Woolworths (Pty) Ltd v SACCAWU and Others (JA56/2016) [2017] ZALAC 54 (19 September 2017)

Principle:

An operational requirements dismissal will be substantively unfair if the employer fails to show that it properly considered the alternatives to retrenchment.

Facts:

Until 2002, Woolworths employed its employees on a full-time basis. These employees ("the full-timers") worked fixed hours totalling 45 hours per week. In 2002, Woolworths decided that in future it would only employ workers on a flexible working hour basis. These workers (flexi-timers) would work 40 hours per week. By 2012, Woolworths's workforce consisted of 16 400 flexi-timers and 590 full-timers. Full-timers earned superior wage rates and benefits. The remuneration package of some full-timers exceeded the wages and benefits applicable to flexi-timers by 50%, even though full-time workers and flexi-timers do the same work.

Woolworths decided that in order to cater for the current market, it needed to operate with an entire workforce consisting of flexi-timers. It decided to convert the full-timers to flexi-timers on the terms and conditions of employment applicable to flexi-timers. In order to do this, Woolworths first invited full timers to voluntarily convert to flexi-timers. It did not invite the union to participate in this phase. Certain inducements were offered to the full-timers for the conversion. All of the full-timers save for 144 employees opted for early retirement, voluntary severance or agreed to convert to flexi-timers.

During the course of consultation some of the full-timers accepted the voluntary option, leaving 92 full-timers who opposed conversion and did not accept any of the voluntary options. Later SACCAWU and 44 members appreciated the need to work flexi-time and accepted that full-timers should be converted to flexi-timers. SACCAWU initially suggested that the full-timers retain their existing full time wages and benefits, but towards the end of the consultation process, SACCAWU varied its stance. It proposed that the workers would work flexi-time for 40 hours and be paid only for those hours and at lower rates. Woolworths however did not understand this to be a different proposal (a factor later found by the LAC to be pivotal to the outcome of this case), and rejected it.

Woolworths gave notice to terminate contracts of employment and retrenched 92 full-timers. SACCAWU, on behalf of 44 of these full-timers, launched an application in the Labour Court terms of s189A(13) of the LRA to challenge the fairness of the retrenchment procedure adopted by Woolworths. It also launched another application under s191(11), challenging whether there was a fair reason for retrenchment. These applications were later consolidated into one case.

The LC in SACCAWU and Others v Woolworths (Pty) Ltd (J3159/12, JS1177/12) [2016] ZALCJHB 126 (5 March 2016) was faced with the employer's argument that the restructuring was necessary so that all employees were to be treated the same. The Court held that employers ought to deal with pay inequity issues in accordance with chapter III of the EEA, rather than through dismissals for operational requirements for employees who refuse to agree changes to terms and conditions of employment that are designed to achieve equal pay. The LC found the retrenchments to be substantively and procedurally unfair, and ordered that the employees be reinstated.

On appeal at the LAC, the decision turned rather on whether the retrenchments were substantively fair. The decisive factor was the LAC's view that the employer had failed to show that it properly considered the alternatives to retrenchment, given that it had misconstrued that the union's last proposal was no different to its previous one. Had Woolworths properly understood the union's last proposal, the LAC believed it would have realised that the retrenchment of at least some of the employees could have been avoided. But the Court did not agree with the LC's remedy that the employees be reinstated, given that the full time posts were redundant, and awarded each employee 12 months' remuneration as compensation.

Extract from the judgment:

Tlaletsi DJP, Landman JA and Phatshoane AJA

The appeal: substantive unfairness

[27]   The facts that are relevant to the issue of substantive fairness are relatively narrow. At the conclusion of the trial, it had become common cause that:

  1. Woolworths was justified in seeking to convert its full-time employees to employment based on flex-time.
  2. Woolworths was justified in doing so in order to address the following goals:

    1. the new market realities, particularly customers' preferences for shopping at other hours than in the past, that made working flexi-time imperative;
    2. the equity considerations (equal pay for equal work and work of equal value) being the fact that most of the full-time workers were earning more than their flexi-time comparators;
    3. a uniform pay grade consisting of five bands;
    4. saving of costs on Woolworths' labour bill.

