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IN THE LABOUR COURT OF SOUTH AFRICA

HELD AT JOHANNESBURG

CASE NO: JS 209/06

In the matter between:

NUMSA 1^ST APPLICANT

FRANCE STANFORD

AND 39 OTHERS 2^ND APPLICANTS

And

GENLUX LIGHTING (PTY) LTD RESPONDENT

JUDGMENT

CELE AJ

INTRODUCTION

[1] This is a claim of unfair dismissal of the second to further applicants due to the operational requirements of the respondent as their erstwhile employer. The claim was opposed by the respondent.

BACKGROUND FACTS

[2] In 1995 the respondent was the employer of all 40 applicants who were part of the staff component of 70 employees. The second to further applicants (“the applicants”) were members of the first applicant (“NUMSA or the Union”).

[3] In September 2005 the respondent found itself to be confronted by a number of operational problems. The problems pertained, inter alia, to

(i) Productivity / production output;

(ii) Absenteeism;

3. Theft;

4. Cheaper import commodities from the Far East and

5. The volatile Rand-Dollar exchange.

[4] The respondent issued a letter dated 15 September 2005 to NUMSA calling for a consultative meeting to discuss measures aimed at cost cutting exercises, streamlining and realignment of production processes, aggressive procurement, the curbing of spending patterns and improving labour productivity. The meeting was held on 25 September 2005 and the employees attended it. The respondent intimated in the meeting that if the identified problems were not resolved, the employees might have to be retrenched. The employees identified measures which they said would address the concerns raised if implemented. Such measures included:

(i) The system for ordering was to be improved since it was not up to scratch;

(ii) Improvement on communication between workers and staff;

3. Attention to lack of respect between staff and management;

4. Attention to the unfairness on production bonuses;

5. Attention to lack of adequate machines and drills;

6. Improvement on absenteeism, etc.

[5] The respondent rejected all the measures suggested by the employees on the basis that such measures would not contribute in the resolution of the identified problems facing the company. On 30 September 2005 the respondent served NUMSA with a notice for consultation for operational requirements. Various consultation meetings were subsequently held between the respondent and NUMSA. Among reasons raised by the respondent as leading to the likely retrenchment were:

(i) The problem experienced by the company on Human resources and Productivity

(ii) The problem of not having expertise in dealing with Human Resources / Labour issues.

[6] The parties discussed the appointment of an independent facilitator to assist in the consultation process but they did not reach an agreement on such appointment. The respondent then took a decision to outsource its entire production process and to engage the services of a temporary employment agent to administer all recruitment and employment related duties and to be its staffing service provider. To achieve that, it retrenched its entire current staff on 16 November 2005. It paid them their severance pay. 63 of 70 employees were taken by Jobmates-Phakisa as their employer. All of them were utilised by the respondent by doing the same work as they had done prior to their retrenchment. They therefore occupied the same positions as they had done when the respondent was their employer.

[7] NUMSA continued through correspondence to object to the position taken by the respondent. It suggested that the respondent was to:

(i) Join either Selfsa or any Employers organisation of its choice

(ii) Consider outsourcing its Human Resources Services to any institution specialising on that service.

It also pointed out that the retrenchment process was not legitimate. The respondent stood firm on its ground. NUMSA declared a dispute with the respondent and referred it for conciliation which failed to resolve it. It was then referred to this court for trial.

RELIEF SOUGHT BY APPLICANTS

[8] Each of the 40 applicants seeks reinstatement with retrospective effect from the date of dismissal and on terms and conditions which were applicable at the time of their dismissal.

THE ISSUE

[9] In the pleadings the issue for decision was whether the dismissal of the individual applicants was substantively and procedurally fair. When the matter was heard, however, the issue was then limited to substantive fairness of the dismissal.

THE TRIAL

[10] At the commencement of the trial Ms Ruth Edmonds appearing for the applicants addressed court and indicated that she would not call any witnesses as, in her view, the facts were common cause and all that the parties needed to do was to address court. Mr Thomas Graham appearing for the respondent did not share that view. He had one witness to call, Mr David Tavendale, the Managing Director: Operations for the respondent.

RESPONDENT’S EVIDENCE

[11] In the late 2004 and the beginning of 2005 the company experienced various problems operationally. There was a high incidence of theft which resulted in the company losing about R 900 000 – 00. The staff that was caught was subjected to discipline and where necessary, to dismissal. Other staff involved in stealing company property could not be apprehended. There was a high degree of absenteeism by the staff. The company had many sessions where the staff was warned against absenteeism. The cheap product which came from the East had negative effects on the Rand / Dollar rate. The continuation of the company under such circumstances became difficult.

