CASE NO: J 2123/1998
IN THE LABOUR COURT OF SOUTH AFRICA
HELD AT JOHANNESBURG
In the matter between –
NATIONAL UNION OF METALWORKERS
OF SOUTH AFRICA & 45 OTHERS APPLICANT
and
TOYOTA SA MARKETING, A DIVISION OF
TOYOTA SOUTH AFRICA MOTORS (PTY) LTD RESPONDENT
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J U D G E M E N T
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The 45 individual applicants in this matter (the second to further
applicants), all members in good standing of the first applicant
(“the union”) had been in the employ of the respondent until
their services were terminated by the respondent on 3 July 1998
for operational reasons.
The applicants contend that the dismissal was unfair and not for
a valid reason. They say the respondent came to a financial
decision to retrench before it consulted with the union. The
respondent failed to consult about the real reason for the
retrenchment and about alternative positions in its National Parts
Distribution Centre (“NPDC”) and failed to offer the employees
positions which were available in that department. The applicants
also argued that the respondent failed to consult over the
selection of employees to be retrenched in the Loss Control and
Maintenance Department (“the LCMD”).
In their statement of case, the applicants allege that the real
reason behind the retrenchment was the union affiliation of the
employees in question, alternatively, the alleged misconduct of
the respondent’s employees. In the end result of the pretrial
process, the applicants recorded the allegation that the
respondent had contemplated retrenchment on 16 September
1996 and decided to outsource the functions of the LCMD and to
retrench employees in October 1996 and May 1997. In this regard
I refer to the proposal of Mr M HUMAN, the respondent’s line
manager of the LCMD, of 16 September 1996, proposing
outsourcing as a solution to the problems of the LCMD. The
proposal or recommendation to management was motivated,
inter alia, by Mr Human’s perception of continued poor work
performance of the LCMD employees and the inability of the
Department to provide value for money. Resolutions to outsource
and retrench were taken by the respondent’s management
committee (“MANCOM”) in October 1996, and in May 1997.
The applicants’ case is that the respondent’s decision to retrench
was taken long before 24 October 1997 when the first
consultation meeting with the union was held. The applicant also
claimed that the respondent failed to disclose all relevant
material information to the union and failed to attempt to seek
consensus on appropriate measures to:
Avoid the retrenchment or minimise the number of
retrenchments; change the timing or mitigating the adverse
effects of the dismissals; or selecting those employees to be
dismissed, improve the severance pay of the dismissed workers.
There were 90 workers in the LCMD. Forty-five were transferred
to the PDC.
Section 197 of the Labour Relations Act, 66 of 1995 (“the Act”)
was referred to in the applicants’ statement of case and the
applicants’ heads of argument, but not pursued as a cause of
action.
The respondent is involved in the marketing of motor vehicles,
motor vehicle accessories and spare parts. In April 1997 the
respondent received an automotive market and intelligence
report of an investigation conducted by market research
consultants who predicted that the in 1997 consumer year there
would be a decline in the demand for motor vehicle parts,
accessories, engine and driveline components.
The respondent argued that it was compelled to continuously
improve its cost-effectiveness to ensure its profitability. It was of
the view that the market report had demonstrated that it was
necessary to restructure the LCMD, which provided cleaning,
security and maintenance services. During May to August 1997,
according to the respondent, the economic circumstances of the
respondent had not improved. On 4 June 1998, the respondent
offered voluntary severance pay which seven employees
accepted.
On 27 August 1997, the respondent’s Human Resources
Manager, Mr GROENEWALD, addressed a proposed memorandum
to the shop stewards’ council in regard to a proposed
restructuring of the LCMD. The respondent contends that it
consulted the shop stewards previously on 23 May 1997 about
the issue of retrenchment. However, this was disputed by the
applicants. According to them, the meeting did not take place.
On 27 August 1997, when the shop stewards council was
addressed, the economic reasons advanced by the respondent
for a future retrenchment was that a trend amongst consumers
had started, they were buying cheaper vehicles at the lower end
of the entry level market, which impacted negatively on
production levels and the demand for replacement parts. The
respondent was experiencing below-budget sales for the year.
