.
I now consider the second substantive justification – the cost
reduction. During the trial I enquired from both witnesses
of the
respondent about any financial information of the respondent, either
in South Africa or globally to show the actual operating
costs which
were of concern to the respondent. Neither witness had access to the
relevant financial data. In addition, the witnesses
could not shed
any light as to the reasons behind the reduction of costs. Ms Milner
stated that she was informed that the target
for South Africa was to
reduce costs by 15%. But she was not sure of the targets for other
regions or the reasons why 15% was chosen
for South Africa. Equally
Mr Murphy could not give any explanation for the decision.
52.
Counsel for the respondent submitted that it was sufficient for the
employer to state that it intended to reduce operating costs
by 15%
and that by dismissing the applicant, that cost saving was in fact
achieved. He submitted that it is not necessary for a
court to know
the cost base from which the respondent proceeded. But this cannot be
so. Were this to be the full extent of what
is required under the
law, the objects of the LRA would be stultified. A court would never
know if there is a genuine operational
requirement. It would also not
know if any dismissal based on that operational requirement was fair.
It would effectively depend
on the views of management, which is in
conflict with what is required under the LRA.
53.
In the absence of any information about the extant operational costs
of the respondent and any explanation as to any connection
between
the supposed need to save costs and the dismissal decision, I cannot
find that the cost reduction reason is rational, reasonable
or a fair
reason for making the position of the applicant redundant.
54.
The respondent has failed to prove that the dismissal of the
applicant is for a fair reason based on its operational requirements
Fair
procedure
55.
The respondent admitted that its decision did not comply with a fair
procedure in certain respects. These respects were: the
failure to
consult with the applicant before the introduction of the Fit for
Growth strategy; the failure disclose the reason for
the proposed
dismissal in the letter in terms of section 189(3) of the LRA; and
the failure to disclose the alternatives which
were considered before
the dismissal of the applicant.
56.
These admissions do not give a full and proper account of the
respects in which the respondent did not comply with a fair
procedure.
57.
The respondent took the decision to restructure and to declare the
position of the applicant redundant during the first week
of June
2012 before the first consultation meeting with the applicant. After
the decision was taken, the respondent met with Mr
Mothlabi and gave
him the position which appears, he accepted. The structure
which was presented in Court created in the
first week of June 2012
had the name of Mr Mothlabi although it was stated that the name
was. The applicant was not present
at this meeting. There
was simply no contest based on LIFO or any ground before the position
was given to Mr Motlhabi.
58.
When the respondent consulted with the applicant on 11 June 2012, it
informed the applicant that his position was redundant.
This was the
first time the applicant was informed of any restructuring. At this
stage the decision to make the applicant’s
position as
redundant was not subject to change. It was final. And so was the
decision to adopt a new structure. The consultation
which followed
thereafter concerned alternatives to dismissal. There was no
possibility of discussions about saving the applicant’s
position.
59.
The respondent did not consider any alternatives to address its
concern of saving costs, other than the reduction of headcount
by the
dismissal of the applicant. In evidence, Ms Milner, when called upon
to explain any alternatives considered focused on other
positions
which could have been made redundant, instead of the applicant’s
position. When the respondent rejected the proposal
made by the
applicant to reduce his salary, it made no counter-proposals of its
own underscoring the fact that its sole focus was
dismissal.
60.
These deficiencies in process were of a fundamental nature. They went
far beyond the admissions made by the respondent. They
defeated the
purpose of section 189.
61.
I find that the dismissal of the applicant was not effected in
accordance with a fair procedure.
REMEDY
62.
The applicant did not ask for reinstatement. I must therefore
consider appropriate compensation in terms of section 194 of the
LRA.
Having found that the dismissal was not for a fair reason and was not
effected in accordance with a fair procedure, I consider
that the
applicant is entitled to maximum compensation allowed by the LRA. The
dismissal is substantively unfair. Quite apart from
this factor, the
respondent’s departure from a fair process was of a serious
nature, resulting in a futile consultation process
in conflict with
the objects of section 189 of the LRA. I could not find any
mitigating factor for the respondent’s departure
from a fair
process which I could take into account in deciding compensation. The
respondent’s offer of settlement is not
sufficient to meet the
procedural lapses identified in this judgment.
63.
I intend ordering the respondent to pay the applicant compensation
equivalent to 12 months remuneration, on the scale of remuneration
which was applicable at the time of his dismissal.
ORDER
I
make the following order:-
[1]
The dismissal of the applicant for operational requirements was
substantively
and procedurally unfair.
[2]
The respondent is ordered to pay the applicant compensation
equivalent
to 12 months’ remuneration, on the scale of
remuneration which was applicable at the date of the
applicant’s
dismissal.
[3]
The respondent is ordered to pay the costs of the applicant, on a
party
and party scale, such costs to include the costs of the trial.
________________
NGCUKAITOBI AJ
Acting Judge of the
Labour Court of South Africa
Appearances:
For
the Applicants: Mr
GN Moshoana
(Of
GN MOSHOANA ATTORNEYS)
For
the Respondents: Mr
GF Malan
(Of
EDWARD NATHAN SONNENBERGS INC)
[1]
It was common cause that the applicant’s position was graded
at Grade 8.
[2]
See
section 1 of the LRA
[3]
Section
188(1)(a)(ii)
[4]
In
Super
Group Trading (Pty) Ltd v Andries Hendrik Janse van Rensburg
Case No: JA50/09 (unreported, delivered on 25 April 2012) Landman
AJA explained that the purpose of the consultation process
in
section 189 is “to try and save a job or position.” (At
para 4)
[5]
2003 (2) BCLR 154 (CC); 2003 (3) SA 1 (CC).
[6]
NEHAWU
v UCT
at
para 41.
[7]
(2001)
ILJ
2264 (LAC).
[8]
See
the review of the case law by Pak Le Roux in “Assessing
employer decisions to dismiss based on operational requirements:
a
review of the LAC’s approach to substantive fairness”
Contemporary
Labour Law
Vol 21 No. 6 January 2012.
[9]
(1998) 19
ILJ
1451 (LAC). Although the test of the LAC in the
SACTWU
v Discreto
case has been called “deferential”, in application
Froneman DJP (as he then was), in fact carefully scrutinized the
reasons advanced by the employer and concluded that it had failed to
provide sufficient evidence to show that the reasons for
the
dismissal were justifiable based on rational economic considerations
of the employer.
[10]
BMD
Knitting Mills
at
para 19.
[11]
(2006) 27 ILJ 2537 (LAC).
[12]
Davis
AJA concurring and Mlambo AJA dissenting.
[13]
Forecourt
Express
at para 28
[14]
BMD
Knitting Mills
at para 23
[15]
Case no: CA15/2011 (unreported, judgment delivered on 13 November
2013)
[16]
4Seas
at para 23.
[17]
4Seas
at para 25.
[18]
Sidumo
and another v Rustenburg Platinum Mines Ltd and others
at
para 71.
[19]
CWIU
and others v Algorax (Pty) Ltd
(2003) 24 ILJ 1917 (LAC).
[20]
SATAWU
v Old Mutual Life Assurance Company South Africa
[2005]
4 BLLR 378
(LC) is the most comprehensive exposition of the law in
this area, which I could find. Although his decision turned on the
provisions
of section 189A of the LRA, it remains instructive in
relation to the test for judicial intervention in employer decisions
to
dismiss for operational requirements.
[21]
SATAWU
v Old Mutual
at
para 85.
[22]
Super
Group Trading (Pty) Ltd v Van Rensburg
at para 4
[23]
Super
Group Trading (Pty) Ltd v Van Rensburg
at para 5