South African Breweries (Pty) Ltd v Louw (CA16/2016, C285/2014) [2017] ZALAC 63 (24 October 2017)

Principle:

An employer, who seeks to avoid the dismissal of a dislocated employee, and who invites the dislocated employee to compete for one or more new posts, does not act unfairly. In a corporate restructuring, requiring an employee to compete for a post is not a method of selecting for dismissal; rather it is a legitimate method of seeking to avoid the need to dismiss a dislocated employee. A competitive process to seek to avoid retrenchment is not unfair.

Facts:

The employee was employed by SAB as the sales manager, Southern Cape Region, based in George. Owing to a restructuring of the business in 2013, the employee's post became redundant. The functions formerly performed by him in the sales field were subsumed into a newly created post of area manager, based in George. The new post embraced other management functions in addition to managing sales. It included operations, which functions were to be integrated with sales in the new business model. The new post was also pitched at a higher level of management.

SAB invoked section 189 of the LRA when the planning for a wide-ranging restructuring programme identified his post for abolition and absorption into the new post. The employee was notified of possible posts for which he could apply. He applied for the restructured area manager post but declined to apply for a similar post in Aliwal North. In the selection process his performance record was taken into account. He was not successful in his application for the area manager post.

When the employee was retrenched, he was aggrieved and alleged unfair retrenchment. The Labour Court found he was unfairly retrenched and reinstated him retrospectively. The two key findings of the LC were:

  1. The retrenchment was substantively unfair because the employee should have been offered / appointed to the vacant post of area manager, based in Aliwal North, which would have discharged the employer's obligation to exhaust all reasonable measures to avoid a dismissal; and

  2. The retrenchment was procedurally unfair because objectively unfair selection criteria were chosen; in particular, the past performance ratings of the candidates interviewed to fill the newly created post of area manager were used, and the employee did not accept that his own rating as "2" was correct or fair, which factor prejudiced his prospects of selection.

On appeal to the LAC, the Court found that because the employee did not apply for the Aliwal North position, the employer could not be required to offer it or appoint him to it. On the fairness of the interview panel taking into account past performance ratings as selection criteria, the LAC found that under the circumstances this was not unfair. The person appointed had in any event been rated higher than what the aggrieved employee felt he should have been rated, and the ratings were in any event only one of several factors taken in to consideration and were not the determinative consideration.

The LAC found that an employer, who seeks to avoid the dismissal of a dislocated employee, and who invites the dislocated employee to compete for one or more new posts, does not act unfairly. In a corporate restructuring, requiring an employee to compete for a post is not a method of selecting for dismissal; rather it is a legitimate method of seeking to avoid the need to dismiss a dislocated employee. A competitive process to seek to avoid retrenchment is not unfair.

Unusually this decision of the LAC refers to no previous cases on restructuring for profit. If it had, it would have noted the trend that the criteria for appointment to the restructured position have to be clear and transparent. (There is often a tendency to use vague, subjective criteria, such as 'adding value to the company' and 'corporate fit'.) The vaguer the criteria, the more likely it is that in reality the selection committee is relying on each applicant's track record and reputation within the company, often viewed through the subjective lens of a supervisor or colleague. When this happens, the retrenchment crosses over from being a no-fault dismissal to one based on performance. And if in this transition, employees are not given notice of any allegations of poor performance or a perceived lack of corporate fit, they have no opportunity to defend themselves.

The use of subjective selection criteria can render a retrenchment unfair. The less capable the criteria are of measurement against objective standards other than the opinion of the person making the selection, the less likely they are to be fair. The less objective the proposed criteria for selection, the more important the obligation to consult over selection criteria becomes.

This judgment is a stark contrast to a previous attempt by SAB to restructure for greater profitability in FAWU & others v South African Breweries Limited (LC C1008/2001, judgment delivered 3 September 2004. In that case it was held that if there is a way in which the employer could have addressed the problems by using solutions which preserve jobs rather than which cause job losses (or which could lead to further job losses), the court should not hesitate to deal with the matter on the basis that the employer should have used that solution, rather than the one which causes job losses.

Extract from the judgment:

Sutherland JA:

[13]   In argument, and in the judgment a quo, it was emphasised that the pleadings and the minute must be read together. This is true but unhelpful in these circumstances. The judgment a quo proceeded from the premise that the averment that the procedural and substantive unfairness of the dismissal pleaded in the statement of case had not been "abandoned" by anything stated in the minute. The court a quo held as follows:

'[27]   In the present matter, the pre-trial minutes provide the following under the heading: "4. ISSUES THE COURT IS TO DECIDE:" 'Whether the dismissal of the Applicant was procedurally and substantively fair.'