Reference was also made to other manufacturers in the motoring
industry who were experiencing similar problems. The
respondent also announced its intention to outsource the
cleaning, security and maintenance functions in order to save
costs. It referred to previous methods such as training and
counselling in order to improve service levels, all which proved
unsuccessful. Notice was given of the number of employees to be
affected by the proposed restructuring of the LMCD and the
number of employees in the different categories were numbered
as follows:
Management 4
Supervisors 4
Clerical administrators 16
Security guards 30
Cleaners 26
Maintenance workers 3
Gardeners 3
The respondent also conveyed that since all employees in the
LCMD would be affected, selection criteria would not be
applicable. The proposed introduction of the reorganization would
be from October to November 1997. Severance pay would be
paid out in terms of clause 23.2 of the National Bargaining Forum
Agreement (“the NBF agreement”). The respondent further
expressed its intention to make an effort to secure employment
with sub-contractors or re-employ them in the future, if possible.
Subsequent to the above meeting of 27 August and the
memorandum, the respondent advised the union on 26
September 1997 that it wished to enter into consultations with
the union in terms of clause 21 of the NBF agreement. This letter
was in response to a letter from the union received on 22
September 1997, wherein the respondent was called upon to
stop implementing its plans and follow the process in terms of
the NBF agreement.
On 3 October 1997 the union requested the respondent to
provide information regarding:
the commercial rationale for its proposal of 27 August 1997; the
type of market research performed; the number of temporary
staff employed since June the previous year; the amount of
overtime work performed; business plans and financial
statements, as well as the salaries of different levels of
employees and the number of possible retrenchees.
In response, the respondent advised that the LCMD was not cost-
effective and undertook to disclose relevant financial information
at a meeting to be held on 24 October 1997, which was the first
consultation meeting in a long consultation process. The
respondent also stated that the retrenchment was not a foregone
conclusion. At the first consultation meeting which was held on
24 October 1997, the commercial rationale behind the proposals
to retrench was provided with a cost analysis of the LCMD,
demonstrating that outsourcing of the cleaning, maintenance and
security functions would result in a saving of 25.3% per annum
for the respondent. Quotations and business proposals from three
companies were provided. The union was also provided with a
letter which included information regarding the respondent’s
business plan for 1997, a list of seven employees who were
accepting packages and twelve employees who had been offered
alternative positions, a breakdown of the overtime worked and
the names of present and temporary employees.
After this meeting, nine further meetings were held from
November 1997 to June 1998, save for the two meetings which
were held on 3 July 1998, the date on which the retrenchments
were implemented.
During these meetings, information was provided and disputes
raised and proposals made.
At the eighth consultation meeting, which was held on 19
February 1998, the activities of sub-contractors come under
scrutiny as services were being provided by them in terms of
contractual arrangements. The union was dissatisfied about this
fact. It appears that it was of the view that this was a premature,
partial implementation of the retrenchment proposal. The union
also proposed an improved severance package of three weeks’
remuneration per completed year of service, and an increased
notice period at this meeting. The respondent proposed that the
matter be referred to the CCMA for an advisory arbitration award.
The respondent undertook not to implement its proposals while
the CCMA process was under way and requested the union’s
members to desist from engaging in an overtime ban.
The relationship between the parties was governed by the terms
of the NFB agreement, a collective agreement which obliged the
parties to refer certain disputes to arbitration in terms of clauses
23.1 and 36 of that agreement.
The union, on the same day (19 February), referred a dispute to
the CCMA in terms of section 24(2) of the Act. The union termed
the dispute as the respondent’s failure to adhere to clause 2.3 of
the NFB agreement, which relates to job security.
On 30 April 1998 the parties concluded a collective agreement
which defined the process to be followed subsequent to the
arbitrator’s award, in the pending dispute before the CCMA. I
agree with the contention that in essence the dispute before me
was similar to the one that had been the subject matter of the
arbitration.
The agreement was signed on behalf of the respondent by
Mr GROENEWALD. Mr MBATHA signed on behalf of the union. (He
also gave evidence at the hearing.) The agreement was titled
“NPCD Production Backlog Recovery and Loss Control and
Maintenance Department Outsourcing Retrenchments”. The
agreement dealt with the agreed process to be followed
regarding the pending retrenchment. The respondent argued that
if the arbitrator ruled in favour of the respondent in the
arbitration, the pending retrenchments could proceed. The
dispute was about the respondent’s failure to implement
alternatives (ie redeployment to the NPCD). Mr KHUBEKA, a
senior union official who testified on behalf of the applicants,
conceded that this was the case.