  3. The conversion of full-time workers to flexi-time workers would generally result in lower wages. Some full-time workers would be paid less than what they earned as full-time workers to varying degrees, depending on the individuals concerned, and some full-time workers would earn more than they had previously earned.
  4. All full-time workers would be entitled to significantly less benefits than those they had enjoyed before conversion, to the extent that some benefits such as study leave would fall away whilst other benefits would change such as the medical aid.
  5. In the event that all the 590 full-time workers would convert to flexi-time work (with or without early retirement and voluntary severance) Woolworths would save R24 million per year. The saving in respect of the respondents would appreciably be less than this.
  6. The situation in which the full-time workers found themselves as regards remuneration and benefits was as result of Woolworth's allocation of pay increases and performance awards from time to time in the past.
  7. Woolworths appreciated that some full-time workers would suffer a drastic diminution in the take-home pay and that all full-time workers would experience less advantageous benefits, should they convert to flexi-time. In order to ameliorate this situation, Woolworths, during the course of the consultation period, arrived at a position where it would consider paying each full-time worker who converted to flexi-time an amount, initially R60 000 later raised to R70 000, to compensate them for the conversion.
  8. Leaving aside nuances of how the compensation could be accessed compensation in an amount of R70 000 would also be available to each full-timer targeted by the s189A process.

[28]   The summary of facts is sufficient for most purposes but also adequately convey the magnitude of the decrease in wages and benefits for some of the full time employees and the extent of the new working conditions for all the affected employees. It is necessary to provide further details.

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Salaries

[29]   The wage component of the remuneration for 38 of the 44 employees would be reduced. The extent of this reduction is set out in the schedule in volume 15, at page 1432. By way of example, Kate Moloi employee 52 on the list, would suffer a 54% drop in wages. A further 14 employees would face a reduction in wages of between 39% and 52%. However, 6 of the 44 employees would receive higher wages.

[30]   Adv Kennedy SC, for SACCAWU and the 44 full-timers, submits that these employees typically have budget commitments that they could not simply drop, such as home loans, school fees, vehicle and loans. He also points out that the evidence showed that these employees had been employed by Woolworths for a period ranging between 12 and 32 years. They had received regular increases, even while Woolworths' management was busy with its own internal planning which ultimately led to the retrenchments. They were not informed what was being planned for them. Woolworths simply continued to do what it had been doing and increased the extent of the disparity between the remuneration levels of these employees and the flexi-timers.

[31]   The employees were given no warning that the salary levels would be reduced so suddenly. The workers had a reasonable expectation that they would be paid what they were earning together with the increases. They had budgeted, took on financial commitments, and planned for the retirement based on their respective ages, working life and pension benefits. The youngest of these employees was 38 years old and the oldest was 59 at the time of the retrenchment. The age spread of the 44 employees is reflected as follows:

  • 7 were in the bracket 38 to 44 years;
  • 15 were in the bracket 45 to 49 years;
  • 17 were in the bracket 51 to 54 years; and
  • 9 were in the bracket 55 to 59 years.

[32]   Mr Kennedy further submitted that typically employees in their fifties or even mid to late forties would be settled in their current employment and do not engage in job hopping as often happened in the retail sector. Those employees of an average age of 50 would struggle to find other employment. Mr Kennedy submitted that the employees had secured terms and conditions of employment in the form of salaries and other benefits that had been achieved and maintained and increased over many years in terms of their contracts of employment. These entrenched contractual rights represent an important element in the consideration of fairness.

Benefits

[33]   The benefits the full-time employees enjoyed would decrease on conversion to flexi-time. Their benefits on retirement would be substantially less than they would have been because they would be calculated on a lower income. There would be a change to the medical benefits in the sense that the employees would be restricted to consulting with a fixed panel of doctors. Maternity benefits would be reduced from 11 months to six months. This would affect a minority of the female employees concerned. Ante-natal leave, which consisted of one-day leave per month until the commencement of maternity leave would be abolished. Post-natal leave of three days for six months would also be abolished as would compassionate leave of five or six days per incident. Paternity leave of five or six days per incident would also be abolished. Moving leave of one day per move would be abolished. The study leave of 10 days per annum would fall away.

