IN THE LABOUR COURT OF SOUTH AFRICA
HELD AT JOHANNESBURG
Case No.: J
4320/99
In the matter between
FERDINAND PETER HARMSEN Applicant
and
ALSTOM ELECTRICAL MACHINES (PTY) LTD Respondent
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JUDGMENT
_____________________________________________________________
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REVELAS, J.
[1] The applicant was retrenched by the respondent at the end of February
1999. The applicant challenged the fairness of his dismissal on the
basis that it was both procedurally and substantively unfair.
[2] The applicant, was 56 years old when he was retrenched and in
possession of a BsC Chemical Engineering Degree as well as an
MBL.
[3] The applicant was employed by the respondent on 15 February 1995
in the position of Group Manager: Logistics within the respondent’s
ELMAC Manufacturing Division where he reported to the Managing
Director. Prior to his appointment with the respondent, the applicant
served as a senior executive and managing director of several
companies inter alia at Toyota Automotive
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Component and Barlow Equipment.
[4] When the applicant was appointed it was anticipated that after a
period of six months the applicant would be made a director
dependant on his performance. This was expressly stated in his letter
of appointment. His level of remuneration at the time of his
appointment was in line with that of a general manager.
[5] As a result of the appointment of a Mr Erasmus to the position of “the
Portfolios of Industrial Engineering and Commercial in Small
Motors” the applicant was appointed to the position of Manufacturing
Manager: Large Machines. This position was below the level of
general manager for which he was remunerated. The applicant’s case
was that he was persuaded to take the position on because of the
problems he as Manufacturing Manager could help to sort out. The
applicant was later on also not elevated to be general manager. A Mr
Ernie Muller was.
[6] On 23 January 1998 the applicant was formally seconded to the
respondent’s F3 project as project leader. The F3 project involved the
transfer of skills relating to a new motor developed by the
respondents’ French parent company, for which a production line was
to be established in South Africa. It was agreed that until an
alternative “career path” was established, the applicant would remain
in his then current position as Operations Manager: Large Machines
and on completion of the project, revert to his original duties. This
agreement came about in a letter the applicant wrote when he was
seconded.
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[7] During the course of the F3 project, the applicant also became
involved in planning a proposed joint venture with a Zimbabwean
company. The applicant was to drive this process on the instruction
of Mr Mangen the Managing Director.
[8] Mr Mangen was succeeded by Mr Cuthbert in October 1998. The
applicant sent him a memorandum on the Zimbabwean Project. The
memorandum contained information regarding the venture and the
applicant’s opinions as to the latest status of its viability and the threat
held by the fall in the value of the Zimbabwean dollar. The memo
offered suggestions regarding alternative ways by which this project
could proceed profitably. Mr Cuthbert did not reply to the memo.
[9] At that time the executive management team consisted of Mr Muller
(Large Machines), Mr Romano in the Low Voltage Section, Mr
Boshoff in Laminations and Tooling and Mr Colborne as the Export
Manager.
[10] Six weeks after Mr Cuthbert’s appointment, he negotiated Mr
Romano’s departure and reassigned Mr Boshoff to his position as
General Manager of Low Voltage. Peter Colborne became General
Manager of Laminations and Tooling. The position of export
manager was not filled by anyone. This was about the same time as
the applicant was identified as a retrenchee.
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[11] Since his employment with the respondent, up to the time prior to the
Zimbabwean project and the retrenchment in question, the applicant
never filled the position of general manager. The three general
manager posts were held by Mr Boshoff, Mr Muller and Mr Joliffe
respectively.
[12] On 12 November the applicant was called to a meeting attended by
Mr Cuthbert, Mr Muller and Mr Ron Watkinson the respondent’s
Human Resources Manager.
According to the applicant, Mr Cuthbert informed him at this meeting
of his retrenchment, introducing the subject with the words “I guess
there is no easy way to say this”. According to the respondent, this 12
November meeting was no more than to advise the applicant of the
possibility that he might be retrenched and to open discussions. What
occurred at this meeting was in dispute.
[13] According to the respondent, the following aspects were discussed
during a meeting of some 45 minutes in duration:
1. The end of the F3 project
2. Since the applicant was involved in the F3 project and
setting up the Zimbabwean venture, Large Machines had
continued without an operations manager since 1998. So
that position had become redundant.
