About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Johannesburg Labour Court, Johannesburg
SAFLII
>>
Databases
>>
South Africa: Johannesburg Labour Court, Johannesburg
>>
2015
>>
[2015] ZALCJHB 141
|
|
BIFAWU & SACCAWU obo Mpanza and Others v Zurich Insurance Company of South Africa (J2539/10) [2015] ZALCJHB 141 (23 April 2015)
REPUBLIC
OF SOUTH AFRICA
The Labour Court
of South Africa, AT JOHANNESBURG
Judgement
Case
No. J2539/10
DATE:
23 APRIL 2015
Reportable
In
a matter between:
BIFAWU
& SACCAWU OBO
P.V.
MPANZA & 9
OTHERS
..................................................................................................
Applicants
And
ZURICH
INSURANCE COMPANY OF SOUTH
AFRICA
..............................................
Respondent
Heard:
26 June 2014
Delivered:
23 April 2015
Summary:
Claim of unfair dismissal due to operational requirements of the
employer - consultation facilitated in terms of S189A
– effect
of S189A (19) to procedural fairness - new structure created and job
offers made but unreasonably rejected- right
to severance pay
forfeited.
JUDGMENT
CELE
J
Introduction
[1]
The applicant seeks an order for the re-instatement of nine of its
members who were in the employment of the respondent, following
their
dismissal carried out consequent on a facilitated consultation in
terms of section 189A (3) of the Labour Relations Act
[1]
(“the Act”). The applicant also relies on section 187 (1)
(c) of the Act to contend that the dismissal of its members
was
automatically unfair. The respondent opposed this application and
simultaneously raised three points
in
limine
.
Factual
Background
[2]
The respondent is a company operating in a short term insurance
industry in South Africa. It is a wholly owned subsidiary company
of
the Zurich Group with the head office in Zurich, Switzerland. During
2008/2009 this industry faced severe economic challenges
compounded
by the economic recession which hounded the financial markets of the
world at the time. Quite apart from the general
recession, the
respondent believed it sustained an underwriting loss in 2009 of more
than half a billion rand and a net loss of
approximately R300
million. The respondent believed that the loss incurred was contained
by having its Botswana operation as a
rescue package for its South
African company. As a listed entity, the financial statements of the
respondent are a matter of public
record. In October 2009, the
respondent had a new Chief Executive Officer (“CEO”),
appointed in the person of Mr Guy
Munnoch. He took the decision that
the significant financial loss incurred by the company was not
acceptable and that a business
transformation was to take place.
[3]
The employees involved in this matter and on whose behalf the
applicant referred this dispute were part of more than one thousand
staff compliment of the respondent. About 840 of those employees were
not members of any union. The applicant was one of at least
three
unions operating in the workplace of the respondent in various
provinces of South Africa. The other two were SACCAWU and
SASBO.
[4]
On 8 February 2010, the respondent issued a section 189 (3) notice to
its employees and to the unions operating in its workplace.
Soon
thereafter, the respondent embarked on various road shows dealing
with intended remedial steps it wanted to initiate. The
CEO handled
the presentations in all offices of the respondent, including those
in Johannesburg, Cape Town, Durban, East London,
Nelspruit, Polokwane
and Bloemfontein. The presentation was done through various slides.
The applicant unions were given such slides
in March and April 2010.
Employees at smaller non-metro offices attended road shows at their
closest head office.
[5]
The Executive was largely remodeled and replaced in late 2009 such
that the business transformation was a top down rather than
a bottom
up exercise. The result was that the Executive and Senior Management
were affected in the formation of a new organogram
and this was some
months before the employees in the main retrenchment exercise were
impacted. The recruitment process and the
advertising of the
organogram followed and the population of the new organogram was
implemented in June 2010, although certain
senior placements were
undertaken earlier.
[6]
A section 189 (3) notice of retrenchment issued to the employees’
representative was couched in terms which included the
following:
‘
Contemplation
of Business Transformation Programme. Section 189 (3) Letter
1.
The Company is embarking on a business transformation program
designed to build a platform for delivering its future growth
aspirations. As a result the program may involve
rationalization/restructuring which may lead to the retrenchment of
some of its
employees for operational requirements.
2.
It should be emphasized that no final decision has as yet been taken
in the regard nor will any final decision be taken in the
absence of
full and proper consultation with your Employee Consultative
representative. However, the Company firmly believes that
the changes
proposed are vital to the future success of the Company.
3.
In order to ensure due compliance with the law and accepted
industrial relations practice the Company is now commencing a
consultation
process with regard to the contemplated transformation
program. The consultation process will be conducted with the trade
unions
which represent a small number of employees in the work place.
Those employees who are not members of the trade unions will be
represented by their Employee Representative Forum currently
operational in the organization.
4.
In order for representatives of the employees to make a meaningful
contribution to the proposed transformation program during
the
consultation process, and in keeping with the Labour Relations Act,
we now provide you with the following relevant information.
The
reasons for the proposed dismissal
To
ensure that we are able to compete successfully in the market and
that we can deliver strong financial and business results in
the
future, we need to implement a business transformation program that
will provide us with a solid platform for future growth.
Before we
reposition ourselves strategically, we must first take some immediate
action to reshape ourselves operationally. This
will ensure we can
facilitate this growth and continue to meet our customers’ and
brokers’ evolving demands. As stated
above we are now entering
into a formal consultation process and no final decision will be
taken in this regard until employees
have been fully consulted.
Employees
affected
There
are approximately 600 employees affected as a result of the Business
Transformation Program. See annexure A for a complete
list of job
categories affected.
Timing
of the proposed retrenchment
The
retrenchment exercise in which the Company contemplates engaging will
be in terms of section 189A of the Labour Relations Act
1995 (the
LRA) due to the size of the Company and the number of employees who
will be affected. The Company has requested that
a facilitation
process under the auspices of the CCMA be conducted. This means that
the Company will only be in a position to give
notice of termination
in the event that it becomes necessary to do so after a period of
sixty (60) days has elapsed from the date
of this letter, unless an
earlier date is agreed to during the consultation process.
