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Worklaw subscribers receive a monthly newsletter containing commentary on the latest labour law cases and trends. This newsletter contains an article which asks 'Is Compulsory Interest Arbitration a Good Idea?' following recent discussion about introducing compulsory wage arbitration at some stage during a protracted strike, as an alternative to strike action. We also look at three new cases: The first looks at whether an employer has an obligation to 'bump' in a LIFO retrenchment process. The second takes another look at the relevant factors in deciding if a business has been transferred as a going concern. The third case looks at an employee's obligation to establish that there has been a dismissal


Does bumping form part of LIFO?

'Bumping' is the process during a retrenchment exercise where longer serving employees are moved to take up positions of employees with less service and who were not necessarily targeted for retrenchment. In other words, the longer serving employee 'bumps' a more recently employed employee. To make it more complicated, bumping can involve horizontal and vertical displacement. Horizontal bumping is into a position of similar status, conditions of service and pay. Vertical bumping is into a job with lesser status, conditions of service and pay.

Where large scale bumping (sometimes referred to as "domino bumping") necessitates vast dislocation, inconvenience and disruption, cases have held that consultation should be directed to achieving fairness to employees while minimising the disruption to the employer. But all this is easier said than done!

In the recent case of Mtshali v Bell Equipment (DA16/12) [2014] ZALAC 37 (22 July 2014), following a process of formal facilitation by the CCMA, an agreement was reached between the employer and several unions to retrench certain employees, and the agreed selection criteria were formulated as follows:

'The parties agree that where positions are not critical to the operations of the Group in the short to medium term, the following criteria will be used:

  1. The geographical location of the position;
  2. Qualification, competency and experience;
  3. Last-In-First-Out (LIFO).'

What led to the dispute was that an employee who did not dispute the fairness of the retrenchment process did however dispute the application of those criteria to him personally. The employer had decided not to consider applying bumping at all or across the lines of production. No cogent evidence was presented to show that the employees that were retained were better skilled, qualified or capable than he was. The Labour Court found that the employee's dismissal was substantively fair. The LAC took a completely different approach and declared the dismissal to be substantively unfair and ordered his reinstatement.

The LAC pointed to the agreed selection criteria for employees to be retrenched - where the positions were not critical to the operations of the Group in the short to medium term, the criteria to be used were the geographical location of the position, qualification, competency and experience and LIFO. It meant that the employer bore the onus to prove on a balance of probabilities that it applied the selection criteria as agreed and that its application was done fairly.

The employee identified other employees who according to him should have been retrenched if LIFO together with "bumping" was applied. The employer simply decided not to consider applying bumping at all or across the lines of production. The LAC held this to be unfair.

We think this case is important as it represents a different approach to bumping than adopted in earlier cases. Earlier cases considered that the pre-retrenchment consultation process was a mutual responsibility, and generally did not penalise an employer if it did not apply bumping where the union had not raised by the union

The LAC was clear: bumping forms part of LIFO as a method for selection of employees to be retrenched. It is therefore the employer's responsibility to consult on its application and to determine whether its application will be appropriate in the circumstances of each case. It is not for an employer to decide unilaterally that it will not be appropriate to apply bumping, especially where it was not specifically prohibited in the collective agreement. Put simply, this case requires employers to routinely consider and consult on bumping as part of a LIFO retrenchment.

Substance and not form: deciding whether a business has been transferred as a going concern.

The business was a manufacturer of a wide range of glass products. These glass products are stored on site in warehouses to await dispatch to customers. The company (Nampak Glass) entered into a contract with another company (Unitrans) which conducts the business of providing supply chain solutions for clients. This business is, in effect, the management of the "end to end" movement of goods. The contract between the two companies arose because Nampak Glass changed its method of business by outsourcing the warehousing service. This warehousing agreement terminated by the effuxion of time on 31 January 2014.

With the termination of the agreement between Nampak Glass and Unitrans, Nampak Glass entered into a relationship with TMS Group Industrial Services, which commenced providing services to Nampak Glass on 1 February 2014. These services also related to warehousing and distribution.