By 25 May 1998 the certificate of outcome was still not at hand.
After attempts on the part of the respondent to persuade the
union that the parties jointly refer the issue to a advisory
arbitration, the union declined. Further meetings were held on 3
July 1998, and the applicants were retrenched. The applicants
argue that it was extremely unfair that the retrenchments took
place on this day. Discussions were still taking place.
The certificate of outcome was issued on 4 August 1998 in
respect of the dismissal for operational requirements. The CCMA
then set down the collective agreement dispute which was heard
by an arbitrator who found that the respondent had complied
with clause 21.3 of the NFB agreement.
Following the issue of the certificate of outcome being issued on
4 August, the applicants referred the dispute for adjudication.
In limine, the respondent raised the point of this Court’s lack of
jurisdiction. The respondent argued that on the common-cause
facts, the papers and the collective agreement, the dispute was
disposed of at the arbitration hearing. It argued that clause 2.5 of
the written agreement of 30 April 1998 precluded this Court from
hearing the matter.
The first part of the agreement provides that the LMCD
employees, including those who were used in the MPCD, are
subject to the arbitration award, and if it is confirmed that the
planned retrenchments are legal, they would proceed on terms
previously agreed upon. The second part provides that if the
backlog in the NPCD is not cleared at the time of the arbitration
award, then the LCMD employees working in the NPCD would
remain as temporary employees, but would be retrenched after
clearing the backlog.
The respondent contends that this clause of the agreement
disposed of the matter, since the arbitration award was granted
in favour of the respondent.
I ruled that on the papers alone, this question could not be
determined. Evidence, particularly as to the reason for the
dismissal had to be led. Here, I might add that Mr HUMAN’s 1996
proposal and subsequent resolution were of significance, and it
does not appear that these issues were fully canvassed by the
arbitrator. The point in limine was dismissed. I ruled that the
applicants had the duty to begin to lead evidence in the light of
the arbitration award. An explanation was required from the
applicants. On the face of it did appear as if the arbitration
disposed of at least the procedural aspects of the retrenchment,
and of course the question of re-deployment alternatives.
The union then led the evidence of Mr KHUBEKA and
Mr MBATHA. At the end of this evidence the respondent applied
for absolution from the instance, on the basis that the evidence
of the two witnesses called by the applicants, and who
contradicted each other, the applicants failed to discharge the
onus of establishing the Court’s jurisdiction.
It is of significance that by April 1998 a backlog had arisen in the
NPCD, and the union suggested that instead of casuals, LMCD
employees should be used. This resulted in the actual
agreement. I agree with the submission that the two witnesses
for the applicants contradicted each other on vital aspects.
Mr KHUBEKA was clearly the more frank witness of the two; but
despite this, I did not believe that absolution was warranted for
the same reasons as dismissing the point in limine.
The respondent did not close its case, and the matter was
postponed for the respondent to consider its position. When the
trial commenced in June 2001, the respondent called as a witness
Mr HUMAN, its line manager, and after his evidence was heard
the matter was to be determined on all the evidence.
The applicants filed Heads of Argument on 17 October 2001. The
respondent filed Heads of Argument on 31 October 2001.
The first part of the alleged substantive unfairness is premised on
the contention that the decision to retrench was taken long
before the consultation started. The second part is that the
respondent failed to consult about placing LCMD employees in
the NPDC and in fact not placing them despite the consistent
overtime work in that Department.
Mr HUMAN testified that a decision was taken by the
respondent’s management in principle, to outsource the LCMD
functions. It was not a final decision. Before the final decision was
taken, there was an interval of eighteen months during which
there was much consultation.
The applicants argued that during the long period between the
decision to retrench and the consultations, when nothing was
discussed, the union could have used its influence to alter the
outcome, if consultations were held during this period.