Number
of employees employed
The
Company employs 1007 employees as at date of this notice.
Request
for facilitation
The
Company attaches LRA Form 7.20 requesting the CCMA to appoint a
facilitator. Annexure B.
We
propose to consult with representative of the employees regarding the
issues raised in this letter on 15 February 2010. Should
you require
any further relevant information in respect of the consultation
process please advise your Manager immediately’.
[7]
Consultations were set for the dates: 19 February 2010, 02 March
2010, 15 March 2010, 08 - 09 April 2010 and 18 - 19 May 2010.
Mr M D
Ally a Commissioner of the Commission for Conciliation, Mediation and
Arbitration, (“the CCMA”), presided over
the consultation
process though he was later replaced by Senior Commissioner Shaun
Christian. The Applicant did not attend on the
02 March 2010 although
it was invited to send a replacement representative following its
suggestion that it had other commitments.
The unions had their own
meetings hosted by the respondent on 07 and 08 March 2010. There was
also an exchange of information and
correspondence between the
respondent and all three unions.
[8]
Initially, it was agreed that the consultation process would be
carried out with all participants sitting together. Differences
in
strategies began to emerge among consulting parties. These led to the
respondent finally consulting with the unions separately.
A separate
consultation took place between the respondent and the Employee
Forum. Unions and the Employee Forum submitted a number
of questions
to the respondent as part of the consultation exercise and the
respondent furnished answers thereto. Some of the answers
were not to
the satisfaction of the unions and further questions were raised. How
this process unfolded and the extent of the deliberations
is
demonstrated by a few of such questions and answers on business
transformation and financial information:
‘
Business
transformation
Questions
Answers
Part
1:
QUESTIONS/
CONCERNS REGARDING THE COMPANY’S BUSINESS RATIONALE FOR THE
PROPOSED CHANGES IN RESPECT OF TRANSFORMATION AND SKILLS
AND
DEVELOPMENT
1.1
The transformation programme requires the introduction of new work
processes and systems. Could you please explain what different
skills, knowledge, experience and expertise are required to
effectively and efficiently support new business model?
This
will vary across the specific technical functions and will be
dependent on the level of change within each individual role.
It is
also important to recognize that people may already have the skills
sets required to operate within the new roles in the
structure.
To
use the Claims function as an example, at a general level, the
following would be some of the skills required in the new model
for
specific areas:
·
Enhanced skills around customer and broker relationship management
and knowledge will be needed. (What is meant by “enhanced
skills”?)
·Complex
claims will require specialized in-depth knowledge of motor and
non-motor insurance claims. (What is meant by “complex
skills”?)
·The
technical claims department will need an enhanced legal knowledge,
particularly with respect to managing high value
complex claims.
(What is meant by “technical skills”?)
·The
fraud roles will require strong experience in forensics.
·Quality
assurance will need a good understanding of TQM (what is TQM?)
methodology and other quality assurance techniques.
(What is meant by
“QA techniques”?)
The
required skills set, experience and expertise for each role is
documented for each role profile in each area of the organization.
Now that it is documented the Union requires the job profile of all
positions in both the current and new structures.
1.2
What are the objectives of this transformation?
The
overarching objective of the transformation is to ensure we take the
immediate action necessary to improve our financial and
business
performance, supporting the development of a platform for future
profitable growth.
To
achieve this ambition and to ensure we deliver an underwriting profit
in future years, we need to significantly improve our Combined
Ratio
and we are targeting a >6% improvement in 2010. Along this, our
proposals reflect the need to enhance focus around areas
such as
underwriting rigour and control, claims efficiency and effectiveness
and cost efficiency. This response fails to address
the objectives
and “objectives” relate to the means/tools that the
company wishes to implement to ensure that the company
is more
profitable.
1.3
Why is the Company taking away underwriters from geographical areas
like George and moving them to Port Elizabeth if they know
the
brokers and type of business so well?
The
new model separates the sales and underwriting roles, allowing the
market underwriters to focus exclusively on risk selection
and
rating. Thus having underwriters in Port Elizabeth to deal with
George business allows us to obtain greater efficiency (reduced
costs
due to economies of scales and task specialization [this has not been
proven at any stage and it is our submission that the
company is
making a serious mistake to eliminate knowledge anchors in a specific
areas- and for this reason please explain why
Klerksdorp and George
will not have any market underwriters when the intention is to
enhance and retain a sound broker and company
relationship? <refer
also to 4.5 which read: “it will ensure that we are able to
efficiently and effectively deliver a
high quality service to our
customers and brokers, placing that at the heart of all we do.”>}),
consistency and control
of the underwriting, improving the quality of
our risk selection and pricing, which will ultimately improve the
underwriting result.
The underwriters will still have direct contact
with brokers and the sales force will continue to operate in George
so that broker
insights and local knowledge can be effectively
transferred between the two teams.
1.4
Why does the Company not review its position to retain its
competitive edge whilst other competitors are increasing their
foot
prints in rural and coastal areas and moving closer to their clients
yet Zurich is moving away from their business and customers?
We
have carefully reviewed our market footprint as part of the proposed
plans and we are confident that the new operating model
will support
our growth strategy and present the opportunity to increase market
share. (Lack of information) whilst we are proposing
to close four of
our Sales offices, we are confident that these areas will continue to
be serviced effectively through our other
Sales locations. In
addition, we intend to introduce a ‘home working’ model
which creates the flexibility we require
to ensure that we have the
right level of presence in the right regions going forward. (Staff in
virtual office positions: why
can there not be sales staff and market
underwriters? The company’s response does not address the
unions’ concerns.
Questions
Answers
Part
2:
INCOMPLETE
OR OMITTED FINANCIAL INFORMATION
2.1
Why is the financial information not disclosed or release in order to
measure the alleged declining trends since 2004?
As
with any organization, financial information is extremely sensitive
and confidential and so we have to work within company guidelines
around what we are able to release into the public domain. As a
listed company, for Zurich South Africa, this governance is even
more
critical. It is noted that this is no excuse in terms of the
Company’s Act (especially after the new amendments) and
the
King II report.
