Reportable
IN THE LABOUR COURT OF SOUTH AFRICA
HELD AT CAPE TOWN
CASE NO: C170/2000
In the matter between:
SOUTH AFRICAN TRANSPORT & ALLIED
WORKERS UNION Applicant
and
OLD MUTUAL LIFE ASSURANCE COMPANY
SOUTH AFRICA LIMITED Respondent
JUDGEMENT
MURPHY, AJ
1. The applicant, the South African Transport and Allied Workers Union (“the
union”), acting on behalf of 124 of its members (“the individual applicants”),
has referred a dispute to this court in terms of section 191(5)(b)(ii) of the
Labour Relations Act alleging that the termination of the applicants’
employment on operational requirement grounds on 29 October 1999 was
unfair. Of the 124 individual applicants, 79 were retrenched and 45 elected to
take early retirement as part of the restructuring process. All 124 challenge
the fairness of the termination of their employment.
2. At the time the statement of case was filed the applicant was cited as the
Transport and General Workers Union and nine other parties were cited in
addition to the respondent (“Old Mutual”) as respondents. At the
commencement of the trial on 21 June 2004, the parties by agreement sought
leave to substitute the union (the original applicant’s successor) as the
applicant and to amend the statement of case by deleting averments and
prayers to give effect to the fact that the applicant, having settled its dispute
with the respondent’s other than Old Mutual, has withdrawn its complaints
against them. Such leave was duly granted and the amendments effected
with the result that the only matter requiring adjudication is whether Old
Mutual unfairly dismissed the individual applicants.
3. After the testimony of the first and only witness, Mr Wilkinson, an order was
made by agreement between the parties that at this stage the proceedings
would be limited to a determination of the prayer in paragraph 7(i) of the
statement of case, namely, whether the dismissals of the individual applicants
were unfair, and that the proceedings for the determination of the remaining
relief would be stayed until this issue had been determined. Accordingly, on
24 June 2004 the trial was adjourned until 13 August 2004 for argument. After
argument judgement was reserved.
4. As already mentioned, the respondent, on whom the onus rests to justify the
dismissals called one witness, Mr Brian Wilkinson, its Shared Services
Manager. After his evidence both parties closed their cases.
5. Old Mutual, it is well known, operates as one of South African largest financial
services companies and is involved in the design, distribution and
management of a variety of financial instruments, pension funds, life
assurance policies, healthcare products and asset portfolios. In 1999, at the
time of the retrenchments, Wilkinson was employed as the Facilities Manager
time of the retrenchments, Wilkinson was employed as the Facilities Manager
of Old Mutual based at Mutual Park, the head office in Cape Town.
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Wilkinson’s responsibility was to manage the Facilities Management Division
(“the FMD”), which was tasked primarily with overseeing the janitorial and
building maintenance services of the complex in addition to providing
associated services such as gardening, printing and stationery. In 1999,
approximately 6 500 persons were employed at Mutual Park, either as Old
Mutual employees or as the employees of contractors. Mutual Park consists
of seven large office blocks. At the relevant time the FMD utilized the services
of approximately 335 Old Mutual staff and 273 employees of contractors.
More specifically, the facilities managed by the FMD included:
• Staff facilities (eg. Sports club, catering etc)
• Mutual Park Services (eg. Cleaning, building services, security etc)
• Office facilities (eg. Mail and transport, copying etc)
• Printing
6. The original office complex, built in 1954, was added to in 1989, 1991 and
1994. With the extensions, a decision was taken that all additional facilities
management services in respect of the new buildings would be contracted in.
Consequently, there was a shift in managerial strategy with regard to
facilities. Instead of hiring new employees, the model employed in respect of
new buildings was that senior and middle management would oversee
contractors. At the same time a policy of natural attrition was applied in
respect of Old Mutual staff, resulting in the FMD staff complement being
made up aging employees with long service.
7. The events leading up to the retrenchments of late 1999 are best understood
with reference to events commencing in early 1998 when an unsuccessful
management buyout strategy was mooted and ultimately rejected later that
year.
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8. In early February 1998 the facilities management team held a strategic
planning workshop in Stellenbosch. The services of two professional
consultants were retained and the team engaged in a socalled SWOT
exercise in which the strengths and weaknesses of the unit were examined to
determine whether there were any opportunities for growth or any threats that
would encumber growth which needed to be considered within the context of
the facilities management industry as a whole.
9. The exercise led to Wilkinson addressing a memorandum to Mr D W Walker,
Old Mutual’s Assistant General Manager and Chief Accountant, to whom
Wilkinson routinely reported. The memorandum dated 7 February 1998 was
aimed at securing executive management’s approval for the adoption of a
new strategy for the FMD. It explained that the FMD team saw a rapidly
changing environment in terms of both the organizational and business
developments taking place at Old Mutual, as well as within the external
environment where a service facilities management community was
emerging.
10. The envisaged strategy involved cosourcing arrangements. Cosourcing was
to some extent already in place at the Old Mutual as a result of natural
attrition in service staff areas. The proposed new strategy saw the first step in
repositioning the unit as being the implementation of a “genuine cosourcing
strategy”, implying that any inhouse service delivery unit that was not of
strategic importance to Old Mutual would be outsourced, unless the inhouse
unit had significant knowhow, convenience or cost advantages over external
suppliers, or where no external service provider community existed. This
would then compel the development of a contract management competency
would then compel the development of a contract management competency
for the control of contracted services.
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11. Given the strategic direction Old Mutual was following, by concentrating on its
core business, and the emergence of a “total facilities management service
provider and intermediary community,” the team felt it was no longer a
question of whether facilities management should be outsourced, but rather a
question of when. Thus, it was proposed that a process should be embarked
upon to identify which units of the FMD would not be outsourced in the
medium term future and then to restructure accordingly. Options for
outsourcing units not retained inhouse included:
• Forming a joint venture with a current facilities management supplier.
• Privatising the individual service delivery areas and entering into joint
ventures with exiting suppliers.
• Creating a vehicle which would allow staff to participate in equity
ownership.
12. In seeking executive management’s approval the team was at pains to
emphasise that their aim was to develop a mechanism which was superior to
“the traditional outsource/retrench/offer of employment with a new contractor
route”. The aim was not only to ensure that Old Mutual gained real
commercial advantages, but also to ensure the unit was positioned for staff to
enjoy as “soft a landing as possible in the event of a change in Old Mutual
strategy towards facility management”.
13. Executive management’s response to this proposal was to encourage the
team to continue formulating the strategy and eventually to present a formal
business case. Ongoing discussions were held and some communication was
directed at staff informing them that the process of repositioning was under
consideration. In May 1998 a preliminary document and a Strategic Plan were
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produced setting out the background and analyzing the strengths,
weaknesses, opportunities and threats existing in relation to the FMD. The
document described the three long range scenarios discussed at the strategic
planning workshop as follows:
“1. A business as usual case: This scenario envisages continuation of our current
thrusts which are essentially to continue to refine the nature of our services and
to focus heavily on cost management.
2. A gradual outsource case: This scenario envisages outsourcing of elements of
our services in a methodical way as the external service provider community
develops and is able to demonstrate cost and knowhow advantages over the in
house service.
3. An empowerment or privatization case: This scenario envisages creation of a
new services company and the outsourcing, with some form of contractual
underpin or guarantee, of facilities services from Old Mutual to a new company.
Existing staff would be transferred from Old Mutual to the new company and staff
would own a meaningful share of the new company.”
The document continued with an analysis of the pros and cons of each
scenario and indicated that the management team as a whole favoured the
privatization case, the third scenario, and reemphasised that the strategy
should ensure that no staff member would be worse of as a result of the plan
and likewise that Old Mutual would be no worse off.
14. On 7 October 1998 Wilkinson addressed a letter to Mr B Botha of OMREB, an
employee organisation, Mr N Mfundisi of the union, and Mr C Makosa, a full
time shop steward, in which he included the document of May 1998 dealing
with the background and analysis of the SWOT as well as the Strategic Plan,
including a business case and details of a company to be formed to give
effect to the privatization option in scenario three. It is clear from the letter that
effect to the privatization option in scenario three. It is clear from the letter that
the purpose of supplying the documents to these persons was to allow them
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to prepare for a meeting scheduled for 14 October 1998 during which they
would be discussed.
15. The Strategic Plan had crystallised at that stage into a proposal to transfer all
of the facilities management functions at Old Mutual to a new company that
would be coowned by management and staff which would then contract back
to Old Mutual to provide the various services that the FMD was providing at
that time. The contract with Old Mutual would give the company leverage to
secure other facilities management contracts, in particular with associated
companies such as Nedcor and Mutual and Federal. The team felt that were
they not to pursue the privatisation strategy there was a strong possibility that
retrenchments would happen at some time in the future and one of the other
less attractive contracting out options would be considered more feasible.
Therefore they hoped to preempt retrenchments by forming a new company
using the existing staff of the FMD and then to transfer the staff across to the
new company in terms of section 197 of the Labour Relations Act. For the
sake of convenience I will refer to this proposal as “the TFM proposal”. The
proposal was discussed at the highest level within Old Mutual in March 1998
at a meeting attended by Wilkinson, Walker and the Managing Director, Mr
van Niekerk. Walker also discussed the proposal with Mr Mike Levett, the
Chairman of the Board.
16. After the meeting involving Mr van Niekerk and Mr Walker, a project team
was established to investigate methodologies. The team consisted of three
senior managers who were released from their normal operational
responsibilities. The project team concentrated on three main activities:
• A detailed analysis of each operation within FMD in respect of the
nature of the function and its relationship to Old Mutual.
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• Communication sessions with department heads and section
heads, exposing them to the environmental analysis and giving
them opportunities to suggest future strategies.
• Analysis of structures that would allow for the transition from in
house to outsourced.
17. The Strategic Plan alludes to communication sessions in which the TFM
proposal was discussed with staff. In his evidence Wilkinson confirmed
that these workshops did indeed occur but failed to elaborate when.
Certain conclusions emerged from the workshops. There was an
acknowledgement of the threats posed by the external environment, fear
as to future job security, a healthy “can do” attitude and some
understanding that FMD could be a noncore support service within Old
Mutual. The three possible approaches to give effect to the outsourcing
exercise were:
• A gradualist approach in which the existing inhouse unit could be
restructured commencing with cleaning, gardening, workshops etc.
leading to the outsourcing of the contracts management.
• An independent empowerment approach in which the unit would be
restructured to differentiate between the management
competencies which would stay with Old Mutual for control
purposes and the formation of an empowerment vehicle to allow for
the immediate outsourcing of the residual activities.