Working conditions

[34]   The full-timers worked Monday to Friday from 08:00 to 17:00. They seldom worked on Saturdays, but if they did so, it would attract overtime pay at the applicable rates. The full-timers were not required to work on Sundays. The full-timers would be required to work on the flexi-40 arrangement. Full-timers who were to become flexi-timers would work a total of 40 hours per week. Their working day would terminate at 19:00. They would work every Saturday and three out of four Sundays. No overtime would be paid. Mr Kennedy submitted that these changes would have a dramatic effect not only on the employees' daily and weekly routines, but also as regards their lifestyles and it would impact on their families. The employees would not, he submitted, have any real time to spend with their families over most of the weekends. On most weekdays, they would work until late into the early evening. This would leave them with little time to spend with their children and partners.

What is substantive fairness in the context of s189A dismissal?

[35]   The question whether the dismissals of the 44 full-timers were substantively fair must be answered within the parameters set by s189A. It is the general consensus of writers on this subject that the test for the fairness of a retrenchment where s189A applies differs from that applicable to retrenchments to which the section does not apply. We agree with this view. Section 189A(19) which is worded in peremptory terms provided that in any dispute referred to the Labour Court in terms of s191(5)(b)(ii), concerning the dismissal of this category of employees, the Labour Court must find that the employee was dismissed for a fair reason if four grounds are satisfied namely:

  1. the dismissal was to give effect to a requirement based on the employer's economic, technological, structural or similar needs;
  2. the dismissal was operationally justifiable on rational grounds;
  3. there was a proper consideration of alternatives; and
  4. selection criteria were fair and objective.
    It is trite that the onus of proving this rests upon the employer.
[36]   In NUM and Another v Black Mountain Mining (Pty) Ltd this Court held, with reference to section 189A(19)(b), that "a dismissal can only be operationally justifiable on rationale grounds if the dismissal is suitably linked to the achievement of the end goal for rational reasons." AdvMyburgh SC, for Woolworths, suggested that this test should not be followed. He argued that insofar as the Court in Black Mountain Mining found further that "the deferential approach is no longer part of our law" and that retrenchment "must be a measure of last resort" or "the only reasonable option under the circumstances", it is based on case law that does not deal with section 189A(19)(b); does not accord with the plain language of section 189A(19(b); and is at odds with the origin of the phrase "operationally and commercially justifiable on rational ground" as propounded in SA Clothing & Textile Workers Union & others v Discreto - A Division of Trump & Springbok Holdings. There is something to be said for the proposition that the Court in Black Mountain Mining possibly intruded more on the jurisprudence concerning other retrenchments into the sphere of section 189A than it should have done. However, in view of our finding, it is unnecessary for purposes of this appeal to revisit that judgment even though we take the view that the passing of a moral judgment has been supplanted by what is in effect a deeming provision. If the Labour Court finds that the elements listed in section 189A(19) (a), (b), (c) and (d) are satisfied, it follows that the employee was dismissed for a fair reason.

The purpose of the dismissals

[37]   The first inquiry relates to the purpose of the dismissals. Was the purpose to give effect to a requirement based on the employer's economic, technological, structural or similar needs? The evidence showed and SACCAWU accepted that the reason for restructuring the workforce of the class of full-timers was to give effect to a requirement based on the employer's economic, technological, structural or similar needs; in particular, those identified above. It follows from this that the dismissal of a full-time employee who would not work flexi-time would be a dismissal to give effect to a requirement based on the employer's economic, technological, structural or similar needs. But this element no longer applied as the full-timers were prepared to work flexi-time but not on all the terms that would be applicable to flexi-timers.