However,
we recognize the need to ensure that people are kept informed and up
to date with our performance and going forward we
have committed to
share our results at relevant points during the year so that people
can see how we are performing.
As
part of the business case proposals we have presented a high level
summary relating to the key financial indicators around the
transformation programme, however more detailed information is
available if required (Union is requesting same).
2.2
Why are the financial statements showing a profit for the year ended
at December 2008 but the reviews financial report shows
a loss- what
really happened between 2008-2009?
The
financial statements are audited by Price Water House Coopers and are
publicly available for review. In addition, the business
case
highlights some of the key trends and influencing factors on our
business performance- please refer to slides 4-7.
2.3
We are perturbed by certain statements that do not tie up:
2.3.1In
your “in touch” news dated 26 Feb 2010, you mentioned
that the gross premium income has grown by 1,7% (in 2008
it was
R5,3b) - which you described as an incredible performance but further
stated that you suffered an underwriting loss of R564
m, how can the
company have liquidity problems if the income exceeds the losses?
This
is incorrect. The wording to describe the growth in gross written
premium (GWP) was ‘credible’, not ‘incredible’.
As specified in the CEO In Touch, this comment was based on the
fact that with respect to our top line, we had still achieved
a small
amount of growth, despite cancelling R500 m of underperforming blocks
of business mainly in the Personal Lines Group Schemes
portfolio.
The
underwriting loss quoted in the question is correct and is the result
of expenses (what expenses?) that exceed income. When
expenses exceed
income then it results in a loss.
With
respect to the comment around liquidity, very often companies suffer
from liquidity problems even when the income exceeds the
expenses. A
good example is when sales are made on credit but the clients are
slow to pay. Clearly when expenses exceed income
then liquidity
problems will ensue. In the business case however management
highlights solvency as a much more urgent and compelling
concern than
liquidity.
2.3.2
How can the company declare dividends despite the losses suffered?
There
was no dividend declared.”
[9]
While the consultation process had commenced, the respondent was
simultaneously running skills development workshops. On 12
March
2010, the respondent issued a circular to all staff apprising them of
the areas covered by the workshop and the details for
the various
sessions. A copy of the circular was sent to the applicant. The
consultation process had various challenges and, at
some stage, the
facilitating commissioner had to be substituted. The unions
complained bitterly about the inadequate supply of
relevant
information by the respondent and a failure of the first commissioner
to assert his authority over the process. As an
international
company, the respondent wanted to introduce a business plan requiring
highly specialized skills within an acquired
model which it had
introduced globally. According to the union that was done without
proposing to host a workshop on lay-off scheme
for consulting
parties. A further complication came about when the respondent began
to implement some of the decisions it had reached
with the Employee
Forum. The unions took exception to the approach, regarding it as a
unilateral implementation of the changes
to their exclusion. One
communication made by one employee to the respondent and a response
thereto demonstrates the challenge
confronting the respondent thus:
‘
Good
day
I
refer to the Road Show held on the 8
th
February 2010 in
respect of the business transformation of Zurich South Africa.
It
was advised that Allen’s Neck, Klerksdorp, Bellville and Benoni
office would be closing on the 31 May 2010. It was proposed
that
these employees apply for positions in Johannesburg when advertised-
which should have been on the 22 February 2010. Those
who did not
apply would stand a chance of not receiving a proposed retrenchment
package. I would assume that an office such as
Klerksdorp would
receive the proposed package as logistically they would be unable to
travel to Johannesburg. In addition to this,
in the case of an office
such as Rustenburg where the representative of the Company will be
home based, would the other employees
be entitled to the purposed
retrenchment package?
I
would like to be considered as an extreme case for the following
reasons-
v
I have been with the Company for 20 years
v
I am 59 years old
v
I am only six years away from retirement
v
I live 10 km from Benoni offices
v
I have been blind in my right eye for eight years
v
As a result of my disability travelling distances is a problem for me
v
As far as a lift club is concerned, I only know of one person who
lives in Springs and this would be out of her way.
Due
to the delay in advertising the positions, would this have any effect
on the said branches closing on the 31 May 2010?
Finding
a position in the Insurance industry at this point in my career,
should I not be successful at Zurich, would be difficult
for me.
I
have been approached for a senior position in the insurance Industry
at all the same benefits currently given to me by Zurich.
The
distance of travel is an extra 12km and extra petrol will be included
in my package with them. An advantage here is that retirement
age is
completely open and not 65 definite. I feel confident in obtaining
this position. Should I not be successful in a position
with Zurich,
would this give me a proposed retrenchment package? Could I be
considered as an extreme case and not be subjected
to the recruitment
and selection process i.e. applying for a position, assessment
testing and psychometric testing.
Your
urgent attention would be appreciated- thanking you in
anticipation’.
‘
Dear
Francis
Please
accept my apology for the delay in responding your email. I have
tried to answer your queries as comprehensively as possible
and trust
that this clarifies any areas of uncertainty.
Office
closure and effective dates
We
do appreciate that for some people, personal circumstance may mean
that relocation is not feasible. Affected employees would
however be
expected to apply for positions to location within a commutable
distance from their current location. Should a suitable
position not
be available in their areas, employees would qualify for a
retrenchment package. In instances where employees wish
to be
considered for a role in a location that is not within a commutable
distance from their current location and are found to
be suitable for
a specific role, the company will provide relocation assistance in
terms of our relocation policy.
Regarding
office closure, there is a strong possibility that some of the areas
may close later than the dates originally anticipated.
Certain
milestones that form part of the consultative process need to have
been achieved before these changes are implemented.
Alternative
positions
If
you are employed by Zurich when your location is closed and your
application for other positions is unsuccessful you will be
offered a
retrenchment package. If your employment with Zurich is terminated
before your branch is closed you will not qualify
for a package.
Consideration
as an extreme case
Regrettable,
we are required by law to apply a consistent selection process. We
are therefore unable to treat individuals differently.