• The joint venture or external take over approach which would be
similar to the empowerment approach except with the additional
idea of seeking a joint venture partner or an existing service
provider in the place of an empowerment vehicle.
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Ultimately, the management team of FMD opted for the creation of an
empowerment vehicle and made a proposal regarding the mechanism for that. It
set a time line of four months from 1 September 1998 until 1 January 1999 for
the proposal to be given effect. A company (TFM (Pty) Ltd) was floated for that
purpose, but in the light of subsequent events, it has remained dormant. Had
TFM (Pty) Ltd become operational it would have contracted back to Old Mutual
for a suggested contract period of five years, but in time would stand on its own
two feet and compete in the open market place.
18. The TFM proposal met with some resistance from the employee
representatives. The initial plan was to transfer the employees in terms of
section 197 to TFM (Pty) Ltd without their consent. But because the team
wished to alter certain aspects of the employees’ contracts of
employment, it became necessary to seek the employees’ consent to the
transfer. Accordingly, inducements in the form of share options were
offered to them. The union, however, was set against the idea of a section
197 transfer and its attitude led to the rejection of the proposal at the end
of the day. The employees were reluctant to change employers and to
transfer to a new company without receiving severance packages.
19. Wilkinson conceded that the management team experienced difficulty
explaining the concept of a transfer to a new company in terms of section
197 of the Act. A communiqu é was distributed to the staff in the form of
questions and answers in an attempt to clarify the proposal. Meetings
were also held with staff on 22 and 23 October 1998. In the final instance,
staff demanded the right to a voluntary severance package for employees
who did not wish to be transferred. The position of the team in this regard
was that the entire process was designed to prevent job losses.
was that the entire process was designed to prevent job losses.
Nevertheless they recommended to senior management that the unions
be invited to submit a proposal detailing the number of staff wishing to be
voluntarily retrenched and that this should be considered under certain
conditions.
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20. In the ensuing negotiations Wilkinson addressed a letter to Mr Mfundisi of
the union furnishing additional information regarding the proposal. In
addition to various technical aspects, the letter, dated 4 November 1998,
specifically addressed the question of why outsourcing was
advantageous, despite FMD being in a position of strength. Wilkinson’s
written comments set out the basic rationale as follows:
There is no question that the nature of the services performed by the facilities
division are not a core business of Old Mutual. In line with the existing practices of
Old Mutual, outsourcing of the division is inevitable.
The fact that the division has a relatively good track record and that it is in a position of relative
strength has allowed us to table the establishment of a specialist company in which we have
demonstrated its capability. Clearly, had our division been an underperforming unit or if we were
in a position of weakness, the outsourcing would have followed the same route as that of the
printing works – i.e. retrenchment and outsourcing of this function to a third party contractor. This
process inevitably results in unhappiness and job losses.
It is submitted that our position of strength is in fact the only reason why retrenchments and job
losses are avoidable. We are in an even more privileged position in that we are being given the
opportunity to grow our business, which would not be possible had we remained part of Old
Mutual. This business growth will hopefully allow for the creation of new jobs and enhance career
and earnings for all of our staff.
21. In the same letter Wilkinson conveyed to the union that the management
team were not in favour of voluntary severance packages and that they were
seeking to avoid this by means of the section 197 transfer.
22. On 11 November 1998 the union declared a dispute in terms of clause 7.5 of
22. On 11 November 1998 the union declared a dispute in terms of clause 7.5 of
the then existing recognition agreement. The dispute lead to unprocedural
strike action, some unpleasantness and a failed attempt to bring in mediation.
23. The TFM proposal met its demise shortly thereafter at a dispute meeting on
25 November 1998, basically because Old Mutual was perceived as not being
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able to guarantee job security. Mfundisi confirmed that the members preferred
not to go to TFM (Pty) Ltd at all. The minutes contain the following entry:
Mr Mfundisi indicated that the proposal as it currently stood needed to be withdrawn
and management had to find out what the problems were before proposing
outsourcing. He indicated that management had not canvassed the feeling of the
members and that the proposal should be withdrawn and consultations entered into.
He indicated that he did not know who TGWU were fighting or embarrassing as they
did not know who had made the decision.
Mr Mfundisi indicated that he thought that the union could rather have run the company as
opposed to the current proposal. He indicated that management should give him approval to go
to the members and inform them that the proposal had been withdrawn. He indicated that it could
be a good idea but that the method had been wrong. He indicated that he did not want to
jeopardise the relationship. He again requested that the proposal be withdrawn and indicated that
discussions could be opened as to what was on the table.
24. Further in the minutes, after the management team had caucused, Mr
Wilkinson tabled the following statement at the meeting:
Old Mutual has decided that in view of a clear majority of the Facilities Division who
do not wish to be part of a new company and would, therefore, not be committed to
its success, the proposal to form Total Facilities Management and to transfer facilities
staff to that company in terms of section 197 of the Labour Relations Act be
withdrawn at this stage.
Old Mutual wishes to record that the proposal was intended as a survival strategy and as a
mechanism to prevent job losses given the clear trend towards outsourcing and retrenchment in
our facilities service industry. It is unfortunate that this opportunity has been missed, largely, in
our opinion, as a result of the union’s unwillingness to engage in mechanisms to clarify the
transfer issues and to ignore management’s offer to delay the process if required so that these
discussions could take place.
That was then the end of the TFM proposal.
25. Under crossexamination Wilkinson made certain concessions about the
nature and intention of the TFM proposal. Importantly he acknowledged that it
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had never been part of the plan to substitute existing labour with cheaper
labour, as there had been no intention to effect a dramatic cost saving. There
would have been no immediate cost saving to the respondent who would
have underpinned the new company to enable it to meet its salary bill. This
fact was stated up front in the business case prepared in mid 1998 where it
was said:
In reality there would effectively be no immediate cost savings to Old Mutual. The
reason for this is that all that will initially happen is that the existing labour costs are
transferred to a new entity and that Old Mutual is underpinning the new company in
order to allow it to meet its salary bill. Cost savings through outsourcing can only be
achieved if the amount of labour is reduced, which we submit is not possible, or if
they were substituted by cheaper labour, which is not the objective. It is submitted
that medium and long term savings can be achieved through productivity increases
and through the uses of existing infrastructure to take on new business both external
and also internal to the Old Mutual group.
26. Another feature of the TFM proposal, also reflected in the business case, was
that there would be a saving of retrenchment costs estimated at R8 million.
Moreover, Old Mutual took the view that the TFM proposal (by avoiding the
traditional retrench and outsource practice) would have accorded better with
the higher standard of employer ethics to which it aspired.
27. Wilkinson acknowledged that the starting point of the TFM proposal had been
the belief that outsourcing of aspects of facilities management was inevitable
and that this involved a decision about what was core and noncore business.
He did nonetheless qualify this statement by claiming that the proposal
amounted to the beginnings of a strategy or a mechanism for outsourcing and
amounted to the beginnings of a strategy or a mechanism for outsourcing and
that any recommendations in that regard needed to be seen as part of a
process. Even so, he was compelled to accept that because the focus of the
TFM proposal had been on the means of outsourcing it of necessity must
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have been preceded by an inprinciple decision, involving the managing
director, on what amounted to core business. Hence, he was also
constrained to concede that if the section 197 transfer was not proceeded
with, retrenchment was obviously one of the options and thus that the
possibility of retrenchments would have been contemplated at this time. In
short, he accepted that the TFM proposal was indeed perceived as an
alternative to the affected employees being retrenched. He was able to offer
no comment on the proposition that Old Mutual failed to consult on whether
the changes were necessary or desirable. Management was concerned
primarily with finding a mechanism for what had been designated as noncore
services. Wilkinson believed that because the TFM proposal involved a
section 197 transfer there was no need to engage in the same level of
consultation as required in a retrenchment exercise. He further emphasized
that the union had never raised any arguments about management’s
determination of core and noncore facilities services at the time the TFM
proposal was made.
28. Wilkinson emphatically denied that the TFM proposal was offered on a take it
or leave it basis. As he saw it, it was management’s proposal, and while
logistics had been put in place to give effect to it, including setting up the
company and deploying a certain Mr Holmes to oversee the process, he
contended that the proposal was not a fait accompli. He claimed it was
always the respondent’s intention to discuss the matter with the union and
that there had been staff meetings in which the proposal and its contents had
been communicated. Nevertheless he accepted that most of the employees
been communicated. Nevertheless he accepted that most of the employees
had long service and were essentially being asked to give up their security of
tenure in order to transfer to an unknown and untested business entity. He
further acknowledged that the union only rejected the proposal once Old
Mutual had indicated that it was not prepared to give a ten year guarantee. In
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view of that, the TFM proposal could not be said to have been rejected
outright and in the circumstances the rejection of the proposal by the union
was understandable.
29. Part of the motivation for the privatisation option set out in the business case
was that TFM (Pty) Ltd would an empowerment vehicle seen as “very new
South African in flavour” by “allowing for a substantial staff shareholding and
thereby creating the opportunity for true wealth creation”. Thorough scrutiny
of the proposal during crossexamination revealed the empowerment
categorisation to be mere puff and rhetoric. The portion of the business case
dealing with the funding of the company proposed that the FDM’s assets
valued at about R1.5 million would be purchased for R250,000 payable in
cash. The discount was justified in the interests of advancing an
empowerment vehicle. The capitalisation arrangement of the company shows
however that the level of empowerment of black employees would have been
minimal. The company was initially to be capitalised at R500,000. Share
capital would have been raised by way of a private placing among the current
management team of R400,000 with an additional R100,000 placed in a staff
share trust account. Staff would be given options to purchase these shares in
later years. The staff share trust would effectively control 20% of the company
for the first three years of its existence. It was proposed that Mr D Walker, the
Assistant General Manager of Old Mutual, be appointed as the trustee of the
shares and that he be appointed as director and chairman of the company.
On closer analysis it appeared that the 18 people who made up the
management team and department heads of FMD would have controlled 80%
of the company. The eight members of the management team were all White.
of the company. The eight members of the management team were all White.
Some of the ten department heads were Coloured, the exact number not
being clear. There were no African department heads. This meant the
management team of TFM would be mainly, if not exclusively, White and the
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shares of the Black employees would have been controlled by a trust with
control vested in one White man, namely Mr Walker. In the circumstances,
the criticism that the vehicle could hardly be described as a Black
empowerment vehicle is plainly valid. It was put to Wilkinson that the proposal
in such terms was seen as offensive to Black people for failing to involve
Black people, either in the preparation of the proposal or in the management
of the company. Wilkinson conceded as much, but added that there had been
a discussion with the union with a view to inviting it on to the board in a
management capacity. Nevertheless he accepted that it would have been
better for the ostensible beneficiaries of the scheme to have been involved in
the process of formulating it.
