Importance of consensus in retrenchment consultation process

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In the recent decision of the Labour Appeal Court (LAC) in South African Commercial Catering and Allied Workers Union obo Thage and Others v Connect Financial Services (Pty) Ltd, the Court considered the relevance of consensus in evaluating the question of substantive fairness of retrenchments and emphasised the importance of agreements reached during the consultation process.

Factual background

The employer in this case consists of two divisions: the credit division and the collections call centre. The functions of the two divisions and the conditions of employment of their respective employees are distinct.

The employer gave notice in terms of section 189(3) of the LRA to 118 employees in the credit division, of the proposed restructuring of the division and contemplated retrenchments. The reason for the contemplated retrenchments was the downturn in the volume of work and revenue of the credit division. Fewer customers sought credit, loan processing systems were being automated, and there was reduced need for processing loans by the credit division employees.

As a result of the restructuring, 50 vacant positions were made available within the credit division, while 68 employees risked being retrenched. The employer informed the employees that re-deployment elsewhere in the group was an alternative to retrenchment, subject to vacancies in the group and the willingness of the employees to accept alternate employment.

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Four facilitated consultation meetings were held in line with section 189A(5) of the LRA, with the South Africa Commercial Catering and Allied Workers Union (Saccawu) representing the potentially affected employees. During consultations, it was agreed that employees would be assessed for appointment into the 50 vacancies within the credit division and that it would not be necessary for employees to apply for these positions. Following assessments, 50 employees were placed in the vacant positions, and, on 20 and 24 August 2020, the rest of the employees were issued with retrenchment notices.

On 1 September 2020, the employer advertised 25 vacancies in its collections call centre division. It notified Saccawu and invited the affected employees to apply, but the employees elected not to apply for the positions. Instead of advising its members to apply for the advertised posts, on 4 September 2020, Saccawu demanded that the retrenched employees be reinstated into the advertised vacancies.

The employer again invited the employees to apply for the vacancies, which they failed to do. The employer’s refusal to reinstate the employees on the basis demanded by Saccawu led to two applications launched by the union in the Labour Court.

Proceedings before the Labour Court

The first application was an urgent application in terms of section189A(13) alleging procedural unfairness. The union contended that the employer had not advised it of the collections call centre vacancies during the consultation process, despite the employer being aware of such vacancies before retrenching the employees, which would have been an alternative to retrenchment.

The section 189A(13) application was dismissed by the Labour Court on the basis of evidence that the parties had agreed in a consultation meeting to draw a distinction between vacancies in the two separate divisions, and that there would be no automatic placement into vacancies outside of the credit division. Rather, employees were required to apply for such vacancies to be considered.

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With leave to appeal and the petition for leave to appeal having failed in that matter, Saccawu referred a separate unfair dismissal dispute to the Labour Court in terms of section 189A(1), read with section 191(5)(b) of the LRA, challenging the substantive fairness of the dismissals. The basis for this claim, among others, was that the employer failed to disclose the 25 vacancies within its collections call centre division and to consider such vacancies as an alternative to retrenchment.

This claim also failed.

The Labour Court found that the employer had participated in the facilitated consultation meeting in good faith and had complied with the agreement reached in the consultation meeting around the distinction between the vacancies. It accordingly found that the vacancies in the collections call centre division were not an alternative to avoid retrenchment and that the retrenchment of the employees was indeed a last resort.

Aggrieved, Saccawu appealed the matter.

Determination by the Labour Appeal Court

The central question for determination by the LAC was whether the retrenchment of the employees was substantively unfair given that, prior to the dismissal of the employees, the employer was aware of and later advertised 25 vacancies in its call centre, which vacancies were not considered as an alternative to the retrenchment.

Key to the LAC’s finding was its consideration of the agreement reached by the parties during the consultation process regarding the treatment of vacancies. The LAC found that the employees were aware of the vacancies in the call centre, were informed of such vacancies when they became available, and were invited to apply for such vacant positions, but elected not to do so.

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The LAC found that the contention that the collections call centre division vacancies ought to have been consulted on as an alternative to retrenchment overlooked the terms of the agreement reached between the parties, and the fact that the vacancies only arose after the consultation process had concluded, following the expiry of fixed-term contracts. This conclusion, the LAC found, would not be altered by the fact that the vacancies had been budgeted for in the employer’s three-year strategic cycle.

Given the agreement reached by the parties, there was no obligation on the employer to consult on or automatically place the employees into the collections call centre division vacancies or any other vacancies that existed. Consequently, the LAC agreed with the Labour Court that the dismissal of the employees was substantively fair. Therefore, Saccawu’s appeal was dismissed.

Key takeaways

Section 189 of the LRA envisages that parties in a retrenchment process consult meaningfully in an attempt to reach consensus. It follows that any agreement reached by the consulting parties in the retrenchment process would be binding and relevant when considering the substance fairness of dismissals.

This judgment confirms that it is unlikely that a party will succeed in challenging an aspect already agreed upon between the parties during the consultation process and highlights the benefit of reaching consensus. From an evidentiary perspective, it is good practice to have such agreements recorded in writing and signed by both parties.