Working On Fire (Pty) Ltd v National Union of Metalworkers of South Africa (NUMSA) and Others (DA5/2021) [2022] ZALAC 114 (21 October 2022)
Where an arbitrator exercises a discretion to choose different but equally permissible alternatives, an appellate or review court should not readily substitute the decision of the decision-maker with that of its own.
In the context of a wage dispute referred to an interest arbitration, the question for the reviewing court was not whether the award was wrong or whether it held a different view to that of the arbitrator, but whether the award was reasonable in relation to all the material before the arbitrator.
Facts:
The Working on Fire (Pty) Ltd (WoF) Programme is an Expanded Public Works Programme (EPWP) aimed at providing services through a labour intensive programme initiated by the government and funded from public resources. The programme provides temporary employment and does not compete with the formal sector.
NUMSA, acting on behalf of its members employed as firefighters by WoF, referred a mutual interest dispute to arbitration in terms of Section 74(4) of the LRA. As they are engaged in an essential service, they were precluded from having a protected strike.
In terms of the contractual arrangement between WoF and the Department of Environmental Affairs (DEA), participants in the programme are employed in terms of Ministerial Determination 4. Participants in the WoF Programme are paid in accordance with the wage rates prescribed by the DEA on an annual basis. Section 50 of the BCEA provides that a worker may not be paid less than the minimum EPWP wage rate determined by the Minister. As at 1 April 2018, firefighters employed by WoF earned R107,24 per day, which was more than the minimum EPWP wage of R88.00 per day.
NUMSA represented 13% of the WoF employees. In wage negotiations WoF's position was that it was unable to negotiate with them over wages as the EPWP was intended as a governmental poverty relief programme in which stipends are paid to participants at a daily rate set by the Minister of Environmental Affairs. And since the rates and annual increments were determined by the DEA, it had no authority to change these rates.
NUMSA referred the wage dispute to arbitration at the CCMA. It sought the following outcome: "[w]ages of individual applicants be increased to a reasonable and/or industry standard". The arbitrator favoured WoF's position not to bargain with NUMSA and determined that "no improvement to current wage levels and conditions of service, as proposed by NUMSA, be implemented by WoF". He accordingly held that the wage levels and terms and conditions of employment in place for the period 1 April 2018 to 31 March 2019 should remain in place.
On review at the Labour Court, the arbitrator's award was set aside and the matter remitted to the CCMA for a de novo arbitration. One of the reasons for this order was that the arbitrator had abdicated his statutory duty to decide the matter before him when he expressed a reluctance to "tamper with the EPWP rates". He was required to weigh the arguments in favour of and against a wage increase. The Labour Court was also critical of the arbitrator's use of the "hypothetical approach" in reaching the award.
The hypothetical approach is characterised as an objective one in which it is accepted that the parties had final positions that were too far apart to allow for agreement, and that it is therefore the arbitrator's role to anticipate where the bargain should have been struck, in the light of available data, had the bargaining continued to conclusion and in good faith. This approach is contrasted to the fairness approach which says that where the parties to an interest arbitration cannot point to rights to sustain their cases, they are obliged at least to persuade the arbitrator why in fairness their position should be accepted. Only if both parties fail in that regard, may the arbitrator consider possible intermediate positions.
On appeal at the Labour Appeal Court, it was concluded that the arbitrator exercised his discretion judiciously in adopting the hypothetical approach. He also applied his mind and gave consideration to the evidence, when applying the approach to the wage dispute in question. In the circumstances, the arbitrator's decision was not one which a reasonable arbitrator could not have reached on the evidence before him. The order of the Labour Court was set aside and replaced by an order dismissing the review application. This meant that the arbitrator's ruling that wage levels and employment conditions in place for the period April 2018 to March 2019 remained in place.
Whilst wage arbitration is not common outside of essential services, any employer may be tempted to use wage arbitration to settle an interest dispute to avoid a strike. Affordability and comparability are traditional criteria used by arbitrators. This case illustrates that it is important for the parties to clearly state the arbitrator's terms of reference - the criteria the arbitrator should use in settling the wage dispute.
Extract from the judgment:
Kathree-Setiloane AJA:
[21] An issue pertinent to both the appeal and cross-appeal is whether the arbitrator's decision to adopt the hypothetical approach in determining the dispute is reviewable. The antecedent question is whether the arbitrator's election of the hypothetical approach is a question of law or a matter of discretion.
[22] NUMSA and WoF had not agreed on the arbitrator's terms of reference and left this to the arbitrator to determine. In so doing, the arbitrator had to ascertain the applicable rule of law or the legal options which were available to him. This was a question of law.
