It is a well-established principle that retrenchments must be based on genuine operational requirements. It is also commonly accepted that it would be an improper use of retrenchment proceedings to alter employment terms and conditions of employment. A recent Labour Court (LC) judgment considers the misuse of section 189 of the Labour Relations Act (LRA). The decision of the LC should be contrasted with the Constitutional Court's (CC) decision in National Union of Metal Workers of South Africa and Others v Aveng Trident Steel, where it 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.
The recent judgment in
Malekunutu v Commission for Conciliation, Mediation and Arbitration and Others[1] (Malekunutu) has reaffirmed the principle that retrenchment must be based on genuine operational requirements and not used as a disguised mechanism to alter employment terms. The LC found that the employer, Joburg Bolt (Pty) Ltd, had invoked section 189 of the LRA under questionable circumstances and accordingly found that the dismissal of the employee was procedurally and substantively unfair.
The employee was employed as a stock receiver at Joburg Bolt (Pty) Ltd until his dismissal on 8 July 2020. The dismissal was purportedly due to operational requirements, with the employer citing financial distress linked to the COVID-19 pandemic and non-payment from customers.
However, evidence presented before the court revealed a different narrative. On 11 June 2020, the employer's organisation representing the employer addressed an email to the employee's trade union which stated that there were concerns about salary discrepancies, specifically noting that the employee was earning significantly more than his colleagues in similar roles. The email acknowledged that unilateral salary reductions would constitute a unilateral change to terms and conditions and proposed embarking on a process in terms of section 189 of the LRA to resolve the issue. This email became pivotal in the LC's decision.
Pursuant to the email, the employer embarked on a consultation process with the employee as he was the only affected employee.
During the consultation process, the trade union representing the employee requested Joburg Bolt to disclose the salaries of the supervisors. The employer declined to disclose the salaries of supervisors and informed the employee that he was dismissed for operational reasons.
The employee referred an unfair dismissal dispute to the Commission for Conciliation, Mediation and Arbitration, who found the dismissal for operational requirements to be both procedurally and substantively fair.
The employee instituted an application to review and set aside the award. He contended that the employer had not provided sufficient proof of financial distress and that the restructuring was aimed at reducing his salary rather than addressing economic constraints.
The Labour Court's findings
The court's starting point was that the evaluation of the substantive fairness of a dismissal for operational requirements is that the reason must be in good faith, rationally justified, and be based on a proper and valid commercial or business rationale. The question before the court was whether the decision to retrench the employee was based on genuine operational reasons of economic nature.
The court rejected the employer's assertion that the retrenchment was necessitated by financial distress. There was a lack of genuine financial distress in that the employer's justification for retrenching the employee was contradicted by the email of 11 June 2020, which made no mention of financial distress but instead focused on salary adjustments.
In essence, what Joburg Bolt truly wanted to do was alter the employees' terms and conditions of employment. Accordingly, the court accepted that the justification for the retrenchment process was a sham and that there was no genuine or rationally justified reason for the retrenchment.
The court took the view that the retrenchment process was pre-determined as it was directed to alter the terms of the employee's employment and not to meaningfully explore alternatives to avoid the retrenchment. This pre-determined approach undermined the fairness of the retrenchment process.
For these reasons, amongst others, the court found that dismissal was procedurally and substantively unfair and that the award stood to be set aside. The employer was ordered to reinstate the employee with effect from the date of his dismissal.
Key takeaways
The
Malekunutu judgment is not authority for the proposition that retrenchment processes cannot be used to amend terms and conditions and employment. To the contrary, the
Malekunutu judgment serves as a cautionary example of how an employer should be cautious in seeking to apply the principle established by the CC in
National Union of Metal Workers of South Africa and Others v Aveng Trident Steel (a division of Aveng Africa (Pty) Ltd) and Another[2](Aveng).
In
Aveng, the court confirmed that an employer may retrench employees who refuse to accept a change to their terms and conditions of employment, provided that the retrenchment is genuinely based on operational requirements.
The CC emphasised that the 'main' or dominant' or 'proximate' cause for dismissal was important in determining the fairness of the dismissal. In
Aveng, the employer's rationale for embarking on a retrenchment process was grounded on genuine economic constraints. The employer had faced a demonstrable financial downturn and restructured operations to remain economically viable. In
Malekunutu, however, the employer tried to make a salary reduction under the guise of retrenchment. The employer was not in genuine financial distress but simply wanted to change the terms and conditions of employment. In essence, the operational requirements were not the 'main' or dominant' or 'proximate' cause for the dismissal.
The
Malekunutu judgment serves as a reminder to employers that retrenchments must be based on genuine and rational reasons. Using a retrenchment process to cover up the true reasons for a dismissal may result in significant financial and legal consequences such as retrospective reinstatement orders.
