Can an employer retrench employees who refuses to accept a change in terms and conditions of employment?

LAC#230619 NUMSA vs Aveng Trident Steel and Imperial Dedicated Contracts (2019)

Occasionally it transpires that a company restructures in order to increase profitability, but in doing so have to amend the terms and conditions of employment. Generally, an employer cannot dismiss employees who refuses to give in to a demand to change terms and conditions of employment, however this is not always so.

In Numsa vs Aveng Trident Steel and Imperial Dedicated Contracts, The Labour Appeal Court had to decide whether to upheld the Labour Court’s ruling that under the circumstances the respondent/s did not commit an automatic unfair dismissal in dismissing employees who refused to accept a change in terms and conditions of their employment contracts. The court had to apply its mind to factual causation, e.g. where the real reason for the dismissal due to the employee’s refusal to accept the change to their terms and conditions of employment and then also legal causation e.g. whether the refusal to accept the change in terms and conditions of employment was the more probable reason.

The applicant’s contention was that the dismissal of the employees was in contravention of Section 187 (1)(C) of the LRA which provides that a dismissal is automatic unfair if the reason for the dismissal is ‘a refusal by employees to accept a demand in respect of any matter of mutual interest between them and the employer.

Aveng is a large steel manufacturer comprised of a number of facilities with branches throughout the country. The company’s sales volumes fell by 20% and its cost structure could not be maintained by its income. Trading margins have dropped significantly. In order to remain viable, it needed to restructure and thus contemplated the possibility of retrenchments. It then entered into a consultation process in terms of Section 189A.

During the consultation process the company proposed the following: 1.) a review of the organizational structures, 2.) redefinition of some of the job descriptions, 3.) mothball under-utilised equipment, 4.) review of limited duration contract positions and 5.) a review of the employee transportation benefit at Roodekop and Alrode.

Aveng realised that a reduction of staff would not be sufficient to resolve its operational problems. It needed an improvement in productivity and to review job descriptions in order to combine certain functions. As example, the company proposed combining the jobs of general worker, labourer, conductor truck assistant, packer and sling man under the title ‘General Handler.’ The company offered voluntary severance packages, which was accepted by a large number of the employees. The parties also agreed to retrench employees on limited duration contracts. The only matter relevant to the consultation process was the amendments of the job descriptions.

Numsa proposed a 5-grade structure, effectively collapsing 13 grades into 5. In essence, the union was accepting the principle of restructuring. Its motivation for a 5-grade structure was that it would allow for multi-tasking, training, mobility between grades and a false premise that it would allow for higher wages for its members. The union, however, did not appreciate once realising that the remuneration between the grades would be narrowed resulting in employees not being better of on a 5-grade structure. The parties agreed to an interim agreement whereby the union’s member will adopt extra duties by those retrenched, however the union later send an email that its members are no longer willing to perform the additional duties as agreed in the interim agreement.

On the 30th of March 2015, the company addressed a letter to Numsa informing it that the consultation process in terms of Section 189 had now been exhausted and gave notice that the company would implement the new structure with the new redesigned job descriptions. It further advised that the positions as it currently existed was redundant and that the staff faces retrenchment. Alternatives was proposed, but none of the employees accepted the change in job description nor the alternatives and was accordingly retrenched.

At the Labour Court, Numsa contended that the reason for the dismissal was the refusal by the employees to accept the company’s demands in respect of the altered job descriptions and grade structure, which are matters of mutual interest and thus automatically unfair. Aveng denied that the dismissal was automatically unfair and maintained that the reason was based on its operational requirements. The labour court found that the employees was not dismissed for refusing to accept any demand, but for operational requirement reasons after rejecting the alternatives to dismissals proposed by the employer.

The court further found that the proposal to alter the job descriptions was an appropriate measure aimed at avoiding or minimizing the number of dismissals. Aveng was faced with operational difficulties and the only viable answer was to restructure and redesign the jobs. Had the employees continued working in line with the new job descriptions they would have remained in employment and suffered no adverse financial consequence.

On appeal, the union contended, inter alia, that the Labour Court erred in its interpretation of Section 187 (1)(c) of the LRA as amended. The union submitted that the wording of Section 187 (1)(c) makes it clear that the intention is to render automatically unfair ‘any’ dismissal where the reason relates to the employee’s refusal to accept a demand in relation to matters of mutual interest and that there are no exceptions in this regard. The prohibition therefore envisages only three elements: a demand, a refusal and a dismissal. It even applies to those circumstances where the demand was motivated by the genuine operational requirements of the employer to change terms and conditions of employment.

The Labour Appeal Court referred to Eccawusa and Others vs Shoprite Checkers t/a OK Bazaars Krugersdorp where the Labour Court held that where amendments to terms and conditions of employment are proffered by an employer as an alternative to dismissal during a bona fide retrenchment exercise and it is a reasonable alternative based on the employer’s operational requirements, the employer will be justified in dismissing employees who refuse to accept the alternative offer.

In Fry’s Metals (Pty) Ltd vs Numsa and Others, the Labour Appeal Court held that a dismissal could not be a lock-out if the dismissal was intended to be final and irrevocable and not intended to compel compliance with a demand. A dismissal falls within the scope of Section 187 (1)(c) only if it is conditional in the sense that the employer retains an intention to accept the employees back into its employ if they accede to the changes. The target of Section 87 (1)(c) was not final dismissals but temporary or strategic dismissals. The Labour Appeal Courts decision was confirmed by the Supreme Court of Appeal.

The question now is whether the amendment to Section 187 (1)(c) has altered the law in this respect, which now states that a dismissal is automatically unfair…if the reason for the dismissal is, inter alia, ‘a refusal by employees to accept a demand in respect of any matter of mutual interest.’ The difference in wording is where the previous provision stated, ‘to compel the employee to accept a demand’ it was now replaced with ‘is a refusal by employees to accept a demand.’

 On the upside the new provision shifts the focus away from the intention of the employer in effecting the dismissal to the refusal of the employees to accede. It no longer matters what the employer’s intention or purpose might be. It is thus irrelevant whether the dismissal was intended to induce employees to comply with a demand. The distinction between final or conditional dismissal has thus fallen away.

“Even though the amendment is less clear about when it is permissible to dismiss on operational grounds employees who refuse to accede to the employer’s demands for changes to their terms and conditions of employment, our prevailing jurisprudence has interpreted the LRA to permit dismissal on such grounds. The right to retrench is implicit in Section 187 (1)(c) of the LRA and that the purpose of the amendment was not to change the law in this respect.”

The court further stated that the question whether Section 187 (1)(c) is contravened does not depend on whether the dismissal is conditional or final, but rather what the true reason for the dismissal of the employee is. The proven existence of the refusal merely prompts a causation enquiry. The actual reason for the dismissal must be determined and there is no reason to exclude the employer’s operational requirements from the consideration as a possible reason to dismiss.

The Labour Appeal Court held that the dominant reason for the dismissal of the employees was the company’s operational requirements and not the employee’s refusal to accept a demand.

What we learn from this case is that an employer is not necessarily dismissing employees automatically unfairly in terms of Section 187(1)(c) of the LRA under circumstances whereby employees refuses to accept a demand such as a change to terms and conditions of employment, if it can be shown that the proposed change in terms and conditions of employment is as a result of a bona fide operational requirements of the employer.

It is advisable for employers to ask for the assistance of a professional Labour Relations Specialist when facing employment law difficulties. Tobie Nel is the Senior Labour Relations Specialist for Ulwazi Labour Relations and has over 15 years’ experience in Labour Law. You can contact him, by phone: 0824479512 or visit:www.ihconsult.co.za/labour/