Transcript Restructuring and retrenchment Clive Thompson Nov 2011

Restructuring
and Retrenchment
Clive Thompson
Current Labour Law 2011
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Developments over the year:
Section 197: transfers of business, transfers of
employees
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•
•
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Section 197 second-generation transfers: still a legal issue
Transfers of employees on insolvency: yes they do!
Changing terms & conditions by agreement upon transfer
New employer bound by reinstatement award
Section 189: downsizing
• Substantive fairness: authority to dismiss
• Procedural fairness: how much consultation is enough?
Current Labour Law 2011
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Developments over the year:
Section 189A: Larger scale retrenchments
• Facilitator’s power to shape the consultative process
• When can an employer issue a termination of services’ notice?
Section 189: downsizing
• Right to fill vacancies when they arise
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Developments over the year:
Compelling changes to terms and conditions of
employment – implications for the operational
requirements dismissal
Abrahams v Drake & Skull, Labour Court, C1105/10
[Steenkamp J]
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S 197: A quick recap
Business transfer = transfer of contracts of employment
If a transfer of a business by one employer to another as a going
concern takes place, then, unless otherwise agreed by one or
both of the employers and the employees –
(a) the new employer is automatically substituted in the place
of the old employer in respect of all contracts of employment
in existence immediately before the date of transfer;
(b) all the rights and obligations between the old employer and
an employee at the time of the transfer continue in force as
if they had been rights and obligations between the new
employer and the employee.
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S 197: A quick recap
Business transfer = transfer of contracts of employment
If a business is transferred as a going concern from one employer
to another, then –
• even if the employees would have preferred to have been
retrenched, their employment effectively continues as before;
• even if the new employer would have preferred to get the
business without any or all of the employees of the old
employer, they travel across with the business by operation
of law.
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S 197: A quick recap
Transfer as a going concern: When everything is weighed up, can
it be said that the same business is being carried on, but now by
a new employer? To what extent –
• has there has been a transfer of assets both tangible
(tools, machinery, vehicles, premises, office equipment,
stock, etc) and intangible (goodwill, know-how, branding,
workplace culture, etc)?
• have some employees been taken over by the new employer?
• are the customers and suppliers the same?
• are there other old and new employer ‘connecting factors’
(such as being associated companies)?
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S 197 Second-generation transfers
SAA v AUSA
SAA
Initial transfer of
maintenance service
plus employees
LGM
Next
E’er
2nd transfer of maintenance service plus employees
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S 197 Second generation transfers
SAA v AUSA
The SCA held that the LAC had “impermissibly distorted the
meaning of the word ‘by’”. It held that that word requires
positive action from the old employer who transfers the business
to the new employer. The interpretation adopted by the LAC
fundamentally changed the meaning of the section as a whole,
since it no longer required any action on the part of the old
employer. In fact, said the SCA, “the disregard of the words used
by the legislature on the basis of a general ‘fairness’ principle
leads not only to uncertainty but also to a failure to observe the
doctrine of separation of powers”.
Current Labour Law 2011
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Transfers upon insolvency
HYDRO COLOUR INKS (PTY) LTD v CEPPWAWU
The first employer, Keep Inks, manufactured inks and varnishes. At a
time that it went into liquidation, a new business, Hydro Colour Inks
(Pty) Ltd, came into being and commenced doing much the same work
with much the same customers.
(i) Had there been the transfer of a business as a going concern?
(ii) If so, what consequences flowed from the fact of the insolvency
of the first employer and the provisions of section 197A
(as opposed to section 197)? The employees in question had in
other proceedings been reinstated in the employment of the first
employer by the Labour Court (following their dismissals because
of the alleged operational requirements of the business).
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Transfers upon insolvency
HYDRO COLOUR INKS (PTY) LTD v CEPPWAWU
Section 197A.
(1) This section applies to a transfer of a business if the old employer
is insolvent;
(2) Despite the Insolvency Act, if a transfer of a business takes place
in the circumstances contemplated in subsection (1), unless
otherwise agreed in terms of section 197(6) –
(a) the new employer is automatically substituted in the place of
the old employer in all contracts of employment in existence
immediately before the old employer’s provisional winding-up
or sequestration;
(b) all the rights and obligations between the old employer and
each employee at the time of the transfer remain rights and
obligations between the old employer and each employee
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Transfers upon insolvency
HYDRO COLOUR INKS (PTY) LTD v CEPPWAWU
Hydro Colour Inks contended that in considering whether there
has been a transfer of a business as a going concern, the Court
should take into account the distinction between sections 197
and 197A and adopt the approach that the new owner should
not be lightly burdened with the consequences of failures of the
business of the insolvent owner. It also argued that the (earlier)
court order reinstating the employees was not in existence at the
time of the old employer’s winding-up and, as such, there were
no contracts of employment that could automatically transfer to
the new employer.