Regards’
[10]
The unions rejected the business plan of the respondent. According to
the respondent, there was much anxiety and frustration
expressed by
rank and file non-unionized employees because of the delay in
finalizing the business plan, as demonstrated by the
letter from
Francis. The respondent felt that it had to strike a balance between
pandering to the unions and addressing the concerns
of the largely
non-unionized workforce who communicated their concerns to the
respondent over time. The respondent decided to populate
its new
organogram and it invited the employees to lodge their applications
for the advertised positions. There are 234 employees
who signed the
settlement agreement for the voluntary termination of their services
with the respondent. Mr Ally delivered his
report to the parties with
the applicant receiving it on 10 June 2010. The last five paragraphs
of that report read:
‘
20)
The SACCAWU official Mr Joseph had behaved in a very aggressive and
abusive manner to the point that he had physically threatened
the
commissioner and had made very serious xenophobic statement towards
the CEO of the company.
21)
The process had degenerated due to the actions of the SACCAWU to a
point that I felt that the lives of people were in danger
together
that of my own.
22)
I ruled that the facilitation was adjourned upon further advise and
left the meeting.
23)
At this point at least 100 days had passed since the employer had
issued the S189 (3) notice to employees.
24)
I felt that no purpose will be served by continuing to facilitate the
process as more 60 days had passed without any progress
being
registered’.
[11]
The unions discouraged their members from applying for any positions
with the respondent. Finally, on 1 July 2010, the respondent
issued
letters to terminate, with effect from 31 July 2010, the employment
of the applicant`s members who had decided neither to
apply for any
positions in the new company structure nor to accept the voluntary
severance pay. A dispute pertaining to the fairness
of the dismissal
arose and it was referred to conciliation and when the dispute could
not be resolved, it was referred to this
Court by means of 37 pages
of the statement of case. The respondent filed its 31 pages of the
statement of defense and it raised
some points
in limine
.
[12]
It is appropriate at this stage to consider the points which were
raised
in limine
. A decision on them will indicate what
evidence to consider. In the statement of defense the respondent
submitted three points
in limine
but only one need be
considered here while others, though not clearly pleaded, need to be
considered with evidence led. The one
point is that:-
‘
1.
The factual matrix of this application relates to a large scale
retrenchment in terms of S189A. As such the Honourable Court
is
prohibited by S189A (18) of the LRA from determining procedural
fairness.
2.
Applicants already and failed (with costs) to launch an urgent
application in terms of S189A (13) on 29 July 2010 and have exhausted
their procedural remedies.
3.
Notwithstanding this, the bulk of the allegations contained in the
Applicants’ Statement of Case concerns procedural matters
and
as such are irrelevant to this application….’
[13]
Thus the respondent maintained throughout the trial that the large
portions of the statement of case concern allegations of
procedural
unfairness that are irrelevant to the present matter in that they
fall outside of the jurisdiction of this Court in
terms of section
189A (18). In particular the respondent has referred to the following
paragraphs of the statement of case as being
excipiable:- 29.24.4 to
29.27.1; 29.33; 29.34; 29.41.3; 29.42.4; 29.41.7; 29.42; 29.48;
29.51; 29.52.11; 29.54; 29.55 to 29.68;
29.72; 29.76; 31 and 42 (42.1
to 42.6).
[14]
The applicant contended that the paragraphs referred to were to serve
as background facts but declined to amend its statement
of case at
the commencement of the trial. Instead a submission was made that,
while this Court did not have jurisdiction in respect
of procedural
matters, procedural fairness was not only a value in its own right,
but was a means of establishing whether substantive
grounds were in
fact present. Reliance was placed on
NEHAWU
and Others v Agricultural Research Council and Others
[2]
where
it was held that:
‘…
not
merely to determine whether the requirements for a proper
consultation process has been followed and whether the decision to
retrench was commercially justifiable… The enquiry is whether
the retrenchment was properly and genuinely justified by operational
requirements in the sense that it was a reasonable option in the
circumstances’.
[15]
While taking part in the consultation process, the applicant
formulated an opinion that the respondent was not acting fairly.
The
applicant was not without a remedy. Section 189A (13) provided it
with some options to consider as it states that if an employer
does
not comply with a fair procedure, a consulting party may approach
this Court by way of an application for an order-
(a)
compelling the employer to comply with a fair procedure;
(b)
interdicting or restraining the employer from dismissing an employee
prior to complying with a fair procedure;
(c)
directing the employer to reinstate an employee until it has complied
with a fair procedure; or
(d)
awarding compensation, if an order in terms of paragraphs (a) - c) is
not appropriate.
[16]
The applicant was alive to these provisions as it did approach this
Court on urgent basis after its members had been dismissed
by the
respondent. While negotiations were on-going it was up to the
applicant to pick up the most opportune moment to approach
this Court
in terms of section 189A (13). As already alluded to, the applicant
did approach this Court, on urgent basis, even though
with no
success. For the application to be within the threshold of the Act,
it had to be brought not later than 30 days after the
respondent had
given notice to terminate the employees’ services
[3]
.
The Legislature deemed it appropriate that a consulting party had to
strike while the iron was still hot to bring to book a recalcitrant
employer so as to comply with a fair procedure. A further protection
accorded to the employees who have been served with a dismissal
notice when 60 days have elapsed since the employer gave notice in
terms of section 189 (3) of the Act, is to give notice of a
strike
[4]
. To obviate any delays
in this regard, the legislature dispensed with a need to conciliate
the dispute. The applicant did not choose
to exercise this option.
[17]
The applicant’s submission in this regard appears to conflate
the provisions of s189A (18) with those of S189 (19). Section
189
(18) states that this Court may not adjudicate a dispute about the
procedural fairness
(my emphasis) of a dismissal based on the
employer’s operational requirements referred to it in terms of
section 191(5)(b)(ii).
