IN THE LABOUR COURT OF SOUTH AFRICA
HELD AT BRAAMFONTEIN CASE NO.
J3865/00
In the matter between:
RUSSELL MC DIARMID
APPLICANT
And
SECURICOR GRAY (SOUTH AFRICA) (PTY) LTD
RESPONDENT
JUDGMENT
ZILWA AJ
INTRODUCTION
1. In this matter the applicant contends that his dismissal by the
respondent on its alleged operational requirements was both
substantively and procedurally unfair. He claims payment by
respondent a fair and equitable compensation, and a fair and
equitable severance package. This matter is mainly based on
section 189 of the Labour Relations Act No. 66 of 1995 (“the
Act”).
2. The respondent is a security company listed in the JSE
Securities Exchange with several subsidiaries. Applicant was
employed by the respondent since March 1996 as a managing
director of one of its subsidiaries, Gray Security Services
Transvaal (PTY) LTD. From September 1997 to March 1999 he
was a managing director of Gray Security Services Central
(PTY) LTD. He was employed in the position of Management
Development and Public Affairs Executive by the respondent
with effect from the 1 st April 1999 until his dismissal on the 31 st
March 2000. The applicant asserts that his dismissal was both
substantively and procedurally unfair and seeks appropriate
compensation and severance package.
3. This court is, therefore asked to determine the fairness or
otherwise of the applicant’s dismissal. I will deal with the issue
of unfair dismissal and severance package separately.
SUMMARY OF EVIDENCE – UNFAIR DISMISSAL
4. At the trial the respondent has relied on the evidence of Alaister
Mackintosh (“Mackintosh”), the executive director of the
respondent and Hennie Pieters (“Pieters”), the National Human
Resources Director. The applicant on the other hand relied on
his testimony and that of Jenny Ibbotson (“Ibbotson”). However,
Ibbotson’s evidence is only related to the profit share dispute.
5. Mackintosh testified that the respondent was a subsidiary of its
international company that had its presence in the United
Kingdom, the United States of America and several other
countries in Africa. He was an executive director for the South
African Chapter (“the Company”), at the material time, which
had six subsidiaries constituted in a flat structure. The
subsidiaries had different boards to which he was chair and he
in turn reported to the main board of the South African Chapter.
The applicant reported to him.
6. He testified that the board had met at the end of November
1999 where it transpired from the financial information that it
1999 where it transpired from the financial information that it
had failed to meet the financial targets set by its shareholders,
and such situation was serious as a listed company. In the said
meeting the board scrutinized the structure of the company. It
decided on a strategy that amongst other things that
information technology expenditure must be shelved, that the
company must push for more decentralization and with the
attendant responsibilities to be executed by junior employees in
the company. Positions which would not impact on efficiency of
the company would have to be identified and a new
organogram was to be prepared for the whole company.
7. This restructuring was intending to save about R10 million in
that financial year.
8. The applicant’s position and that of the Transformation and
Development Manager which was held by David Mohosana
were identified as non core as a sequel to the aforesaid
strategy. With regard to the applicant’s position it was believed
that the structures were adequately in place to deal with the
skills levy requirements and related institutions and legislations,
and these functions and others performed by the applicant’s
could be assigned to other positions at no further cost to the
company. The company was going to save between R1 million
and R1.2 million a year of the total company cost by eliminating
the applicant’s position.
9. He testified that in December 1999 the respondent decided to
eliminate the applicant’s position which culminated in him
writing a letter to the applicant dated 10 th December 1999
which reads:
“Mr. Russell Mc Dairmid
Dear Russell
RE: OPERATIONAL REQUIREMENTS /
POSSIBILITY OF RETRENCHMENT
The projected operational climate requires the
company to be vigilant in controlling overheads of
which salaries represent the most significant
portion.
