NUMSA and Another v Aveng Trident Steel (A Division of Aveng Africa Proprietary Limited) and Others (JA25/18) [2019] ZALAC 36 (13 June 2019)

Principle:

  1. The essential inquiry under section 187(1)(c) of the LRA is whether the fundamental reason for the dismissal is the refusal to accept the proposed changes in employment.
  2. The court must determine factual causation by asking whether the dismissal would have occurred if the employees had not refused the demand. If the answer is yes, then the dismissal is not automatically unfair.
  3. If the answer is no, that does not immediately render the dismissal automatically unfair; the next issue is one of legal causation, namely whether such refusal was the main, dominant, proximate or most likely cause of the dismissal.

Facts:

With the steel industry in decline and a 20% fall in its sales volumes and profitability in 2014, Aveng had to reduce costs to maintain its profit margins. In order to survive or remain viable, it needed to restructure. The company initiated a consultation process with NUMSA in terms of section 189A of the LRA, and an extended consultation process followed which resulted in various measures being put in place to address the situation, including discussions about restructuring the company's grading system. An "interim agreement" was reached, in terms of which an interim structure with redesigned job descriptions was agreed, whilst consultation about job descriptions and the long-term viability of the proposed job grade structure would continue. In terms of the interim structure, employees performed additional functions and were paid extra.

NUMSA subsequently gave written notice to terminate the interim agreement, declaring its members were no longer willing to perform the additional duties. Further negotiations took place between the parties in an attempt to agree on the job grading structure and the rates to be paid, but these were unsuccessful.

After a year of consultations, Aveng informed NUMSA that the consultation process in terms of section 189 of the LRA had now been exhausted and gave notice that Aveng would implement the new structure as per the redesigned job descriptions. Employees however refused to accept offers of employment in terms of the redesigned job descriptions. Given that their previous positions had become redundant and due to their refusal to accept the alternative employment offered, all the employees were dismissed for operational reasons.

At the Labour Court NUMSA contended that the reason for the dismissal was the employees' refusal to accept Aveng's demands in respect of the altered job descriptions and grade structure, which were matters of mutual interest, and thus the dismissal was automatically unfair in terms of section 187(1)(c). Aveng denied that the dismissal was automatically unfair and maintained that the reason for dismissal was a fair reason based on its operational requirements.

The Labour Court in NUMSA obo members v Aveng Trident Steel (A Division of Aveng Africa (Pty) Ltd) (JS596/15) [2017] ZALCJHB (13 December 2017) concluded that the employees were dismissed not for refusing to accept any demand but for operational requirements reasons after rejecting the alternative to dismissal proposed by the employer during retrenchment consultations. The Labour Court held that the proposal to alter the job descriptions was an appropriate measure aimed at avoiding or minimising the number of dismissals and thus the dismissal was for a fair reason. Aveng was faced with operational difficulties and the only viable answer was to restructure and redesign the jobs. The LC was satisfied that Aveng had done everything reasonably possible to save the jobs and 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 at the Labour Appeal Court, it was held that Section 187(1)(c) of the LRA must be read in the context of LRA's protection against unfair dismissal. The prohibition in section 187(1)(c) must be read with section 188. It follows that even where there is evidence suggesting that dismissal occurred following employees' refusal to accept a demand, the employer can still show that the dismissal was for a different, more proximate, fair reason.

The fact that a proposed change is refused and a dismissal thereafter ensues does not mean that the reason for the dismissal is necessarily the refusal to accept the proposed change. The question of whether section 187(1)(c) of the LRA is contravened no longer depends on whether the dismissal is conditional or final (subsequent to a change in the wording of the section in 2014), but rather on what the true reason for the dismissal of the employees is. The actual reason for the dismissal needs to be determined.

The LAC said the court must determine factual causation by asking whether the dismissal would have occurred if the employees had not refused the demand. If the answer is yes, then the dismissal is not automatically unfair. If the answer is no, as in this case, that does not immediately render the dismissal automatically unfair; the next issue is one of legal causation, namely whether such refusal was the main, dominant, proximate or most likely cause of the dismissal.

The LAC concluded that the dominant reason or proximate cause for the dismissal of the employees was Aveng's operational requirements, which underpinned the entire process throughout 2014 and 2105 and informed all the consultations regarding the changes to the terms and conditions of employment. The employees' dismissals accordingly fell within the zone of permissible dismissals for operational requirements and did not fall foul of section 187(1)(c). The LAC accordingly confirmed the LC decision.