Contrary to this provision, s189 (19) then
provides that in any dispute referred to this Court in terms of
section 191(5) (b) (ii)
concerning the dismissal of a number of
employees, this Court must find that the employees were dismissed for
a
fair reason
, (my emphasis) if the conditions listed in (a)
to (d) of the subsection exist. The applicant has confused the
considerations for
the determination of a fair procedure with those
for substantive fairness.
[18]
When the provisions for section 189A (18) are properly construed this
Court is prohibited from adjudicating the part of the
dispute which
is about the procedural fairness of the dismissal based on the
respondent’s operational requirements as were
referred to this
Court by the applicant in terms of section 191(5)(b)(ii). The
exception accordingly succeeds. The result is that
all those
paragraphs in the statement of case which bear reference to the
fairness of procedure are ruled to be excipiable. They
include
paragraphs: 29.24.4 to 29.27.1; 29.33; 29.34; 29.41.3; 29.42.4;
29.41.7; 29.42; 29.48; 29.51; 29.52.11; 29.54; 29.55 to
29.68; 29.72;
29.76; 31 and 42 (42.1 to 42.6). Any and all of the evidence led in
relation to these paragraphs is found to be inadmissible.
This Court
will henceforth make no pronouncements on procedural fairness.
Substantive
fairness
[19]
As already indicated s189 (19) provides that in any dispute referred
to this Court in terms of section 191(5) (b) (ii) concerning
the
dismissal of a number of employees, this Court must find that the
employees were dismissed for a fair reason, if the conditions
listed
in (a) to (d) of the subsection exist. Those conditions are:
(a)
the dismissal was to give effect to a requirement based on the
employer’s economic, technological, structural or similar
needs
[5]
;
(b)
the dismissal was operationally justifiable on rational grounds;
(c)
there was a proper consideration of alternatives;
(d)
selection criteria were fair and objective.
[20]
Evidence led in this trial must therefore be seen against all the
four factors.
Evidence
Was
the dismissal to give effect to a requirement based on the employer’s
economic, technological, structural or similar needs
?
[21]
It remained common cause that the respondent dismissed the nine
employees that were members of the applicant union. The respondent
had then to prove that such a dismissal was carried out on the basis
of a fair reason. Mr Clifford Nkosinathi Zungu, the Head of
People
Management, otherwise known as HR, was the only witness called by the
respondent. According to him, the respondent frequently
issued
circulars to the staff through what it called “InTouch”.
One such circular was dated 26 February 2010, issued
by the CEO, Mr
Guy Munnoch with the first to the fifth paragraphs reading:
‘
Dear
Colleagues
On
8 February I referred to our forthcoming annual results announcement
and said that there was an immediate need to strengthen
and improve
the performance of our business. Our results have been released to
the market and you will see from the explanation
below that they
reflect the difficult and challenging year we experienced in 2009.
Gross
premium income, in other words, the premiums we received from our
customers grew by 1. 7 % to R5.4b (2008:R5.3b). This is
a credible
performance considering the cancellation of the underperforming
blocks of business amounting to R500m, mainly in the
Personal Lines
Group Schemes portfolio, which no longer met our stricter
underwriting criteria. Premiums in the Risk Finance division
decreased for the same reason.
Claims
during 2009 increased by almost 19% and our expenses increased by 17%
due to a number of large once-off costs like, for example,
the data
loss incident.
Taking
all of these factors into account, we ended the year with an
underwriting loss of R564m. Compared to last year’s figure
–
a loss of R38m – you will see that we are 400% down on 2008.
Our combined ratio, which is our result expressed as
a percentage,
increased to 113.2%. A ratio that is greater than 100% means that the
company is paying out more than it is receiving.
Our general
insurance result which includes investment income is also in a loss
situation at R458m.
Having
seen these results, I am sure you will agree that swift and decisive
action has to be taken to transform our business and
lay the
foundation for future growth and profitability. As I have said before
this is an exciting new chapter in Zurich South Africa’s
history and is one that will position us strongly as we aspire to be
a leader….’
[22]
Mr Zungu confirmed the position of the respondent as stated in the
circular. He said that it was in January 2010 that the Board
of the
respondent endorsed the executive decision to transform the
respondent. The respondent, he said, found itself confronted
by a
storm of compounded simultaneous forces from the market, customer and
regulatory considerations. The market drivers for a
change were due
to:
Ø
The industry underwriting margins showing a declining trend since
2004;
Ø
The UW cycle was in its longest downward phase for many years;
Ø
Short term insurance market was shW cycle was in its longest downward
phase for many years;
Ø
Short term insurance market was shrinking due to economic downturn;
Ø
Fraudulent claims were on the increase;
Ø
Competitors were actively lowering their cost base – to provide
them with a competitive edge.
[23]
The regulatory considerations were born out by the fact that:
Ø
International Solvency target ranged 40% to 50% - Zurich had fallen
to 39% in 2009;
Ø
Statutory solvency minimum was set at 15 %. Falling below 20% would
result in Zurich being under FSB directive;
Ø
FSB would prevent Zurich from taking on new business;
Ø
FSB would evaluate business and operating models and initiate cost
cutting measures.
[24]
The customer drivers for a change were due to:
Ø
Customer pressure on prices to drive affordability;
Ø
Brokers and customers were demanding high levels of service at
reduced prices;
Ø
Brokers and customers were demanding specialist knowledge and skill;
Ø
Customers’ buying habits were changing towards more interactive
channels.
[25]
There was also the financial consideration that had to be added to
the scale. Zurich was consistently underperforming in the
market over
the last 10 years. There were significantly deteriorating
underwriting results for the last three years. The underwriting
loss
in 2008 was R38 million and in 2009 it was R564 million. The general
insurance results, including investment income, was a
loss of R458
million. The operating costs increased by 62 % over the last three
years.
Was the dismissal
operationally justifiable on rational grounds?
[26]
Zurich in South Africa was said to be operating from a burning
platform which required a fresh strategic approach. It was necessary
to review and clearly define a new strategy that would operationally
position the respondent in the current environment. The business
model needed to be re-engineered to counter the external forces. New
sources of income needed to be found as the respondent was
generating
95% of its income from a shrinking market through one channel with
traditional products. Capabilities for positioning
future expansion
and growth had to be built. There was thus a need to fundamentally
change the core-operating model and processes.