[38]   The Court a quo pointed out that in its Notice in terms of s189(3), Woolworths gave only one reason for the retrenchments, namely that: "the company needs to be in a position to employ employees who are able to be used on a flexible basis". The Court a quo went on to find that "therefore, Woolworths' attempt to add further reasons (equity and costs efficiency) in order to justify the retrenchments must be rejected since it was clearly an afterthought and a cynical attempt by Woolworths to extricate itself from its self-created predicament".

[39]   The Notice in terms of s189(3) read as a whole emphasises the "need to employ people who are able to work according to flexible working arrangements. This would improve both the costs and the operational efficiencies of the business." In our view, a fair reading of the notice identifies the need to work flexi-time because it mentions the benefits to be derived from this with regard to the costs and operational efficiencies of the business. The purpose of saving costs by insisting that all flexi-timers will enjoy the wages and benefits applicable to flexi-timers is identified clearly enough and constitutes an economic, structural or similar need. Equity considerations are probably inherent in the conversion to flexi-time wages and benefits but it was not made a purpose of the exercise.

Operationally justifiable

[40]   The question, whether the dismissal was operationally justifiable on rational grounds was answered in the negative by the Court a quo. The phrase "the dismissal was operationally justifiable on rational grounds" is one that was used by this Court in its judgment in SA Clothing & Textile Workers Union and Others v Discreto-A Division of Trump & Springbok Holdings where Froneman DJP (as he then was) held:

'For the employee fairness is found in the requirement of consultation prior to a final decision on retrenchment. This requirement is essentially a formal or procedural one, but, as is the case in most requirements of this nature, it has a substantive purpose. That purpose is to ensure that the ultimate decision on retrenchment is properly and genuinely justifiable by operational requirements or, put another way, by a commercial or business rationale. The function of a court in scrutinising the consultation process is not to second-guess the commercial or business efficacy of the employer's ultimate decision (an issue on which it is, generally, not qualified to pronounce upon), but to pass judgment on whether the ultimate decision arrived at was genuine and not merely a sham (the kind of issue which courts are called upon to do in different settings, every day). The manner in which the court adjudges the latter issue is to enquire whether the legal requirements for a proper consultation process has been followed and, if so, whether the ultimate decision arrived at by the employer is operationally and commercially justifiable on rational grounds, having regard to what emerged from the consultation process. It is important to note that when determining the rationality of the employer's ultimate decision on retrenchment, it is not the court's function to decide whether it was the best decision under the circumstances, but only whether it was a rational commercial or operational decision, properly taking into account what emerged during the consultation process.'

[41]   Parliament is deemed to know the law so that when it uses words that have been employed by a Court this is generally an indication that the legislature intends to give it the same meeting. Anton Roskam 'An Exploratory Look into Labour Market Regulation' suggests that: "If the union refers a dispute about the substantive fairness of the retrenchments to the Labour Court, the test for substantive fairness is limited to the test set out in the Discreto case." That may well be provided the test in Discreto is confined to paragraph (b) of section 189A(19).

Proper consideration of alternatives

[42]   The question, whether there was a proper consideration of alternatives, in the context where it is conceded that the employer was justified in restructuring its workforce, can only relate to alternatives to dismissal as there was no possibility of avoiding the restructuring. A proper consideration of alternatives is not necessarily linked to the alternatives that were raised by the employer or employee parties at the consultation but must be open to include the possibility that effect would be given to meritorious alternatives.

[43]   Woolworths initially considered the following alternatives: maintaining the status quo, a voluntary offer (to convert to flexi 40 employment and voluntary retrenchment) made to the full-timers.

[44]   SACCAWU approached the consultation on retrenchment on the basis that its members who were full-time workers of Woolworths would convert to flexi-time work, but maintained, initially, that the remuneration and benefits should remain the same. Its proposal mutated to one in which the full-time workers would accept an 11% reduction in remuneration while working flexi-time. SACCAWU pursued the consultation on a collective basis but the problem lied, as far as the wage component of remuneration is concerned, only with those who would earn a lesser wage.

[45]   Woolworths did not understand that SACCAWU's last alternative proposal, set out in its letter of 30 October 2012, differed from its previous proposal regarding an alternative to avoid dismissal. When a proposal is misunderstood and therefore not explored it means that the employer has not shown that this alternative had been properly considered.

