IN THE LABOUR COURT OF SOUTH AFRICA
BRAAMFONTEIN
CASE NO : J 116/04
In the matter between
MISA / SAMWU O.B.O MEMBERS Applicant
and
MADIKOR DRIE (PTY) LTD Respondent
________________________________________________________________
J U D G M E N T
________________________________________________________________
REVELAS, J :
[1] At issue in this case, is the entitlement of an employer to unilaterally
change certain policies in respect of the severance pay payable to its
employees in a retrenchment exercise.
[2] The applicant trade union has brought this appreciation on behalf of four of
its members (AS GrenfellDexter, W Lehman, MM Swart, and L Williams)
who were retrenched by the respondent. They seek to be paid specific
amounts as severance pay, calculated in terms of a Manpower Reduction
Programme (“the reduction programme”) issued by their former employer.
The four individual employees mentioned above, had been in the employ of
Hendred Fruehauf Trailers (“Hendred Fruehauf) when the business was
sold as a going concern to the respondent in this case, with effect from 1
December 2001. There were several trade unions representing the workers
of Hendred Fruehauf Trailers, such as the applicant, NUMSA,
UMIAWUSA and the former SAMU. During the discussions held between
the trade unions and the respondent, it was agreed that the provisions of
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section 197 of the Labour Relations Act, 66 of 1995, as amended, (“the
LRA”) would apply. This is common cause on the papers. In terms of
section 197(2) of the LRA, the respondent was deemed to be the employer
of the individual employees and was automatically substituted in the place
of Hendred Fruehauf Trailers in respect of all contracts of employment and
all rights and obligations of the old employer. The aforesaid provisions of
section 197 of the LRA were also incorporated in the agreement of sale
(paragraphs 10.1 at page 15 of the record) which states : “ Madikor shall
take over the existing rights of and obligations of Hendred as the ‘old employer’
of the employees of the Hendred Business. Such rights and obligations shall
continue in force after the implementation date, retrospectively from the
effective date as if they were rights and obligations between Madikor, as the
‘new employer’ and the said employees. Anything done before the transfer of the
Hendred Business by, or in relation to the ‘old employer’ will be considered to
have been done by or in relation to the new employer”
[3] The applicant contended that the rights and obligations referred to, as
aforesaid, the Manpower Reduction Programme issued by Hendred
Fruehauf Trailers in 1996, whilst the four individual employees were still
in its employ.
[4] The salient terms of the reduction programme were the following:
1. The selection criteria applicable would affect employees who had
previous warnings, employees over sixty five years of age,
employees
who were eligible for early retirement and employees in respect of
whom the “Lastin, Firstout” principle was applicable.
2. The option of voluntary retrenchment was only available to
employees aged between fifty and fifty four years of age who have
less than five years service and the employer had the right to agree
less than five years service and the employer had the right to agree
or refuse to implement this option, based on operational reasons.
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3. In respect of salaried staff (such as the four individual employees)
retrenchment compensation” (severance pay) would be calculated
according to the following directives.
3.1 Regardless of years of service each salaried employee
(“employee(s)”) will receive one month’s pay in lieu of notice.
3.2 In addition to the notice of payment, employees with more than
twelve months’ service will receive additional compensation on
the following basis:
3.2.1 111 months’ completed service equals
contractual (1 months’) notice.
3.2.2 1235 months completed service equals 12
days salary plus for every completed calendar
month over twelve months.
3.2.3 3659 months completed service equals 36
days salary plus 1,5 days salary for every
completed calendar month over 36 months.
3.2.4 60 months completed service equals 70 days
salary plus two days salary for every
completed calendar month over 60 months.
[5] After this reduction programme was implemented by Hendred Fruehauf
and accepted by its employees in 1996, all subsequent retrenchments were
effected in accordance with the reduction programme. That is also common
cause on the papers.
