Case  CCT178/19
[2020] ZACC 23

Hearing Date: 05 March 2020

Judgement Date: 16 September 2020

Post Judgment Media Summary  

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

On Tuesday 27 October 2020 at 10h00, the Constitutional Court handed down judgment in an application for leave to appeal against the judgment and order of the Labour Appeal Court, which found that the dismissal of the second to further applicants was not automatically unfair in terms of section 187(1)(c) of the Labour Relations Act 66 of 1995 (LRA).

During April 2014, as a result of harsh economic conditions, Aveng experienced a decline in sales and profitability. To maintain its profitability Aveng had to reduce its increasing costs in relation to labour, electricity and transport. The drop in the volume of sales meant that some of the machines were under-utilised and necessitated the alignment of Aveng’s workforce and production output with the market conditions. Aveng soon realised that it could no longer continue with its business model and resorted to restructuring its business in order to survive. On 15 May 2014, Aveng initiated a consultation process in terms of section 189(3) of the LRA. In the notice, it indicated that about 400 jobs might be affected, and hoped that some employees would agree to work in the redesigned positions to avoid the necessity of initiating retrenchment proceedings. At that stage, Aveng had a total workforce of 1784 permanent employees.

On or about 29 August 2014, Aveng’s management indicated that employees were invited to apply for voluntary severance packages (VSPs) or early retirement, if they so wished, and that the opportunity to do so would remain open until 5 September 2014. NUMSA requested an assurance that no “forced retrenchments” would take place. However, Aveng could not guarantee this. NUMSA then proposed, as an alternative to the redesigning of job descriptions, a five-grade structure. At that time, Aveng had a thirteen-grade structure in place. NUMSA’s understanding was that the five-grade structure would allow for a redesigning of the job descriptions without interfering with Aveng’s organisational structure and reduce costs beyond those provided for in a collective agreement; which Aveng was a party to, and which was referred to as the main agreement of the Metal and Engineering Industries Bargaining Council (MEIBC).

During September 2014, a consultation meeting was held where Aveng’s Employee Relations Executive (Aveng’s ERA) mentioned that in order to avoid “forced retrenchments” employees who did not receive VSPs had to be placed in the redesigned positions. Furthermore, that there would not be any need for “forced retrenchments” if “grey areas” were addressed. It is common cause that further consultation meetings were held which resulted in the termination of the services of 253 employees, of which 249 employees opted for VSPs and the remaining four were retrenched.

During October 2014, NUMSA and Aveng concluded an interim agreement in terms of which employees agreed to work in accordance with Aveng’s redesigned job descriptions until the five-grade structure was finalised. It was contemplated that this would only be in March 2015. It was further agreed that the employees performing additional functions would be paid 60 cents per hour. The employees worked under the proposed new structure for a period of six months. However, on 13 February 2015, NUMSA reneged on the interim agreement and informed Aveng that its members would no longer perform the redesigned jobs. This, according to NUMSA, was because Aveng had not yet negotiated the five-grade structure that was supposed to be implemented from the beginning of March 2015.

On 30 March 2015, it became clear to Aveng that NUMSA had no desire to engage in a meaningful consensus-seeking consultation process to resolve the five-grade structure issue, but rather sought to use the consultations to demand wage increases. Aveng thus addressed a letter to NUMSA informing it that Aveng was unable to accommodate its demands any further and could not increase its costs. NUMSA was further informed that the consultation process had been exhausted. They were further informed that Aveng would continue to implement its new redesigned job descriptions structure to address its operational requirements, as the jobs that existed prior to the consultations had become redundant. As employees of NUMSA had been performing the redesigned jobs, Aveng offered them an opportunity to remain in those jobs, but “should they reject it, they [would] unfortunately be retrenched”.

The parties tried to resolve their issues on several occasions, but to no avail. On 17 April 2015, Aveng addressed another letter to NUMSA reiterating the letter of 30 March 2015. During April 2015, 71 employees accepted Aveng’s offer. However, approximately 733 employees rejected it and their services were subsequently terminated on 24 April 2015 for reasons that Aveng advanced as retrenchments for its alleged operational requirements. Approximately a year after the dismissal of the second to further applicants, Aveng outsourced its fleet and transferred its transport business to Imperial, including 110 of its employees. This takeover relates to one of the claims pursued by NUMSA for the reinstatement of its members. Adjudication of this claim required an examination of the potential and practicable reinstatement by Imperial of some 110 employees who form part of the second to further applicants.