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Transfers upon insolvency
HYDRO COLOUR INKS (PTY) LTD v CEPPWAWU
Tlaletsi J:
• Same principles apply in determining whether a business has
been transferred as a going concern for the purposes of
sections 197 and 197A
• Plenty of connecting facts
• Conclusion: same business, but now in different hands
= transfer
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Transfers upon insolvency
HYDRO COLOUR INKS (PTY) LTD v CEPPWAWU
Tlaletsi J:
At the time of Keep Inks’ winding-up, the retrenched employees
had already obtained orders of reinstatement against Keep Inks
and the effect of the reinstatement order was to restore their
contracts of employment:
“For as long as Keep Inks did not obtain any order setting aside
the reinstatement orders, these employees remained its
employees as at or immediately before its winding-up. The
consequences of this finding is that the appellant having stepped
into the proverbial shoes of Keep Inks is bound to remunerate
. . . The employees.”
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Transfers upon insolvency
CEPPWAWU v HYDRO COLOUR INKS (PTY) LTD & ANOTHER
• New company, Evergreen Coatings, takes over the
manufacture of the products of Hydro
• Hydro informed its employees that it had been arranged that
they could be offered employment with the new company.
If they did not accept employment, however, they would
probably lose their employment as Hydro would be
liquidated. Employment with Evergreen would be fresh
employment on the same terms they had had with Hydro but
subject to six months’ probation, as this was what the new
company wanted.
• Employees claim s 197 protection
Current Labour Law 2011
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Section 197: Attempt to interdict transfer
IMATU & ANOTHER v DEPARTMENT OF HEALTH: EASTERN CAPE
PROVINCE & OTHERS
• Union claims that no transfer could proceed unless the terms
of transfer were agreed
• Parties are not bound to reach section 197(6) agreements
varying transfer terms. But if they do not, then the
pre-existing terms and conditions must continue.
Current Labour Law 2011
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Transfers and conditions of employment
NKOSIYANE & OTHERS & FLEET AFRICA (PTY) LTD
• Fleet operations of City of Johannesburg outsourced in 2001
as a going concern to Fleet Africa together with the
employees’ contracts of employment.
• City covered by SALGA Main agreement, Fleet Africa by Motor
Industry Bargaining Council main agreement.
• Retrenchments benefits not as good under MIBCO agreement
• New employer said employee had entered into fresh
employment contracts, putting them under MIBCO
• Individual applicants retrenched in 2009.
• Which severance package applied?
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Transfers and conditions of employment
NKOSIYANE & OTHERS & FLEET AFRICA (PTY) LTD
Section 197(7) of the LRA: The old employer must agree with
the new employer to a valuation as at the date of transfer of the
severance pay that would have been payable to the transferred
employees of the old employer in the event of a dismissal by
reason of the employer’s operational requirements.
• No such valuation was in fact made.
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Section 197: New employer bound
by arbitration award
EDGARS CONSOLIDATED STORES LTD v SACCAWU & OTHERS
A particular employee of CNA was reinstated by the CCMA some
seven months before the CNA business, in liquidation, was sold
as a going concern to Edcon. The question arose whether Edcon
was bound by the CCMA arbitration award. Edcon contended
that it was not.
Current Labour Law 2011
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EDGARS CONSOLIDATED STORES LTD v SACCAWU & OTHERS
Section 197:
(5) (a) For the purposes of this subsection, the collective agreements
and arbitration awards referred to in paragraph (b) are
agreements and awards that bound the old employer in respect
of the employees to be transferred, immediately before the
date of transfer.
(b) Unless otherwise agreed in terms of subsection (6), the new
employer is bound by–
(i) any arbitration award made in terms of this Act, the
common law or any other law;
Section 197A:
(4) Section 197(5) applies to a collective agreement or arbitration
binding on the employer immediately before the employer’s
provisional winding-up or sequestration.
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EDGARS CONSOLIDATED STORES LTD v SACCAWU & OTHERS
Edcon did not contend that an arbitration award in favour of a
former employee of the old employer cannot be binding on the
new employer to whom the business is transferred in conditions
of insolvency. The only argument it advanced in support of its
claim that the award was unenforceable was that an arbitration
award of more than seven months’ vintage issued against CNA
(the old employer) occurred too long in the past to be brought
within the ambit of section 197A(4).
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Section 197: Severance pay
JENKIN v KHUMBULA MEDIA CONNEXION (PTY) LTD
• 17 August 1981: Jenkin, a printer commenced employment
with a division of Transnet. In January 1991, the business was
acquired by a company, trading as Skotaville Press. In 2002,
Skotaville Press became African Impression Media (Pty) Ltd.
Jenkin employment continued throughout, without change.
• During 2006, the name of the company changed to Khumbula
Media Connexion. Jenkin’s employment simply continued. It
appears that Khumbula took over the business from an
insolvent African Impression Media.