1. If the respondents found itself unable to approve
the Zimbabwean project which at that stage Mr Cuthbert was, at the
very least, sceptical about and there was no alternative position
found for the
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applicant, he will be retrenched.
[14] According to the respondent, the applicant was “acutely aware
of these dynamics” before he went to the meeting. This of course
does not accord with the applicant’s testimony that he went into shock
when told of the retrenchment. His view of the meeting, was that he
had been presented with a fait accompli .
[15] After the meeting, on 15 November the applicant addressed a letter to
Mr Ellis, the Human Resources Director at the respondent’s head
office in which he enclosed a copy of his curriculum vitae for
distribution locally and internationally. He attached the contribution
he had made at Large Machines, indicated his preferences in regard to
international positions and his willingness to improve his French
language skills.
[16] Mr Cuthbert, who by now, had clearly sought legal advice, wrote to
the applicant on 16 November 1998 as follows:
“Dear Peter
PRIOR NOTICE: RETRENCHMENT
This serves to confirm our discussion on 12 November 1998
with regard to the question of retrenchment.
As you will be aware from that discussion, it appears that,
for reasons of the operational requirements of the
Company, your retrenchment has become a possibility.
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That being the case, we intend that the process complies
with the substantive and procedural requirements of the
Labour Relations Act no 66 of 1995. This means that we
wish to consult with you over the following:
1. the decision leading to your retrenchment
2. disclosure and other relevant information
that supports the decision
3. alternatives we have considered to avoid
your retrenchment
4. severance package
5. follow up issues
6. the proposed time frame to manage this
process
We would like to reiterate that the procedure means you
are entitled to put forward anything which you feel might
have a bearing on this matter. In particular, if you feel that
there are any ways in which your retrenchment can be
avoided or handled differently, you are invited to say so.
Throughout the process we will examine this matter and if
we feel we are able to find alternatives that are reasonably
open to us to avoid your retrenchment, we shall let you
know.
It is with considerable regret that we have to take this
course and we do wish to ensure that all possible avenues
are explored. Therefore, anything you wish to put forward
at any stage, will receive careful attention.
Yours sincerely
PA CUTHBERT
MANAGING DIRECTOR”
[17] The applicant requested a week to respond to the issues raised in Mr
Cuthbert’s letter. Mr Cuthbert, on 18 November 1998 responded as
follows:
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“I am pleased that you are considering alternatives to the
issues raised. I am also aware that Mr Ellis has forwarded
your C.V. to both Reunert and ALSTOM overseas. I must
advise though that this can not delay the process at
Electrical Machines but must be viewed as part of the
process. I share your hope that this results in the process
becoming academic but must advise a measure of caution as
the current global market situation has certainly had an
impact on employment levels across the industry.
As an alternative I would encourage you to discuss and
consider any available vacancies at Electircal Machines
with Ron Watkinson who will approach you in this regard
on 19 November 1998.”
[18] On 20 November, following discussions with Mr Watkinson the
previous day, an offer of alternative employment Logistics Manager
Low Voltage was made to the applicant. The Level of remuneration
was at 41% of his current salary, at level E3 the position being at
Patterson D1.
Mr Watkinson also stated in his letter:
“...Should you agree to consider accepting the position, we
would be prepared to offer two alternatives, viz
1. an entitlement to a trial period of one month during which
time if it is felt that this post is not one which is suitable to you,
and no other alternative positions have been secured to you, you
will revert to your previous position of Operations Manager,
Lager Machines, without any break in service. In that case, of
course, it appears at this moment that there will be no alternative
to redundancy, or,
2. that your services as Operations Manager, Large Machines,
are terminated, and that you are reemployed in the position of
Logistics Manager: Low Voltage. In this case you will be entitled
to severance benefits in terms of the company’s retrenchment
procedure and calculated at the difference between your present
basic salary and that of the basic salary
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of Logistics Manager as per this letter. You may also
elect to be paid out all your accrued and
Pension/Provident Fund benefits, or keep these
intact.”