[23] The arbitrator identified the three options available to him. These were the hypothetical, fairness and final offer approaches. Having identified them, the arbitrator was required to make a value judgment in respect of which of the three available options was best suited to resolve the dispute before him. This was a matter of discretion.
[24] The Labour Court erred in classifying the arbitrator's election of the hypothetical approach as a question of law. Properly classified, it was a matter of discretion. Our law recognises two types of discretion. The first is a discretion in the wide sense, where the decision-maker is required to have regard to all the relevant considerations in coming to a decision and does not have a choice between equally permissible alternatives. These decisions are reviewable for want of reasonableness in the ordinary course.
[25] The second is true discretion (in the narrow sense). Here, the decision-maker has a choice between different but equally permissible alternatives; there being no single correct answer. The essence of a narrow discretion is that it is permissible for the decision-maker to choose any of the options available to him or her. This means that an appellate or review court should not readily substitute the decision of the decision-maker with that of its own. Consequently, if the decision-maker chooses to follow any one of the available options, he would be acting within his powers and his election cannot be set aside merely because a court would have preferred a different option to those available to him. Since establishing unreasonableness in this context is difficult, courts are inclined to show a measure of deference to the election of the decision-maker.
[26] The arbitrator in the wage dispute in question in this appeal exercised a narrow discretion. Considering the facts of the dispute, it is not inconceivable that any number of arbitrators may have decided on different approaches in determining their terms of reference, and none would be wrong.
[27] Although highly critical of the arbitrator's election of the hypothetical approach, the Labour Court was ambivalent in deciding which approach should be applied to the wage dispute in question. While it agreed with NUMSA that the fairness approach "would have led to a defensible result", the Labour Court acknowledged that it did so "without deciding that the hypothetical outcome approach leads per se to unjustifiable interest arbitration outcomes". Similarly, although it concluded that the adoption of the hypothetical approach in this dispute rendered the award irrational and unjustifiable, it contradicted this by stating that the arbitrator's election of the hypothetical approach "is to some extent understandable". The Labour Court also recognised that it was "not required to find whether shopping' for a non-equity approach that provides a result an adjudicator considers equitable is appropriate," and so refrained from doing so.
[28] The Labour Court's inability to decisively reject the hypothetical approach adopted by the arbitrator clearly indicates that the arbitrator's election was neither wrong nor unreasonable. As a result, it was constrained to conclude (albeit wrongly classifying it as an error of law) that "I do not find that the arbitrator's choice of approach was itself the error of law that led to an unjustifiable result", but it was rather the manner in which the approach was applied to the case which "rendered the award unreasonable on the material before him".
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[32] Accordingly, the Labour Court did not err in effectively concluding that the arbitrator's choice of the hypothetical approach was appropriate.
[33] I turn now to the question of whether the manner in which the arbitrator applied the hypothetical approach to the wage dispute in question rendered the award unreasonable on the material before him.
[34] It is established law that an arbitrator's failure to apply his or her mind to issues which are material to the determination of a dispute will constitute an irregularity. However, for it to result in a reviewable irregularity, it must in addition reveal a misconception of the true enquiry or result in an unreasonable outcome. A result will only be unreasonable if it is one that a reasonable arbitrator cannot reach on all the material that was before the arbitrator. Material errors of fact, as well as the weight and relevance to be attached to particular facts, are not in and of themselves sufficient for an award to be set aside on review, but are only of any consequence if their effect is to render the outcome unreasonable.
[35] In the context of a wage dispute such as we have here, the question for the reviewing court was not whether the award was wrong or whether it held a different view to that of the arbitrator, but whether the award was reasonable in relation to all the material that served before the arbitrator.
[36] The Labour Court found that the arbitrator's decision was unreasonable as he failed to take into account what the bargaining power of a trade union in an essential service would be if its members were free to strike, as the interruption of an essential service would endanger the life, personal safety or health of a whole or part of the population, and this would increase "WoF's pressure to capitulate". The Labour Court, nevertheless, accepted that having considered these factors, "a reasonable arbitrator may still be unmoved".