When this matter as referred to the Labour Court, it was found that the termination of the warehousing agreement between Unitrans and Nampak Glass and the conclusion of an agreement for the provision of similar services between Nampak Glass and TMS Group Industrial Services constituted a transfer of an undertaking as a going concern, as contemplated in s197 of the LRA. The Labour Court held that the employment contracts of employees who were employed in the first contract transferred automatically to TMS Group Industrial Services with effect from the date of transfer, being 1 February 2014. The Labour Court held that the only reasonable inference to draw was that the services rendered by TMS Group Industrial Services and the assets used in the performance of these services were substantially the same as those which had been utilised by Unitrans in the performance of its obligations until the termination of its contract with Nampak Glass.

The LAC in TMS Group Industrial Services (Pty) Ltd t/a Vericon v Unitrans Supply Chain Solutions (Pty) Ltd and Others (JA58/2014) [2014] ZALAC 39 (6 August 2014) upheld this judgment. The case which TMS Group Industrial Services argued was that it had simply concluded an agreement for the provision of services with Nampak Glass. This was insufficient to trigger the consequences of s197 of the LRA. The LAC did not agree. Following an earlier Constitutional Court judgment, it held that what is capable of being transferred is the business that supplies a service and not the service itself.

This was the approach of the court: In deciding whether a business has been transferred as a going concern, regard must be had to the substance and not the form of the transaction. A number of factors will be relevant in deciding whether a transfer of a business as a going concern has occurred, such as the transfer or otherwise of assets, whether or not workers are taken over by the new employee, whether customers are transferred and whether or not the same business is being carried on by the new employer. What must be stressed is that this list of factors is not exhaustive and that none of them is decisive individually.

The lesson of this case is that the courts are suspicious of an attempt to hide the 'substance' of a transfer behind some other form, such as the provision of services. Keeping in mind that the purpose of s197 is to protect employees, this emphasis on substance rather than form is appropriate. But for the employer who is trying to restructure its operations and avoid obligations under s197, care has to be taken that the specifics of the transactions are not construed as the transfer of a part of its business as a going concern.

The employee's obligation to prove there was a dismissal

This case dealt with a rare situation: it was disputed by the 'employer' that there was a dismissal because there had never been a contract of employment. How did this strange situation arise?

The appellant had previously been employed by the employer for 12 years. After she was charged with misconduct she left in October 2008, after a separation settlement agreement between the parties had been reached. Subsequently in March 2009, the employer's Regional Manager in the Eastern Cape arranged a meeting with the appellant to discuss her potential re-employment. There were various positions available at the time to which the appellant was qualified to be appointed. None of the positions had been advertised. The Regional Manager discussed with the appellant two available positions and the applicable salary band.

Shortly afterwards the Regional Manager was advised by Head Office that in no circumstances would the employer re-employ an ex-employee charged with fraud. Reacting to this advice, the Regional Manager called the appellant the same day and informed her that "Johannesburg" was not happy with employing her. By this, he meant that his head office did not want the appellant to be re-employed.

It was this call that triggered the referral of a dispute of an alleged unfair dismissal to the CCMA, which was arbitrated in 2009. The commissioner rejected the appellant's contention that she was employed and dismissed her claim of unfair dismissal.

Aggrieved by the award, she instituted review proceedings in the Labour Court to set it aside. She argued that she had been offered a contract of employment by one of the employer's managers and after accepting the offer, she was dismissed before she could even assume her new employment. The employer disputed that the appellant was offered any employment by any of its managers - she was only offered an opportunity to apply for a position and that the said offer did not materialise. The Labour Court dismissed the application for review and upheld the commissioner's finding that there was no dismissal.

The appellant was still not satisfied and appealed to the LAC in Nicholl v Du Plessis NO and Others (PA6/12) [2014] ZALACJHB 300 (5 August 2014). The LAC dismissed the appeal and found that on a balance of probabilities, no employment contract had been entered into. Preliminary discussions do not necessarily mean that there is agreement on the salary payable, when there is still a formal interview to be conducted.

This case reaffirms some basic principles: under s192 of the LRA, the onus to prove the existence of the dismissal on a balance of probabilities lies with the employee. In order to prove that there is a dismissal, an employee should establish in the first place that an employment relationship existed. The employee must set out the facts and legal issues which substantiate that a termination of employment occurred. Once the employee has proved that dismissal did take place, the onus is shifted to the employer to prove that the dismissal was for a fair reason.


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Bruce Robertson
August 2014
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