The letter of 27 August 1997, in its language, appears to be
categorical and has a tone of finality to it, particularly with regard
to its stance on selection criteria. Mr HUMAN’s 16 September
1996 proposal indeed placed a strong emphasis on poor
performance as a reason behind this proposal, but that is not the
only reason given for the decision to outsource, which seems to
me, was an in-principle decision. The many consultations after
the decision was taken demonstrate this. Cost effectiveness was
an important factor.
The respondent demonstrated that it found itself in certain
financial circumstances where outsourcing was the only solution.
The fact that Mr HUMAN’s 1996 proposal to MANCOM did not
focus on the respondent’s financial problems, which was not
gain-sayed by the evidence at all and that the respondent did not
mention this fact earlier than it did, does not assist the
applicants’ argument about the “real reason” behind the
retrenchment, being poor performance. Whereas it may have
been a problem and a factor, it was not the sole reason behind
the proposal.
The financial position was put forward. The cost-effectiveness, (a
25.3% saving) was a legitimate factor to be considered. There
was also evidence that employees were trained to enhance their
performance. It was argued that where collective poor
performance was identified as an operational problem, it should
be assessed and evaluated properly with proper notice to the
Union before looking at outsourcing. Mr HUMAN had investigated
solutions for four years before he wrote the proposal in question.
He evaluated the situation. He considered the previous training
and counselling which had been conducted. He formed an
opinion and made a recommendation. He did not take the final
decision.
It is difficult to determine at what point an employer is entitled to
decide whether training is to no avail, but in my view the
standard must not be set too high as to place the employer in a
position where no progress in its business can be made. This
would particularly be the case where there are financial
difficulties. Employees should be counselled for poor
performance, and in some instances, trained to improve poor
performance. This can easily be achieved on an individual basis,
but as a collective problem the same principles do not apply, for
obvious reasons. It is difficult to determine whether only certain,
or all employees are under performing and if only certain, which
ones may be identified. In any event there was the evidence of
Mr. Human that the Union was aware of the productivity
problems in the LCMD.
During evidence it was demonstrated that certain of the
employees could not simply be posted in different job categories
such as, for example, the position of a receptionist. Other
examples were also referred to.
Section 189 of the Labour Relations Act 66, 1995 (“the Act”),
does not require an
employer to consult with its employees about whether it may
take a decision that
there will be, in its opinion, a need to retrench in order to resolve
a difficulty which has arisen in its commercial operations.
Management still maintains a prerogative. The fact that an
employer takes an in-principle decision to outsource, but opens
itself to discussions and persuasion to the contrary, which in this
case was done, is not in breach of s 189(1) of the Act.
In the decision of Atlantis Diesel Engines (Pty) Limited v National
Union of Metalworkers of South Africa (1994) 15 ILJ 1247 (A) at
1252F, the Appellate Division (as it was then known) stated, per
Smalberger JA:
“It seems to me that the duty to consult arises, as a general rule, both in
logic and in law, when an employer having foreseen the need for it
contemplates retrenchment. This stage would normally be preceded by a
perception or recognition by management that its business enterprise is
ailing or failing; a consideration of the causes and possible remedies; an
appreciation of the need to take remedial steps; and the identification of
retrenchment as a possible remedial measure. Once that stage has been
reached, consultation with employees or the union representative becomes
an integral part of the process leading to the final decision on whether or
not retrenchment is unavoidable. Consultation provides an opportunity,
inter alia , to explain the reasons for the proposed retrenchments, to hear
representations on possible ways and means of avoiding retrenchment (or
softening its effect) and to discuss and consider alternative measures. It
does not require an employer to bargain with its workers or unions with
regard to retrenchment. Furthermore, the ultimate decision to retrench is
one which falls squarely within the competence and responsibility of
management.”
