In January 2025, we wrote about the Labour Court’s judgment in Shushu and Others v Distell Ltd (Springs) (2025) 46 ILJ 1000 (LC), which would have left employers in low spirits. That judgment found that Distell’s retrenchment of employees who refused to agree to a salary reduction was unfair. You can find that article here – https://chmlegal.co.za/whiskey-business-retrenchments-and-the-proportionality-principle/.
Any hopes of a ‘pick me up’ in an appeal against that judgment were also dashed when on 12 August 2026, the Labour Appeal Court (LAC) agreed with the finding of the Labour Court.
The facts are by now well-known. During the COVID-19 pandemic, Distell suffered significant financial losses due to restrictions on alcohol sales. To deal with this, it proposed a temporary 10% salary reduction to reduce costs and avoid job losses. After consultation, approximately 99.9% of employees accepted the reduction, achieving Distell’s targeted saving of R20 million per month.
Three employees, however, refused the reduction. Their combined contribution would have amounted to only R3,538 per month, but they were nevertheless retrenched because they refused to agree to the reduction. This, the Labour Court found to be unfair because the retrenchments were a disproportionate response to Distell’s operational requirements.
Distell’s appeal revolved around whether the Labour Court had introduced a new form of proportionality assessment which is incongruent with previous cases determined by the LAC. Distell contended that the assessment applied by the Labour Court was effectively a new test, which improperly interfered with its managerial prerogative. It also relied on the aggregation thesis, contending that the respondents’ dismissals remained justified because their saving formed part of the broader operational objective.
The LAC found no merit in these contentions. On the facts, it found that once Distell had achieved its operational objective of the savings target, it was required to explain why dismissing the remaining employees remained necessary. Distell, however, failed to do so.
The LAC confirmed that the law on retrenchments, as it currently stands, is set out in National Union of Food Beverage Wine Spirits and Allied Workers v Coca Cola Beverages SA (Pty) Ltd (2024) 45 ILJ 1813 (LAC) and that our law had evolved from affording excessive deference to managerial prerogative towards a more rigorous scrutiny of whether dismissals are justified.
The LAC found that the source of any enquiry into a dismissal is the statutory standard of fairness, and that this is not an empty concept. Fairness entails the balancing of both interests of employers and employees, and in doing so our Courts have employed the ‘language of rationality, reasonableness and necessity’ as analytical tools. They do not create separate thresholds of lawfulness, and the standard remains whether, considering all relevant circumstances, the retrenchments are fair.
Importantly, the LAC found that while fairness remains the governing standard, ‘its content will continue to be the subject of progressive and contextually informed development. The Court said as follows:
“[37] The appellant’s further submission that, by applying the notion of proportionality, the Labour Court reached an absurd conclusion is devoid of merit. I do not agree. To the extent relevant, proportionality can be used as a tool of scrutiny within the fairness enquiry. Like rationality, reasonableness and necessity, it assists in determining whether the employer had established a fair basis for the retrenchments. Its application must, however, be approached with caution lest the judicial enquiry stray into the impermissible terrain of evaluating the commercial efficacy of business decisions.” (Emphasis added).
The LAC accordingly confirmed that proportionality may be used as a tool within the existing fairness enquiry, and that the Labour Court had anchored its reasoning in the ‘concepts of rationality, reasonableness and fairness’ articulated in Coca Cola. On the facts of this case, Distell had failed to show why the dismissal of three employees was fair, in circumstances where it had already met its operational requirement of monthly cost savings.
The appeal was accordingly dismissed.