30. In the light of these defects in the formulation and negotiation of the proposal,
regrettable as it may be, it is not altogether surprising that the proposal led to
industrial strife and in the end was rejected. The fault in this regard, in
fairness, does not lie entirely at the door of the management team. There
appears to have been little follow through or response from the union to the
invitation to participate in TFM (Pty) Ltd although the details in this respect
are somewhat vague. In the final analysis the proposal never really got off the
ground and as such remained a proposal. One assumes that much was left
for possible discussion or negotiation, which never materialised. As Wilkinson
put it, “it was simply a proposal that seemed to make sense at the time”.
Moreover, the union did not at any time prior to its rejection convey to
Wilkinson that it found the proposal offensive for racial reasons.
31. For a period of seven months after the union’s rejection of the TFM proposal
31. For a period of seven months after the union’s rejection of the TFM proposal
the issue of outsourcing lay dormant. At a meeting on 9 July 1999 Wilkinson
presented a business case for the restructuring of the FMD, which in spite of
previous misgivings opted for the traditional retrench and outsourcing route.
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32. In the intervening period, Old Mutual had been engaged in the process of
demutualization and enlisting on the South African and UK Stock Exchanges.
As a preamble to the listing Old Mutual PLC had initiated what has come to
be known as Project 500, which consisted of an undertaking to its investors
and the investment community to permanently reduce its annual costs by
R500 million. This required all divisions of Old Mutual to embark on a process
of selfexamination to see where they could cut costs. Since Project 500 only
arrived on the table in OctoberNovember 1998 it was not an apparent
consideration in the TFM proposal.
33. The proposal put to senior management at the meeting of 9 July 1999 had a
similar rationale to the TFM proposal in that it too started from the proposition
that the facilities division was not core business for Old Mutual and that there
were external imperatives for change. The proposal recommended instead of
a privatisation and transfer in terms of section 197, a conventional
retrenchment process following the shut down of operations and the
outsourcing of the work to private contractors. Wilkinson identified the
imperatives for change as being, trends within the industry, the fact that FMD
was already outsourcing most of the services, that most of the services could
be regarded as noncore and that it would be able to save in the order of R6
million out of a total expenditure budget of R32 million. It would also allow
greater flexibility in terms of inbound costs avoiding the disadvantage of an in
house operation where costs are in the main fixed costs.
34. Taking account of these considerations the Business Case referred back to
the executive decision in early 1998 to follow a strategy of outsourcing and
confirmed that the proposal was an alternative to the failed proposal of 1998.
The Business Case sets out four options as follows:
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“Option 1 – the formation of a new facilities outsourcing company
This option proposes the formation of an independent management and staff owned
and funded company which would contract to Old Mutual for the provision of facility
services. It allowed for the transfer of staff in terms of section 197 of the Labour
Relations Act at no detriment and provided them with a financial interest in the
company via a share incentive and options scheme. While executive management
approved this option the proposal was found to be unacceptable by the Transport
and General Workers Union and was withdrawn. It should however be noted that the
proposal was supported by OMREB and nonunionised staff.
Option 2 – outsource to a facilities management company
There are a number of facilities management companies in South Africa offering
facility management services. Old Mutual would contract to a single contracts
management company which in turn subcontracts for the provision of facilities
services. Existing staff will be retrenched and the option exists to either require that
the appointed contractor guarantee them employment or alternatively the option for
an interview. Employment would be on the terms and conditions of the contractor.
Option 3 – outsource to multiple service providers
There is an established service provider community specialising in many individual
aspects of the provision of facilities services eg catering, cleaning, indoor and
outdoor gardening. The option exists to contract individually for the various services
to be outsourced. Existing staff will be dealt with on the same basis as option 2
above.
Option 4 – create a joint venture company
In the building management and office space design arrears there is a marketable
value both in terms of the expertise of the staff and the potential contract with Old
value both in terms of the expertise of the staff and the potential contract with Old
Mutual. Rather than dispose of these without compensation the option to seek joint
venture or like partners has been considered. Depending on the needs of the joint
venture, existing staff would be transferred in terms of section 197 of the Labour
Relations Act or be retrenched.”
35. On the basis that the union had rejected the first option, the Business Case
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recommended the implementation of a combination of the options listed, with
some of the facilities services being retained inhouse and others being
outsourced. Thus it was proposed to retain mail, transport, events and
heritage management, procurement, finance, security control, office space
design, administration of sports club and training centre administration in
house for the immediate future. The balance of functions would then be
outsourced on a multiple contract basis as opposed to appointing a single
facilities management contract. It was further proposed that a small nucleus
of staff would be required to manage the outsource contracts. The rationale
for this was that some of the functions intended to be retained inhouse fell in
the strategic or organisational importance categories, while it would be useful
to retain others, like office space design, while not of strategic importance, for
a period of eighteen months during which it was envisaged that the complex
at Mutual Park would be “restacked”. It was felt necessary to retain the
finance department inhouse to ensure effective financial controls.
36. The reluctance to outsource to a single contractor was explained on the basis
that such an arrangement could put Old Mutual at risk. The joint venture
option was rejected on the grounds that the formation of a joint venture
company between Old Mutual and an outside entity would add little value to
the profitability of Old Mutual and would remain as noncore business. The
TFM option was rejected as not viable because of the experience of 1998 and
the resultant reluctance of the FMD management team to invest in it.
37. The Business Case then sets out the implications of the decision, pointing out
that staff in the units intended to be retained inhouse would not be affected
that staff in the units intended to be retained inhouse would not be affected
and that changes would be limited to changes in the management structure of
the division, that the number of staff in the division would reduce significantly
from 300 to an estimated 100, that overhead expenses would be contained,
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and that many services previously provided by Old Mutual staff would
henceforth be provided by contractors. It recorded further that the
contemplated retrenchments would have an impact on the recognition
agreement with the union.
38. The employees affected were identified to be all the employees in the building
services, cleaning, catering, indoor gardens, outdoor gardens, office
installation group (including furniture storage), bulk and decentralised
copying, stationery, space management/consulting, and assistant divisional
management (excluding events and heritage management). Affected
employees faced either the opportunity to apply for positions in the
restructured contract management core that would remain, redeployment to
other departments or divisions of Old Mutual, or retrenchment and the
opportunity of an interview (possibly employment) with the contractor
appointed in their service delivery area. Furthermore, the possibility of early
retirement would be made available to employees who met the applicable
preconditions, specified in the Business Case as those employees older then
55 or employees older than 50 with more than 20 years service.
39. Management proposed a consultation process with employees and their
representatives commencing in July 1999 with a targeted implementation
date of 1 October 1999. In the interim, negotiations began with various
service providers for the purpose of obtaining prices, formulating contract
terms and agreeing service levels. The Business Case clearly stated that no
undertakings would be given to suppliers until such time as the consultation
process had been completed. Additionally job descriptions and evaluations for
process had been completed. Additionally job descriptions and evaluations for
the remaining management positions and the positions in the contract
management group would be finalised. However, again the point was made
that the process of selection for these positions would be determined in
19
consultation with the labour representatives.
40. The Business Case was presented to executive management and was
approved by Mr Walker on 9 July 1999. Thereafter it was distributed to the
labour representatives and effectively served as the written disclosure notice
required in terms of section 189(3) of the Labour Relations Act. The section
requires the employer to disclose in writing to the other consulting parties the
reasons for the proposed retrenchments, the alternatives that the employer
considered before proposing the dismissals, the reasons for rejecting the
alternatives, the number of employees likely to be affected and the job
categories in which they are employed, the proposed method for selecting
which employees to be dismissed, the timing of the dismissals, the severance
pay proposed, any assistance the employer proposes to offer the employees
and the possibility of future reemployment of the employees who are
dismissed. The Business Case canvasses these topics, perhaps with the
exception of severance pay and the full extent of possible future re
employment. However, as will be seen, these topics were subject to
negotiation at a later point.
41. The consultative process commenced on 21 July 1999 with a formal meeting
involving the employee representatives and the management team. The
process endured until the end of October when the retrenchments were
eventually implemented. During that time there were twelve meetings
between management and employee representatives. Substantial
correspondence and documentation passed between the parties. As
discussed more fully later, for the most part the parties tended to focus on the
issues related to implementation of the retrenchments and the severance
issues related to implementation of the retrenchments and the severance
package. Prior to these proceedings surprisingly little attention seems to have
been given to uncovering and explaining the rationale for the proposed
20
retrenchments. The minutes and correspondence deal little with the decision
to regard certain units as core and others as noncore. Nor do alternatives to
outsourcing, alternative means of outsourcing, or alternative means of saving
costs, which over time became an important consideration in the decision to
retrench, appear to have been the subject of much scrutiny or thorough
discussion.
42. At the first formal meeting with the union on 21 July 1999, management
presented its proposal, in the form of the Business Case, including a question
and answer document elaborating on the information required to be disclosed
by section 189(3). At the meeting Wilkinson referred to the earlier
consultations in 1998 and gave notice that the purpose of the meeting was to
reopen the consultation process in regard to the alternative options. The
meeting concentrated on the exchange of information and included some
discussion about voluntary retrenchment, the severance package and the
nature of the envisaged joint problem solving exercise. The question and
answer document attached to the Business Case made it clear that the TFM
proposal was off the table because the members of management who had
been the initiators of it no longer supported the concept as a consequence of
the industrial action which had resulted from it. Management proposed a time
frame which contemplated the retrenchments taking place by 1 October 1999.
Mfundisi addressed the meeting and advised that he was not in a position to
make comments at that stage, but felt that the time frame was unlikely to be
adhered to.
43. The meeting with the union was followed almost immediately by a staff
meeting at which all employees of the FMD were gathered. Staff was
informed of what had transpired at the union meeting and was given a brief
informed of what had transpired at the union meeting and was given a brief
outline of the proposal and notice of the intention to embark on a formal
21
process of consultation. It was emphasised that the contemplated exercise
was not a downsizing exercise but an outsourcing and that voluntary
retrenchment and early retirement options would be available to anyone
affected.