On 22 May 2015, NUMSA referred an unfair dismissal dispute to the MEIBC for conciliation. The dispute could not be resolved and a certificate of non-resolution was issued. Thereafter, NUMSA approached the Labour Court.

Before the Labour Court, NUMSA argued that the dismissal of the second to further applicants was automatically unfair in terms of section 187(1)(c) of the LRA. In disputing this, Aveng argued that the dismissal of the second to further applicants was for operational requirements in terms of the LRA. The Labour Court held that the individual employees were not dismissed for refusing to accept any demand, but for operational requirements after rejecting the alternative to dismissal proposed by Aveng during the retrenchment consultation. It further held that it would not be reasonably practicable for Imperial to reinstate the dismissed employees. Aggrieved by the outcome, NUMSA appealed to the Labour Appeal Court.

On 13 June 2019, the Labour Appeal Court upheld the Labour Court judgment and agreed with Aveng that no demand was made as envisaged under section 187(1)(c). It held that Aveng made a proposal to NUMSA, the primary purpose of which was to facilitate Aveng’s restructuring for operational reasons, in order to ensure that it survived its economic distress. It further held that NUMSA took advantage of the economic plight of Aveng and sought to convert the consultative processes into a collective bargaining opportunity for increased wages. Consequently, the Labour Appeal Court held that the second to further applicants were dismissed as a result of Aveng’s operational needs, and not as a consequence of their refusal to accept a demand in respect of a matter of mutual interest. In reaching its conclusion, it held that section 187(1)(c) does not preclude an employer from dismissing employees, provided that the dismissal is for operational reasons. The question of whether the section is contravened does not depend on whether the dismissal is conditional or final, but on the true reason for the dismissal of the employees. Thus, the true reason for the dismissal of the employees must be determined.

In determining whether the true reason for the dismissal was a refusal to accept the proposed changes to employment or whether it was based on operational requirements, the Labour Appeal Court applied the “true reason” or “dominant cause” test as laid down by the Labour Appeal Court in SA Chemical Workers Union v Afrox Ltd (Afrox test). When there is more than one possible reason for dismissal, the Afrox test seeks to determine the true or dominant reason therefor through the application of a causation test. The Labour Appeal Court concluded that, on the facts, the dismissal would not have occurred without the refusal of alternative employment. The true reason for the dismissal was the employer’s operational requirements. In dismissing the appeal, the Labour Appeal Court concluded that NUMSA’s interpretation of the section would undermine the fundamental purpose of section 189 of the LRA, which encourages engagement between employers and employees – facilitating the creation of alternatives to retrenchments, and to avoid scenarios where employers are shackled and rendered unable to propose changes to the terms and conditions of employment in terms of section 189 consultations. Aggrieved by this outcome, NUMSA approached the Constitutional Court for leave to appeal.

Before the Court, NUMSA argued that the judgment of the Labour Appeal Court should be overturned and that the second to further applicants should be reinstated. It contended that the Labour Court’s interpretation of section 187(1)(c), which was endorsed by the Labour Appeal Court, was inconsistent with the literal, purposive and contextual interpretation of section 187(1)(c) of the LRA. Furthermore, on a plain reading of the section, a dismissal is automatically unfair even if employees are dismissed for rejecting a demand that arises from or as a result of the employer’s operational requirements. It alleged that the Labour Appeal Court erred in applying the true reason and dominant cause test as enunciated in Afrox. This was so because the matters were distinguishable and the application of the test was inappropriate. Furthermore, the offer by Aveng was a demand contemplated in section 187(1)(c) because it had a serious sting, and consequences attached to it. For that, the appeal had to succeed. Finally, it argued that if reinstatement was not reasonably practicable, then the employees should be appropriately compensated.

Aveng and Imperial supported the reasoning of the Labour Appeal Court. They placed particular emphasis on the purpose of the amendment to the section and that it sought to cure the anomaly that had arisen as a result of previous court decisions which sought to preclude employers from dismissing employees for operational reasons, only to re-hire some of them whenever circumstances permitted. They relied on the explanatory memorandum to the Labour Relations Amendment Act 6 of 2014 which they contended clearly articulated the purpose of the amendment. Aveng argued that it was engaged in a continuous bona fide (good faith) retrenchment consultation process throughout. Realising the distressed financial position it faced, it suggested the restructuring of the company and the redesigning of the job descriptions as an alternative to retrenchment. The employees agreed and started working in terms of the new agreement. It was only in February 2015 that NUMSA inexplicably started demanding higher wages. Aveng was held to ransom, as it had retrenched some of its employees by that stage. It contended that the parties were not engaged in collective bargaining but that Aveng’s ERA’s statements were made during retrenchment consultations. Aveng submitted that the interpretation of the section contended for by NUMSA undermined the right of employers to dismiss employees for operational reasons. Moreover, it undermined the right to fair labour practices in section 23(1) of the Constitution.