It was thus necessary
to:
§
To split sales from market underwriting functions by:
o
Creating a pure sales capability focusing on customer retention and
growing the business;
o
Creating a dedicated underwriting team to deliver on improved risk
selection and pricing control
§
To create a centre of technical excellence and centre of service
excellence through a claims target operating model;
§
To create a centre of business service excellence that would process
all high volume, low complexity transactions by centralizing
all
administration processes;
§
All of the above were underpinned by optimized operational processes
and new IT systems to improve efficiencies and effectiveness
which
would address all operational shortcomings.
[27]
Mr Zungu said that it was foreseen that operational efficiencies
would result in job reduction of more than 15% due to some
location
closures and down scaling of regional operations. He thus confirmed
having issued the S189 (3) notices dated 8 February
2010 to the
employees and their representatives, saying that there were 600
employees it was envisaged might be affected by the
anticipated
retrenchment. He attended all consultation meetings. Retrenchment
costs were expected to amount to R51 million and
R5 million was to be
spent on training and upskilling. The entire transformational program
was to cost in the region of R85 million.
Various slides were
produced as indication that the respondent considered a number of
proposals enabling a change. The existing
position was compared to
the position sought to be attained. New organograms were then created
as a vehicle to attain set goals
and the process of populating them
included affected employees having to apply for positions best suited
to them, if they did not
opt for voluntary retrenchment. The deadline
for receipt of applications for Extended Leadership Team (ELT) and
specialist roles
was Wednesday 28 April 2010 and for all other
positions the closing date was Friday 7 May 2010. 18. He said that
the ELT positions
were executive leadership teams which were senior
positions. They were not roles which were at the level of
consultation and none
of the parties that were consulting would have
members to fill those positions. He thought that those positions were
very difficult
to find and that is why the respondent had to start
the process early otherwise it would not have been able to identify
and get
people to fill those positions. Also, the Employee Forum and
SASBO accepted the business case on 19 May 2010. The appointments
were, however, only made in July 2010 after the retrenchment process
had been completed or commenced. The applicant felt that the
consultation process was unduly hastened. It advised its members not
to apply for any positions in the new structure.
Was there a
proper consideration of alternatives?
[28]
Mr Zungu said that the respondent decided to use communication
channels to provide progress feedback and information so as
to reduce
anxiety, uncertainty and to ensure consistency, transparency and the
truth. According to him there was a slide provided
to show actions to
avoid or delay dismissal. In order to avoid dismissals, he said that
respondent opted that:
Ø
Retiring employees and resignations would be replaced only in
exceptional cases;
Ø
Training and upskilling was to be done where skills gaps were small;
Ø
Inter-company and inter-departmental transfers were done where
appropriate;
Ø
Salary increases were frozen;
Ø
In economically unviable areas home based offices were to be resorted
to;
Ø
FTE replacement was frozen; and
Ø
To change the timing of dismissals the respondent resorted to
staggered de-commissioning.
[29]
He said that various measures were taken to minimize and mitigate the
adverse effect of dismissals. Such measures included
creating new and
specialized roles, staff re-deployment and new career opportunities.
In order to mitigate the adverse effect of
the dismissals a generous
severance package was structured and offered, skills assessment and
training were done and opportunities
for re-employment for a year
were created and offered. He said that some of the applicant’s
members might have been appointed
into the new structure had they
applied at various periods when positions were available.
Were selection
criteria fair and objective?
[30]
Mr Zungu’s testimony was that administrative and policy
administration work was moved to Durban. Most of the employees
who
were represented by the applicant performed administrative work as
policy administration technicians in Johannesburg. They
did not apply
for any of the roles that relocated to Durban. Eight of the ten
technicians were those employees represented by the
applicant. New
roles were created because the focus of the work was different. Mr
Zungu said that the claims Target Operating model
(TOMS) entailed
creating a centre of technical excellence and a centre of service
excellence which entailed focusing the technical
expertise in one
area and the administrative function in another area, namely
Johannesburg and Durban respectively, were thus ultimately
implemented. Certain office location closures and downscaling of
regional operations were resorted to in favour of specialization.
He
testified that the regional operations impacted mainly, were
the smaller offices on the sales side and in that the number
of
outlets was reduced from 45 to 6 located in Cape Town, Durban,
Johannesburg, Bloemfontein, PE and Nelspruit. The Cape Town office
was the main area affected by the changed operations because they did
not have either the administration or the technical centres
located
there. He averred that during consultation no alternative proposals
were presented by any employees’ representatives
in respect of
those aspects. Not only did none of the individual employees
represented by the applicant apply for any posts but
the consultant
parties did not make any queries about the individual posts within
the structure, for instance to say that they
were superfluous or
ought to have been changed or ought not to appear at all because they
were the same as positions held by any
individual employees.
[31]
He said that the selection process was that, in terms of the jobs
that were redundant, the respondent looked at those employees
who
were applying for any available positions that were going to be part
of the new structure. It also looked at the skills that
were not
available in the organization that were going to be required for the
new structure as well. He said that the selection
process was done by
way of internal recruitment and some employees relocated from
Johannesburg to Durban. The affected areas and
the proposed head
count were detailed in the first slide presentation. He said that the
claims target operating model was not complex
and simply meant
creating one centre of technical excellence in Johannesburg and one
centre of service excellence in Durban.
[32]
Against evidence led by the respondent, the applicant called two
witnesses, Messrs Mosii and Nhlapho. None of the employees
affected
by the retrenchment testified. Mr Mosii was the Organizer of SACCAWU
and he took part in the consultation process. His
evidence was
essentially on procedural unfairness in respect of which an
in
limine
ruling has been made. That apart, he said though that the
respondent failed to notify the unions of the availability of the ELT
positions and appointment in relation thereto which the In Touch
circular of 1 June 2010 referred to. He denied that in June 2010,
the
consultation process had considered the recruitment and selection
process as suggested in the circular.