44. It was put to Wilkinson in crossexamination that it didn’t make sense to follow
the traditional retrench and outsource model because FMD had an excellent
track record and the TFM proposal had not been premised on any need to
save costs. In response Wilkinson made two points. Firstly, the TFM
proposal, he argued, had been an attempt to preempt retrenchments by a
process of privatisation coming from a position of strength. Secondly, times
had changed and with the process of demutualization Old Mutual was obliged
to engage in a cost cutting exercise, the so called Project 500 experience,
and that this had happened immediately after the withdrawal of the TFM
proposal. There had been a commitment that a certain level of expenses
would be reduced and the whole company was required to contribute to that
expense reduction. This involved a commitment to the investment community
that Old Mutual would become more focused in terms of running its affairs
and it was thus obliged to address the expensive nature of some of the
services it provided on an inhouse basis. And although the retrenchment
involved an initial cost of R8 million in severance costs there would be an
anticipated saving over a period of time estimated then to be R6 million out of
a R32 million budget. These precise figures were not disclosed in the
Business Case presented to the union, which instead limited itself to a
general remark that the outsourcing would result in financial savings. This
issue appears not to have been interrogated during the consultation process.
issue appears not to have been interrogated during the consultation process.
There was some suggestion that the actual saving was unlikely to be
significant and that the other objectives of outsourcing may have been of
greater importance. The primary objective being the attainment of greater
22
flexibility in relation to future inbound costs.
45. On 27 July 1999 management furnished the employee representatives with
further details regarding the proposed restructuring of the FMD, including
specific suggestions about which contractors would take over noncore
functions.
46. At the next meeting of 28 July 1999, the union expressed concern that
Wilkinson was not in attendance and that management had appointed a
recently employed employee, Mr Holmes, to conduct the consultation process
on its behalf. Holmes had originally been employed to deal with the TFM
proposal, but when it was removed from the table had been appointed as
procurement manager of FMD. Wilkinson testified that the reason he had
withdrawn from the process was because it was felt that he (Wilkinson) had
become a potential obstacle to reaching agreement. The breakdown in the
discussions around the TFM proposal had been attended by considerable
tension and it was feared that his presence would be counterproductive. The
union saw the matter somewhat differently, they were concerned that Holmes
was a new employee with little or no knowledge of the FMD and, as was
borne out by later experience, was often not in a position to respond to any of
the proposals from the union and had to refer to Wilkinson whenever anything
of significance arose. It was put to Wilkinson that his noninvolvement in the
process and the choice of Holmes as the person responsible for conducting
the consultations was a further indicator that the consultations had a
predetermined outcome. He was steadfast in his reply that Old Mutual’s
thinking was founded on the relatively intense nature of the events leading up
to the withdrawal of the TFM proposal and that he could have been a
to the withdrawal of the TFM proposal and that he could have been a
hindrance to an effective consultation process. As he put it, “it was probably
the right management thing to do to try and keep myself away from the
23
negotiations or consultation. The minute that it became clear that I needed to
be involved I was involved…”.
47. The union’s disquiet about Wilkinson’s absence was exacerbated by its
contention, also made at the meeting of 28 July 1999, that management was
not negotiating in good faith because it had agreed during wage negotiations
to negotiate a separate bargaining unit for the FMD. Wilkinson admitted that
management had known during the June 1999 wage negotiations that
outsourcing was going ahead, with the consequences that the bargaining unit
would largely disappear. Management however did not tell the union this
because it feared that had the union been so informed, successful wage
negotiations would have been made impossible. This the union perceived as
bad faith on the part of management. As Wilkinson saw it, the company would
have been in an impossible situation if it had attempted to conduct a wage
negotiation at the same time as the retrenchment exercise. For that reason
they felt justified in deferring the discussion about the bargaining unit and
denied that Old Mutual was acting in bad faith. On the same day Holmes
accordingly addressed a written response to the union concerning the issues
that had been raised. In relation to Wilkinson’s noninvolvement, it took the
view that management would not prescribe to the union about whom it chose
to represent the union and felt that it was entitled to similar treatment. It
denied that it was negotiating in bad faith, arguing that the wage to
negotiations and restructuring were separate issues in that it would have
been inappropriate to deal with the two issues simultaneously.
48. To my mind, in so far as anything turns on it, I hesitate to draw an inference of
48. To my mind, in so far as anything turns on it, I hesitate to draw an inference of
bad faith bargaining from such a tactical position. Likewise, Old Mutual’s
stance regarding Wilkinson’s participation, though perhaps of doubtful
wisdom, was legitimate in the light of the hostility which had previously arisen
24
towards him.
49. Regarding the need to outsource the functions that FMD was running so
effectively, Holmes stated in the letter:
The reason for the proposed restructuring of the division is that it is noncore to Old
Mutual’s focus as a provider of financial services. In the proposal presented to TGWU
in October last year…it was clearly stated that facilities was a noncore function, that
it would be outsourced and the only debate was when this should happen.
This reason, noncore, remains the motivation for restructuring and management considers that it
is now appropriate to reenter into consultation on the proposal.
50. In the meeting of 4 August 1999, the union raised a question about the
definition of core and noncore business. It noted that it did not agree with the
argument that the highlighted areas were not noncore and complained that it
had not seen a policy statement from the Old Mutual board on what was core
or noncore. The minutes of the meeting do not reflect that management
directly addressed the issue. Holmes however is minuted as having said that
the decision to outsource was approved by executive management in
November 1998, and that while the TFM proposal had floundered, the
decision to outsource had never been withdrawn. From this one might
reasonably infer that the classification of core and noncore underlying the
TFM proposal rationale remained operative. Wilkinson confirmed this in his
testimony although he had not been present at the meeting in question.
51. When asked to give a working definition of Old Mutual’s core business,
Wilkinson described Old Mutual as a financial services organisation with three
main components: a long term life assurance component, a banking unit via
its investment in Nedcor, and a short term insurance arm via its investment in
its investment in Nedcor, and a short term insurance arm via its investment in
Mutual and Federal. In addition, Old Mutual is involved in the design,
25
marketing and administration of various long term savings and risk vehicles,
life assurance policies, healthcare, pension fund management and asset
management. In relation to the ancillary services and facilities needed to
perform the core business, Wilkinson argued, along the lines put forward in
the TFM proposal, that functions which were prima facie not core to the
provision of financial services could be considered core if they were of
strategic importance, or if organisational convenience or a cost benefit
justified retaining it inhouse.
52. Beyond asking for a policy statement from the board on what it considered
core and noncore functions, from this point onwards in the consultation
process, the union made no further demands, requests or proposals in
relation to the categorisation of core and noncore business. Nor did it attempt
to interrogate or dispute the underlying criteria which informed the chosen
classification. Nevertheless, it was put to Wilkinson during crossexamination
that what was said by the union at the meeting of 4 August 1999 amounted to
a challenge and a demand that management explain to the union what their
definition of core and noncore was, and that the purpose of doing this was to
alter Old Mutual’s perceptions about the issue for the obvious reason that the
categorisation of certain functions as noncore posed a threat to job security.
53. Wilkinson conceded that the union had not been consulted regarding the a
priori decision about what was core and what was not; or whether a noncore
function should be retained inhouse on the grounds of strategic importance,
convenience, or cost. However, in response to the claim that the union had
been excluded Wilkinson stated:
There were many things that were decided before, that during the process of
consultation in fact changed. The union never raised any arguments to say “we would
like to put to you the following” that these functions are in fact strategic or these
26
functions do in fact have a cost benefit, whatever.
Management felt it had done what it was supposed to do in this regard. The
union, for reasons not explained, did not take the matter beyond complaining
again in the meeting of 13 August 1999 that it had not received a policy
statement from the board. No further challenge was made and no alternative
proposals were put on the table. As no union official testified on behalf of the
applicants one can only speculate as to the reasons. The meetings which
followed focused almost exclusively on questions of implementation and the
severance package.
54. In the meeting of 4 August 1999 management clarified that the Business
Case was based on section 189 of the Labour Relations Act but that a section
197transfer option could follow depending on the consultation process.
Wilkinson emphasised in his testimony more than once that management had
been open to another section 197 option, although, given the experience of
1998, a management buyout was unlikely. Throughout the process the union
never came up with another section 197 option, despite intimating that it was
considering doing so.
55. Immediately after the meeting of 4 August 1999 Holmes addressed a letter to
the union setting out the proposed severance package as follows:
• Half a months salary for each completed year of service up to a
maximum of 12 months salary.
• Payment of the 1998/99 annual bonus and the prorata bonus for
the period 1 July 1999 to date of severance.
• Pay in lieu of accumulated annual leave.
• Pay in lieu of long leave where the long leave cycle has been
completed and the leave has not yet been taken.
• Two months notice, which subject to negotiation, the staff
member will not be required to work.
27
56. The letter of 4 August 1999 also proposed an early retirement option which
would permit members of the Old Mutual Staff Retirement Fund or the Old
Mutual Pension Fund over the age of 55, or alternatively who had 20 years
service and who were older than 50, to proceed on early retirement. This was
later extended to staff who were members of the union’s provident fund and
extended further to allow early retirement for persons whose age and years of
service combined to equal 70.
57. In the period between 4 August and 30 August 1999 the union was provided
with detailed proposals from external service providers bidding to render
facilities services to Old Mutual.
58. At the meeting of 13 August 1999 Wilkinson mentioned that Old Mutual
wished to ensure that the communication process was open and wanted to
discuss alternatives to the Business Case with the union once they had
consulted with their members. The offer was made to the union to engage
more frequently with their members if required. Wilkinson further stated that it
was necessary finalise consultation on the Business Case before considering
options to reduce the impact of the restructuring. Nevertheless, at this
meeting Old Mutual conceded to the bumping of temporary staff within the
mail handling area to allow for permanent members to obtain these jobs.
59. At the next meeting, on 30 August 1999, Mfundisi stated that the union had
not received a mandate from its members. Holmes is recorded as responding
that management were concerned that there was nothing on the table from
the union in terms of suggestions or proposals regarding the Business Case.
Mfundisi undertook to fax through proposals to Holmes once he had received
input from the members at their meeting.
28
60. Management then tabled a financial analysis of the Business Case. The
financial analysis was a detailed working of the extent of the savings
expected to be achieved in each department slated for outsourcing. It
chronicles the commercial rationale for the restructuring of the FMD with
reference to possible savings.
61. Despite Holmes sending a written reminder to Mfundisi on 31 August 1999,
no alternative proposals were faxed to him. In his testimony Wilkinson
confirmed that the alternative proposals promised by the union at the meeting
of 13 August 1999 never materialised. On the question of whether the
decision to outsource remained open to debate he remarked:
Clearly whilst in some instances we took decisions, those decisions were
subsequently reversed because of representation and TFM was an example of a
decision being reversed M’lord. So it is difficult to understand now but the decision
could well have been overturned M’lord, if there had been something put on the table
that was convincing enough to make us do something else….the decision could have
been reversed, the timing could have been changed, many things could have
happened M’lord.