The LAC also recognised that the LRA does not distinguish between dismissals for operational reasons intended to save a business from failure and those intended simply to increase profitability. However, it noted that employers do not have carte blanche - the connection between the dismissal and the employer's operational needs must still pass the test of fairness. The real question remains: will it be fair in the given circumstances to dismiss employees in order to increase profit or efficiency?

Extract from the judgment:

Murphy AJA:

Evaluation

[61]   The amendment of section 187(1)(c) of the LRA had a restricted purpose and limited reach. It shifted the focus from the employer's intention 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 hence now irrelevant whether or not the dismissal was intended to induce the employees to comply with a demand. The upshot is that the distinction between final or conditional dismissals as a basis for the application of section 187(1)(c) of the LRA has fallen away since it no longer has utility.

[62]   The amendment is less clear about the more challenging question of when it may be permissible in terms of sections 188 and 189 of the LRA to dismiss on operational grounds employees who refuse to accede to the employer's demands for changes to their terms and conditions of employment. The LRA defines operational requirements generally to mean requirements based on the economic, technological, structural or similar needs of an employer. The definition does not specifically include a need to change terms and conditions of employment. However, as discussed, our prevailing jurisprudence has interpreted the LRA to permit dismissal on such grounds, being structural or similar needs - the upshot being that the right to retrench is implicit in section 187(1)(c) of the LRA. It is doubtful, for the reasons following, that the purpose of the amendment was to change the law in this respect.

[63]   If it is no longer permitted in terms of the amendment to section 187(1)(c) of the LRA to dismiss recalcitrant employees and to employ in their place others who are prepared to work in accordance with the new terms and conditions of employment that are operationally required, as NUMSA suggests, the only way to satisfy the employer's operational requirements would be through collective bargaining and ultimately the power play. If no collective agreement can be reached on a proposed restructuring, the employer's only means of addressing its operational requirements would be an offensive exclusion lock-out or unilateral implementation in breach of contract. There will often be practical obstacles in the way of such action, especially when an employer is confronted with economic or structural challenges. An offensive lock-out, in which the employer will be denied the right to employ replacement labour, or a breach of contract leading to litigation, usually will be self-defeating, adding to the economic pressure on an employer struggling financially and needing to restructure for that reason.

[64]   NUMSA's interpretation of the amendment is not sustainable for a few reasons. Section 187(1)(c) of the LRA must be read in the context of LRA's scheme for the protection against unfair dismissal. The prohibition in section 187(1)(c) of the LRA is one of a number of the automatically unfair dismissals outlawed by section 187. It must be read with section 188 of the LRA which provides that a dismissal that is not automatically unfair is unfair if the employer fails to prove a fair reason such as one based on operational requirements under section 189 of the LRA. It follows that even where there is evidence suggesting a credible possibility that dismissal occurred because the employees refused to accept a demand, the employer can still show that the dismissal was for a different more proximate fair reason.

[65]   The fact that a proposed change is refused and a dismissal thereafter ensues does not mean that the reason for the dismissal is necessarily the refusal to accept the proposed change. The question whether section 187(1)(c) of the LRA is contravened does not depend on whether the dismissal is conditional or final, but rather on what the true reason for the dismissal of the employees is. The proven existence of the refusal of a demand merely prompts a causation enquiry. The actual reason for the dismissal needs to be determined and there is no basis in principle for excluding an employer's operational requirements from consideration as a possible reason for dismissal.

[66]   There is furthermore merit in Aveng's submission that NUMSA's construction would lead perversely to employers being wary of proposing any changes to terms and conditions of employment in section 189 consultations. That would undermine the fundamental purpose of section 189 to encourage engagements on all potentially viable alternatives to retrenchment.

[67]   Moreover, if it is permissible in terms of section 67(5) of the LRA to dismiss protected strikers where the employer is able to demonstrate (on all the facts and circumstances of a particular case) a legitimate and substantial business necessity, the underlying policy rationale applies equally to the dismissal of employees resisting employer demands or proposals. Striking workers may not be dismissed for striking but can be retrenched where a genuine substantial operational necessity arises. By the same token, while employees cannot be dismissed for refusing to accept a demand, they can be dismissed if that refusal results in a more dominant or proximate operational necessity. This legislative scheme of collective bargaining is in line with the constitutional right of trade unions and employers to engage in collective bargaining in that any limitation of the power play is reasonable and justifiable in the balance struck between the strike weapon and the employer's power of implementation at impasse.