[19] The severance benefits offer is unlawful. On the same day the
applicant wrote the following letter to Mr Cuthbert:
“In order to enable me to consult with you regarding
the aspects indicated in your letter dated 16
November 1998, I request the following information
and documentation:
1. Confirmation of the position of employment with the group
from which it is proposed I be retrenched.
2. Written reasons for my proposed retrenchment.
3. Any documentary evidence relative to the reasons that
support such a decision.”
[20] Six days later, on 26 November 1998 Mr Cuthbert responded as
follows:
“Dear Peter
RETRENCHMENT
1 As indicated in our offer of
alternative employment dated 20 November
1998 and during our initial discussing of 12
November 1998, it is the position of Operations
Manager, Large Machines, that has been
affected by the current operational
requirements of the Company and from which
it appears you will be retrenched.
Your official secondment to the F3 project is
now largely complete and unfortunately no
further projects in which your services could be
utilised are planned for the foreseeable future.
1. Regarding reasons for your proposed
retrenchment, you
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will no doubt be aware that the profitability of
Large Machines has reached the point where it
has become necessary to critically examine the
continued viability of selected positions with
Large Machines. Regrettably, the position of
Operations Manager has been identified as
being superfluous to requirements and is,
therefore, to be made redundant.
For ease of reference I have attached hereto
graphs which reflect the current and
anticipated situation with Large Machines, viz
1. Recoveries forward forecast to March 1999
2. sales forward forecast to March 1999
3. Orders received for fiscal year 1997/1998
I would be happy to discuss these with you
should you feel the need to do so.
I am informed by Johann Ellis that your
position was discussed at ALSTOM executive
meeting on 24 November 1998 and that your
CV has been forwarded to both Reunert and
ALSTOM, France. Naturally, we will keep you
informed of any developments in this regard as
and when these may arise.
I would like to take this opportunity of pointing
out that there is an urgent need to fill the
position of Logistics Manager, Low Voltage and
would accordingly appreciate you giving an
indication as to your intentions in this regard by
Monday 30 November 1998. Should you not be
interested in applying for the post, we will have
no option but to look for a suitable replacement
both internally and from elsewhere within the
Group.
I must also inform you that while we are
actively seeking alternative employment for you
within the organisation,
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your notice period will commence on 1
December 1998 and end on 28 February 1999
should redeployment prove unsuccessful.”
[21] On 1 December the parties met and the applicant handed a letter to Mr
Cuthbert which stated:
“Your letter of 26 November 1998 refers.
I do not believe that the information provided in this letter
justifies the decision taken to retrench me, and will
certainly avail myself of the opportunity of discussing the
issue with yourself at a time suitable to you.
In the interim, I request an undertaking from the company
that the process will be stayed and no final decisions made,
until the consultation process has been completed.”
[22] Mr Cuthbert reiterated the need to fill the Low Voltage position and
wanted to know if the applicant was going to accept it. He was also
unwilling to extend the time table set for the retrenchment.
[23] The applicant was then retrenched and subsequently found alternative
employment.
[24] The applicant’s case was that his dismissal was unfair because the
respondent failed to engage with him in consultation concerning the
redundancy of his post as Operations Manager: Large Machines, to
consider him for appointment to one of the executive director posts of
General Manager Lamination and Tooling or for General Manager
Low Voltage Motors, to consult him on the timing of the
retrenchment and to consult with him in regard to his severance
package.
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[25] The respondent’s case is that it had a valid commercial rationale for
effecting the applicant’s retrenchment. The reasons forwarded were
that:
1. The position as operations manager of Large Machines was
operationally redundant.
2. The situation in Large Machines had reached alarming
proportions in the run up to year and with all order patterns clearly not
the same as in previous years.
3. The company could no longer afford the applicant at the level
he was appointed.
[26] The respondent also argued that since the applicant was a managerial
employee, it was not obliged to consult with the applicant in the same
way as an employer would consult with a blue collar worker as the
applicant had ample knowledge of the respondent’s financial
circumstances and always knew that his position with the respondent
was precarious. Much emphasis was placed on the fact that the
applicant never became general manager as hoped for and expressed
in his letter of appointment and was overlooked twice for promotion.
It was argued that he could not reasonably have expected to be
appointed in a position he had not held for almost a year in Large
Machines or to be appointed to an executive position when his
position became redundant.