62. At the meeting of 6 September 1999 the union did say that it did not want to
“dismiss the section 197 option”. For reasons not explained, the union did not
follow up on this and, as already intimated, never tabled a proposal either on
another section 197 scheme or any other form of new business. During cross
examination counsel for the union put it to Wilkinson that such a proposal
would have been unlikely to fly, if it was not of financial benefit to the
members of management who had been the originators of the original TFM
proposal. Wilkinson responded by making two points. First of all, the original
proposal. Wilkinson responded by making two points. First of all, the original
management buyout scheme had involved the members of management
investing their own money in the company and given the resistance to it they
29
were understandably reluctant to proceed down that road again. Secondly, if
something had been put on the table he reiterated that it would have been
discussed and considered in good faith.
63. It was then contended that Old Mutual had fallen short in its failure to be pro
active by not suggesting alternative privatisation means and black
empowerment options, or by assisting the employees to form groups to
tender for one of the multiple service provider contracts that were on offer.
Wilkinson claimed that management had brought up the latter idea a number
of times. The only employees that showed any interest were those who
formed a company to take on responsibility for the external grounds
maintenance. Old Mutual assisted them by retaining the services of Ernst and
Young’s Small Business Consulting Division to lend a hand in developing a
business plan.
64. Wilkinson’s testimony is borne out by a letter he addressed to Mfundisi on 9
September 1999. In it he wrote:
It has become very clear from the meeting that, should the proposal to outsource
certain departments proceed, the dominant concern will be that the affected staff
have an employment opportunity with a new contractor. A further material factor is
the indication that in some cases a small business creation opportunity exists and
that staff may wish to group together to form such enterprise.
Old Mutual has already indicated in principle support of both these issues.
In order to realistically evaluate both the employment opportunity and the small business proposal
it is necessary that Old Mutual request proposals from the open market. Please be assured that
the decision to issue these “Requests for Proposals” to the open market in no way binds Old
Mutual to accept any proposal nor should it be construed that Old Mutual is no longer willing to
consult with you as to the basic business case to outsource and alternatives to the proposal. It is
effectively simply a gathering of factual information which may have a material impact on the
issues listed above. Extracts of the relevant sections of the request for proposal (RFP) document
are attached for you information. A full copy of any of the RFPs will be made available on request.
30
The business case also makes provision for the retention of a contracts management
infrastructure. So as to allow staff to understand whether, if the proposal to outsource proceeds,
they will be retained as part of this group or not, it is necessary to advertise these position and to
commence a selection process. David Holmes will consult with your group on Old Mutual’s
selection proposal. Whilst we envisage that applicants will be notified of their success or not, the
actual appointment will not be implemented until such time as all consultations are completed and
the proposal to outsource is implemented. Clearly, if an alternative to outsourcing is accepted, the
appointments would not proceed.
65. The meetings that followed involved extensive, comprehensive negotiations
about the severance package, improving the voluntary retirement option,
selection of employees for employment in the various vacancies arising out of
the restructuring of the FMD, amending the Business Case to recategorise
certain limited functions as core, and the guarantee of employment by the
contracted service providers. The union tried particularly hard to improve the
severance package by negotiating for additional compensation for the loss of
the subsidised mortgage bond facility. The employer stood firm on this issue
refusing to make an additional award, arguing that the two months notice
payment compensated sufficiently for this. Similarly it refused to pay on a pro
rata basis long leave which accrued under the existing policy only on
completion of the long leave cycle (10 years). It took the view that the
severance pay was generous enough, being more than double the statutory
minimum. The package was further supplemented by two months notice pay.
Significant concessions were made however. Besides agreeing to write off
staff loans, the option of voluntary retirement was extended in order to create
staff loans, the option of voluntary retirement was extended in order to create
bumping opportunities and was made available to persons younger than 50
who had long service. Moreover, Old Mutual guaranteed a minimum wage of
R1800 per month (as opposed to the original suggestion of R1600 per month)
by the contracted service providers. The minutes disclose that the approach
to filling vacancies was handled cooperatively, and proceeded smoothly.
66. On 6 October 1999 Wilkinson addressed a letter to Mfundisi summing up the
31
situation as of that date. The letter reads:
On 21 July 1999 we announced our proposal to restructure the division to staff and
union representatives. Subsequent to this, a number of consultation meetings have
been held with union representatives and correspondence has been exchanged.
The consultation process has not identified any viable alternatives to the Business Case. While
you might argue that consensus on the Business Case has not been reached, there is, in our
opinion, tacit acceptance of the proposal. It has therefore been decided to proceed with the
restructuring of the division. As you are aware, request for proposal documents have been issued
and it is envisaged that the awarding of contracts will be finalised during October 1999.
A number of alternatives to minimise the number and the effect of the dismissals have been
agreed. Appointments to the retained positions in the new structure have been finalised and
applications for vacant positions in the mail room are currently being considered. In addition,
certain potential vacancies as a result of the offer of voluntary severance to unaffected staff will
be advertised shortly.
We are confident that through the steps mentioned above and possible employment with service
providers, offers of employment will be secured for the majority of affected staff. It is intended that
the position of all staff will be clarified by 31 October 1999.
The question of severance pay for dismissed employees has already been raised at consultation
meetings. We will continue to consult in an endeavour to reach consensus on this matter.
67. Wilkinson explained what he meant by “tacit acceptance”, saying, while it had
become obvious that the union did not agree with what Old Mutual was doing,
the direction taken during the consultations confirmed that outsourcing was
going to happen in any case. Seeing that the parties were already consulting
over things like voluntary severance arrangements and severance packages,
over things like voluntary severance arrangements and severance packages,
Old Mutual took this to indicate that there was certainly acceptance that the
retrenchments were going to happen, even though no unequivocal agreement
had been reached.
68. Wilkinson’s understanding of the situation was perhaps a tad optimistic. Two
weeks later on 20 October 1999 Mfundisi wrote a letter to Old Mutual stating:
It is now clear from the response that we got from yourselves that we will not be
reaching an agreement on issues tabled by both parties in the restructuring meeting.
32
We have always maintained from the beginning that any restructuring should not lead to job
losses or change in conditions of employment. Your business case was not clear as to why your
company wanted to outsource certain functions in the facility division.
It is also clear that conditions of your current staff will change when one looks at the companies
that have been awarded the tender.
69. The letter goes on to deal with issues regarding subsidising bonds, spouses’
insurance cover, long leave and other issues of implementation, and lastly
declared a dispute.
70. Despite the union’s position, the meetings of October 1999 dealt almost
exclusively with implementation issues. At the meeting of 18 October 1999
Wilkinson presented a summary of the contracts to be awarded to nine
different service providers who would have responsibility for the outsourced
functions of cleaning, tea, fields, indoor potted plants, churn and furniture
management, stationery and copying and technical services. Old Mutual’s
decision to award contracts was clearly influenced by the ability of contractor
to offer employment to the staff. This key consideration weighed heavily in the
decision making process and had the result that every affected employee who
wanted to be employed was given the opportunity of employment. Wilkinson
acknowledged, however, that the salary might have been different in certain
instances although the minimum was set at above the market norm of R1800
per month. To facilitate the employment process Old Mutual set up dates for
interviews with the service providers and communicated this to staff. The
interviews took place on Friday 22 October and Monday 25 October 1999.
71. At the first dispute meeting on 25 October 1999, following the union’s
declaration of a dispute on 20 October 1999, Holmes made the point that the
declaration of a dispute on 20 October 1999, Holmes made the point that the
issues which had been raised in the dispute letter had been previously
debated at earlier meetings and indicated that management did not propose
33
entering in further discussions on these topics. In spite of this stance, there
was indeed movement on the issues subsequently. In the second dispute
meeting on 26 October 1999 the employer made the concession of shifting
the minimum wage from R1600 to R1800, it waived the balances on personal
staff loans and changed the so called 70 rule allowing persons under the age
of 50 to retire provided their age and years of service totalled 70.
72. This was the last meeting between the parties before the retrenchments were
implemented. It was followed by a letter from Holmes to the union on 27
October 1999 in which among other things he said:
A copy of the business case approved by Mr van Niekerk, Managing Director, has
already been supplied to you. The decision to proceed does not require the approval
of the Old Mutual board.
At our meeting of 4 August 1999, we emphasised that our Business Case did not propose a
section 197 transfer … The alternative of a section 197 option had previously been rejected by
yourselves in terms of the TFM proposal. You indicated at our meeting on 6 September 1999 that
you wished to keep the option of a section 197 transfer open. The matter has not been raised
again in subsequent meetings.
73. The retrenchments were implemented on 31 October 1999. 160 staff
members either took early retirement or were involuntarily retrenched. Of the
union’s membership, 45 took early retirement and 79 were retrenched. 35 of
the union’s members were placed with contractors at the same salary, 48 at a
reduced salary and 41 elected not to seek employment with the contractors.
The average retrenchment package amounted to 8 months salary with R2.8
million paid as severance pay to union members.
74. As stated at the outset, the applicant union has brought this application on
behalf of the 79 of its members who were retrenched and the 45 who opted
behalf of the 79 of its members who were retrenched and the 45 who opted
for early retirement. At the end of Wilkinson’s crossexamination, counsel for
the union sought to stipulate that agreement had been reached with the
34
respondent’s legal representatives that they did not intend to argue that those
applicants who chose early retirement were not dismissed within the meaning
of section 186 of the Labour Relations Act. I informed counsel that such was
a question on which the court needed to be persuaded, since it goes to the
court’s jurisdiction in terms of section 191 and 193, read with section 186 of
the Act. In as much as the issue concerns the court’s jurisdiction and
therefore the locus standi of some of the applicants to bring the proceedings,
this court is not bound by the undertaking or agreement reached between the
parties.