In dealing with that judgment, the Labour Court, in the decision
of Fletcher v Elna Sewing Machine Centres (Pty) Limited (2000)
21 ILJ 603 (LC) at 614C-G, per Jammy AJ stated that:
“The rationale underlining the equitable principles enunciated in the
Atlantis Diesel Engines case is not open to question, but in a hard realistic
and uncompromising commercial environment, it will in my opinion more
often than not prove to be a lofty ideal, acknowledged in principle but
compromised in practice. In my perception there can be few employers
who, having identified, as they are fully entitled to do, the necessity for a
valid and bona fide reason to reorganise, restructure or in some other
manner, redefine their business operations, will not have decided in
principle what they perceive is the optimum method of doing so. What I
consider to be the legitimate purpose of consultation with employees who
might thereby be affected therefor, is not to assist them in making up their
minds, but determine, by way of consensus, whether there is any practical
and viable basis for changing them. There is, to my mind, nothing unfair in
that concept. In its broad context, it is a realistic and prevailing
phenomenon of commercial life. … The need to retrench, when all other
attempted avenues to redress its deteriorating situation has failed, was
clearly identified … ”
Mr HUMAN gave evidence that there were sound commercial
reasons why there was a delay between October 1996 and May
1997. There is no absolute obligation to communicate a prima
facie decision immediately. Obviously, the need to engage in
consultation pursuant to the decision, must take place within a
reasonable time which would be determined on all the facts and
circumstances in any given case. In the matter under
consideration, the delay was not unreasonable, given the process
which ensued.
The respondent was at all times prepared to, and did, go to
arbitration in an effort to resolve the issues. As a result of the
consultation process, the decision to go to arbitration on the
issue of the NPDC was arrived at. In this regard, the evidence of
Mr KHUBEKA that this issue was the actual dispute between the
parties about which they had embarked upon an arbitration
route. Mr MBATHA signed that agreement.
Mr Khubeka testified that what the Union sought from the
arbitration was an order that the terms of the NBF agreement he
implemented by the respondent with specific reference the
respondent’s “obligation to re-deploy retrenchees to the NPDC”.
He also stated that had the retrenchees been re-deployed to the
NPDC, the parties would not be in court.
The respondent was also criticised for failing to mitigate the
effect of its decision to retrench. Evidence was also led that the
restructuring involved the occupation of a different building on
the same premises, which on the evidence clearly required
different arrangements in cleaning operations. Mr HUMAN
testified that he attempted to assist employees in gaining
employment with the sub-contractors but that employees refused
to engage in the interview process. This was confirmed by
Mr KHUBEKA who said they had “nothing to say”. One of his sub-
contractors for cleaning purposes undertook to employ the
respondent’s cleaning staff at their current salaries. They did not
apply for these positions. In view of this evidence the applicants’
stance to alternative employment was unreasonable.
Insofar as selection criteria is concerned, the respondent
demonstrated during the evidence of Mr. Human and during the
cross-examination of Messrs Khubeka and Mbatha, that the
application of the LIFO list drafted by Mr Mbatha in consultation
with the employees (which he initially distanced himself from)
would be impractical.
Mr. Khubeka conceded that for most part, the employees in the
LCMD had limited literacy and numerate skills and he agreed with
the skills requirement for permanent employees in the NPDC. It
was demonstrated that this department, when the applicants
were temporarily employed there, they were supervised on a
level which was not sustainable on a permanent basis.
Mr Khubeka conceded that the disputes regarding (which are
dealt with in the NBF agreement) severance package selection
criteria (skills were applicable, not only LIFO) and commercial
rational (which was not attached), were not issues before this
court. The respondent provided information relevant to the
process as requested on 24 October 1999 and thereafter.
In weighing the documentary evidence, read together with
Mr HUMAN’s evidence and in accepting Mr KHUBEKA’s and
Mr MBATHA’s evidence insofar as they corroborate the objective
facts, common-cause facts and the innate possibilities, the
respondent was not in breach of s 189 of the Act. There was no
substantive unfairness in the retrenchment process engaged
over a period of more than one and a half years during which
some twelve consultative meetings were convened.
Insofar as the engagement of employees in the NPDC is
concerned, the evidence of both parties indicated that overtime
was sporadic in frequency and quantity. On this issue the
respondent went further than consultation. It went to arbitration,
a process which sanctioned its actions. It is improbable on the
facts, that the respondent, in the consultation process, simply put
up a mala fide charade over a period of eighteen months.
Insofar as costs are concerned, even though the applicants were
responsible for the preparation of the Court files, particularly in
October 2000 when the matter first came before Basson J, who
struck the matter from the roll, the respondent approached the
matter in a manner which also wasted time. The record will
reflect this. I therefore decline to make any costs order.
___________________________
E REVELAS
Johannesburg
12 March 2002