[6] It is of important significance that the severance pay payable in terms of
the reduction programme in question (“the programme”) is substantially
more than the statutory minimum as provided for in section 41(2) of the
Basic Conditions Act, 75 of 1997 (“the BCEA”). The four individual
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employees are, in terms of the calculations provided for in the reduction
programme, entitled to the following amounts as severance:
1. AS GrenfellDexter : R 73 916.61
2. W Lehman : R654 079.53
3. MM Swart : R 98 146.48
4. L Williams : R324 777.55
[7] The applicant claims these amounts in this application, in terms of section
77(3) of the BCEA.
[8] Even though the question of severance pay is the only issue between the
parties in this matter, the Labour Court may determine such a dispute, as it
related to specific performance concerning a contract of employment
(section 77A of the BCEA; See also Paper Printing Wood and Allied
Workers Union & Others vs NasouVia Africa, A Division of the National
Education Groups (Pty) Ltd 1999 ILJ 2101 (LC) where the Labour Court
held at 2103 FH that “Severance pay disputes, which in terms of section 190(1)
of the Act [the LRA], need to be referred for arbitration , are those disputes
which arise when the employer refuses to pay the statutory minimum severance
pay of one weeks remuneration for each year of service. Severance pay itself, or
the exact amount thereof, may still be the subject matter for adjudication by the
Labour Court, notwithstanding that it may be the only issue remaining between
two parties, after conciliation”).
[9] After the respondent had purchased the business of Hendred Fruehauf
Trailers as a going concern with effect from 1 December 2001, it almost
immediately began with a retrenchment process. Consulation began on 3
January 2002. On 8 January 2002, the respondent advised its employees
and their trade unions that its proposed package for retrenchment
(severance pay) was the statutory minimum. That was still the only offer on
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the table at a consultation meeting held on 12 March 2002. On 18 March
2002, the respondent made another offer with regard to voluntary
retrenchment packages which was in fact in accordance with the
programme.
[10] On 12 April 2002, the respondent increased in terms of severance pay offer
for employees who did not take up voluntary retrenchments. It offered to
payment of two weeks’ salary for every year of completed service up to
maximum of one hundred days, including notice pay. All the trade unions
rejected the offer, insisting that the members to be compensated in
accordance with the applicable reduction programme.
[11] The respondent argued that notice of the proposed severance pay was given
in terms of Section 189 of the LRA. Its main argument was that the
reduction programme was a policy and it was entitled to “table such policy
and the issue of the quantum of severance pay” and to engage in a
consensus seeking process with regard to the issue of severance pay. The
proposal was then implemented, as consensus on this aspect could not be
reached.
[12] After 16 April 2002, when the last consultation was held, the applicant
referred a dispute to the Motor Industry Bargaining Council Dispute
Resolution Centre (“the Centre”) in terms of section 64 of the LRA,
alternatively, section 41(6) and (8) of the BCEA. The subsequent award,
which was in the applicant’s favour was however set aside on review
because arbitration was not provided for in the Centre’s constitution. The
respondent had all along contended that the Centre did not have the
necessary jurisdiction to determine the issue.
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[13] The applicant’s case is that the respondent committed a breach of contract
by unilaterally deviating from the terms of the programme. This argument
was based on the following considerations proffered by the applicant: Since
employment contracts as a rule do not provide for a retrenchment package,
one of the purposes of section 189 of the LRA, is to consult thereon. In
casu, the parties had specifically agreed upon issues surrounding severance
pay in the event of a retrenchment, by means of the reduction programme.
In particular, they had agreed on a certain specific calculations aimed at
exceeding the statutory minimum in section 41(2) of the BCEA. To permit
the respondent to avoid compliance with the programme as part of the
contracts of employment, would render the terms of all policies governing
severance pay null and void, and unenforceable.
[14] The respondent argued that the retrenchment exercise was motivated by the
precarious financial position of Hendred Fruehuaf which as at 31 August
2001 had a loss just short of R18 million, and was on the brink of
liquidation and when the sale became effective, its losses amounted to R38
million. It simply could not afford to abide by the severance packages
prescribed by the reduction programme.