75. Section 191(5)(b) bestows upon an employee the right to refer a dispute to
the Labour Court for adjudication where the alleged reason for dismissal is
based on the employer’s operational requirements. Such reference is
required to be preceded by conciliation either by the CCMA or a bargaining
council with jurisdiction in terms of section 191(1)(a). The Labour Court’s
jurisdiction to determine dispute about dismissals is dependant on the dispute
involving a dismissal as defined. Section 186 of the LRA defines a dismissal
to mean that –
(a) an employer has terminated a contract with or without notice;
(b) an employee reasonably expected the employer to renew a
fixed term contract of employment on the same or similar
terms but the employer offered to renew it on less favourable
terms or did not renew it;
(c) an employer refused to allow and employee to resume work
after she took maternity leave in terms of any law, collective
agreement or contract of employment;
(d) an employer who dismissed a number of employees for the
same or similar reasons has offered to reemploy one or
more of them but has refused to reemploy another;
(e) an employee terminated a contract of employment with or
35
without notice because the employer made continued
employment intolerable for the employee;
(f) an employee terminated a contract with or without a notice
because the new employer, after a transfer in terms of
section 197 or section 197(A), provided the employee with
conditions or circumstances at work that are substantially
less favourable to the employee than those provided for by
the old employer.
76. With the exception of paragraphs (e) and (f), the definition recognizes a
dismissal to be conduct at the instance of the employer. Paragraphs (e) and
(f) are situations of constructive dismissal where the employee resigns, either
because the employer made continued employment intolerable or because a
new employer after a transfer did not comply with the requirement that
conditions of employment remain substantially the same. Any other conduct
at the instance of an employee, such as resignation, does not constitute a
dismissal. The issue for determination here is whether an employee
exercising the right to accept early retirement as part of a retrenchment
exercise can be said to have been dismissed.
77. The exercise of an election to retire may occur at the instance of an
employee, and frequently does. More often the case, retirement occurs as a
consequence of an automatic termination of the employment relationship
when the employee reaches a certain age that has been agreed upon in
advance or is the accepted norm in the particular employment context. Opting
for early retirement is different. At first glance it does not seem to fall within
any of the categories of conduct contemplated by the definition of dismissal in
section 186.
78. Mr Kahanovitz, counsel for the applicants, sought to persuade me that the
36
early retirement option in this instance should be viewed as a form of
severance benefit available to retrenchees, and that the contract of
employment was terminated at the instance of the employer as part of the
retrenchment exercise and thus fell within paragraph (a) of the definition. I am
unable to agree with this proposition. During the process the employer offered
an election to certain of the employees facing retrenchment who qualified for
early retirement in terms of the rules of the retirement funds as amended to
give effect to the 70 rule. Either they could opt for retrenchment and receive a
retrenchment package or they could take early retirement and receive a
pension fund benefit and have the continued benefit of post retirement
medical aid. By electing early retirement such employees relieved the
employer of the burden of dismissing them. Unlike normal retirement, which
may amount to the termination of employment through the effluxion of time,
early retirement is akin to resignation and normally involves the
communication of an intention to terminate employment by the employee. In
the circumstances, the exercise of such an election cannot be a dismissal. It
follows that the 45 individual applicants who were granted early retirement
have not been dismissed. They accordingly lack standing to bring suit to this
court for unfair dismissal. In the result, their application for relief for unfair
dismissal must be refused on that ground. All the same, it remains necessary
to consider the merits of the application in respect of the remaining 79
individual applicants who were indeed dismissed.
79. The individual applicants enjoy protection against unfair dismissal and the
employer is required to prove that the reason for dismissal was a fair reason
employer is required to prove that the reason for dismissal was a fair reason
based on the employer’s operational requirements and that the dismissal was
effected in accordance with fair procedure, taking into account the relevant
Code of Good Practice. Because retrenchment is a no fault dismissal, and
because of its human cost, the Act imposes an obligation on employers to
37
ensure that all possible alternatives to dismissal are explored. The employer
should in all good faith keep an open mind throughout the consultation
process and seriously consider proposals put forward. Section 189(3) of the
Labour Relations Act is central to the process in that is defines the
consultation agenda and obliges the disclosure of relevant information. At the
time of the applicants’ dismissal section 189(3) merely obliged the employer
to disclose information. In its present form the section requires the employer
to invite consultation on the topics identified in section 189(2), namely
measures to avoid or minimise dismissals, the timing, mitigation of adverse
effects of the dismissals, selection criteria and severance pay. The
amendment requiring an invitation to consult clarifies the employer’s
obligations in the process and states explicitly what previously was in any
event implied.
80. The starting point is to enquire whether the employer has proven a fair reason
for the applicants’ dismissal. It is trite to say that employers are entitled to
reduce staff for a variety of reasons, including pursuing what they may
consider to be a better cost structure. That said, this court remains duty
bound to exercise an appropriate level of supervision and review in relation to
employer’s decisions regarding the need for retrenchment.
81. The debate about finding the appropriate level of scrutiny is well known, and
has endured for the best part of two decades. Different judges have
formulated the test differently at different times, introducing subtle variations
and nuances. Initially, the courts were reluctant to interfere with the
employer’s prerogative to take legitimate business decisions about their
employer’s prerogative to take legitimate business decisions about their
labour needs. As Grogan ( Dismissal 223) points out, as long as they were
satisfied that the dismissals were linked to genuine economic considerations,
the courts generally adopted the view that it was not their task to correct
38
legitimate business decisions which might have been in some respects
unwise. See Morester Bande (Pty) Ltd v National Union of Metal Workers of
South Africa (1990) 11 ILJ 687 (LAC). Furthermore, the courts have held that
a desire to increase profits and business efficiency constitutes a fair reason to
retrench. This approach, described by some as an abstentionist approach,
was thrown into question by the Labour Appeal Court in the landmark
decision of NUMSA v Atlantis Diesel Engines (Pty) Ltd (1993) 14 ILJ 642
(LAC) which suggested that fairness in the context of the law of unfair
dismissal went further than testing the bona fides and the commercial
justification of a decision to retrench and that the question was rather
concerned with whether the termination of employment is the only reasonable
option in the circumstances.
82. The approach in Atlantis Diesel Engines has been nuanced further in
subsequent decisions. In SACTWU & Others v Discreto (1998) 19 ILJ 1451
(LAC) the court stated the appropriate test as follows:
The function of a court scrutinising the consultation process is not to second guess
the commercial or business efficacy of the employer’s ultimate decision….but to pass
judgment on whether the ultimate decision arrived at was genuine and not merely a
sham…The manner in which the court adjudges the latter issue is to enquire whether
the legal requirements for a proper consultation process had been followed and, if so,
whether the ultimate decision arrived at by the employer is operationally and
commercially justifiable on rational grounds, having regard to what emerged from the
consultation process. It is important to note that when determining the rationality of
the employer’s ultimate decision on retrenchment, it is not the court’s function to
decide whether it was the best decision under the circumstances, but only whether it
was a rational, commercial or operational decision, properly taking into account what
emerged during the consultation process.
83. In BMD Knitting Mills (Pty) Ltd v SA Clothing and Textile Workers Union
39
(2001) 22 ILJ 2264 (LAC), the Labour Appeal Court suggested that a higher
standard of substantive review was required. It observed:
I have some doubt as to whether this deferential approach which is sourced in the
principles of administrative review is equally applicable to a decision by an employer
to dismiss employees particularly in the light of the section of the Act, namely, “the
reason for dismissal is a fair reason”. The word “fair” introduces a comparator, that is
a reason which must be fair to both parties affected by the decision. The starting
point is whether there is a commercial rationale for the decision. But rather than take
such a decision at face value, a court is entitled to examine whether a particular
decision is also fair to the affected party, namely the employees to be retrenched. To
this extent the court is entitled to enquire whether a reasonable basis exists on which
the decision, including the proposed manner, to dismiss for operational requirements
is predicated. Viewed accordingly, the test becomes less deferential and the court is
entitled to examine the contents of the reasons given by the employer, albeit that the
enquiry is not directed to whether the reason offered is the one which would have
been chosen by the court. Fairness, not correctness, is the mandated test.
84. With the amendments to the legislation in 2002, the legislature has given a
clearer indication of the standard to be applied. Section 189A(19)(b),
applicable to employers retrenching a significant number of employees,
imports into the test for adjudging the fairness of a retrenchment the
requirement that the dismissal must be “operationally justifiable on rational
grounds”. Grogan argues that the use of the phrase “justifiable on rational
grounds” implies that the approach envisaged is akin to that adopted by the
Labour Court in reviewing arbitration awards by the CCMA. Still, the question
Labour Court in reviewing arbitration awards by the CCMA. Still, the question
remains whether the employer is obliged to satisfy the court that dismissal
was the only option under the circumstances or that retrenchment can only be
used as a means of last resort. The balance of authority suggests not.
85. The test formulated by the legislature in the 2002 amendments harkens back
40
to the principle of proportionality or the rational basis test applied in
constitutional and administrative adjudication in other jurisdictions. As such,
the test involves a measure of deference to the managerial prerogative about
whether the decision to retrench is a legitimate exercise of managerial
authority for the purpose of attaining a commercially acceptable objective.
Such deference does not amount to an abdication, and as stated in BMD
Knitting Mills (Pty) Ltd, the court is entitled to look at the content of the
reasons given to ensure that they are neither arbitrary nor capricious and are
indeed aimed at a commercially acceptable objective. The second leg of the
enquiry is directed at the investigation of the proportionality or rationality of
the process by which the commercial objectives are to be achieved. Thus,
there should be a rational connection between the employer’s scheme and its
commercial objective, and through the consideration of alternatives an
attempt should be made to find the alternative which least harms the rights of
the employees in order to be fair to them. The alternative eventually applied
need not be the best means, or the least drastic alternative. Rather it should
fall within the range of reasonable options available in the circumstances
allowing for the employer’s margin of appreciation to the employer in the
exercise of its managerial prerogative. The formulation of the test in this way
adds nothing new. It simply synthesises what has already been said in
Discreto and BMD Knitting Mills . The two decisions are not entirely at odds
with one another. They are simply elucidations of the governing principle that
the decision to dismiss must be operationally justifiable on rational grounds,
the decision to dismiss must be operationally justifiable on rational grounds,
which permits some flexibility in the standard of judicial scrutiny, depending
on the context.
86. In the present matter the employer’s rationale for its decision to retrench
developed over time from a strategic workshop in early 1998, and even
before, being finally formulated in the Business Case prepared in early July
41
1999. It was presented to the union in its initial manifestation during the
negotiations of the TFM proposal and finally on 21 July 1999 when it was
formally tabled as the outsourcing/retrenchment strategy.