[27] The applicant argued that it was by no means clear that the situation at
Large Machines was indeed as alarming as alleged by the respondent,
or that the applicant was no longer affordable. The applicant also
questioned the contention
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whether the applicant was operationally redundant to the position of
operations manager: Large Machines. Here one might ask the
question, if the situation in Large Machines was finally unsound, was
this not perhaps attributable to the fact that the applicant was not
there? He argued that he could have been retained in this position
whilst presiding over a works manager position as had existed
previously. This possibility would have entailed removing manager
Rob Lawery from the position of works manager.
[28] The applicant said that he could also have filled the positions of Mr
Boshoff or Mr Colborne. Mr Cuthbert was, with the exception of Mr
Romano, content with them in his team. The fact that he reassigned
these persons, the respondent argued, did not mean that vacancies for
the applicant arose. There is nothing wrong with this proposition. It
is just unfair that this was discussed at the trial and not with the
applicant.
[29] Appointing the applicant to the executive team would have meant,
according to Mr Cuthbert, that his executive management team would
revert to its former compliment and he had no need for an export
director. He was satisfied with his team’s performance. He also
reviewed the applicant’s personal file including the results of certain
psychometric tests which had been undertaken. He did not believe the
applicant was suitable for those posts even though the applicant had
the technical ability and qualifications.
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[30] With regard to the applicant filling the executive posts, I agree with
the respondent that no employee has the right to be promoted as a
means to avoid retrenchment. The applicant could also not really
expect that some other employee should be “bumped” so that he could
fill that employee’s position. Mr Cuthbert held the view that the
respondent, even though it had experienced a good year was headed
for less prosperous times, in keeping with international trends in the
electronics industry and the Alstom Group in particular, it would be
very difficult to create a post for the applicant in these circumstances.
[31] I tend to agree with the applicant’s contention that the applicant
needed to have been notified prior to 12 November that if the
Zimbabwean project was not approved and the F3 project came to a
close he was going t be retrenched. The argument that the applicant
was acutely aware that he would be retrenched has no merit. It was
quite clear from his evidence in crossexamination that he believed he
would still rise in the company. Despite the disconsolate view held by
the respondent of the applicant’s track record, there is no objective
basis or fact from which it can be inferred that the applicant ought to
reasonably have foreseen that he will be retrenched and that he need
not have been alerted thereto long before 12 November.
[32] The probabilities tend to show the possibility of retrenching the
applicant was not anticipated. Only when Mr Cuthbert was appointed
some six weeks prior to the applicant’s retrenchment, did the
retrenchment of the applicant begin to take form. It first started in Mr
Cuthbert’s mind when he read the applicant’s
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report on the Zimbabwean Venture dated 9 September 1998, to which
he did not respond. The applicant was not consulted in relation to a
position as general manager: Low Voltage Motors or a position as
general manager Laminations and Tooling. Mr Cuthbert agreed that
the applicant was qualified for these positions even though he later
tried to retract that concession. Mr Cuthbert also appeared to have
based the view that the applicant was not suitable for certain positions
on psychometric testing results. Mr Cuthbert’s reasons for
retrenching the applicant sailed very close to the winds of a dismissal
for poor performance. During the crossexamination of the applicant,
an approach was followed during which the applicant was almost
taunted with the history of his alleged lacklustre career path. He was
clearly deemed not fit to be a manager in the eyes of Mr Cuthbert.
Yet this aspect was not raised by Mr Cuthbert during the
consultations, and it should have been, if it was part of the selection
criteria.
The respondent in this regard referred me to JDG Trading (Pty) Ltd
t/a Price ’n Pride v Brunsdon (2000) 21 ILJ 501 (LAC) at
517J518A where it was held:
“.... where an employer on reasonable grounds comes to the
conclusion that a senior management employee is unsuited to the
position which he holds, the
scope for having such a conclusion overturned in a court of law is small. It
is in the highest degree desirable that an employer should, in the interests of
efficiency, be entitled to choose with as much freedom as is compatible with
the honest exercise of a discretion, who it wants at or near the helm of its
enterprise. Qualities like leadership, resolve, business acumen, judgment
and effective administration are not readily provable in a court. A
deficiency in such qualities
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is not readily provable either.”