I must inform you that Directors have formed the view that the
present structuring regarding your position and the functions
performed by you for the company, are commercial unjustifiable and
result in the company bearing an undue financial burden in respect of
these functions. The directors have accordingly identified a
commercial need for restructuring in terms of which certain of the
functions performed by you, and more particularly the control aspects
thereof, should be allocated as part of the duties of the existing
Human Resources Director. From a commercial point of view, this
would be in the better interest of the company.
It is their further view that the operational requirements for such
restructuring would of necessity lead to redundancy of your present
position. This in turn gives rise to the possibility of your retrenchment
from the employ of the company, unless acceptable alternatives can
be formed and agreed on.
I accordingly request that you attend a meeting to
be convened at my office at 14H00 on the 17 th
December 1999 in order that we may consult with
you on this issue and particularly to whether there
are viable alternatives to retrenchment and to afford
you an opportunity to make such presentations as
you may wish in this regard.
YOURS FAITHFULLY
ALAISTAIR MACKINTOSH
EXECUTIVE DIRECTOR
10. The meeting schedule for the 14 th December 1999 actually
took place on the 21 st December 1999, and Mackintosh was
joined by Pieters. In the said meeting the parties discussed
amongst other things the redundancy of the applicant’s
position, the targets that the company did not meet. Applicant
was then invited to give consideration on these issues and
alternatives to retrenchment.
11. It is apparent from the applicant’s response to the deliberations
of the said meeting (document no. 16 of the bundle) that he
was not convinced that his position was due to be scrapped
moreso that he had received assurances from management as
late as the 3 rd November 1999 that his position was to be kept
separate from that of Human Resources Director, and
Transformation and Development and that there was a need for
it. The relevant part of this document reads:
“ ALTERNATIVE TO RETRENCHMENT
I would like to argue that there is a confirming need for my position,
at least until the company and the Security Industry are aligned and
the various NQF Structures (i.e. Standards Generating Body and
Sector Education and Training Authority) are in place and functioning
effectively. In the establishment process, both structures have
required a considerable amount of focused time and effort. This
commitment will need to continue as each structure is staffed and
commences operations – to ensure that the interests of Gray Security
Services are protected. This is not possible if the proposed
restructuring takes place.
I would like the directors to consider the following alternatives to
possible retrenchment in order of preference:
1. Gray Security Services lobby the larger
players in the Security Industry to contribute
towards my package on the basis that my
work in the NQF arena is benefiting the entire
industry;
2. A reduction in my overall package of 30%;
3. Management Development & Public Affairs
and Transformation & Development be
consolidated into one position (on the basis
that these two positions are integral to
Workplace Skills Plans in terms of the NQF
and that the HR director will find it an almost
impossible task to focus and dedicate the
required time to these functions;
4. The company retains my services as a
consultant with particular emphasis on the
preparation and implementation of Workplace
Skills Plans for the South African operations
(in terms of the NQF).
In all the options above, the company would, in the
first year of NQF implementation;
(April 2000 – 31 March 2001) be entitled to claim a grant equivalent
to 25% of the levy which will be imposed on the total salary and wage
budget.
12.Mackintosh further testified that the company had created the
applicant’s position in good faith, however, the board looked
into the whole group including South Africa to improve its
bottom line. The company had looked at all its subsidiaries to
see if there was a viable position for the applicant but there was
a viable position for the applicant but there was none available.
The company further considered the applicant’s proposals but
they were not viable with regard to the intended savings of the
company.
In effect Mackintosh respondent in writing to the
applicant’s proposals as per his letter dated 4 th January 2000,
the relevant part thereof reads:
“Dear Russell
RE: OPERATIONAL REQUIREMENTS /
POSSIBILITY OF RETRENCHMENT
1. …………………………..
2. ……………………………
3. These proposals have been rejected as not
being viable for the following reasons:
3.1 the first proposal is impractical of enforcement,
and it reasonably can be anticipated that other security companies
would have a profound resistance to making payments to a
competitor on this basis.
3.2 the second proposal would not meet the
operational requirements of sufficiently
reducing the company’s costs in respect of
these functions.
3.3 the third proposal is not viable for the same
reason applicable to the second proposal.