[33]
When commenting on the Claims Department
[6]
,
he said that the respondent refused to consider the counter proposals
made by the unions. He said that such counter proposals
could be
found in the minutes and elsewhere. He was referred to the questions
and answers but there were no such alternatives.
Later, he conceded
that the unions did not file any documents containing suggested
alternatives to respondent’s business
case, the organogram and
position profiles. He attributed the failure to an atmosphere which
he said was not conducive to doing
that and that there was lack of
sufficient time. He did not give any clear answer when it was put to
him that in the consultative
and facilitated meeting of 19 May 2010
he lost his cool, shouted and carried out a verbal xenophobic attack
on respondent’s
CEO, was rude to and threatened the Employee
Forum representatives.
[34]
He did not have much to say when he was referred to paragraph 29.78
of the statement of case which reads:
‘
On
the 28
th
of June 2010 a further meeting chaired by the
Senior Commissioner Shawn Christian took place at the respondent’s
premises.
Unfortunately this attempt could not resolve the dispute as
the Respondent had rejected the proposal made by the Senior
Commissioner
relating to the Lay–off training Scheme, after
having been taken through the workshop by the CCMA Facilitators’.
[35]
As with Mr Mosii the bulk of evidence led by Mr Nhlapho was concerned
with procedural unfairness. He was an employee of the
applicant as a
Dispute Resolution Officer. He was the drafter of the statement of
case for the applicant in this matter. He attended
the facilitated
consultation meetings on behalf of the applicant. Upon receipt of the
S189 (3) notice from the respondent he replied
to it by raising a
query about the transformation program proposed by the respondent in
the notice. To him transformation related
to political, economic and
workplace programs. Workplace transformation had to do only with
gender equity, salaries and other considerations.
His query was
raised to seek clarification on what the notice, which he regarded as
defective, was about. The respondent did not
respond to the query,
rightfully so in my view, but scheduled the first facilitated
consultation meeting. When seen in its entity
the notice was very
clear what it was about.
[36]
On 4 March 2010, the respondent supplied the unions with its business
case. He however, said that the respondent did not give
them any
business proposals or business rationale to indicate exactly how the
employer was intending to implement that process
and how the change
would successfully turn around the situation as proposed in various
slides
[7]
. He said that no
business model was presented to them in support of the stance taken
to fix business. He said that no slide presentations
were done for
the unions. The unions indicated to the respondent that they wanted
to find out what type of IT system would be introduced
and what
skills were required for it. Yet no specific proposals were given to
them, which was reminiscent to all structures. In
the absence of
details, such as job requirements, job description and job profiles
it was difficult to see the difference between
the old and the
proposed structures. There was concern that the business model might
have been imported from Europe or United Kingdom
which might not
advance the course of the employees. An addition to their misery was
the failure of the compact disc, supplied
to them by the respondent,
to open and when hard copies thereof were requested none were
supplied.
[37]
He said that the unions were concerned that the respondent wanted to
introduce new terms and conditions of employment under
the guise of
the S189 (3) notice. It was said in the notice that, should the
contemplated business transformation program be implemented,
some
positions might be redundant or the contents thereof might change for
instance from a permanent to a fixed term contract.
There was also
the fear that mobile employee concept might be introduced, as a
foreign type of proposal in South Africa. In respect
of actions to
avoid or delay dismissals, the concern was that the salary increase
freezing, to have home based offices and the
staggered
decommissioning all related to the terms and conditions of
employment, the change in respect of which needed the consent
of an
employee. He said that the unions asked the facilitating commissioner
to make a ruling on their concerns as they felt the
matter also
related to a matter of mutual interest and not a dispute of rights.
He also denied that the unions were informed of
the availability of
some jobs as on 16 April 2010. When the issue was queried the
respondent came out with a version that the business
structure model
was approved in January 2010 in a special Board meeting which was a
contradictory version to one that approval
was given on 16 April
2010.
[38]
Mr Nhlapho conceded that his members employed by the respondent were
not advised by the union to lodge an internal appeal once
they were
notified of retrenchment. He found it strange that in retrenchment
proceedings there was an appeal system in place. He
said that the
respondent was supposed to offer alternatives. He confirmed writing a
letter of 21 May 2010 to the respondent in
which he pointed out,
inter alia
, that the consultation process was halted before
all requested information was supplied to the unions by the
respondent. Further,
he said that consultation was not to be limited
to the population of a new structure but that the unions were to be
involved as
well in the creation of a new structure, which the
respondent failed to do.
[39]
Finally, on the issue of financial loss incurred by the respondent in
the period leading up to the retrenchment, he said that
the
respondent’s version was that regulatory considerations were
born out by the fact that International Solvency target
ranged 40% to
50%. He said that the unions queried that assertion by asking if the
assessment was locally or internationally based.
A further concern
was about why the respondent would use ‘international
insolvency merging’ locally.
Evaluation
[40]
As already alluded to, I am called upon to determine if the
conditions listed in (a) to (d) of S189A (19) were shown by the
respondent to exist in this matter, in which case, I would have to
find that the dismissal of the employees represented by the
applicant
was fair. The question could be framed as to whether the decision to
retrench was a legitimate exercise of managerial
authority for the
purpose of attaining a commercially acceptable objective. Court is
here entitled to look at the content of the
reasons given to ensure
that they are neither arbitrary nor capricious
[8]
.
[41]
It always stood as common cause between the parties that for the
2008/2009 period the insurance industry faced severe economic
challenges compounded by the economic recession which hounded the
financial markets of the world at the time. The evidence of the
respondent must be seen with this background in mind. The evidence of
the respondent was that it went through an economic recession
in the
period preceding the retrenchment. Some details of that were given to
the employees in the local circular, the In Touch,
in the road shows
carried out, in the financial statements that were finally handed to
the unions and during the trial. All that
the applicant did was to
question the veracity of those submissions without any suggestion why
that evidence was devoid of credence.
