Concourt ruling on restructuring is good for employers

A recent Constitutional Court judgment empowers employers to change their workers’ employment conditions if the further functioning of a company requires this. If workers refuse, they may be dismissed without severance.

On Tuesday, the apex court ruled against a group of National Union of Metalworkers of South Africa (Numsa) workers, who were dismissed amid a strained restructuring process at Aveng Trident Steel.

Greg Fourie SC, who worked on the case, said the judgment is potentially a big victory for employers, especially as they rebuild in the wake of Covid-19.

Before the judgment, employers could not change their workers’ contracts — how much they are paid and what jobs they do — without consulting them. “It wasn’t clear what the employer could do to force the change. Would the employer simply have to keep paying a full salary until they go into liquidation, or would they have to retrench some of the people? … But the judgment allows an employer to force a change with the threat of dismissal,” Fourie said. This must happen through a retrenchment process and not through collective bargaining.

“When faced with the option of no job or less money, you would probably go for less money.”

In 2014, Aveng initiated a section 189 retrenchment process in the wake of a decline in the company’s profits. During consultations, Aveng and Numsa agreed that, to avoid forced retrenchments, workers would be given new job descriptions. As part of the agreement, Aveng would implement a flatter pay structure by March 2015.

However, six months after the agreement was made, Numsa did an about-turn and informed Aveng that its members would no longer work in their redesigned roles. According to Numsa, this decision was taken because Aveng failed to implement the proposed pay structure.

In April 2015, Aveng wrote a letter to Numsa informing the union that if its members did not accept their new employment conditions, they would be retrenched. The 733 workers who rejected the redesigned jobs were subsequently dismissed.

Numsa took the matter to the labour court, arguing that the dismissals were automatically unfair under section 187 of the Labour Relations Act. According to the section, a dismissal is automatically unfair if the reason for the dismissal is to compel the worker “to accept a demand in respect of any matter of mutual interest between the employer and employee”.

However, Aveng argued that the dismissals were based on the company’s operational requirements and thus were not automatically unfair, as per section 189 of the Act.

The lower court and, subsequently, the labour appeal court, sided with Aveng on the matter. The labour court accepted that the old jobs performed by the dismissed workers were redundant, and the retrenchments were thus substantively fair.

In dismissing the appeal, the appellate court concluded that, on the facts, the dismissals would not have occurred without the refusal of alternative employment. Thus, the true reason for the dismissal was the employer’s operational requirements

The court further surmised that Numsa’s interpretation of section 187 would undermine the fundamental purpose of section 189.

The Constitutional Court agreed that the dismissals were not automatically unfair in terms of section 187. But the three judgments in the matter differed in their approaches in arriving at this conclusion.

In the first judgment, acting justice Rammaka Mathopo writes that, when parties are engaged in collective bargaining, “one of them should not lightly be allowed to threaten to pull the plug on the process resulting in the demise of the other if it does not get its way. This is exactly what Numsa did.”

He later adds that it is in the best interests of society that an employer remains economically viable. “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,” the judgment reads.

The judgment concludes that, on a plain reading of section 187, “it cannot be suggested that the section should not be interpreted in a manner that permits dismissal for operational requirements”.

But decisions to change workers’ basic conditions of employment must be made in good faith. The Constitutional Court judgment adds that employers do not have carte blanche to dismiss workers.

“Courts must guard against disguised retrenchments that take place where collective bargaining prevails. Courts can police opportunistic or disingenuous employers by determining the true reason for the dismissals.”

At the time of writing Numsa spokesperson Phakamile HlubiMajola said the union’s lawyers were still studying the judgment. The union will issue a statement on the ruling, she said.