Assessing the effect of a transaction on employment in merger proceedings remains one of the key public interest considerations for the Competition Commission.
The Draft Public Interest Guidelines (the Draft Guidelines), gazetted on 6 October 2023 for public comment, provide insights on the approach the South African Competition Commission (Commission) may adopt and the type of information it may require when evaluating each public interest factor in merger proceedings. This part of our series on the Draft Guidelines focuses on the effect of a merger on employment.
Substantively, the employment considerations in the Draft Guidelines are much the same as in the earlier version of the Public Interest Guidelines published in 2016 (the 2016 Guidelines). Most of the amendments align the employment assessment with the Commission's practices and applicable case law.
When are job losses considered to be merger-specific?
In terms of the Draft Guidelines, parties to a merger are required to disclose whether the merger has resulted in, or will result in, job losses or retrenchments. However, not all job losses or retrenchments are relevant. The Commission will only be concerned with effects on employment which are "merger-specific". Any retrenchments due to operational needs proposed or initiated in terms of the Labour Relations Act of 1995 (LRA) will be dealt with separately under the LRA. The challenge lies in determining whether any job losses or retrenchments result from a merger or from operational needs, as contemplated in the LRA.
Competition Commission v Coca-Cola Beverages Africa (Pty) Ltd (194/CAC//Oct21) , the Competition Appeal Court observed that “merger-specific” means
“an outcome that can be shown, as a matter of probability, to have some nexus associated with the incentives of the new controller”. This aligns with the Draft Guidelines which provide that, when determining the merger specificity of any job losses or retrenchments, the Commission will "consider whether the proposed employment effects are in any way linked to the intentions, incentives, policies, rationale and decisions of the acquiring group and the incentives of the target group to be attractive to potential purchasers or prepare itself for a potential merger…"
When determining whether any job losses occasioned are merger-specific, the Commission will examine the timing of the merger. In terms of the Draft Guidelines, the Commission will generally consider an appropriate pre-merger period to be the time from the initiation of merger discussions to the date of filing. An appropriate post-merger period will be one year following the date on which the merger is implemented. Any job losses or retrenchments which have been considered, potentially considered, or initiated during these timeframes would need to be disclosed to the Commission in the merger application to facilitate the required assessment.
In the 2016 Guidelines, the Commission considered the appropriate post-merger period to be one year following the merger approval date. The revised post-merger period of one year from the implementation date means that the merger parties' decisions on retrenchments will be under scrutiny for a longer period, since the implementation date can follow some time after the merger approval date.
Justifications for job losses
The Commission may accept justifications for job losses in certain circumstances, although the Draft Guidelines do not provide a prescriptive or closed list. Potential justifications include instances where the merger is required to save a failing firm; where the firms will not be competitive unless they can lower their costs to be as efficient as their competitors and this can only be achieved by reducing employment through the merger; and where the merging parties provide substantive evidence that the merger will result in lower prices for consumers.
Remedies to address employment concerns
If a proposed merger raises employment concerns, the Commission may, on a case-by-case basis, consider appropriate remedies to address the concerns. In line with recent decisions by the competition authorities, the Draft Guidelines set out some remedies that may be applied to mitigate negative effects on employment. For example, the merging parties could commit to a minimum headcount for up to five years post-merger, or place a moratorium on job losses for not less than
three years post implementation. Other examples of remedies may relate to capping or staggering job losses, obligations to re-employ and providing funding to reskill affected workers.
The Draft Guidelines demonstrate that the assessment of the effect on employment in merger proceedings remains a key public interest consideration for the Commission. This is unsurprising, given the country's high unemployment rate and unique historical and socio-economic challenges. However, the approach set out in the Draft Guidelines on merger-specific job losses and the remedies that the Commission may be inclined to consider suggest that the Commission is willing to strike a balance between competitive markets and broader public interest goals, in appropriate circumstances.