Are employers obliged to save jobs through s189 of the LRA?

At the time of writing, the extended period of lockdown has just commenced. The COVID-19 pandemic has already had a drastic impact on the operations of businesses and in most cases will lead to varying degrees of financial pain for both employers and employees. We are also told that notwithstanding the extended lockdown of 35 days, the peak of the pandemic will only be reached by September 2020. Combating the virus will clearly require a change to the ‘business as usual’ approach, reimagining for the foreseeable future the way we work and go about our daily lives.

Many employers will narrow their focus in the coming months to aspects which will ensure their survival or make them more competitive. Streamlining their operations, reducing unnecessary expenses and trimming the salary or wage bill will be high up on their agendas and restructuring and retrenchment exercises will no doubt be central to their strategies. From a South African perspective, the global humanitarian crisis is compounded by high levels of unemployment, poverty, inequality and an ineffective government, and the focus should, therefore, be on preserving jobs during this difficult period. Viewed in this context, alternatives to retrenchment become all the more important.

Retrenchments and the LRA

Section 189 of the Labour Relations Act 66 of 1995, as amended (“the LRA”) permits an employer to dismiss employees for operational requirements. The phrase ‘operational requirements’ is a broad term referring to the economic, technical, structural or similar needs of an employer. Before effecting such dismissals, however, the LRA places an obligation on employers to engage in a meaningful joint consensus-seeking process in an attempt to reach consensus on, inter alia, appropriate measures to avoid and/or minimise the number of dismissals.

An employer could, as part of the section 189 process, advise employees that in order for it to remain viable and operative, employees would have to agree to a reduction in their remuneration or other terms and conditions of employment. Our law permits employers to retrench those employees who refuse to agree to the reduction in order to employ employees who are prepared to work under the revised terms and conditions of employment. This is, in essence, the reasoning that was adopted by the Supreme Court of Appeal in National Union of Metalworkers of SA v Fry’s Metals (Pty) Ltd (2005) 26 ILJ 689 (SCA) and which has been applied on numerous occasions since (see also more recently National Union of Metal Metalworkers of South Africa and Another v Aveng Trident Steel and Others (2019) 40 ILJ 2024 (LAC) at paras 52 to 70).

However, things are not always as simple as that. In some instances, employers are unwilling or even unable to dismiss employees. The reasons for this are varied but usually stem from an operational necessity to maintain production, concerns over the loss of skill or the inability to pay severance packages due to a lack of liquidity. To complicate things further, employees may refuse to accept or even explore alternatives to assist the employer. Employees may be over-indebted or breadwinners and thus cannot afford to reduce their remuneration. Unions may also become obstructive during this process, seeking to eke out an improved deal for their members.

Against this background, the question which arises is whether an employer is required to implement alternatives suggested during section 189 consultations unilaterally if the purpose of doing so is to avoid a loss of jobs. In other words – instead of dismissing employees who refuse to accept the alternatives as per the Fry’s Metals scenario, is an employer obliged to retain those employees, but simply to implement whichever alternatives would reduce the employer’s employment cost?

Alternatives to retrenchment & the consultation process

It is trite that dismissals for operational requirements may only be effected as a measure of last resort. As a consequence, much attention must be given to alternatives during the section 189 process. Such alternatives include changes to remuneration or commission structures; the removal of contractual benefits, lay-off; short-time, placing a moratorium on new appointments, overtime or Sunday work; transferring affected employees to other jobs in the employer’s business or group; training or re-skilling employees for other available positions and granting extended unpaid leave.

Ideally, employers and employees should engage in constructive and rational dialogue on these issues in order to reach an agreement. Such agreements, which are concluded between majority unions and the employer, can be extended to all employees at the employer’s workplace in terms of section 23 of the LRA. It often happens, however, that no agreement can be reached on alternatives and employers in these circumstances routinely dismiss employees who refuse to agree to the proposed changes. Could those employers simply have implemented the proposed alternatives unilaterally?

Implementing alternatives unilaterally

In ECCAWUSA v Shoprite Checkers t/a OK Krugersdorp (2000) 21 ILJ 1347 (LC) the Labour Court found that employers are entitled to unilaterally change employees’ conditions of service in order to save jobs. This was confirmed in Media Workers Association of SA v Independent Newspapers (Pty) Ltd (2002) 23 ILJ 918 (LC) where the Court held as follows:-

“Implementation of section 189 often results in changes in terms and conditions of employment. Such changes are justified if they are made in the course of a bona fide retrenchment exercise and as an alternative to retrenchment. … In this case, they were not underpinned by the ulterior motive to dismiss for not acceding to a demand. … Merely because the dismissal was not considered as a probability does not mean that changes were not brought about in terms of section 189. Dismissal is one, though not a necessary, consequence of restructuring.” (Emphasis added).