[15] Furthermore, the respondent argued that the reduction programme was a
policy, and not a contract. It was unilaterally implemented by the
respondent and could be varied from time to time. It was never
incorporated into the contracts of employment of any of the applicants. In
this regard, the respondent stressed that the employment contracts in
question made provision the variation of policy and procedures. The
relevant part of the employment contract reads as follows: “However, it
relevant part of the employment contract reads as follows: “However, it
should be noted that your employment is subject not only to a much wider
spectrum of company policy, rules and regulations, as may occur from time to
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time.”
[16] Before dealing with the arguments presented on the merits, there is a
procedural matter which requires determination.
[17] The applicant wished to hand in a supplementary affidavit. It refers to an
arbitration award in a matter between NUMSA and Madikor Drie (Pty) Ltd
t/a Hendred Fruehauf Trailers. The award is attached to the affidavit and
the purpose thereof is to draw attention to the arbitrator’s reference to a
certain clause (10.5) in the agreement of sale between Hendred Fruehauf
and the respondent which reads: “ R10 000 000,00 (ten million rands) had been
set aside as a loan from hundred Fruehauf Trailers (Pty) Ltd to Madikor Drie,
to assist in possible retrenchment costs including severance pay.”
[18] As a general rule, there are three sets of affidavits in motion court
proceedings, namely the founding affidavit, the answering affidavit and the
replying affidavit. Rule 7 of the Labour Court Rules incorporates this
general rule. Under certain circumstances the filing of further affidavits are
permitted. The principles followed and developed the High Court
authorities are basically that a court has a discretion as to whether further
affidavits will be permitted. This discretion must be exercised judicially,
having considered whether a proper explanation for its belated filing exists,
whether the material contained in the affidavits are relevant and whether
the filing of such affidavits would be prejudicial to the other party (See:
Transvaal Racing Club v Jockey Club of South Africa 1958(3) SA 599 (w)
at 604 AE.) Rule 6(5)(e) of the High Court Rules also provides for the
filing of further affidavits subject to the Court’s discretion.
[19] In my view, the explanation proffered by the applicant union is a proper
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one. A new attorney took over the applicant’s matter, after the attorney
who had initially dealt with the matter, left the firm of attorneys in
question. The new attorney, came across the award referred to, and the
documents mentioned therein. These documents are no secret – or should
not be and it is not the respondent’s case that it did not enter into such a
sale agreement. The contents of the supplementary affidavit are relevant to
the matter at hand. Therefore the supplementary affidavit may be accepted
as part of the papers in this matter. The respondents answering affidavit
thereto is also accepted. In it the respondent contends that the loan in
question is an interest bearing loan and reiterated the onerous terms of the
policy in question.
[20] I will now return to the merits of this case. A policy is not a contract. The
policy in question was issued by the respondent and the employees of
Hendred Fruehauf , not surprisingly, accepted its highly beneficial terms. It
stands to reason that policies may be varied from time to time. Permission
or consent to do so is not generally required. Policies are seldom inflexible.
In a case such as this, where the severance packages were agreed upon in
1996 and the retrenchments were effected almost six years later, a strict
adherence to such a policy could be, I agree, be very onerous for an
employer to bear. Fairness however demands that such an employer would
have to consult with its employees on the variation thereof, preferably
before a retrenchment exercise or the transfer of the business itself.
[21] The acceptance by the employees of the reduction programme, the absence
of any objection thereto and the implementation of the programme in
retrenchments post 1996 (when the programme was issued) must have
retrenchments post 1996 (when the programme was issued) must have
established an understanding between the parties that retrenchments will
continue to be effected in accordance with the programme or policy. Trade
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Unions, also must have had some input. Whereas policies may indeed be
varied by the employer, the nature of the policy will determine in what
circumstances it may be varied.