[28]   The essence of the respondent's contention is that the applicant challenge to the selection criteria has to be limited to the issue of whether Mr Stevens had less experience than him and not to the other issue of his appointment.

[29]   It is apparent from the reading of the pre-trial minutes and the pleadings in general that it can never be said that the applicant abandoned his cause of action in relation to both substantive and procedural fairness by signing the pre-trial minutes. There is nowhere in the pre-trial minutes where the applicant can be said to have abandoned issues relating to the cause of action set out in the pleadings, mainly the alleged substantive and procedural fairness of the dismissal.'

[14]   That is an incorrect approach. Those issues were indeed not abandoned, but the premises upon which the issues were to be advanced had been refined and limited by the terms of the minute, which is the very purpose of the minute and more particularly, the very purpose of the directives in the practice manual. It was therefore inappropriate to fall back on the generalities of averments about procedural and substantive unfairness. Were that approach to be permissible, there would be no point at all to efforts to narrow issues and trim down the scope of contestations. It was suggested in argument on behalf of Louw that the contention on behalf of SAB was that Louw had narrowed his cause of action; that understanding is incorrect. The argument, properly understood, was that the terms of the minute narrowed the permissible grounds upon which the cause of action was to be presented.

[15]   Accordingly, the judgment cannot be sustained because its findings are based on issues not put to it for a decision. If the court a quo took the view that the case as pleaded and refined was not proven, the order ought to have been a dismissal of the application. If a litigant pleads a bad case, it must lose, and it cannot be rescued from failure, because it is possible to conceive and construct a better case.

[16]   On those grounds, the appeal must succeed.

The second controversy: was the retrenchment unfair anyway?

[17]   Nevertheless, we deal with the merits of the allegation of unfair dismissal itself. For reasons of clarity, we address first the issue of "selection criteria" mentioned in section 189(2)(b). Section 189(1) and (2) provide:

'189 Dismissals based on operational requirements

  1. When an employer contemplates dismissing one or more employees for reasons based on the employer's operational requirements, the employer must consult-............
  2. The employer and the other consulting parties must in the consultation envisaged by subsections (1) and (3) engage in a meaningful joint consensus-seeking process and attempt to reach consensus on-

    1. appropriate measures-

      1. to avoid the dismissals;
      2. to minimise the number of dismissals;
      3. to change the timing of the dismissals; and
      4. to mitigate the adverse effects of the dismissals;

    2. the method for selecting the employees to be dismissed; and
    3. the severance pay for dismissed employees."

[18]   Typically, retrenchments result from one of two main reasons. Often, there is believed to be a need to cut costs by reducing staff; ie the very objective is to dismiss some staff and a decision has to be made whose posts will be declared redundant and which incumbents will be retrenched. This scenario intrinsically envisages job losses. The other main reason that results in retrenchments is the restructuring of businesses to achieve various aims related to efficiency and the like. Unlike the former example, it is not the very aim of the exercise to reduce staff numbers. However, by restructuring the way the business is to operate, the risk exists that some existing posts are no longer required because, either the need falls away or the functions are distributed among other new posts or subsumed into fewer functionally broader posts. The result is dislocation of the incumbents of such affected posts. In a restructuring exercise, the performance of an incumbent of a post is irrelevant to the declaration of redundancy. In the present case that is plainly what happened.

[19]   Axiomatically, an incumbent of a redundant post is not automatically dismissed; that person is merely dislocated and only after the opportunities to relocate that person in another suitable post have been explored and exhausted, may they be fairly dismissed.

[20]   When, as typically is the position, several employees who occupy posts of similar function, find themselves in a predicament that only some of a number of existing posts are to be retained, a selection method that is fair must be chosen to decide who is to stay and who is to go. That is the precise objective of sections 189(2)(b) and 189(7). However, when, as often is the case with managerial posts, the redundancy of a particular post, which is one of a kind, the circumstances do not in any way trigger the need for "selection criteria" in any meaningful sense. The reason is plain. No "selection" for redundancy takes place when only one post is made redundant. In this matter, the post of Sales Manager, South Cape Region, based at George is one of a kind. Of course, there are doubtless many "sales managers" in other regions, but the redundancy of this post in this region is the outcome of the restructuring. The circumstances where cross-geographical bumping may fairly occur were not raised in this matter, correctly so in our view, and do not require our attention in this judgment.