87. Both the Strategic Plan of February 1998 and the Business Case of July 1999
identified the need to restructure the FMD in anticipation of internal changes
within Old Mutual and in the face of a changing environment and practice
within the facilities management industry. Inextricably linked to the need to
restructure, was the decision that the facilities management function was non
core to Old Mutual’s business and that noncore functions should only be
retained if there was as a strategic, cost saving or organisational convenience
advantage in doing so. Management’s original proposal to privatise and
outsource to a management buyout company floundered in the face of union
opposition. The TFM proposal had no cost saving advantages other than
perhaps potential greater flexibility in relation to inbound costs, but would
have attracted positive social sentiment. The harsher traditional outsource
and retrench route which was finally implemented, involving outsourcing to
multi service providers and retrenchment, had the additional advantage of
saving about R6 million in annual costs (arguably a minimal amount in the
context of Old Mutual’s operations) and thereby contributed to Project 500.
88. The union’s attack on the underlying rationale for the retrenchments
throughout the process was surprisingly muted and indirect. The dispute letter
of 20 October 1999 certainly makes it clear that the union did not see the
need for outsourcing. Yet throughout, and despite repeated invitations to do
so, it never interrogated the rationale for outsourcing, nor requested details of
so, it never interrogated the rationale for outsourcing, nor requested details of
the anticipated financial savings. Nor did it make any proposals whatsoever
for an alternative strategy. By and large its approach suggested that it had
accepted the need to outsource and chose instead to secure the best
42
severance package for its members. In the result, there is no evidence that
the decision to outsource was not for a legitimate, commercially justifiable
objective, or that it was arbitrary or capricious in any way.
89. Rather than directly attacking the commercial objective of the decision, the
union focused its attack on the allegation that the decision to outsource and
the underlying categorisation of core and noncore functions was presented
as a fait accompli, claiming that it had been denied the opportunity to consult
and influence that decision. It was argued that by March 1998 the company
had decided what was core and what was noncore and to outsource non
core, and that the union was not consulted at that critical time.
90. It is true that Wilkinson in his testimony conceded that no consultations had
been held with the union before management decided what was core
business and to outsource noncore functions. Indisputably this decision was
taken in principle prior to the formulation of the TFM proposal. Moreover,
when the retrenchment consultation process began in July 1998 management
stated clearly that it was of the view that facilities was noncore and that
outsourcing was inevitable. Thus, in the memorandum addressed to Mfundisi
dated 28 July 1999 it is stated:
In October last year…it was clearly stated that facilities was a noncore function, that
it should be outsourced and the only debate was when this should happen.
91. Mr Muller, who appeared on behalf of Old Mutual, submitted that the
arguments so put approached the particular facts of the case formulaically.
He contended that there was no sudden epiphany by the company in early
1998 that the FMD performed noncore functions. It was, he argued, implicit
in the decisions which had been implemented since the late 1980s. Had the
in the decisions which had been implemented since the late 1980s. Had the
union, at the time of receiving the Strategic Plan or the Business Case,
43
considered management’s view on the matter to be contentious, it was, he
argued, on the table for debate. He stressed Wilkinson’s testimony that there
had been many things decided in principle before being tabled, but which
during the process of consultation in fact had changed. The union had never
raised any arguments to say that the functions selected for outsourcing were
in fact strategic or had a cost or organisational benefit. The union basically
failed to engage on these issues during the consultation process. I am
inclined to agree.
92. The fact that management had an a priori view did not mean that the
management team had closed its mind to alternatives. There were just no
other proposals forthcoming from the union. In his memorandum to the union
on 28 July 1999, Holmes referred only to the TMF proposal as being no
longer a viable option. His position cannot be interpreted to suggest that
management had closed its mind to a debate about noncore functions and
the need to outsource them. While it is correct that the union raised the
question of a predetermined decision on the question of what was core and
noncore and requested a policy statement from the board in that regard, (at
the meetings of 4 August 1999 and 14 August 1999), it did not press the point
and proceeded in a manner which suggested that it had come to terms with
management’s decision, while having some reservations
93. Similar conclusions can be reached about the presentation of the TFM
proposal. The fact that TFM (Pty) Ltd was registered as a company before the
union was informed of the plan, and that Holmes was hired to manage the
proposed contract with TFM (Pty) Ltd, and that Wilkinson had advised
executive management that the transfer programme was underway within two
executive management that the transfer programme was underway within two
weeks of the TFM proposal having been tabled, do not justify the conclusion
that the TFM proposal was presented as a fait accompli . As borne out by
44
subsequent events, the fact that the logistics had been put in place for a
privatisation and outsourcing did not mean that it had become a foregone
conclusion. In any event, it is debatable whether the same standard of
consultation was required in relation to the envisaged section 197 transfer.
94. The respondent additionally justified its approach with reference to the
comments made by Conradie JA in Kotze v Rebel Discount Liquor Group
(Pty) Ltd (2000) ILJ 129 (LAC) where in relation to timing the announcement
of the possibility of retrenchments, the learned judge observed:
News of impending lay offs are profoundly disturbing to employees. It is bad strategy
to give cause for any destabilising news until such time as management is
reasonably sure that retrenchment is the way to go. In the interests of productive
efficiency and labour peace, there is a natural inclination not to put out bad news until
it is absolutely necessary. That is the employer’s dilemma. A prudent manager will
not put out such news unless he or she is sure that it is the right thing to do, sure, in
other words that….. the proposed dismissals are operationally necessary. From a
productive point of view the employer wants to be certain of his decision before
facing the disruption which it is bound to cause, from an industrial relations point of
view: he dare not be certain before he invites consultation (and thereby makes his
intentions known).
95. In other words, the fact that the management team was strategic in its timing
of the announcement of the TFM proposal does not of itself mean that it
presented the proposal as a fait accompli . Likewise, the fact that the
members of the management team were likely to be the most significant
members of the management team were likely to be the most significant
beneficiaries of this scheme did not altogether taint it as an unacceptable
option. The evidence shows that the promoters of the TFM proposal were
amenable to discussing the details of the proposal and understood that they
needed to reach consensus in order to take the project forward. Wilkinson is
minuted as saying in the meeting of 14 October 1998 that the intention was to
45
seek consensus to move to TFM – working with all the bodies. In his letter to
Mfundisi dated 7 October 1998 he also stated that he was desperately
anxious to build a fully inclusive process and wanted the union’s input.
96. Mr Kahanovitz made much of the somewhat transparent attempt to sell the
TFM proposal as an empowerment vehicle. By presenting it in this way, it
may have been that Old Mutual agreed to sell the TFM assets at a substantial
discount to market value and to pay a premium for delivery of its services by
locking itself into a long term contract. Wilkinson was forced to concede that
putting together a proposal to empower black people without involving them in
its preparation was possibly offensive to black people, especially if the
ostensible beneficiaries of the scheme were not involved in the process of
formulating the plan and following it through. By the same token, Wilkinson
also testified that the union at no stage conveyed to management that it found
the TFM proposal offensive for racial reasons. Nor is it clear that it was
rejected for that reason. The evidence suggests rather that it was rejected
because the employees were legitimately concerned about losing their
security of employment by agreeing to such a transfer arrangement.
97. The rejection of the TFM proposal in fairly implacable terms, for whatever
reason, made it an unlikely alternative in the retrenchment negotiations of
1999, or at least certainly in the form in which it had been proposed. The
Business Case of July 1999 proposed four options as possibilities under the
heading “alternatives considered”. Management’s recommendation was to
implement a combination of the options listed, involving a partial outsourcing
to multiservice providers. As has been mentioned, attempts to elicit
to multiservice providers. As has been mentioned, attempts to elicit
proposals from the union for an alternative proposal proved fruitless. The
evidence is fairly persuasive that the possible consideration of an
empowerment vehicle involving a section 197 transfer was never entirely
46
removed from the table during the 1999 round of discussions. All that was off
the table was the TFM proposal, which had floundered against union
resistance and some unprocedural industrial action causing the management
team to be reluctant to participate in a management buy out. A management
buy out was not the only kind of section 197 arrangement that could have
been contemplated or implemented.
98. Insofar as section 189 imposes a duty on the employer to take steps on its
own initiative to propose alternatives, to my mind, the respondent did so by
first attempting the TFM proposal and subsequently setting out four options in
the Business Case. The one eventually implemented fell within the range of
reasonable options in the circumstances. With the benefit of hindsight, one or
other of the proposed alternatives might have better served the parties. The
fault, in my view, lies in the failure to thoroughly interrogate the proposal put
forward with a view to coming up with a better alternative. By not doing so the
union lost its opportunity to influence the exercise of the employer’s
managerial prerogative. As Landman J said in SACWU v Afrox Limited [1998]
2 BLLR 171 (LC):
A failure to utilise this opportunity closes this avenue. Criticism after the event is no
substitute for cooperation when it is called for during the consultation process.
99. It is implicit in section 189(3)(b) that it is open to the employer to consider and
reject alternatives to dismissal prior to consultation. To the extent that the
other consulting party fails to interrogate or propose alternatives to the
dismissals or to participate in the consultation exercise meaningfully, the
employer is entitled to take the necessary decisions, provided it does so fairly
and in accordance with the further requirements of the Act. In the premises, I
and in accordance with the further requirements of the Act. In the premises, I
am unable to find that the employer’s reason for the dismissal was unfair by
virtue of it failing to give proper consideration to alternatives.
47
100.Mr Kahanovitz has made the related point that had the union been told
during 1998 that the rejection of TFM proposal was likely to lead to
retrenchments then it was likely that they would have opted for the TFM
proposal. Management’s failure to make that disclosure, or attaching that
significance to the alternative, resulted, so the argument went, in the
alternative which had the greatest prospect of saving jobs being off the table
during the retrenchment negotiations. I am inclined to agree with Mr Muller
that such an interpretation overstates the point. It should have been clear to
any reader of the 1998 Strategic Plan that management at least held the view
that it was inevitable that the FMD functions would ultimately be outsourced
and that the prospects of job losses, in the event of an alternative not being
found, was a distinct possibility.
101.It was also contended on behalf of the union that the dismissals were
substantively unfair because the respondent had made no proposals at all in
respect of fair and objective selection criteria and that there had been no
discussion or consultation in that regard. Section 189(2)(b) provides that the
consulting parties should attempt to reach consensus on the method for
selecting employees to be dismissed. Section 189(7) requires that the
employer must select the employees to be dismissed according to selection
criteria that have been agreed to by the consulting parties or, failing
agreement, in accordance with criteria that are fair and objective. It was
submitted that one could infer from the evidence that the employees in the
affected departments of FMD were automatically selected and that such a
criterion was neither fair nor objective. One understands the point to mean
criterion was neither fair nor objective. One understands the point to mean
that the respondent had a duty to consider LIFO and bumping.