The Author John Grogan points out that in both the ECCAWUSA and Independent Newspapers judgments, the Courts found that the changes proposed by the employers were bonafide and genuine attempts to avoid retrenchment. In CWIU & Others v Algorax (Pty) Ltd (2003) 24 ILJ 1917 (LAC) the LAC pointed out that the employer could have implemented changes to the shift system without having to resort to retrenching the employees who refused to accept the changes. This confirms the position in the ECCAWUSA and Independent Newspapers judgments.

While an employer is entitled to implement the alternatives unilaterally, is it obliged to do so? A subsequent judgment of the LAC went further to impose a duty on an employer to take all steps to avoid dismissals. Although the case concerned the redundancy of a position, the principles remain relevant. In Oosthuizen v Telkom SA Ltd (2007) 28 ILJ 2531 (LAC) the LAC found as follows:-

“[8] In my view an employer has an obligation not to dismiss an employee for operational requirements if that employer has work which such employee can perform either without any additional training or with minimal training. This is because that is a measure that can be employed to avoid the dismissal and the employer has an obligation to take appropriate measures to avoid an employee’s dismissal for operational requirements…In such a case the dismissal is a dismissal that could have been avoided. A dismissal that could have been avoided but was not avoided is a dismissal that is without a fair reason.” (Emphasis added).

It follows that an employer that neglects to implement alternatives could be said to have acted unfairly. A somewhat anomalous position may arise in these circumstances where an employee refuses to work on changed terms and conditions of employment but is nevertheless compelled to do so. The compulsion arises not so much from the employer since the employee is free to resign at any time but through economic necessity. Such situations may have significantly detrimental effects on the morale of affected employees and the workplace in general.

A further question arises in regard to whether the alternatives that should be implemented need to be either reasonable or fair to the employee. For instances, is a proposal for a salary reduction of 40% fair and reasonable? What about a 70% reduction? To my mind, an examination of the reasonableness of an alternative would only arise in circumstances where an employer actually dismisses employees who refuse to accept the proposed alternatives. In those circumstances, section 41(4) of the Basic Conditions of Employment Act 75 of 1997, as amended (“the BCEA”) relieves an employer of the duty to pay severance pay in circumstances where the employee who is dismissed for operational requirements ‘unreasonably refuses to accept the employer’s offer of alternative employment’. As indicated, however, the issue of severance packages becomes irrelevant where an employer simply implements the proposed alternative and does not dismiss any employees.

Remedies for employees

In respect of large-scale restructuring exercises, sections 189A(7) and (8) provide that once employees are issued with notices of termination of their employment, they may either give notice of their intention to strike or, alternatively, refer a dispute to the CCMA in respect of the alleged unfairness of the reason for their dismissal. However, these remedies are dead-ends if no employees would have been dismissed.

In the event that alternatives are implemented and dismissals are avoided, are employees entirely without recourse? The short answer appears to be ‘yes’. It is likely that a claim concerning a unilateral change to terms and conditions of employment in terms of section 64(4) of the LRA may gain the most traction. Such a dispute is not capable of being arbitrated and would permit employees to engage in a protected strike in support of a demand to have their previous terms and conditions restored. Whether such a strike could be interdicted on the basis that the reduction was effected through a lawful section 189 process is not clear and may be argued before the Labour Court in due course.

A retaliatory strike in these circumstances seems to be at odds with the statutory and moral imperative of job preservation. It seems manifestly unfair to permit employees to engage in a strike after an employer has discharged its statutory duties lawfully and fairly and in circumstances where it has also implemented alternatives which have resulted in fewer or no dismissals. Even section 189A only permits a strike where employees are actually dismissed. To penalise an employer for avoiding retrenchments seems counterintuitive and disincentivises employers, particularly when our case law suggests that there is an obligation on employers to implement alternatives.

Written by Neil Coetzer
of Cowan-Harper-Madikizela Attorneys

Neil Coetzer of Cowan-Harper-Madikizela Attorneys,