[12] A Board of Directors of the respondent directed Mr Tavendale to come up with a plan to bring about a turn around of the company situation within 12 months. That was at the beginning of 2005. At the time, the company did not have its own Human Resources Department and was experiencing problems related thereto. A number of consultative meetings were held by the company with NUMSA in trying to find a solution to its problems. A number of measures suggested by NUMSA had been considered by the company and were found not to be effective in resolving the real issues.

[13] Mr Tavendale was also given a mandate to consider and implement a 10% staff reduction. A decision was then taken to terminate the employment of all the hourly paid employees totalling 70. The respondent agreed with Jobmates-Phakisa that it would take over the staff recruitment for the respondent. The respondent suggested to Jobmates-Phakisa to prefer its employees when taking on staff whose services would be made available to the respondent. The staff were duly informed about the position. NUMSA was in favour of outsourcing though it limited it to the Human Resource services. Application forms were then supplied to all 70 employees who were told to apply for jobs with Jobmates-Phakisa and there was a closing date for the submission of the applications. 7 out of the 70 staff tore their application forms while 63 staff submitted their applications in time. After the closing date, the 7 were again supplied with application forms with a view to securing their particulars, in case their services were needed within the 6 months, calculated from the date of their retrenchment.

[14] Phakisa took into its employ 63 employees who did the same job and occupied the same positions as they had done when they were employed by the respondent. A few people were taken on as temporary employees within the 6 months after the retrenchment. The particulars of the 7 employees who were not re-employed were later checked for their forwarding addresses as more employees were needed. It was discovered then that they had not supplied any information which could be used to trace them.

[15] The new employment system brought about significant improvement in the industry. The staff was disciplined. There were still incidents of theft of company property. There was no longer any labour unrest in the form of pickets, strikes and intimidation. The company was growing every year above the inflation levels.

[16] Phakisa was using a 6 months contract employment system for its employees. At the termination of the 6 months period the contract is then renewed and therefore most of the employees who were with the respondent are still with Phakisa. More others were taken on as the company was growing. It is Phakisa that has to have dealings with NUMSA and no longer the respondent, which ceased to be the employer of the hourly paid staff. The respondent pays Phakisa an additional 12% so that it can deal with Human Resources services including dealings with NUMSA.

SUBMISSION BY PARTIES

Mr Graham’s submissions

[17] The undisputed evidence of the company was that it lost R 900 000-00 when restructuring was considered. Restructuring of a company takes place frequently throughout the country. There is therefore nothing wrong with it. A collective agreement applicable between the parties does not have any provision which prohibits the restructuring of a company business to accommodate a third party so as to limit its financial constraints by outsourcing – see NEHAWU and Others v University of Pretoria [2006] 5 BLLR 437 (LAC).

[18] The respondent held various consultation meetings with the applicants prior to retrenchment. Such consultations were bona fide. The respondent came with an independent facilitator to help in the consultation process. The union declined the use of an independent facilitator. The employees were all given their severance packages of one week payment for every completed year. The applicants never raised the severance pay as an issue.

[19] The respondent approached negotiations with a plan to limit any adversity to be suffered by any of the employees. Such adversity was mitigated by Phakisa which helped to avoid people being unemployed. As such no prejudice was suffered by the employees, including the applicants. The 7 employees who were not re-employed by Phakisa were authors of their own misfortune. They were told to apply for jobs with Phakisa but chose not to. They were also given their severance packages. As there was alternative employment, their dismissal was fair. It was not a malicious attempt to get rid of the employees.

Ms Edmond’s submissions

[20] The law on retrenchment is clear, where dismissal can be avoided, retrenchment is not allowed. The positions of all employees were still avoidable after their retrenchment. Their dismissal could therefore not be justified. No need was shown to exist in getting rid of their jobs. The solution to the problems faced by the company did not lie in a dismissal of its employees. Those that were stealing should have bee subjected to a disciplinary hearing. The productivity problem could be resolved by putting employees on terms. Training the staff could also help to improve their performance. Retrenchment is however a no fault termination.

[21] The selection criteria used to eliminate the 7 employees was not permissible. They were dismissed for not applying for their posts when such posts were not redundant.

[22] In the absence of any evidence by the applicants on their earnings from the date of dismissal to the date of judgment, it will be appropriate to re-employ than to reinstate them.

ANALYSIS

[23] On 16 November 2005 the respondent dismissed all of its hourly paid employees totalling 70. The dismissal was based on the operational requirements of the respondent. When responding to a Judge President’s directive on dismissal based on operational requirements, the respondent explained the need to retrench thus:

“The respondent contends that there were economic and structural needs due to restructuring of the Human Resource and productivity processes, down sizing in response to economic decline, financial difficulties created by financial loss due to theft, and the desire to improve profit margins. Therefore there was a need to retrench the second applicants.”

