Brief Summary

Labour Law — Retrenchment — Procedural and substantive fairness — Applicant contended that his retrenchment was unfair and sought to hold the second respondent jointly liable under section 200B of the Labour Relations Act — Applicant, a project manager, was retrenched due to project delays and lack of necessary signalling experience as per client’s requirements — Consultation process followed, but applicant argued it was inadequate and lacked meaningful engagement — Court held that the retrenchment was justified based on redundancy and that the consultation, while not perfect, did not amount to unfairness — Second respondent not held liable as no evidence of intention to defeat employment law.

Comprehensive Summary

Summary of Judgment

1. Introduction

This matter was an unfair dismissal dispute in the Labour Court concerning a dismissal for operational requirements (retrenchment). The applicant, Mr J J S Lotz, alleged that his retrenchment by the first respondent, Mehleketo Resourcing (Pty) Ltd, was substantively and procedurally unfair. He further sought to hold the second respondent, EOH Holdings Ltd, jointly and severally liable for any relief granted against the first respondent, relying on section 200B of the Labour Relations Act 66 of 1995.

The proceedings took the form of a trial in the Labour Court. Evidence was led by the respondents through Mr Travis Barnard (a human resources business partner of the second respondent who worked with the first respondent) and Mr Niren Singh (an executive director of the first respondent). The applicant testified in support of his own case.

The dispute arose from the applicant’s removal from a client-facing project and the employer’s ensuing decision to retrench him on the basis that his position had become redundant, coupled with the asserted need for specific railway signalling expertise. The judgment addressed both the fairness of the retrenchment and the attempt to attribute liability to a related corporate entity under section 200B.

2. Material Facts

The applicant was a project management professional with engineering and management qualifications. He was employed by the first respondent under a written offer dated 26 May 2016, which described the first respondent as a business within the EOH group of companies (the second respondent being the holding company within that group, as characterised in the evidence and documentation before the Court).

From 26 July 2016, the applicant served as the project manager of the Western Cape Re-signalling Project in Cape Town. The client was Thales. The work involved replacement of mechanical interlocking devices with electronic interlocking devices on railway lines and required in-depth signalling experience. When the applicant started, the project was about 5% complete, and by November 2017 it had reached 42% completion, measured as acceptable-quality work completed against the whole job.

It was not suggested to the applicant during the relevant period by either Thales or the first respondent that he was performing poorly or unable to do his job. However, once testing commenced in August 2017, Thales identified shortcomings in the work and raised concerns with Mr Singh during November 2017, stating that it was unhappy with the applicant’s involvement and wanted him removed from the project. Thales’s stated position was that the applicant was a good project manager but lacked the appropriate signalling experience. Mr Singh discussed this with the applicant, who was surprised, and Mr Singh unsuccessfully attempted to persuade Thales to change its view. Thales did not want the applicant involved in the project.

The first respondent offered the applicant a severance package, which he did not accept. The applicant had legal advice from the end of 2017. On 15 January 2018, the first respondent issued a notice in terms of section 189(3) of the Labour Relations Act, proposing retrenchment. The stated rationale was that, due to project delays and quality issues, the client had accelerated and rescheduled work, shifting project requirements to milestone delivery and correct quality in railway signalling, requiring signalling experience for operational execution. The employer proposed a selection method described as the employee whose job was redundant and indicated that one employee would be affected. It also stated that it would look for suitable alternative positions within the first and second respondents.

Consultation meetings were held on 16, 22, and 25 January 2018, and the minutes were not disputed. At the final meeting the first respondent communicated that the applicant would be retrenched, confirmed by letter dated 29 January 2018. The applicant contended that contract managers reporting to him had extensive signalling experience and therefore it was not necessary for him to personally have extensive signalling experience. The respondents’ position was that those managers’ experience was maintenance-oriented and not adequate, and that the project manager role itself required in-depth signalling expertise.

It was common cause in the case, as treated by the Court, that the applicant’s position was redundant. The applicant was not consulted on the roles of certain other employees (identified in evidence as Messrs Labuschagne, Marshall, Mostert and Todkill) nor the possibility of bumping them. Mr Todkill replaced the applicant on the project. The applicant later obtained fixed-term employment in Granada commencing 1 May 2018.

3. Legal Issues

The Court was required to determine, first, whether the second respondent could be held jointly and severally liable for any order against the first respondent under section 200B of the Labour Relations Act. This primarily concerned the application of a statutory provision to the corporate and employment relationship facts placed before the Court, including whether there was evidence that the corporate structure or inter-entity arrangements were intended to defeat employment law or had that effect.

