Employers win in long-awaited judgment on retrenchments and automatically unfair dismissals

​In a long-awaited judgment handed down yesterday,* the Constitutional Court (CC) confirmed that the retrenchment of employees following their refusal to accept alternative employment on new terms and conditions is not automatically unfair where the employer has genuine operational requirements underlying the proposed alternative terms. In issuing this judgment, the CC confirms and upholds the previous judgment** of the Labour Appeal Court (LAC).

Facts

The steel industry in South Africa experienced a decline in sales from around 2010. Aveng (the employer) is a large steel manufacturer. Over time, the employer realised that it would need to restructure its business in order to survive and remain profitable. In particular, the employer needed to reduce certain costs relating to labour, electricity and transport. On 15 May 2014, the employer initiated a retrenchment consultation process in terms of section 189A of the Labour Relations Act (LRA). The majority trade union, the National Union of Metal Workers of South Africa (NUMSA), participated in the consultation process. The employer revised its organisational structure and redesigned job descriptions. As an alternative to retrenchment, the employer submitted a written proposal to NUMSA with the redesigned job descriptions which NUMSA refused to accept. During March 2015, the employer informed NUMSA that the consultation process was exhausted. The employer informed NUMSA that it would be implementing its revised organisational structure with effect from April 2015. The affected employees did not accept the new terms and conditions of employment and Aveng then took the decision to dismiss the employees on the strength of its operational requirements. NUMSA, on behalf of the employees, challenged the dismissals before the Labour Court (LC) claiming that their respective dismissals were automatically unfair under section 187(1)(c) of the LRA.

Previous judgments

The LC held that the dismissals were effected due to genuine operational requirements and could not be linked to the employee's refusal to accept a demand of the employer. The dismissals were therefore not automatically unfair. On appeal, the LAC found that in determining whether the dismissals were automatically unfair, an assessment of the main, dominant or proximate reason for the dismissal is necessary. The LAC used the causation test (derived from the Afrox*** decision) and held that the following question must be answered - would the dismissal have occurred had the employees accepted the employer's demand. If the answer is yes, the dismissal will not be considered as automatically unfair. If the answer is no, it does not automatically follow that the dismissal is automatically unfair. An assessment of the main, dominant or proximate reason for dismissal becomes necessary. The LAC found that the employer did not make a demand but rather made a proposal to its employees – a demand is aimed at securing compliance whereas a proposal is aimed at a particular result and implies that the parties may consult on that proposal. The proposal made by the employer was used in order to avoid retrenchments. The LAC found that the proximate reason for the dismissals was the employer's operational requirements. The dismissals were therefore not automatically unfair.

Notably in dismissing the appeal, the LAC held that the very purpose of section 189 of the LRA was to encourage employers and employees to seek alternatives to retrenchments. Interpreting section 187(1)(c) so that the dismissal of employees who refused an alternative as part of the retrenchment process is automatically unfair, would undermine that purpose.

NUMSA maintained that there are no exceptions to section 187(1)(c) of the LRA and that a dismissal is automatically unfair even if employees are dismissed for rejecting a demand that arises from an employer's operational requirements. NUMSA sought leave to appeal to the CC.

CC judgments

The CC issued three separate (but concurring) judgments in this matter. The core issue before the CC was whether the dismissal of the employees was automatically unfair in terms of section 187(1)(c) of the LRA or whether it was based on the operational requirements of the employer.

The first judgment (Mathopo AJ) held that the dismissal of the employees was not automatically unfair under section 187(1)(c) of the LRA. The court acknowledged that due to the current state of the economy, operational reasons not only relate to the reduction of the workplace but can also relate to restructuring operations and the way an existing workforce carries out its work. Restructuring can be effected in several different ways including shift systems, adjusted remuneration and merging of jobs and responsibilities. In this matter, the employer engaged its employees with a re-organisational proposal through a structured consultative process. If the court prevented the employer from dismissing the employees under these circumstances, it would undermine the viability and vitality of business.

The proposal by the employer was therefore reasonable and sensible and it was used as a means of avoiding dismissals. The dismissals were for operational reasons and amounted to the main or dominant cause of the dismissals. In interpreting section 187(1)(c) of the LRA, the first judgment found that the section entails an evaluation into the cause of the dismissal and assessing whether the cause is the main or dominant or proximate or most likely cause of the dismissal (causation test).

The second judgment (Majiedt J) agreed with the first judgment that the dismissals were not automatically unfair. However, the second judgment did not agree with the use of the causation test which it held to be more suitable to delictual and criminal matters. Instead, the second judgment endorsed the use of the approach adopted in the Algorax**** decision where evidence must be evaluated to assess the true reason for the employees' dismissal.

The third judgment (Jafta J) also agreed with the first judgment, but held that on a proper interpretation of section 187(1)(c), the section does not support the use of the causation test.

All roads lead to Rome

Despite the CC issuing three separate judgments on this issue, the court was unanimous in its agreement that the dismissal of the employees in this matter was not automatically unfair. In other words, the employees were not dismissed for rejecting a demand in respect of a matter of mutual interest but rather the dominant reason for their dismissal was the employer's operational requirements.

This judgment by the CC represents a significant win not only for employers but also for the broader economy. In fact, the first judgment incorporates a special acknowledgement that it is in the "best interests of society that an employer remains economically viable". This does not mean that employers have carte blanche to retrench employees who refuse alternative terms and conditions of employment.  Only where there is a genuine operational requirement underlying the retrenchment will such retrenchment not be automatically unfair.  This will require careful scrutiny and evaluation of the specific circumstances and the underlying cause.


* National Union of Metal Workers of South Africa and Others v Aveng Trident Steel (a division of Aveng Africa (Pty) Ltd) and Another 2020 ZACC 23

** National Union of Metalworkers of South Africa and others v Aveng Trident Steel (A Division of Aveng Africa (Pty) Ltd) and another (2019) 9 BLLR 899 (LAC)

*** SA Chemical Workers Union v Afrox Ltd [1999] ZALAC 8; (1999) 20 ILJ 1718 (LAC)

**** Chemical Workers Industrial Union v Algorax (Pty) Ltd 2003 ILJ 1917 (LAC)

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