[37] It is inconceivable that in determining the wage dispute before him, the arbitrator would have been unmindful as to what NUMSA's bargaining powers over WoF would be if its members (who perform an essential service) were at liberty to embark on a strike. As is apparent from the award, the arbitrator took into account the views expressed by the Labour Court in NUM v CCMA concerning the pitfalls of the hypothetical approach, but concluded that it was the most appropriate approach in "the atypical circumstances of the case". Notably, NUM v CCMA concerned a review of an arbitration award in a wage dispute where the Labour Court, in considering the suitability of the hypothetical approach to resolving the dispute in question, made specific reference to the arbitrator's motivation (below) for not following that approach:
'In essential services unions have much more power because if they strike that can cause much more destruction than a non-essential service. The very reason of an essential service is to protect life, health and liberty. As was suggested by Mr Boda, it is abhorrent to countenance an argument for higher wages where that argument rests on the potential to destroy human life or property or it affects health. If Eskom workers strike, hospitals may not function which is a real and direct threat to life. Therefore following a hypothetical outcome approach in essential services, an arbitrator may tend to predict a higher outcome because striking workers may cause more devastation than non-essential workers...'[38] The Labour Court held that "the arbitrator furthermore failed to take into account that non-members may, with ease, in law, join a protected strike or that NUMSA's activism against "insultingly" low pay rates would likely attract some support from some similarly affected non-members. It is not so much that the arbitrator jumped down the rabbit hole of strike suppositions but that, having done so, he did not go deep enough".
[39] In support of the Labour Court's view on this aspect, NUMSA argued that even though it only held 13% of WoF's employees nationally, its membership was heavily weighted towards KwaZulu-Natal where it had 476 members and 265 in the Free State. NUMSA's membership thus constituted 68% of the 700 some odd employed in the province. A strike by NUMSA's members in KwaZulu-Natal and the Free State during the winter fire season would therefore have had a very significant impact on the applicant's operations in those provinces. Lastly, it submitted that there is no basis to suggest that any such strike would have remained limited to NUMSA's members and that other trade unions and nonunionised employees would not have joined the strike.
[40] However, this omission is not, in and of itself, sufficient to render the outcome of the award unreasonable. NUMSA does not explain how this omission would have resulted in a different outcome of the award having regard to all the material that was before the arbitrator. Although the arbitrator may not have taken this hypothesis into consideration, he considered the flipside which significantly, is what would happen to the other 4878 participants in the WoF Programme should he make a favourable award which could only be made applicable to NUMSA members? He posited that "such an award would likely give rise to industrial unrest among them, with justification," and correctly concluded that NUMSA expected "the CCMA to give it the muscle its lack of membership denied it". Indeed, this is consistent with the view that employees engaged in essential services should not expect to obtain through arbitration what other employees cannot obtain through industrial action.
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[45] Although the arbitrator supported NUMSA's contention that the wage rates of firefighters were insultingly and unreasonably low and amounted to exploitation, he did so in the context of normal employment. In determining whether he could interfere with EPWP rates, it was incumbent on the arbitrator to consider (which he did) the context within which the wages were being paid, namely the EPWP, a poverty relief programme created by the government in consultation with labour and business in Nedlac. Relevant to this context was the EPWP's basic objective of job creation and its overall success in alleviating poverty by skilling otherwise jobless participants and enabling them to eventually enter the formal job market.
[46] The arbitrator also took into account the policy implications of changing the EPWP wage rate which is the subject of a much broader policy debate between the Minister of Labour, in consultation with Nedlac, and that Nedlac was tasked, at the time, to determine whether the EPWP minimum wage should be aligned with the proposed National Minimum Wage. The Labour Court correctly concluded that these factors "could be legitimate countervailing factors in favour of the status quo."
[47] Crucially, it is established on the evidence that the DEA determines wages and increases of WoF firefighters based on budgetary constraints and allocations from the National Treasury within which the DEA is required to meet certain job creation targets. WoF, in turn, is required to take steps within its budget and from funds allocated by the DEA, to reach particular job creation targets and there is no provision for any supplementary requests for increased wages. The only way a demand for the 12% wage increase can be accommodated is by releasing 677 firefighters on the WoF Programme.
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[49] In so far as the financial position of WoF is concerned, the arbitrator took into account the uncontested evidence of WoF that it cannot afford any further increases in wages and other benefits. He also took into account that NUMSA presented no evidence to support its demand for a 12% wage increase. The Labour Court seemingly accepted this in stating that "the evidentiary issues need new and better ventilation" and accordingly made an award remitting the wage dispute to the CCMA for a hearing de novo.
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[52] While it is common cause that the wages that WoF firefighters are currently receiving are below the National Minimum Wage and that the WoF Programme has deviated from what was originally intended, this did not absolve NUMSA of the onus to prove, by way of evidence, why a 12% wage increase and other benefits demanded were justified.
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[60] It is clear from his carefully reasoned award that the arbitrator exercised his discretion judiciously in adopting the hypothetical approach. He also applied his mind and gave consideration to the evidence when applying the approach to the wage dispute in question. In the circumstances, the arbitrator's decision was not one which a reasonable arbitrator could not have reached on the totality of the evidence before him.