102.The rationale behind the selection of the employees for retrenchment was to
48
target employees for dismissal in the departments which had been
outsourced. In other words, all employees in any department that was being
outsourced were likely to lose their jobs. The Business Case (and the
question and answer document that accompanied it) identified the
departments which would be affected by the proposed restructuring. They
explained why certain departments would be excluded from the restructuring
process. This blanket approach was implicit to the proposal and at no stage
did the union propose any alternative criteria, though it was able to effect
some bumping in respect of the mailroom and in other areas. The blanket
approach is partly justified by the fact that employment was available to all
employees being dismissed with the new contractors who would undertake
the services previously performed by the department. There was thus an
inherent logic in the blanket approach, even if it did not have the best possible
results for employees with the longest service. In the context in which the
selection occurred, it is difficult to make a finding that the applied selection
methodology of itself rendered the dismissals substantively unfair.
103.The applicant has also alleged that the manner in which Old Mutual went
about the outsourcing exercise gives rise reasonably to an inference that it
acted without bona fides . The claim is that an inference of bad faith can be
drawn from the fact that it took nine months after the withdrawal of the TFM
proposal to commence the retrenchment consultations and that no evidence
was heard from the respondent’s “actual decision makers” on why they would
not have been prepared to entertain a modified TFM proposal nine months
later. The submission is without merit. The delay was explained as being a
result of the demutualization process, and the evidence is clear that Old
Mutual was ready to entertain a modified TFM proposal. The onus, given past
events, was on the union to put that proposal forward. It singularly failed to do
that. For what it is worth, one may tentatively venture that the outsourcing of
49
the jobs of some of the longest serving employees of Old Mutual, all of whom
were at relatively advanced age, for a minimal saving of R6 million per year,
falls somewhat short of the standard of social responsibility one might expect
from a company like Old Mutual, that alone does not mean that it acted mala
fides.
104.In the light of the aforegoing, I am unable to conclude that the dismissal of
the individual applicants who did not take early retirement was substantively
unfair.
105.The applicant has also raised allegations of procedural unfairness. The most
important of these is that the respondent failed to consult when retrenchments
were first contemplated. While this allegation goes to procedural fairness, it is
of such a nature that if true could lead to a result of substantive unfairness.
106.The aim of the problemsolving and consultation process is generally to
attempt to avoid dismissals or at least to bring about a reduction in the
number of dismissals and to mitigate the effects. Both section 189(1) of the
LRA and the Code of Good Practice stress the need for consultations and the
joint, problem solving exercise to commence as soon as a reduction of the
work force is contemplated by the employer. The longer the employer waits to
engage with the union about the problem the less the prospect of the parties
being able to find alternative solutions to dismissal. The applicant alleges that
although the respondent contemplated retrenchments as a consequence of
the decision to outsource, it made a conscious decision not to consult with the
union. The reason advanced for this by the respondent was that while a
section 197 transfer was being proposed, no retrenchments were
contemplated and therefore consultations were not required, even though the
TFM proposal was an alternative to retrenchments because in the event of
50
the proposal not succeeding retrenchments were an inevitability. Moreover,
once the respondent withdrew the TFM proposal, it was at a point where, on
its own version, outsourcing would lead to retrenchments in the near future.
On this basis it was submitted that there was a duty on the respondent to
commence consultations about retrenchments either in March 1998 or at the
latest in November 1998.
107.To my mind, the argument suffers a degree of artificiality. Both in logic and in
law the duty to consult arises once the possibility of retrenchment is
reasonably foreseeable. The test of reasonable foreseeability implies that not
every future prospect of retrenchment imposes a duty of consultation. There
should be some imminence and the prospect of retrenchments ought not to
be too remote. Sight should not be lost of the fact that the aim of the TFM
proposal was to avoid retrenchments. It was a process that was initiated at a
lower tier of management and the union became involved not long after the
proposal had been formulated. However, what was put into position was not a
process that would necessarily result in retrenchments. Middle management
read the future as posing a threat to future employment because outsourcing
was increasingly likely and it wanted to obtain the best advantage for
themselves and similarly for their employees. When Wilkinson obtained the
permission of van Niekerk to proceed, he did not understand that he had an
authority to implement a process that would lead to dismissal. As he put it in
his evidence:
I walked out of the meeting with the understanding that we had, in principle the
approval to pursue a process that would lead to a mechanism being put in place. We
didn’t in fact discuss – didn’t go into huge detail on specifics of which unit is in and
which unit is out. So it was a process.
108.What was contemplated was a process aimed at developing a mechanism
51
which was superior to the traditional model of “outsource/retrench/offer of
employment with a new contractor”. The question and answer document
distributed in mid1998 specifically stated that employees would not be
retrenched as this was a process which was designed to prevent
retrenchments and job losses. Accordingly, it cannot be said that
retrenchments were contemplated in March 1998. They were a possibility, but
there were many intervening factors which had they been successfully
negotiated and implemented could have rendered that possibility an
unlikelihood. To the extent that management might have contemplated
retrenchments after the failure of the TFM proposal in November 1998,
justification existed for the delay in consultation because of the
demutualization process. The decision to shelve the matter until later, if there
indeed was one, cannot be stigmatised as unfair procedure, rather it was
more likely a strategic decision to avoid “any destabilising news until such
time as management is reasonably sure that retrenchment is the way to go”.
As Conradie J said in Kotze there is a natural and legitimate inclination not to
put out the bad news until it is absolutely necessary. In this case it only
became absolutely necessary after the demutualization process and the
decision to outsource in the hope of contributing to Project 500.
109. Accordingly the theory that argues that the decision to outsource in 1998
contemplated retrenchments, about which the union was consulted too late, resulting
in the retrenchments being presented with a fait accompli, is not sustained by the
evidence. The retrenchments only became imminent after the demutualization
evidence. The retrenchments only became imminent after the demutualization
process and were in focused contemplation at that point in time. The duty to
consult thus arose within that time frame. Hence, there was no procedural or
substantive fairness on this count.
110.On the other requirements of procedural fairness, I am in agreement with Mr
52
Muller that there were no serious irregularities. Thus the Business Case and
the question and answer document distributed in July 1999 amounted to
substantial compliance with the provisions of section 189(3). The Business
Case sets out the reasons for the retrenchments, the alternatives considered
the reasons for rejecting them, the number of employees likely to be affected
and the method of selecting them. The timing of the dismissals was
specifically dealt with and the questions of severance pay were proposed
initially in the letter to the union of 4 August 1999 and were subsequently
discussed and varied in correspondence and consultation meetings. Some
fifteen meetings were held between management and the trade union in the
period July 1999 to November 1999. The evidence reveals that there were
discussions and an attempt to reach consensus on the appropriate measures
for avoiding and minimising the number of dismissals, the timing and
mitigating the adverse effects. The discussion on severance pay was
extensive and, as already explained, the method for selecting employees
dismissed had its own internal logic. Attempts to minimise the number of
dismissals were successful to some extent in that the respondent agreed to
dismiss temporary staff in the mail area to allow affected staff a redeployment
opportunity (bumping). The number of these posts was extended from five to
ten. The voluntary severance arrangement was also extended to nonaffected
staff and dismissals were avoided through early retirement with its more
beneficial consequences. Moreover, in order the mitigate the adverse defects
of the dismissals the new service providers were prevailed upon to offer
employment to all affected staff and to pay wages higher than the market
employment to all affected staff and to pay wages higher than the market
wage. Staff loans were written off and ultimately 35 of the applicants were
transferred on the same salary as that which they had earned at Old Mutual.
These were the results of a fair process.
111.Finally, the applicant has raised the procedural point that clause 7.3 of the
53
recognition agreement obliged the parties to negotiate a retrenchment
procedure before commencing consultations. Under the heading
“retrenchment procedure ” it provides as follows:
The parties agree that a retrenchment procedure will be negotiated in accordance with
the procedure outlined in clause 7.4 where necessary.
112.It is alleged that the employer made no attempt whatsoever to negotiate the
terms of a retrenchment procedure. Wilkinson testified that at the time when
the collective agreement was entered into, Old Mutual did not retrench
employees. That explained why the parties did not regard it as necessary to
conclude a procedural agreement at the time. Was it necessary before
starting the 1999 retrenchment process? Mr Muller submitted that there were
three answers to this complaint of procedural unfairness. Firstly, the
complaint was never pleaded as part of the applicant’s case. Therefore on
that ground along it cannot be relied as a ground for complaining that the
dismissals were procedurally unfair. Secondly, clause 7.3 is open to the
interpretation that the parties would negotiate its retrenchment procedure
when they considered it necessary to do so. There is no unilateral duty on the
employer to introduce the agreement. As the parties did not consider it
necessary they did not negotiate a procedure. Thirdly, as a fact, neither party
at the time considered it necessary to negotiate a retrenchment procedure
even though the union was well aware of the recognition agreement and
made reference to it during the process, nevertheless it at no stage insisted
that a retrenchment procedure first be negotiated before the discussions
continue. To the extent that it might be argued on a proper interpretation that
continue. To the extent that it might be argued on a proper interpretation that
such was required, both parties appear to have waived their rights under the
provision and should be estopped from raising it at this late stage. I agree
with Mr Muller and there is no basis for a finding of procedural unfairness on
54
this score.
113.For these reasons, I am persuaded that there was no procedural unfairness.
114.The respondent has asked to be awarded its costs. In this instance I am
inclined to exercise my discretion not to make an award of costs. The matter
was complex involving a large number of employees and entailed a radical
restructuring which naturally inclined the employees to seek adjudication of
the fairness of the dismissals. Moreover, although the union has lost its
bargaining rights, it still maintains a presence at the respondent and
presumably enjoys organisational rights. A costs award might jeopardise and
otherwise relatively harmonious industrial relationship.
115.Given that I am persuaded that the dismissals were fair, it is unnecessary to
determine the other issues of relief. Accordingly, I make the following orders:
115.1.The dismissal of the 79 members of the applicant on 31 October 1999
is hereby declared to have been substantively and procedurally fair.
115.2.The application of all the applicants in terms of section 191(5)(b) is
dismissed.
115.3.There is no order as to costs.
_________________________________
MURPHY AJ
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DATE OF HEARING: 2123 June 2004; 13 August 2004
DATE OF JUDGEMENT: 07 February 2005
APPLICANT’S REPRESENTATIVE: Adv C Kahanovitz instructed by
Bernard Vukic Potash & Getz
attorneys.
RESPONDENT’S REPRESENTATIVES: Adv J Muller SC Instructed by
Findlay and Tait attorneys
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