[46]   It is clear that there was no possibility of a transfer to other full-time jobs. Early retirement was offered at the voluntary stage and was available during the retrenchment consultation although it would not have avoided the retrenchment but may have been an attractive option to a few of the full-timers. In view of the concession, the full-time posts were redundant which meant that the continued payment of wages and benefits at the full-time rates was not an alternative (theoretically, it could have been extracted by the duress of a strike). The same may be said about the continuation of payment of the wages save that overtime pay would be paid at the rates for flexi-timers. The continuation of payment of full-time rates until natural attrition took place would probably not be viable because the full-timers were unlikely to choose other employment and the normal rate of 6% attrition was low.

[47]   The sudden decrease in take home pay, which was a major concern for the full-timers, would have had a severe financial impact on them. Woolworths appreciated this and was prepared to make available an amount of R70 000 (it is not clear whether this would be fully taxable) during the voluntary stage as a sweetener or inducement and at the stage of the possible retrenchment. In the course of the consultation process it may have retained this character but it would also have served as token compensation for the loss of the employees' full-time status and it could be regarded, in a sense, as an alternative to dismissal.

[48]   The principle that compensation for the loss would be payable was established. It was on the table and the union could have pressed for more generous compensation as Woolworths would be making significant savings on its wage bill. Woolworths may have been reluctant to increase the amount of compensation and may have pointed to the fact that other full-timers had, during the voluntary process accepted the R70 000. But that was a separate process and the union was excluded. An increase in this amount was not explored and the union appears to have been agreeable to accept less compensation but of course this must be seen in the context of its related proposal.

[49]   An alternative proposal that could have been considered would have been to have ring fenced the wages of the full-timers and to the extent that the law allowed this, to forgo wage increases until the corresponding flexi-time wage had risen, by sectoral determination increases or amendments and otherwise, to the level of the ring fenced wage.

[50]   There could be many permutations of such an alternative and ways of funding it. For instance, the R70 000 could have remained or have been exchanged for the ring fenced option. Consideration could have been to accelerate the meeting of a ring fenced wage and an increasing flex-time wage, by gradually reducing the ring fenced wage. There is no way of knowing what the ring fenced alternative or inducement would have turned out had it been pursued but it is sufficient for purposes of this appeal to find that it was a reasonable alternative that was not considered.

Selection criteria

[51]   The selection criteria were fair and objective because all the full-timers in the targeted category were identified without exception.

[52]   It follows that the dismissal of the individual respondents was substantively unfair because Woolworths was unable to prove that it complied with section 189A(19)(c) of the LRA, put differently, it failed to show that it properly considered the alternatives.

The remedy

[53]   The usual remedy for substantive unfairness is an order of reinstatement. This is the remedy which the Court a quo ordered. In this case, as already alluded to, the full-time posts have become redundant and the respondents have conceded this. The result is that reinstatement is not feasible. This leaves compensation. We are of the opinion that compensation of an amount equal to 12 months of the remuneration due to each of the 44 full-timers should have been ordered.

[54]   In the result, the appeal should be dismissed in part and upheld in part and the order of the Court a quo should be replaced with an order providing that the application seeking relief in respect of the alleged unfair procedure is dismissed. The dismissal of the 44 full-timers is found to be substantively unfair. The 44 full-timers are awarded compensation in an amount equal to 12 months of the remuneration due to each of them.

Costs

[55]   We are of the view that no order should be made as regards the costs of the appeal.

[56]   The following order is made:

Order

  1. The appeal is upheld in part and dismissed in part.
  2. Paragraph 2 of the order of the Labour Court is set aside and replaced with the following:

  3. '2.1.   The application seeking relief in respect of the alleged unfair procedure is dismissed.
    2.2.   The dismissal of the second and further applicants is found to be substantively unfair.
    2.3.   The second to further applicants are awarded compensation in an amount equal to twelve months of the remuneration due to each of the applicants.'

  4. There is no order as to the costs of the appeal.