3.4 the fourth proposal, while not avoiding the termination of your
employment due to retrenchment, may be the most practical course.
Should you elect to operate as an independent consultant, we will
use our best endeavors to lobby the other Substantial security
companies so that they are aware of the availability of your services
and the benefits thereof.
4. The number of employees likely to be affected is
two, the job categories concerned being the
position of Transformation & Development
Executive and Management Development &
Public Affairs Executive (i.e. your position).
5. The method of selecting the employees for
retrenchment was to identify employees carrying
out functions for the company and in respect of
which the cost of remuneration could not be
commercially justified.
6. It is contemplated that your employment would
terminate with effect from the 31 st March 2000.
7. The severance pay proposed would be that
prescribed by law i.e. the equivalent of 1 (one)
week’s pay in respect of each year of completed
employment with the company.
8. The company will offer assistance as it can by
furnishing you with a warm letter of reference
and assisting in liaison with employment or
recruitment agencies. Should you so wish we will
cause enquiries to be made with other
substantial operators in the security industry as
to such managerial positions as may be
available. In addition, should you operate as a
consultant we will assist by undertaking the
efforts referred to in paragraph 3.4 above.
9. As the need for the commercial rational
underlying the operational requirement will
remain for the foreseeable future we are not
presently able to determine the possibility of
future reemployment.
I request that you attend a meeting to be convened
at my office at 10H00 on Friday, the 07 th January
2000 in order that we may consult with you and
attempt to reach consensus on these issues. You
will be afforded an opportunity to make
representations as you may desire on these issues.
YOURS FAITHFULLY
ALIASTAR MACKINTOSH
EXECUTIVE DIRECTOR”
13. The applicant responded to Mackintosh’s aforesaid letter before
the scheduled meeting of the 7 th January 2000, as per his letter
of the 6 th January 2000. In essence, in the said letter, the
applicant disputed that he had been consulted in good faith and
contended that the company had already decided on his
dismissal before the consultations commenced on the 10 th
December 1999. On the selection criteria, the applicant re
iterated that he had been given assurances of the definite need
of his position by the company and had done a good job for the
company and the security industry at large. He stated that the
reasons for his retrenchment appear to be the consequences of
the business operations, decisions and management controls
which are outside his area of influence e.g. the poor debtors
situations in the African operations, the average performance of
the U.K. and the American operations, therefore he had a
problem accepting the motivations afforded by directors for their
decision. On alternative to retrenchment, the applicant
contended that the company did not offer any alternatives to
retrenchment despite the fact that the South African operations
continue to grow and presenting further opportunities. He could
not understand why his proposal for the reduction of his salary
was not accepted.
14.On the severance package, the applicant proposed, amongst
other things:
1. 3 (three) weeks pay in respect of each year of
completed employment with the company;
2. 2 (two) months notice pay;
3. payment of a pro – rata amount of the profit
share due to him. This was on the basis of the
assurances given to him on his new position
and that it was not his decision to leave the
employ of the company.
4. that the restraint of trade that he had signed
be cancelled.
5. that he retain the cellular phone and transfer
the account into his name.
6. a letter of reference acknowledging his
achievements in his position and the reasons
for his retrenchment.
15.On the preferential re – hiring, the applicant submitted that he
considered a reasonable time for preferential re – hiring to be
six months and that the company should bear this in mind when
positions become available which require his comparable skills
and qualifications, these to include position of managing
director of a subsidiary company or a position with similar duties
to those that he had been performing.
16. A meeting took place on the 7 th January 2000in the presence
of Mackintosh, Pieters and applicant, and issues mentioned in
Mackintosh’s letter of the 4 th January 2000 and those of the
applicant’s letter of the 6 th January 2000 were discussed. The
fact as to whether there was agreement reached on those
issues is in dispute and the minutes of that meeting were not
submitted before the court as evidence. The company contends
that it looked at all the points raised by the applicant and it went
into the process with an open mind. However, it did not find any
suitable alternatives and it also pointed out to applicant that it
cannot deviate from the company policy in respect of severance
pay as proposed to him.
