Restructuring and Retrenchment

1. Restructuring and Retrenchment • Clive Thompson Current Labour Law 2011 1

2. Developments over the year: Section 197: transfers of business, transfers of employees • 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 2

3. 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 Current Labour Law 2011 3

4. 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] Current Labour Law 2011 4

5. 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 employeeat the time of the transfer continue in force as if they had been rights and obligations between the new employer and the employee. Current Labour Law 2011 5

6. 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. Current Labour Law 2011 6

7. 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)? Current Labour Law 2011 7

8. S 197 Second-generation transfers SAA LGM Next E’er SAA v AUSA 2nd transfer of maintenance service plus employees Initial transfer of maintenance service plus employees Current Labour Law 2011 8

9. 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 9

10. 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). Current Labour Law 2011 10

11. 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 Current Labour Law 2011 11

12. 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. Current Labour Law 2011 12

13. Transfers upon insolvency • 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 HYDRO COLOUR INKS (PTY) LTD v CEPPWAWU Current Labour Law 2011 13

14. 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.” Current Labour Law 2011 14

15. 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 15

16. Section 197: Attempt to interdict transfer • • 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. IMATU & ANOTHER v DEPARTMENT OF HEALTH: EASTERN CAPE PROVINCE & OTHERS Current Labour Law 2011 16

17. 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? Current Labour Law 2011 17

18. Transfers and conditions of employment • 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. NKOSIYANE & OTHERS & FLEET AFRICA (PTY) LTD Current Labour Law 2011 18

19. Section 197: New employer bound by arbitration award • 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. EDGARS CONSOLIDATED STORES LTD v SACCAWU & OTHERS Current Labour Law 2011 19

20. 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. Current Labour Law 2011 20

21. 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). Current Labour Law 2011 21

22. 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 22

23. 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 Current Labour Law 2011 23

24. 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. Current Labour Law 2011 24

25. 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. Current Labour Law 2011 25

26. 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 26

27. Abrahams v Drake & Skull • Issues: • Can employer unilaterally alter contract of employment (to employee’s financial prejudice)? • Court response: • Dismissal to compel compliance is automatically unfair under s 187(1)(c) • Unilateral change is unlawful and unfair • Employer can lock-out • Employer can retrench for operational requirements reasons if substantively and procedurally fair • Outcome: employer order to restore earlier conditions and pay back the difference Current Labour Law 2011 27

28. 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. Current Labour Law 2011 28

29. 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; Current Labour Law 2011 29

30. 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.” Current Labour Law 2011 30

31. 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 Current Labour Law 2011 31