In the matter of NUMSA obo Members v Aveng Trident Steel and Others CCT 178/19, the Constitutional Court considered whether an employer has the right to implement alternative terms and conditions of employment based on its operational requirements and to retrench those employees who do not accept the alternative terms and conditions of employment. Judgment was handed down by the Constitutional Court on 27 October 2020.

The principle enunciated by the Constitutional Court is that as an alternative to retrenchment, an employer, pursuant to consultations, may offer employees employment on less favourable or reduced terms and conditions of employment. Should the employees decline such an offer, the employer can dismiss those employees as a result of its operational requirements. However, the employer must ensure that the dismissal is as a result of its operational requirements and not the employee’s refusal to accept the reduced or less favourable conditions of employment. Said differently, the employer’s operational requirements, and only that, must be the dominant reason or proximate cause for the dismissal to escape liability under section 187(1)(c) of the Labour Relations Act 66 of 1995 (“LRA”). 

FACTS

Aveng Trident Steel (“Aveng”) experienced a sharp decline in sales volume and profitability. Aveng sought to realign its cost structure to ensure its sustainability. It initiated a consultation process in terms of section 189A of the LRA to realign its business and proposed, inter alia, the review of its organisational structure and redefinition of certain job descriptions. It proposed to cluster jobs along the lines of the provisions of the Main Agreement of the Metal Engineering Industries Bargaining Council (“MEIBC”), which would lead to a combining of job functions resulting in significant cost savings.

The National Union of Metalworkers of South Africa (“NUMSA”) accepted the proposed realignment. This resulted in 249 employees opting for voluntary severance packages, 4 employees being retrenched and the termination of 257 limited duration contracts. Aveng concluded an Interim Agreement with NUMSA in terms of which consultations about job descriptions would continue whilst the remaining employees would perform the functions of those who had departed. 

NUMSA reneged on the Interim Agreement concluded between itself and Aveng which set out terms in which employees agreed to work in accordance with Aveng’s redesigned jobs. NUMSA instead demanded a pay increase for the employees performing the work which was originally performed by those who had departed. Faced with the inevitability of not being able to continue with its operations, Aveng agreed to the increase and engaged NUMSA in further consultation regarding the redesign of job descriptions. NUMSA attempted to convert the consultations into a wage negotiation and consensus could not be reached. Aveng advised NUMSA that consultations on the job descriptions had been exhausted and that it would implement the new job descriptions. Affected employees were offered the positions with the amended job descriptions, without a reduction in pay, as alternatives to the retrenchment. Only 71 employees accepted alternative roles and 733 employees who did not accept the offers of alternative employment were retrenched. NUMSA referred an automatically unfair dismissal dispute in terms of section 187(1)(c) of the LRA to the MEIBC and further to the Labour Court. 

The Labour Court held that the employees were not dismissed for refusing to accept any demand but that they were dismissed based on the employer’s operational requirements. Dissatisfied with the decision of the Labour Court, NUMSA appealed against the Labour Court decision to the Labour Appeal Court (“LAC”). This decision has been summarised and commented upon in our website article of https://www.wilkeninc.co.za/2019/06/14/labour-appeal-court-confirms-dismissals-for-operational-reasons-permissible/

The LAC held that section 187(1)(c) of the LRA ought to be read in the context of the LRA’s scheme for the protection against dismissal, and in particular section 188 of the LRA, which provides that a dismissal that is not automatically unfair, is unfair if the employer fails to prove a fair reason, such as an employer’s operational requirements under section 189 of the LRA. 

The LAC found that the purpose of Aveng making the proposal was not to gain any advantage in wage bargaining but was rather to restructure for operational reasons to ensure Aveng’s long-term survival. The employees’ rejection of the proposal necessitated their dismissals due to operational requirements. The LAC held that one had to consider the real reason giving rise to the dismissal to determine whether section 187(1)(c) of the LRA was triggered and upheld the Labour Court’s decision. 

CONSTITUTIONAL COURT

The Constitutional Court held that section 187(1)(c) requires one to determine the real reason for the dismissal. It further held that the contention that an employer may never resort to retrenchments without contravening section 187(1)(c) would undermine an employer’s right to fair labour practices is entrenched in the constitution. The wording of section 187(1)(c) is not triggered simply because a proposed change is refused, and dismissal ensues. It was further held that determining the reason for a dismissal is a question of fact and enquiry into the reasons for the dismissal is an objective one. The Constitutional Court held that the Afrox approach was most useful in this regard and the Constitutional Court agreed with the LAC that on a proper interpretation of the section “it no longer matters what the employer’s intention or purpose might be” since there has been a shift in the focus from the employer’s intention in effecting the dismissal to the refusal of the employee to accept a proposal. The Constitutional Court found refuge in the specific wording of section 187(1)(c) of the LRA in that the wording of the section specifically provides that “a dismissal is automatically unfair if the employer, in dismissing the employee, acts contrary to section 5 or, if the reason for the dismissal is”. Accordingly, this requires the interrogation and determination, amongst various factors about what the cause of the dismissal was.

Although three judgements were delivered, all three judgements dismissed the appeal and found that Aveng had not contravened section 187(1)(c) of the LRA. The only aspect upon which the Justices in the three different judgements depart from one another is in determining the reason for the dismissal. The second judgement departs from the majority judgement on whether, on the proper interpretation of section 187 (1)(c) of the LRA, causation is still a requirement and whether the Afrox judgement’s causation test is still relevant for determining the true reason for the dismissal in respect of section 187(1)(c) of the LRA. The third judgement, endorsing the second judgement, goes further to find that the language of section 187(1)(c) of the LRA does not call for imputing causation in determining the reason for the dismissal. 

COMMENT

With the matter between NUMSA and Aveng having been finalised through the Constitutional Court, it does not mean to that employers have carte blanche to dismiss employees. The Courts will continue to guard against opportunistic or disingenuous employers by determining the true reason for the dismissals.

An employer facing the potential of having to embark on a restructuring process that entails amending employee’s terms and conditions of employment is advised to seek legal advice to ensure that the contemplated retrenchment arises from its operational requirements not any other reason. 

Our Managing Partner, St. Elmo Wilken, has represented Aveng in this matter from the outset since 2015.