17.On cross examination Mackintosh stated that he had assured
applicant that his position is a real job in April 1999, however
the situation changed with effect from the board meeting that
was held in November 1999. He confirmed that the South
African operations had been operating on target, however, the
group was not operating on target and the review of the South
African operations structure was commissioned by the board.
He further stated that in his meetings with the applicant he only
stated that the company had failed to meet its target but did not
inform the applicant of the exact amount that the company
wanted to save to enable it to reach its target. He further
confirmed that the company first identified his position as being
redundant before consulting the applicant about it. He
submitted that the function of the applicant of claiming rebates
for training was already factored into the company’s budget as
it already knew the amount it was to receive as rebates. He
further confirmed that the company looked for suitable positions
in the subsidiaries but could not find a suitable one.
18.It became apparent that the respondent that the respondent
had filled certain posts on or about August 2000 without
considering the applicant. These positions were National
Operations Director, Managing Director, Gray Security Services
North (PTY) LTD, Senior Managing Equities, Training Manager
Equities, Training Manager, and the Operations Director, Kwa
Zulu – Natal. Mackintosh testified that all these posts were filled
internally and that the company did not incur an extra person in
internally and that the company did not incur an extra person in
its payroll and further that the company implements a
succession plan in respect of its positions, candidates are
identified and groomed to fill those posts.
19.Mackintosh further sated emphatically that because of its
nature, the company did not practice bumping and applied the
grooming concept as bumping would cause serious disruption
of relations with clients which is vital in the industry and for
stability.
20. Ultimately on the 14 th January 2000 the respondent through
Mackintosh informed the applicant in the form of a letter that:
1. his employment would terminate with effect
from the 31 st March 2000 and the notice
period would commence on the 1 st February
2000.
2. he will be paid a severance package of 1
(one) weeks pay in respect of each year of
continued employment in the company.
3. he was to be paid due benefits in respect of
salary, leave pay, allowances and other
benefits.
4. the company was to furnish him with a letter of
reference.
5. the cellular phone was to form part of the
package.
6. the company was prepare to waive certain
specific provisions of the restraint of trade
clause.
7. he was to be considered for a comparable
position in the near future.
8. the company was to assist in lobbying the
players in the industry for his appointment in a
permanent position on the industry SETA.
21.Applicant, however, challenged the severance package offered
to him and contended that it was not according to provisions of
the Labour Relations Act and the Basic Conditions of
Employment Act, and further that he had been discriminated
against because other senior employee were offered better
packages.
22.Mackintosh rejected his claim. In fact, during trial the applicant
could not place facts before the court to prove that other senior
employees offered different packages except the issue of profit
share which I shall deal with later in this judgment.
23. The evidence of Pieters mainly corroborated that of Mackintosh
on the relevant issues. He confirmed that the applicant was a
member of EXCO and that financial performance of the
company was normally discussed in EXCO meeting and,
therefore, the applicant was privy to the financial information
about the company generally.
APPLICABLE LAW
24. On procedural imperative, it is trite that in case of dismissal
base on operational requirements of an employer, both the
employer and employee (“the parties”) are enjoined by Section
189 of the Act to embark upon a consultation exercise which is
a joint consensus seeking process. The parties must seek
agreement on the issues stipulated in the said section.
However, the checklist approach has been rejected by our
courts and they have emphasized the fairness of the process
as primary in an attempt to reach the said consensus. See
JOHNSON & JOHNSON (PTY) LTD V CWIU (1998) 12 BLLR
1209 (LAC) AND ALPHA PLANT AND HIRE SERVICES (PTY)
LTD V SIMMONDS & OTHERS (2001) 3 BLLR 261 (LAC)
If consensus has not been reached then it must be established
whether it is due to the fault of the employer or the employee.
Either party could frustrate the process in a number of ways
and the different possibilities depend on the facts of each
particular case. In the event that the fault is attributed to the
employer then such subsequent dismissal would certainly be
procedurally unfair. (see the JOHNSON and ALPHA PLANT
cases supra).