[21]   In this matter, what has been inappropriately labelled as the "selection criteria" is the inclusion of past performance ratings in the assessment process for the competitive process to select an incumbent for the new job of area manager, George. This is not a method to select who, from the ranks of the occupants of potentially redundant posts, is to be dismissed and is not what section 189(2)(b) is concerned to regulate. The fact, as illustrated in this matter, that a dislocated employee, who applies for a new post and fails, and by reason thereof remains at risk of dismissal if other opportunities do not exist does not convert the assessment criteria for competition for that post into selection criteria for dismissal, notwithstanding that broadly speaking it is possible to perceive the assessment process for the new post as part of a long, logical, causal chain ultimately ending in a dismissal. Accordingly, in our view, it is contrived to allege that the taking into account of performance ratings in a process of recruitment for a post is the utilisation of an unfair method of selecting for dismissal as contemplated by sections 189(2)(b) and 189(7).

[22]   An employer, who seeks to avoid dismissals of a dislocated employee, and who invites the dislocated employee to compete for one or more of the new posts therefore does not act unfairly, still less transgresses sections 189(2) (b) or 189(7). The filling of posts after a restructuring in this manner cannot be faulted. Being required to compete for such a post is not a method of selecting for dismissal; rather it is a legitimate method of seeking to avoid the need to dismiss a dislocated employee.

[23]   Intrinsically, a competitive process for appointment makes assessments of the relative strengths and weaknesses of the candidates. What Louw is aggrieved about is that he was uncompetitive in these assessments. This condition, so he says, derives from unfair treatment in an earlier, routine performance rating process. It is not apparent to us that this allegation was substantiated on the evidence, but assuming that such a view was plausible, he went into the interview process well knowing of this circumstance. It is common cause he could have invoked standard procedures to have a poor performance rating re-examined. He failed to exhaust those remedies.

[24]   In the judgment a quo, it was held this failure to raise a grievance was irrelevant. We cannot agree; Louw cannot have his cake and eat it. The notion that using performance ratings was tantamount to intruding into the process a "fault" element is without any foundation in the evidence and does not follow from the inherent requirement of a competitive process per se. The interview panel cannot be faulted for dealing with his candidacy on the footing upon which it was presented.

[25]   However, independently of these considerations, the issue of the so-called selection criteria is wholly academic because, even taking Louw's self-perception as a point of departure, the successful candidate, Stevens, in any event, had been rated higher than Louw believed he himself ought to have been. The purpose to be served by raising the selection criteria in whatever guise was therefore stillborn, on the facts. Moreover, it was one of several factors and not an obviously determinative consideration.

[26]   To move to the impact of this issue on the substantive fairness contention, the so-called unfair selection criteria issue could have had no bearing at all on the failure to be appointed to the Aliwal North Area Manager post. Louw never applied for that post, despite an invitation to do so. The premise of the judgment a quo is that he should have been given it without competing. That finding is without foundation on the facts or on the law. If Louw applied for the George area manager post, he had no good reason not to apply for the Aliwal North post if he wanted the post. The evidence discloses that he declined the prospect of taking up the Aliwal North post by failing to apply for it. Moreover, as already addressed, a competitive process to seek to avoid retrenchment is not unfair.

[27]   The judgment a quo is premised on the Aliwal North post remaining unfilled for some time after the George post had been awarded to Stevens. However, if there was a difficulty in attracting candidates, perhaps not wholly unrelated to the chilling prospect of actually living in Aliwal North not being at the top of anyone's list of priorities, that fact cannot metamorphize into an obligation to give it to Louw on a platter. But, to belabour the point, it is academic, because the evidence discloses that although Louw said, at one point, that he would 'consider' applying for it, he ultimately chose not to do so. The finding that Louw was dismissed for failing to apply for the Aliwal North post is therefore unsustainable. By contrast, the corroborated and common cause evidence which shows Band making opportunities known to Louw, establishes that SAB did comply with its obligations in terms of section 189 in this regard.

Conclusions and Costs

[28]   The appeal must succeed.

[29]   Both parties seek costs. Accordingly, costs shall follow the result.

The Order

  1. The appeal is upheld.
  2. The order a quo is set aside and substituted with an order as follows:
    "The application is dismissed with costs".

The costs of suit of the appeal shall be borne by the respondent.