The probabilities of this
matter favour the acceptance of the evidence of the respondent that
its business indeed suffered a great
financial loss which needed
urgent redress. I accordingly, accept that the retrenchment exercise
was to give effect to the requirement
based on the respondent’s
economic needs. In relation to the changes in the structure the main
averment by the applicant
was that the respondent did not give them
any business proposals or business rationale to indicate exactly how
the employer was
intending to implement that process and how the
change would successfully turn around the situation as proposed in
various slides.
The position of the majority of the applicant’s
members was not as complex as the applicant made it to be. It was
either
they were agreeable to move to Durban or were placed in
positions similar to those they occupied. I find that the respondent
restructured
to transform its business and to lay the foundation for
future growth and profitability.
[42]
To a consideration whether dismissal was operationally justifiable,
the respondent said that its business model needed to be
re-engineered to counter the external forces. New sources of income
needed to be found as the respondent was generating 95% of
its income
from a shrinking market through one channel with traditional
products. Capabilities for positioning future expansion
and growth
had to be built. There was a need to fundamentally change the
core-operating model and processes. According to the respondent
it
was foreseen that operational efficiencies would result in job
reduction of more than 15% due to some location closures and
down
scaling of regional operations.
[44]
The ELT positions, which the applicant showed interest in, during the
trial, were said to be executive leadership teams which
were senior
positions. The respondent’s undisputed evidence was that they
were not roles which were at the level of consultation
and none of
the parties that were consulting would have members to fill those
positions. These positions were advertised internally.
The
probabilities are that the employees represented by the applicant saw
the advertisement, as did other employees who applied,
but they
decided not to file their applications. It remained undisputed that
the rest of the other posts were filled from July
2010 but that the
employees affiliated to the applicant still decided not to apply for
any those positions. A period longer than
60 days from the s189 (3)
notice had lapsed. Section 189A (13) was available to the applicant
to utilize at the right time to protect
the interests of its members.
It did not assist the facilitation process for the applicant to
merely raise queries after queries
and not to effectively participate
in the process. In as much as the respondent was legally obliged to
consult with all the unions,
the respondent was also obliged to
consider the plight of the rest of its staff in line with the
majoritarian principle. In my
view, the dismissal was operationally
justifiable.
[45]
Actions to avoid or delay dismissal to which Mr Zungu testified
evinced that the respondent had a proper consideration of
alternatives. All that the applicant did was to create some
suspicions on these considerations. It cannot be reasonably said that
the respondent acted capriciously or arbitrarily in relation to these
issues.
[46]
It is beyond dispute that the parties failed to reach an agreement on
the selection criteria. None of the individual employees
represented
by the applicant applied for any posts, neither did the consultant
parties make any queries about the individual posts
within the
structure, for instance to say that they were superfluous or ought to
have been changed or ought not to appear at all
because they were the
same as positions held by any individual employees. The selection
process used was that, in terms of the
jobs that were redundant, the
respondent looked at those employees who were applying for any
available positions that were going
to be part of the new structure.
It also looked at the skills that were not available in the
organization that were going to be
required for the new structure as
well. The selection process was done by way of internal recruitment
and some employees relocated
from Johannesburg to Durban. I find that
the selection criteria adopted by the respondent were fair and
objective.
[47]
There is a final consideration on substantive fairness. The applicant
contended in the statement of case that the respondent
contravened
section 187 (1) (c) of the Act in that it compelled the employees to
accept a demand in respect of a matter of mutual
interest between the
employees and the respondent. The pleadings lacked the factual
foundation in support of these allegations.
It was not surprising
that no evidence of any substance was led by the applicant in this
regard. This claim is accordingly dismissed.
[48]
Where
an employer changes its own structure, it would be unfair to dismiss
an employee without offering the employee a position
in the new
structure, if the structure can accommodate the employee on their
skills with minimal training. In this case, various
positions were
made available and offered to the employees. The offer was rejected.
Where an employee has been offered alternative
employment and rejects
it
severance
pay should not be paid to such employee,
Irvin
and Johnson Ltd v CCMA and Others
[9]
where Zondo JP (as he then was) answered what he considered to be a
fundamental question that arises in the interpretation of s
41(4) of
the BCEA in these circumstances namely:
‘
What
is the mischief that s 41 (4) of the BCEA seeks to address or, put
differently, what is the purpose of s 41(4)?’
[49] Zondo JP found
that, where an employer arranges alternative employment for an
employee and the employee rejects the alternative
employment for no
sound reason, severance pay should not be paid to such employee
because:
‘
The
purpose (of this section) was to discourage employees from
unreasonably rejecting offers of alternative employment arranged
by
their employers simply because they might prefer cash in their
pockets in the form of severance pay’.
[50]
At the commencement of the trial, the respondent made numerous
attempts to have procedural fairness issues removed from the
trial.
The applicant adopted various strategies to retain those
considerations under the guise that evidence on them would enlighten
issues on substantive fairness. This never materialized. This trial
was made unnecessarily protracted and difficult. It accords
with the
law and fairness therefore that the costs must follow the results.
[51]
I accordingly find that the employees represented in this matter by
the applicant were dismissed for a fair reason as envisaged
in s189A
(19) of the Act.
[52] Therefore, the
following order shall issue:
1.
The claim is dismissed in its entirety.
2.
The applicant is to pay the costs thereof.
Cele J
Judge of the
Labour Court of South Africa.
APPEARANCES:
For the
Applicant: Mr. D Lebethe of BIFAWU
For the
respondent: Mr. JD Crawford of Crawford and associates
[1]
Act Number 66 of 1995.
[2]
[2000] 9 BLLR 1081
(LC) at para 27.
[3]
See s189A (17)(a) and (b).
[4]
See s189A (7)(b) (i).
[5]
See also the definition of operational requirements in section 213
of the Act.
[6]
See Respondent’s bundle pages 626 to 628
[7]
See pages 73 to 96 of the respondent’s bundle.
[8]
See
SATAWU
v Old Mutual Life Assurance Co SA Ltd
[2005] 4 BLLR 378 (LC).
[9]
(2006)
27
ILJ
935 (LAC)