Secondly, the Court had to decide whether the applicant’s retrenchment was substantively fair and procedurally fair under the Labour Relations Act, particularly with reference to the consultation obligations in section 189. This required evaluation of both law and fact, and especially the application of legal standards (meaningful joint consensus-seeking consultation, consideration of alternatives, disclosure of information) to the consultation process and the options said to have existed to avoid dismissal.

Within the fairness enquiry, the central questions included whether the employer’s reliance on the notion of “redundancy” as a selection criterion was unfair in context, whether the employer approached consultation with a closed mind, and whether the employer failed to consult adequately regarding bumping and alternative positions, including potential vacancies within the second respondent’s operations.

4. Court’s Reasoning

Section 200B liability

The Court rejected the applicant’s attempt to hold the second respondent liable under section 200B. The applicant relied on features of the corporate relationship, including that the first respondent was a wholly-owned subsidiary and that it paid a management fee for shared services. The Court held that these features, without more, did not justify section 200B liability. It found no basis to suspect, and no evidence suggesting, that the relationship between the entities was structured with the intention to defeat employment law or that it had the effect of doing so. The Court considered the group corporate structure to be one generally applied by corporate groups and found no merit in the section 200B contention on the facts presented.

General retrenchment principles and consultation

The Court set out the governing approach to operational requirements dismissals by reference to authority emphasising that employers must have a bona fide operational rationale and must comply with the consultation obligations in section 189, which requires a meaningful joint consensus-seeking process and the provision of relevant and sufficient information enabling informed representations. The Court also accepted that an employer should not approach consultation with a predisposition to a predetermined solution, while recognising that the duty to consult is not abstract and must be assessed contextually.

A key contextual premise in the Court’s reasoning was that it was undisputed that the applicant’s post was redundant. The Court reasoned that, because redundancy had been dealt with in November 2017, re-consulting in January on whether the position was redundant would have been artificial. The real subject for consultation was therefore the consequences of the redundancy for the applicant’s continued employment, specifically whether he could be relocated, placed into alternative vacancies, or retained through bumping. In this connection, the Court relied on the principle that an incumbent of a redundant post is not automatically dismissed; dismissal becomes fair only once relocation opportunities have been explored and exhausted.

“Redundancy” as a selection criterion

On the applicant’s argument that “redundancy” was used as an unfair selection criterion, the Court compared the case before it to the authority relied upon by the applicant. It concluded that, although the term “redundancy” may have been described in an incorrect context, on the facts it functioned as a description of the circumstance exposing the employee to retrenchment rather than an independently applied and unfair selection method. The Court did not accept that this point, in itself, rendered the dismissal unfair.

Closed mind, bumping, and alternatives

The Court approached the central procedural enquiry by identifying that the only practical alternatives to retrenchment were placement into a vacant post within the first or second respondent, or placement through bumping into a post for which the applicant qualified.

In relation to a senior project manager role associated with Gauteng (referred to in evidence via the position held by Mr Marshall), the Court noted evidence that the role was effectively vacant by the end of 2017 and that the client (Siemens) allegedly required even more onerous signalling experience than Thales. The Court accepted, as an unchallenged premise in the case, the respondents’ reliance on the client’s view about signalling requirements. However, it held that this did not mean the applicant’s actual signalling ability should have been excluded from the subject matter of consultation. The Court considered that the employer seemed to have relied on Thales’s opinion without a consultative exploration of the applicant’s capabilities in signalling and whether his skills could be coordinated with other team members’ skills. It found no evidence that this was meaningfully addressed in consultation.

The Court treated the failure to consult on this Gauteng opportunity as significant because it appeared to be the only realistic opportunity to avoid retrenchment, and thus not merely an abstract or theoretical complaint. It concluded that the failure to consult on this aspect was unfair and was probably attributable to the employer having a closed mind in this regard.

Regarding bumping of lower-level employees (construction managers reporting to senior project managers), the Court found it unrealistic to have consulted on bumping employees who earned substantially less than the applicant (at most a fraction of his remuneration). As to Mr Labuschagne, the Court reasoned that bumping would not have made sense because he earned less than the applicant and had longer service. The Court also rejected the applicant’s contention that the second respondent should have considered bumping an employee worldwide throughout the group to accommodate him, noting that it was not presented with authority establishing such an obligation and was not aware of any.

As to bumping Mr Todkill, the Court found the proposition difficult to understand in context because Mr Todkill actually succeeded the applicant on the same project and apparently possessed the required signalling skills, which aligned with the employer’s operational need as characterised in the section 189(3) notice.