25. On substantive imperatives, the majority of the Labour Court
decisions still follow the approach adopted by the Labour
Appeal Court in SACTWU & OTHERS V DISCRETO – A
DIVISION OF TRUMP AND SPRINGBOK HOLDINGS (1998)
12 BLLR 1451 (LAC) , namely that the court will not second
guess the commercial or business efficiency of the employer’s
decision that leads to retrenchments. It will simply investigate
whether the decision is a genuine one and not a sham.
However, in BMD KWITTING MILLS (PTY) LTD V SACTWU
(2001) 7 BLLR 705 (LAC) , the court indicated that it may adopt
a slightly sticker approach and enquire whether a reasonable
basis exists for the employer’s decision. By and large the courts
have left it to the business management to restructure its
business in order to make it more profitable.
FAIR REASON FOR DISMISSAL
26.It is trite that an employer may, based on economic reasons,
restructure its business leading to the retrenchment of its
employees. The onus is on the employer to prove the existence
of such valid economic reasons. Further in terms of section 188
of the Act the employer must have a fair reason to dismiss an
employee.
27.It has been clear from the evidence presented before this court
that the applicant had been holding positions of Managing
Director in the respondent’s subsidiaries from early 1996 till he
was appointed in his incumbent position in April 1999. He
enquired more about this new position before accepting it and
he was assured by the company through Mackintosh and
Pieters that it is a real job, which means that it was not less
secure than the one that he occupied as a Managing Director of
a subsidiary company.
28. It is also common cause that by the 3 rd November 1999 the
respondent was still giving assurance to the applicant about the
definite need for the existence of his position. In my view it is
clear from the applicant’s attitude before he accepted this
position and there after that if it had transpired to him that the
position is “a nice to have” and that its existence is in fact
temporary, in sense that, according to the respondent, it was to
set up the structures to deal with NQF, skills levy legislation etc,
he would not have accepted this position.
29. It seems to me that the respondent should have protected the
applicant from dismissal in this relatively short period of less
than a year after his acceptance of this new position by finding
suitable alternatives to dismissal. My view is further supported
by Judge Revelas in HEIGERS V UPC RETAIL SERVICES
(1998) 1 BLLR 45 (LC). In this case the facts, briefly, were that
the applicant four months after his employment with the
respondent was promoted to a position of “Transformation and
Improvement Manager” and headed a team the task of which
was to transform the respondent into a world class
organization. Shortly after his promotion, he took leave and on
his return he was advised that his post had become redundant.
He had not been consulted before the decision to render his
post redundant. The court noted that the applicant’s
appointment to head transformation team had always been
appointment to head transformation team had always been
envisaged as temporary. It was, therefore, unlikely that the
applicant would have accepted promotion had he known it
would lead to his retrenchment. The court further pointed out
that in the absence of an explanation for why the applicant was
not properly protected from a situation where his promotion
would lead to redundancy, his selection for retrenchment was
both unfair and untimely. In the circumstances the court did not
accept the reliance on adverse trading conditions as a fair
reason for dismissal by the respondent.
30. Besides the decision to retrench, it is clear from the
respondent’s evidence that the decision to render the
applicant’s position redundant was taken before his first
consultation on the 10 th December 1999. I am of the view that
this step taken by the respondent is unfair, see NEWEN HUIS
V GROUP FIVE ROADS & OTHERS (2000) 12 BLLR 1467
(LC).
SELECTION PROCESS
31. According to the evidence, especially the respondent’s letter
dated 4 th January 2000, the respondent selected applicant for
retrenchment simply on the basis that the cost of his
remuneration could not be commercially justified.