Current Labour Law 2011
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JENKIN v KHUMBULA MEDIA CONNEXION (PTY) LTD
“The applicant explained that his problems had started in March
2007 when people had arrived at the office and commenced
removing the furniture.”
• Single, cursory retrenchment consultation meeting in
December 2007
• Service finally terminated in April 2008
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JENKIN V KHUMBULA MEDIA CONNEXION (PTY) LTD
BCEA Section 41. Severance pay.—(1) For the purposes of this
section, “operational requirements” means requirements
based on the economic, technological, structural or similar
needs of an employer.
(2) An employer must pay an employee who is dismissed for
reasons based on the employer’s operational requirements
or whose contract of employment terminates or is
terminated in terms of section 38 of the Insolvency Act, 1936
severance pay equal to at least one week’s remuneration for
each completed year of continuous service with that
employer.
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JENKIN V KHUMBULA MEDIA CONNEXION (PTY) LTD
“In this matter the issue in question is the consequence of the
take over of the part of the business or service for the purposes
of calculating severance pay. In other words, whether the
applicant’s length of service commenced with the take over or
whether his previous service should be taken into account.”
“What is clear is that the applicant was employed continuously
doing the same work from his original employment by Transnet
to his retrenchment by the respondent.”
Transfer of business established on the facts.
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Abrahams v Drake & Skull
Facts:
• Ms Abrahams transferred under s 197 from Clicks to Drake
& Skull, a temporary employment service providing services
to retailers, on 1 June 2007. Engaged as a creditors purchase
order clerk. Being paid R23 000 pm on transfer
• Title later changed to financial administrator; pay increased
to R30 000 pm on 9 April 2010.
• September 2010: invited to consult over her package; told
she was receiving 4 ½ times average salary enjoyed by
people in her department; invited to agree to reduction in
pay to R8 500 pm; declines
• End September 2010: pay reduced to R8,500 pm
• Ms Abrahams sues in Labour Court for her old pay rate – a
claim for specific performance
Current Labour Law 2011
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Abrahams v Drake & Skull
Issues:
• Can employer unilaterally alter contract of employment (to
employee’s financial prejudice)?
• Court response:
o Dismissal to compel compliance is automatically unfair
under s 187(1)(c)
o Unilateral change is unlawful and unfair
o Employer can lock-out
o Employer can retrench for operational requirements
reasons if substantively and procedurally fair
• Outcome: employer order to restore earlier conditions and
pay back the difference
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Section 189A Facilitation
NUM V CCMA & OTHERS
4. Powers and duties of a facilitator
(1) Unless the parties agreed otherwise, the facilitator may –
(a) chair the meeting between the parties;
(b) decide the issue of procedure that arises in the course
of meetings between the parties;
(c) arrange for the facilitation of meetings after consultation with
the parties;
(d) direct that the parties engage in consultations without the
facilitator being present.
(2) A decision by a facilitator in respect of any matter concerning the
procedure for conducting facilitation, including the date and time
meetings, is final and binding.
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Section 189A notices, and consultation
DE BEERS GROUP SERVICES (PTY) LTD v NUM
Section 189A(2) of the LRA
In respect of any dismissal covered by this section –
(a) an employer must give notice in termination of employment
in accordance with the provisions of this section; . . .
Section 189A(8) of the LRA
If a facilitator is not appointed–
(a) a party may not refer a dispute to a council or the Commission unless
a period of 30 days has lapsed from the date on which notice was given
in terms of section 189(3) [notice to consult]; and
(b) once the periods mentioned in section 64(1)(a) have elapsed –
(i) the employer may give notice to terminate the contracts of
employment in accordance with section 37(1) of the Basic Conditions
of Employment Act;
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Section 189A notices, and consultation
DE BEERS GROUP SERVICES (PTY) LTD v NUM
Davis J:
“Hence a consultation process is designed to ensure that some form of
consensus can be reached as how to deal with a problem of a reduction
of a workforce based on the employer’s operational requirements.
In this case, no such consensus had been reached as to how to deal
with the affected employees. So much is clear from a reading of the
founding, answering and replying affidavits. In other words, as at the
time that the termination notices were issued on 13 March 2009, an
agreement had not been reached about the dismissals and,
accordingly, by implication, a dispute, within the meaning of
section 189, remained to be resolved.”
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Retrenchment agreement – collective agreement
NATIONAL UNION OF METALWORKERS OF SA & JOHNSON
MATTHEY (PTY) LTD
• Employer agrees to give preference to retrenched employees in
filling the posts formerly occupied by them at the time of their
retrenchment should vacancies arise in these categories within
a period of 36 months following their retrenchment.
• Vacancies did subsequently arise, but the union was not notified.
• Found, first of all, that the parties did not intend to extend the
benefits of the recall provision to those who were voluntarily
retrenched.
• A defence raised by the employer was that the retrenched
employees should have adduced evidence establishing they had the
necessary skills and qualifications to fill the vacancies in question
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