[68]   Hence, the essential inquiry under section 187(1)(c) of the LRA is whether the reason for the dismissal is the refusal to accept the proposed changes to employment. The test for determining the true reason is that laid down in SA Chemical Workers Union v Afrox Ltd. The court must determine factual causation by asking whether the dismissal would have occurred if the employees had not refused the demand. If the answer is yes, then the dismissal is not automatically unfair. If the answer is no, as in this case, that does not immediately render the dismissal automatically unfair; the next issue is one of legal causation, namely whether such refusal was the main, dominant, proximate or most likely cause of the dismissal.

[69]   As in all operational requirements dismissals, the merits of the employer's decision in such circumstances are open to scrutiny, but a stricter scrutiny in light of the need for judicial sensitivity to the dynamics of a legitimate power play - the driver of collective bargaining. As discussed earlier, the LAC and the SCA in Fry's Metal, in considering the merits of the dismissal in that case, accepted that the LRA does not distinguish between dismissals for operational reasons intended to save a business from failure and those intended simply to increase profitability. In this regard Zondo JP said:

'This is because all the Act refers to, and recognises, in this regard is an employer's right to dismiss for a reason based on operational requirements without making any distinction between operational requirements in the context of a business the survival of which is under threat and a business which is making profit and wants to make more profit.'

[70]   However, employers do not have carte blanche. As Prof du Toit put it:

'...though the notion of employers being free to dismiss workers "merely to increase profit" may seem to open the floodgates to dismissal virtually at will, the causal nexus between a dismissal and the employer's operational needs must still pass the test of fairness. The real question remains: will it be fair in the given circumstances to dismiss employees in order to increase profit or efficiency?'
[71]   NUMSA's contention that the reason for the dismissal of the employees was solely their refusal to accede to the demand by Aveng that they sign new contracts of employment is not sustainable on the facts.

[72]   Firstly, as the Labour Court held, there was strictly speaking no employer "demand". The relevant correspondence shows that the proposals of Aveng in relation to the 5-grade structure and job descriptions were made in terms of section 189(2) and (3) of the LRA and intended to avoid or mitigate dismissals or were alternatives to dismissal in the context of consultations over retrenchments. The process embarked on in May 2014 was not only seeking agreement to changes to terms and conditions of employment but was intended to avoid dismissals. The distinction between a demand and a proposal is admittedly a fine one, but nonetheless goes beyond semantics. Collective bargaining demands are made ordinarily in negotiations over wages. Although both wage negotiations and restructuring proposals may impact similarly on the bottom line, and restructuring proposals can feature regularly in wage negotiations, the retrenchment risk arises when the operational requirements for the viability of the employer are compelling, overriding and the dominant objective of the proposal.

[73]   The proposals regarding the 5-grade structure and job descriptions were put forward as part of a continuing consultation process aimed at improved profitability and viability; and were necessary, if not essential, for Aveng's sustainability in the constricted circumstances in which it found itself. The grouping of the job functions was a sensible way of introducing efficiencies and cost savings, and had proved effective under the interim agreement. The proposals were the only reasonable and sensible means of avoiding dismissals and entailed no adverse financial consequences for the employees.

[74]   As Aveng's viability was at stake, proceeding with a bargaining power play, either an offensive lock-out without replacement labour or unilateral implementation of the changes, was not a realistic option in the circumstances. The primary purpose of Aveng in making the proposal was not to grasp an advantage in the wage bargain, it was rather to restructure for operational reasons to ensure Aveng's long term survival. The proposal was not made at the expense of existing wage levels. NUMSA, the facts indisputably demonstrate, sought to convert the proposal to a bargaining opportunity for increased wages. The bargaining pressure thus brought to bear exacerbated the operational requirements problem. The proposal having been negotiated to impasse, the imperative or dynamic to dismiss for operational reasons transcended tactical positioning to become a fair reason. The failure of the employees to accept the proposals engendered an insurmountable operational requirements problem that constituted a fair reason for dismissal.

[75]   The dominant reason or proximate cause for the dismissal of the employees, therefore, was Aveng's operational requirements, which underpinned the entire process throughout 2014 and 2105 and informed all the consultations regarding the changes to the terms and conditions of employment. The employees' dismissals accordingly fell within the zone of permissible dismissals for operational requirements and did not fall foul of section 187(1)(c) of the LRA. In the result, the Labour Court did not err in its conclusion.

[76]   There is consequently no need to determine the second appeal ground concerning the practicality of reinstating the employees in the employment of the second respondent.

[77]   The appeal is accordingly dismissed with costs, such costs to include the costs of two counsel.