32. Section 189 (7) provides that the employer must select
employees to be dismissed according to selection criteria that
have been agreed to by the consulting parties, or if no criteria
have been agreed, criteria that are fair and objective. The
applicant was holding a senior position with respondent and
had been its employ since March 1996. I must determine
whether the selection criteria used by the respondent was fair
and objective, in my view it was unfair. It is generally accepted
that changes in corporate structures may lead to difficult
decisions having to be taken in deciding which senior or middle
managers must be retrenched. In NEUWENHUIS case supra,
the court held that seniority across the divisions of the group
must be taken into account rather than just retrenching the
relevant manager in the division to be closed in implementing
bumping.
33.The respondent has contended that it does not practice
bumping as same would disrupt personal relations with clients,
stability and morale of its employees. It, in turn, implemented
succession plans where identified candidates are groomed for
those specific positions. However, the respondent did not state
how exactly these disruptions would occur in reality. In fact, one
wonders how the respondent would deal with sudden
resignations of senior personnel without the successful
completion of a grooming plan. Moreover, the applicant needed
no grooming to take over from the position which he held prior
to April 1999.
34. The Labour Appeal court in PORTER MOTOR GROUP V
KARACHI (2002) 4 BLLR 357 (LAC) , endorsed the fact that in
determining a fair selection of employees for retrenchment
‘bumping’ has often been implemented. The court elaborated
10 principles, which are applicable in this process. I will not
repeat these principles here, however, the overall impact
thereof is that the employer and the employee must consult
about it and if there are possibilities of disruptions the
consulting parties must attempt to carry out a balancing
exercise. The pool of possible candidates to be bumped should
be established and the circumference thereof will depend on
the mobility and status of the employees involved. The
managerial prerogative entails moving employees to the best
advantage of the company within parameters of its activities,
national, international; fairness requires that the same
circumference should define the limit for candidates to be
bumped. Even if there has been no past practice of transferring
between branches or departments, the employer must consider
between branches or departments, the employer must consider
interdepartmental bumping unless it is injurious to itself and
other employees.
35.In this matter the employer has failed to consult about bumping
the applicant and has further failed to demonstrate how the
bumping of the applicant specifically would result in injury to
itself and other employee.
36.In view of the aforegoing I am persuaded that the fault for not
reaching a joint consensus by the applicant and the respondent
must be placed squarely at the door of the respondent.
PROFIT SHARE
37. It is common cause that the applicant’s employment agreement
with the respondent provided for a profit share. However, the
exact percentage that the applicant was entitled to and whether
he was entitled to receive, a prorata portion calculated till the
31st March 2000 is in dispute. The financial year end of the
respondent was August each year.
38.It is trite law that a severance pay is some kind of a solatium
awarded to the retrenched employee by an employer because
his services are terminated without his fault. It is not derived
from the terms and conditions of the employment agreement,
unless a collective agreement, if any, provides a formula on
which severance pay will be calculated in the event
retrenchment. If there is no agreement on the formula or an
amount for severance pay then the minimum amount provided
by the Labour Relations Act apply (Section 196 (1) of the Act).
39.The relevant section provides for the minimum of 1 (one)
week’s pay for each completed year of service by the employee
to an employer. This is what the respondent has offered to the
applicant in this matter.
40.In my view the applicant’s claim for profit share is based either
in common law contract or the Basic Conditions of Employment
Act No. 75 of 1997 or both and does not form part of a
severance pay. In the circumstances, the applicant is entitled to
institute a claim for a profit share in terms of the
abovementioned law. It is according to my finding that this court
has no jurisdiction to rule on this issue due to the matter
manner in which it has been presented before it.
I accordingly make the following order:
1. The applicant’s dismissal is both substantially and
procedurally unfair;
2. The respondent is ordered to pay compensation to
applicant in the amount equivalent to 12 months salary
being R 33 00000 x 12 = R 396 000 – 00;
3. The respondent is ordered to pay costs of this matter
including costs of all postponements.
ZILWA A J
DATE OF JUDGMENT : 06 JUNE 2003
FOR APPLICANT : MR. DION MASHER OF
BELL DEWAR & HALL INC.
FOR RESPONDENT : MR. DONALD GRAHAM
INSTRUCTED
BY IAN SUTHERLAND
ATTORNEYS