In Luyanda Shushu & Others v Distell Limited (Springs) (case number JS81/21, 10 December 2024) the Labour Court was asked to determine the fairness of a decision by the employer, Distell, to retrench three employees who had refused to accept a 10% reduction in their remuneration during the Covid pandemic.
The facts were briefly as follows: Shortly after the Covid pandemic hit our shores, lockdowns were implemented along with regulations which prohibited the sale of alcoholic beverages for extended periods of time. As a producer and distributor of alcoholic beverages, this of course seriously impacted on the liquidity of the employer (i.e. some R4 billion) and required it to take serious remedial measures to ensure that it remained a going concern.
One of the measures proposed was a 10% reduction in remuneration for a 12-month period, as this would allow the employer to effect the necessary cost-savings (some R20 million per month). All but nine of the employer’s 4000 or so employees agreed to the proposal. Three of the employees were ultimately retrenched, and it is their dispute which came before the Labour Court.
The Facts
The evidence before the Court can be summed up as follows:-
- While the employer had initially proposed a 10% reduction in its workforce, it was unlikely that this was ever seriously contemplated since the savings it needed to realise were temporary in nature (10% of its salary bill over 12 months), and it still required its whole workforce to operate effectively;
- 99.9% of the employees had agreed to the salary reduction and the employer had met its goal of monthly savings of R20 million. The reductions were so successful that they only operated for 10 months (as opposed to 12);
- Even though the employer had effectively met its targets, it issued section 189 notices to those employees who did not agree to reduce their pay. There were less than ten employees, including the three applicants whose combined 10% saving would have amounted to a meagre R3,538 per month; and
- The employer’s witness indicated that the reason for persisting with the retrenchments even after having met the savings target was to ensure consistency and ‘avoid labour disputes’. The witness did not, however, indicate that the Company required the additional saving that could be gained from the reduction of the three employees.
The Court’s Analysis
Relying on the Constitutional Court’s judgment in National Union of Metalworkers of SA & others & Aveng Trident Steel (A Division of Aveng Africa (Pty) Ltd) & another (2021) 42 ILJ 67 (CC) Court found that it was in principle permissible for an employer to retrench employees who refuse to agree to changes to their remuneration. It was still, however, necessary for the Court to determine whether such a dismissal was fair.
Referring to the test established by the Labour Appeal Court (“LAC”) in National Union of Food Beverage Wine Spirits & Allied Workers v Coca Cola Beverages SA (Pty) Ltd (2024) 45 ILJ 1813 (LAC), the Court confirmed that for a decision to retrench to be substantively fair, the employer must show that its decision to do so was a ‘rational and reasonable response to an operational requirements predicament’. The Court also found that the issue of proportionality, which is a component of reasonableness, was pertinent in these circumstances.
Considering the facts before it, the Labour Court found that the employer’s decision to continue with the retrenchments in circumstances where it had achieved its savings objectives was unfair. The decision to effect the retrenchments ‘with a view to ensuring consistency and avoiding labour disputes’ fell outside the bounds of ‘operational requirements’, as defined in the Labour Relations Act.
The Court also found that even if the employees had been retrenched to effect a saving, the employer had not shown through its evidence that the R20 million monthly saving was a valid economic rationale for the retrenchment of the employees. In addition, the retrenchment of the employees was disproportionate to a saving amounting to some R3,538 per month for no more than 12 months.
In the circumstances, the Court found that the retrenchment of the three employees was substantively unfair and ordered their retrospective reinstatement.
The Implications
The employer may well be left scratching its head in these circumstances, pondering how it landed itself in the soup. It had implemented measures to avoid retrenchments, sought to treat all employees equally and – thanks no doubt to tireless efforts from its management team – achieved a 99.9% acceptance rate. It had also complied with existing and well-known labour law principles that permitted the retrenchment of employees who refuse to agree to changed terms and conditions of employment.
Instead of retrenching, employers should consider implementing changes unilaterally through a section 189 process. There is authority in our law for this proposition. In Entertainment Catering Commercial & Allied Workers Union of SA and Others v Shoprite Checkers t/a OK Krugersdorp (2000) 21 ILJ 1347 (LC) the Labour Court found that employers are entitled to unilaterally change employees’ conditions of service in order to save jobs. This was confirmed in Media Workers Association of SA and Others v Independent Newspapers (Pty) Ltd (2002) 23 ILJ 918 (LC) where the court held as follows:
‘Implementation of s189 often results in changes in terms and conditions of employment. Such changes are justified if they are made in the course of a bona fide retrenchment exercise and as an alternative to retrenchment. … In this case they were not underpinned by the ulterior motive to dismiss for not acceding to a demand. … Merely because dismissal was not considered as a probability does not mean that changes were not brought about in terms of s 189. Dismissal is one, though not a necessary, consequence of restructuring.’
Author John Grogan points out that in both the ECCAWUSA and Independent Newspapers judgments, the courts found that the changes proposed by the employers were bona fide and genuine attempts to avoid retrenchment. In Chemical Workers Industrial Union and Others v Algorax (Pty) Ltd (2003) 24 ILJ 1917 (LAC) the LAC pointed out that the employer could have implemented the changes to the shift system without having to resort to retrenching the employees who refused to accept the changes.
A subsequent judgment of the LAC went further to impose a duty on an employer to take all steps to avoid dismissals. Although the case concerned the redundancy of a position, the principles are still relevant. In Oosthuizen v Telkom SA Ltd (2007) 28 ILJ 2531 (LAC) the LAC found as follows at para 8:
‘In my view an employer has an obligation not to dismiss an employee for operational requirements if that employer has work which such employee can perform either without any additional training or with minimal training. This is because that is a measure that can be employed to avoid the dismissal and the employer has an obligation to take appropriate measures to avoid an employee’s dismissal for operational requirements. … In such a case the dismissal is a dismissal that could have been avoided. A dismissal that could have been avoided but was not avoided is a dismissal that is without a fair reason.’
As can be seen from the above, there is sufficient support for the view that alternatives can be implemented unilaterally by employers. In fact, the judgments above seem to evince a duty on an employer to implement alternatives which are likely to save jobs. Conversely, an employer that neglects or refuses to implement alternatives could be said to have acted unfairly.
The issue is not a simple one, as pointed out by the Labour Court in this matter. Employers seeking to embark on retrenchments would be well advised to take legal advice before doing so.