[33] Why there was such undue haste in concluding the retrenchment
process, is in my view not answered by the cost cutting which is
alleged to have been necessary. Redundancy was what the applicant
was presented with. I agree that a new manager is entitled to dispose
of a position where the incumbent is earning a salary at a much higher
level. Such an incumbent is too expensive. Yet the applicant quite
aptly made the point during crossexamination, that because Mr
Cuthbert had been with the respondent for only six weeks, if there was
proper consultation, he could have persuaded Mr Cuthbert to consider
alternatives to retrenchment. Furthermore, the applicant was never
consulted on the basis that he was too expensive and had no chance of
ever becoming a manager, due to his personality or lack of certain
qualities. This failure goes to the substance of the consultation
process.
[34] I gained the strong impression from the evidence that the applicant
was confronted with a fait accompli at the meeting of 12 November
after Mr Cuthbert had made that decision based on his view of the
applicant’s performance. Legal advice appears to have been obtained
and what then followed was a rather hasty endeavour to comply with
the obligations imposed by the Labour Relations Act 66 of 1995, in
particular section 189 thereof. At the same time, no changes or
extensions were going to impede the plans made by Mr Cuthbert just
before the 12 November meeting, for the retrenchment process.
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[35] Whereas I am in respectful agreement with the views expressed in the
JDG Trading case (supra), the facts in that matter (a poor performance
case) was distinguishable from the case at hand, which deals with
retrenchment consultations, even though poor performance may have
played a significant role in Mr Cuthbert’s mind. I nonetheless take
this principle into consideration in my assessment of the
compensation which I must award because the respondent did not
discharge the onus that the termination of the applicant’s services was
for a fair reason and that it followed a fair procedure.
[36] The applicant does not seek reinstatement. Accordingly I must award
compensation. The applicant immediately found employment with a
different company where he earned R270 000.00 per annum. At the
respondent he earned R400 000.00 per annum. After two years the
company which had employed the applicant, went into liquidation.
The applicant has remained unemployed since.
[37] The right to compensation is a contingent right which rests on a
finding pertaining to the substantive and procedural fairness of a
dismissal. It is a discretionary remedy, although it is hedged by
limitations on the quantum which may be awarded. An award of
compensation as regards procedural fairness still encompasses as one
harm suffered as a result of a procedural defect (See: H. Fouldien
and 34 Others v The House of Trucks (Pty) Ltd (2002) 23 ILJ
2259 (LC) at para 1618 per Landman J).
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[38] Compensation which is just and equitable to both parties must be
considered. That would involve determining the actual loss suffered,
which is normally in the form of lost remuneration and a
consideration of whether the full amount of
that loss is recoverable, dependant on various factors including the
degree of unfairness (See: Jones v KPMG Aiken and Peat
Management Services (Pty) Ltd (1996) 17 ILJ 693 (LAC) at 695C
to 696C).
[39] Although I believe it was unfair to consult with the applicant during
the notice period, there was no mala fides on the part of Mr Cuthbert.
He was the “new broom” in the respondent who wanted to “sweep
clean”. Unfortunately, in his enthusiasm he caused the applicant to
suffer harm which could have been avoided by proper consultation.
On the other hand, the applicant was also criticized for not accepting a
temporary position at 41% less of his current remuneration. The
applicant did not decline the position out of hand, he first looked at
other alternatives.
[40] To award the applicant compensation equal to twelve months’
remuneration at the rate of his salary earned at the respondent, would
be very punitive, given the aforesaid factors. I believe it would be fair
if I awarded the applicant compensation equal to the difference
between the annual salary earned at the respondent (R400 000.00) and
the annual salary earned at the new employer (R270 000.00).
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[41] Accordingly the respondent is to pay the applicant compensation in
the amount of R130 000.00, and the costs of this application.
________________
E.
REVELAS
On behalf of the applicant: Adv. P Buirski
Instructed by Sampson Okes Higgins Inc.
On behalf of the respondent: Adv C.E. WattPringle SC
Instructed by Fluxman Rabinowitz
Raphaely Weiner
Date of hearing: 21 January 2003
Date of judgment: 8 December 2003