[22] There would be cases where the variation of a policy, albeit unilaterally ,
will not directly impact on the employees’ work security or the
employment relationship as such. However, in cases where such a variation
of a policy has serious consequences for any employee, it would be unfair
to the employee in question, if the employer could simply depart from the
policy by merely advising the employee of its intention.
[23] The Manpower Reduction Programme was a retrenchment policy. It is
highly unlikely that it would have been issued, as the respondent would
have it, unilaterally and without any trade union input, since it deals with
the nofault termination of the services of union members. It was intended
to regulate and facilitate retrenchment processes in the future. Hence my
reference to an understanding that was established. Clearly certain
obligations on the part of the employer towards possible retrenches came
into being. These obligations may not be departed from at the will of the
employer only. The policy created a legitimate expectation on the part of
the employees, even if their contracts of employment foresaw the variation
of such policies.
[24] In terms of its retrenchment policy, Hendred Fruehauf gave its employees
an assurance as to what they might expect if they are retrenched. It
followed this policy and acted as if it intended to continue with this policy.
The respondent took over this obligation together with all the other
obligations of Hendred Fruehauf, when it bought the latter company, in
terms of the law (section 197 of the LRA) and the agreement of sake.
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(Clause 10.1). If losses occurred, Henfred Fruehauf should have notified its
employees much sooner that it could no longer afford their packages.
Businesses do not incur such huge losses as alleged by the respondent,
overnight. It takes time. I find it curious that the question of the
affordability of the packages were left over until the business was sold.
[25] The agreement of sale reflects a clear understanding on the part of both the
seller and the buyer that they were aware of the consequences of selling a
business as a going concern. The two parties were no strangers to each
other in business, on the contrary, they were closely connected. The
respondent was fully appraised of the retrenchment policy when the
business was bought as a going concern. It had to be. The transfer came
into effect in December 2001. On 3 January 2003 the respondent
announced its intention to retrench. Ten million rand was set aside for the
purposes of severance packages.
[26] In the circumstances of this case, it should not be open to an employer,
such as the respondent, to escape its obligations in respect of its
employees’ legitimate expectations, by simply invoking the provisions of
section 189 of the LRA. That is not what was understood by the parties
when the business was sold. Trade unions were involved in the discussions
surrounding the sale. They would certainly have taken up the cudgels on
this issue then, if they knew the policy would be varied.
[27] On the facts of this case, I am not persuaded that the respondent is entitled
to escape the retrenchment policy it inherited, simply because it had
financial difficulties. The conduct of the parties indicated that no departure
from the policy was foreseen when the business was sold as a going
from the policy was foreseen when the business was sold as a going
concern. The four employees in this case had a legitimate expectation that
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the severance packages they would receive in terms of the reduction
programme, would be paid to them.
[28] Since the respondent is bound by its Manpower Reduction Programme as
Hendred Fruehauf was, it should pay the individual employees
retrenchment packages in accordance therewith. Interest thereon is also
payable. The interest must however run from the date of this judgment,
because the respondent should not be penalised because the matter was first
arbitrated in an incorrect forum and then finally determined in this court.
[29] In the circumstances, I make the following order:
1. The respondent is to pay severance packages to the four individual
employees in this matter as follows:
1.1 AS GrenfellDexter : R 73 916.61
1.2 W Lehman : R654 079.53
1.3 MM Swart : R 98 146.48
1.4 L Williams : R342 777.55
2. Interest on the above amounts shall be payable from date of judgment
to date of payment.
3. The respondent is to pay the applicant’s costs in this matter.
_____________________
E. REVELAS
JUDGE OF THE LABOUR
COURT OF SOUTH AFRICA
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REPORTABLE
DATE OF HEARING: 27 May 2005
DATE OF JUDGMENT: 14 October 2005
ON BEHALF OF THE APPLICANT: Mr G Ebers öhn of Ebers öhn Attorneys.
ON BEHALF OF THE RESPONDENT: Mr S Snyman of Snyman van der
Heever Heyns.
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