Imperial confined its case to the reinstatement of the dismissed employees. As stated earlier, it aligned itself with Aveng in supporting the findings of the Labour Appeal Court. For its part, it contended that on its undisputed evidence, it would be impracticable to reinstate the employees. It submits that reinstatement would cripple Imperial by increasing its monthly costs and that this would result in the entire contract failing with possible job losses of around 200 employees.

The first judgment penned by Mathopo AJ (with Mogoeng CJ, Khampepe J, Madlanga J and Theron J concurring), the Constitutional Court held that the dismissal of the second to further applicants was not automatically unfair in terms of section 187(1)(c) of the LRA. It held that in an ever-changing economic climate characterised by increasing global competition, operational reasons not only relate to the downsizing of the workforce, but also to restructuring the manner in which an existing workforce carries out its work. Restructuring entails a number of possibilities, including shift system duties; adjusted remuneration; and merging of jobs or duties. Generally, businesses that adapt quickly will survive and prosper. Those that do not will decline and fail. Realising its predicament, Aveng engaged with its employees through NUMSA regarding a re-organisational plan through a structured consultative process. NUMSA’s intransigence played a major role in making it impossible to save jobs. To prohibit Aveng from invoking the provisions of the section and dismissing employees under these circumstances would undermine the LRA’s objectives in ensuring the viability and vitality of businesses.

The first judgment also agreed with the Labour Appeal Court that the proposals were the only reasonable and sensible means of avoiding dismissals and entailed no adverse financial consequences for the employees. Therefore, the dismissal of the employees for operational reasons was the main or dominant cause for the dismissals, and constituted a fair reason for the dismissals. In respect of the interpretation of section 187(1)(c) of the LRA, the first judgment found that the section requires courts to interrogate, among various factors, what the cause of the dismissal is and determine the probable cause of the dismissal by examining the facts before them and assessing whether that cause is the main or dominant, or proximate, or most likely cause of the dismissal. As a result, there is no logical reason why the Afrox test, which in essence seeks to distinguish automatically unfair dismissals from those that are not automatically unfair, cannot similarly be applied in the context of section 187(1)(c). Importantly, the section itself uses the language “if the reason for the dismissal is”, making it clear that establishing the true and dominant reason for the dismissal is paramount. In doing so, the section clearly denotes that an examination of the reason, which can be ascertained through a causal analysis, must be established in order to determine whether or not it has been contravened. Since the section itself implies a causation requirement, it is apposite to utilise the causation test as articulated in Afrox.

The second judgment penned by Majiedt J (Jafta J, Mhlantla J, Tshiqi J and Victor AJ concurring) concurs with the outcome and order reached in the first judgment that the dismissal in the matter was not automatically unfair in terms of section 187(1)(c) of the LRA, but differed with the first judgment’s reasoning that the true reason for the employees’ dismissal in terms of section 187(1)(c) can be determined by applying the causation test as propounded by the Labour Appeal Court in Afrox. On this aspect, the second judgment held that the causation test, which is traditionally employed in delict and criminal cases for purposes of linking the wrongful conduct to the harm suffered, is not suitable in this context, and has the potential to yield an incorrect outcome.

The second judgment noted that the application of the causation test as stated in Afrox is not feasible from a plain reading of section 187(1)(c). That an interpretation of section 187(1)(c) as imposing a causation test unduly strains the language of the section and misconstrues the rationale for causation as a legal requirement. Consequently, the second judgment held that the approach adopted by the Labour Appeal Court in Chemical Workers Industrial Union v Algorax, which entails the evaluation of evidence adduced to prove the true reason for the employees’ dismissal where there are two conflicting reasons, is to be preferred.

A third judgment penned by Jafta J (Majiedt J, Mhlantla J, Tshiqi J and Victor AJ concurring), agreed with the first judgment, except with regard to its interpretation of section 187(1)(c) of the LRA and its approval of the Labour Appeal Court’s decision in Afrox. The third judgment held that Afrox proceeded from an incorrect premise in that it did not base its conclusion on the language of section 187(1). The third judgment provided additional reasons to those contained in the second judgment and held that on its proper interpretation the section does not incorporate causation as a requirement.

 

The Full judgment  here