Vacancies within the second respondent and disclosure of information

The Court considered the consultation concerning vacancies in the second respondent to have been insufficient. It accepted evidence that the second respondent was a large employer (about 11 000 employees) and that steps were taken, including circulating the applicant’s CV to HR practitioners and making enquiries at divisional level. However, it held that fair consultation required a more comprehensive report-back and discussion on vacancies, and that the applicant’s complaint about not being given vacancy information was not merely theoretical. The Court accepted that there may have been limited vacancies at the applicant’s seniority level, but nonetheless held that meaningful consultation demanded more engagement on this issue.

Whether the applicant bore responsibility to raise the deficiencies

The respondents argued that the applicant’s seniority and access to legal advice meant he should have raised issues he wanted to consult on. The Court rejected this as determinative. It reasoned that employees facing retrenchment experience difficulty even if senior, and that it is not realistic to expect an employee to press issues where it appears the employer’s stance is fixed. The Court found that the applicant did participate, make proposals, and object to perceived unfairness, and it concluded that the failure to consult properly on the key issues could not be attributed to the applicant.

Overall fairness assessment and remedy

The Court ultimately drew a distinction between substantive and procedural fairness. It held that the retrenchment was substantively fair, but procedurally unfair, with procedural unfairness lying in the failure properly to consult about possible vacancies in the second respondent and about the senior project manager position in Gauteng.

In determining compensation, the Court took into account that the employer did not fall far short in attempting to consult, and that the applicant obtained fixed-term work from 1 May 2018. It awarded compensation equivalent to two months’ remuneration, quantified using the common-cause annual remuneration figure.

On costs, the Court applied the approach endorsed in the cited authority concerning Labour Court costs discretion, and it declined to award costs, finding no party acted frivolously in the main issues, while noting that the section 200B claim may have been frivolous but took little time and did not justify a costs order.

5. Outcome and Relief

The Court declared that the applicant’s dismissal was procedurally unfair but substantively fair. It ordered the first respondent to pay the applicant compensation of R310 000.00, being two months of remuneration calculated on an annual remuneration of R1 860 000. The Court made no order as to costs. The claim seeking to hold the second respondent liable under section 200B was rejected.

Cases Cited

Super Group Supply Chain Partners v Dlamini & another (2013) 34 ILJ 108 (Labour Appeal Court)

National Union of Metalworkers of SA & others v John Thompson Africa (2002) 23 ILJ 1839 (Labour Court)

O'Doyle v All Circle Screenprint CC (1999) 20 ILJ 191 (Labour Court)

Sikhosana & others v Sasol Synthetic Fuels (2000) 21 ILJ 649 (Labour Court)

SA Breweries (Pty) Ltd v Louw (2018) 39 ILJ 189 (Labour Appeal Court)

Member of the Executive Council for Finance, KwaZulu-Natal v Dorkin N.O. (2008) 29 ILJ 1707 (Labour Appeal Court)

Legislation Cited

Labour Relations Act 66 of 1995 (as amended), including section 189, section 189(3), section 189A (referred to in the principles discussion), and section 200B

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The Court held that there was no factual or evidential basis to impose joint and several liability on the second respondent under section 200B merely because the first respondent formed part of the second respondent’s corporate group and used shared services.

On the merits of the retrenchment, the Court held that the applicant’s position was redundant and that the dismissal was substantively fair, but that the employer failed to meet the procedural requirements of a fair consultation process. The procedural unfairness was located in the failure to consult properly about alternative employment possibilities, specifically possible vacancies in the second respondent and the Gauteng senior project manager opportunity. Compensation, rather than reinstatement, was awarded, reflecting the Court’s evaluation that the employer’s procedural shortfall was relatively limited and the applicant secured alternative employment shortly after dismissal. No costs order was made.

LEGAL PRINCIPLES

The judgment applied the principle that a dismissal for operational requirements is permissible only where there is a bona fide operational rationale and the employer complies with the consultation obligations in section 189 of the Labour Relations Act. Consultation must be a meaningful joint consensus-seeking process, including giving the employee a fair opportunity to make representations and providing relevant and sufficient information to enable informed proposals.

The judgment reinforced that an employer should not conduct consultation with a closed mind and should take appropriate measures to avoid dismissal where practical. At the same time, the judgment accepted that section 189 should not be applied in an overly abstract or absurdly prescriptive manner; fairness must be assessed contextually.

A further principle applied was that redundancy of a post does not automatically entail dismissal of the incumbent. The incumbent is “dislocated”, and dismissal is fair only once alternatives such as relocation to suitable vacancies or bumping have been explored and exhausted through fair consultation.

Finally, in relation to costs in labour litigation, the judgment applied the approach that costs are not automatic and should generally be awarded where litigation is conducted frivolously, and it declined to award costs where neither party’s conduct justified such an order on the overall circumstances described in the judgment.

Lotz v Mehleketo Resourcing (Pty) Ltd and Another (C 424/18) [2019] ZALCCT 9 (2 April 2019)