When mass retrenchments go wrong
Baker McKenzie's Tracy Robbins explains why the constitutional court ordered Woolworths to reinstate retrenched workers.
The Constitutional Court recently handed down a judgment ordering that the dozens of workers retrenched by Woolworths in 2012 be reinstated. The application was for leave to appeal against a portion of the Labour Appeal Court's (LAC) judgment in South African Commercial, Catering and Allied Workers Union and Others v. Woolworths (Pty) Ltd  ZACC 44. The LAC substituted the Labour Court's (LC) order of retrospective reinstatement of 44 members of the South African Commercial, Catering and Allied Workers Union (SACCAWU).
In this case, Woolworths had a workforce of 16,400 flexi-timers and 590 full-timers (the latter earned more and enjoyed better benefits). In keeping with market trends, Woolworths decided to use flexi-timers for its entire workforce. It invited full-timers to voluntarily become flexi-timers and offered inducements to convert. Bar 177 employees, all full-timers either agreed to convert, opted for early retirement or voluntary severance.
Ultimately, only 92 employees were retrenched, 44 of which were SACCAWU members and applicants to the dispute.
Due to the size of its workforce, Woolworths was obligated to follow the procedure prescribed by the Labour Relations Act, 66 of 1995 (LRA) for large scale retrenchments. The retrenchments transpired when section 189A(19) of the LRA applied before it was repealed. This section dealt with substantive fairness and provided that a court must find that the employee was dismissed for a fair reason if -
(a) the dismissal was to give effect to a requirement based on the employer’s economic, technological, structural or similar needs;
(b) the dismissal is operationally justifiable on rational grounds;
(c) there was a proper consideration of alternatives; and
(d) selection criteria were fair and objective.
Woolworths gave the prescribed notice to the 177 full-timers and engaged in the consultation process. In such a situation, the employer must engage in a meaningful joint consensus-seeking process and attempt to reach consensus with employees and/or their representatives on several listed issues.
During this process, a further 85 employees opted for one of the voluntary options and even SACCAWU began to appreciate the need to work flexi-time and accepted that full-timers should be converted. However, SACCAWU suggested that full-timers retain their existing wage rate and made two proposals regarding the hours of work. Woolworths rejected these offers and soon thereafter gave notice to terminate 92 employment agreements. SACCAWU referred a dispute regarding the substantive fairness of these dismissals.
The LC held Woolworths failed to prove it was operationally justifiable, that it appropriately considered alternatives to dismissal and did not engage in meaningful consultation. Therefore, the dismissal of the 44 full-timers was substantively and procedurally unfair. On appeal, the LAC confirmed the dismissal was substantively unfair but changed the order of reinstatement to one of compensation.
The CC held that Woolworths failed to show that the retrenchments were operationally justifiable on rational grounds or that it properly considered alternatives. The sole reason advanced by Woolworths for the retrenchments in its section 189(3) notice was that "the company needs to be in a position to employ employees who are able to be used on a flexible basis." The CC held this stated purpose was achieved when SACCAWU had agreed to work the flexible hours and days required. The CC held further that Woolworths did not properly consider a number of possible alternatives to retrenchment and found it inconceivable why it could not have continued to follow the phasing out of full-timers, which it had been doing since 2002.
If one of the elements listed in (repealed) section 189A(a) to (d) had not been satisfied, the dismissals would be substantively unfair. The issue of procedural unfairness only arises if the dismissals were found to be substantively fair. As the CC had already determined that the dismissals were substantively unfair, the CC found there is no need to engage on the issue of procedural fairness.
In deciding the appropriate remedy, the CC considered reinstatement, being the primary remedy for unfair dismissals, unless (i) the employee does not wish to be reinstated, (ii) continued employment would be intolerable, (iii) reinstatement is not reasonably practicable for the employer, or (iv) the dismissal is only unfair because the employer did not follow fair procedure. The CC found it appropriate to focus particularly on when reinstatement is not "reasonably practicable". It held that "not reasonably practicable" means more than inconvenience and requires evidence of a compelling operational burden. The CC found that one cannot restore a flexi-time employment agreement which did not exist, as such, one may only reinstate the contracts which governed the employment relationship at the time of dismissal, which was on a full-time basis.
The CC set aside the LAC decision for a remedy of 12 months' compensation and ordered reinstatement with retrospective effect to the date of the dismissal. It emphasised that as soon as possible after the judgment, the parties should continue the consultation process which ended when the dismissal took place.
This case highlights the importance of the large-scale retrenchment notice. Employers must articulate self-standing reasons. Woolworths' notice emphasised "the company needs to be in a position to employ employees who are able to be used on a flexible basis. This would improve both the costs and the operational effectiveness of the business." All three courts agreed that the latter were benefits of the need for flexibility and not self-standing reasons. Therefore, careful wording is paramount to capturing the employer’s operationally justifiable reasons for the benefit of the affected employees, or any other forum the notice may come before. It is equally important for employers to offer tenable reasons to discharge its onus that it has properly considered alternatives to retrenchment, such as natural attrition, wage freezes or ring-fencing. Failure to do so will result in the dismissal being unfair, in which case the employee must be reinstated unless of course one of the abovementioned exceptions apply.