[24] The contention by the applicants was that there was no need to retrench them.

[25] Section 213 of the Act defines “operational requirements” to mean “requirements based on the economic, technological, structural or similar needs of an employer.” A further elaboration is found in item (1) of the Code of Good Practice where the following appears.

“As a general rule, economic reasons are those that relate to the financial management of the enterprise. Technological reasons refer to the introduction of new technology which affects work relationships either by making existing jobs redundant or by requiring employees to adapt to the new technology or a consequential restructuring of the workplace. Structural reasons relate to the redundancy of posts consequent to a restructuring of the employer's enterprise.”

[26] As already pointed out at the commencement of this trial, Ms Edmonds indicated to court that the procedural fairness of the dismissal was no longer challenged by the applicants. Such an approach however, does not ditract from the fact that procedural fairness is not only a value in its own right but a means of establishing whether substantive grounds are in fact present and, if so, the most appropriate ways of mitigating the consequences – see Twine v Rubber Rollers (Pty) Ltd [1999] 3 BLLR 285 (LC).

[27] In the process of determining the substantive fairness of the dismissal of the applicants in this matter. I take note of what the function of the court ought to be as enunciated in NEHAWU v The Agricultural Research Council [2000] 9 BLLR 1081 (LC) where the following was held:

“not merely to determine whether the requirements for a proper consultation process have been followed and whether the decision to retrench was commercially justifiable [but] whether the retrenchment is properly and genuinely justified by operational requirements in the sense that it was a reasonable option in the circumstances.”

[28] The decision in Decision Surveys International (Pty) Ltd v Dlamini and Others [2002] ZACC 27; [1999] 5 BLLR 413 (LAC) provides yet another guide in the function of a court in search for properly and genuinely justified operational requirements. It held that:

“If the employer resorts to retrenchment when alternatives to retrenchment are available, it cannot be said that the ultimate decision to retrench is necessarily fair. The court will, therefore, examine the reasons advanced for retrenchment in order to determine whether the ultimate decision to retrench is genuine and not a sham. However, this is not to say courts are to second guess the commercial or business efficacy of the employer’s decision. Nor is the enquiry whether the best decision was taken … The enquiry is whether the retrenchment is properly and genuinely justified by operational requirements in the sense that it was a reasonable option in the circumstances.”

[29] In the consultation process between the respondent and the applicant, each partly had an obligation to engage in a meaningful joint consensus-seeking process. They had to attempt to reach consensus on inter alia appropriate measures to avoid the dismissal; to minimise the number of dismissal; to change the timing of the dismissals and to mitigate the adverse effects of the dismissals – Section 189 (2)(a) of the Act.

[30] The parties failed to reach an agreement that retrenchment was or was not the solution to the problems identified by the respondent.

[31] Mr Tavendale conceded in his evidence that after the 70 employees were dismissed by the company, it brought 63 of them back who then did exactly the same work they had previously been engaged in and they occupied the same positions. What had effectively changed was that they had became employees of a third party – Phakisa. This is therefore not a case where the company relinquished some or all of its core functions in favour of a third party agent. The company continued to manufacture the same product which it had been engaged in and to dispose of it in exactly the same manner as before the retrenchment. Effectively the company relinquished its administrative function on its labour force. To that extent, the company even paid 12% more that it had spent before retrenchment to enable the third party agent to cater for the Human Resources services of the employees.

[32] In his evidence, Mr Tavendale conceded that the problem of stock shrinkage still continued to besiege the company even after the retrenchment. He pointed out though that labour disturbances did not recur. However, he conceded further that he did not know that the respondent ought not to have retrenched its employees if it had the ability to keep their jobs. He said that it was his understanding that the company was free to outsource its labour component to a third party agent.

[33] All the evidence in this matter points towards an indispensability of the labour force in the core functioning of the respondent. Infact, after, 63 employees were put back into the positions they had held, more staff was later taken in even though on temporary basis. A need to keep at least the 63 employees therefore existed before and after their retrenchment. That there were economic and structural needs due to restructuring of the Human Resources, productivity processes and down sizing to affect the 63 employees is clearly far from the truth. The economic decline and financial difficulties faced by the respondent did not stop it from taking back the services of the 63 employees in the same positions and doing the work. The reasons advanced for retrenchment when seen against the behaviour of the respondent after retrenchment show that the decision to retrench was nothing but a sham. The overwhelming evidence shows that the retrenchment was not properly and genuinely justified by operational requirement. The decision to retrench was undoubtedly not a reasonable option in the circumstances. The decision to retrench was wrongly informed by a presupposition that the respondent was entitled to dismiss its employees and thereafter to mitigate the devastating effect thereof by engaging services of a third party agent as employer. Had the respondent heeded to the suggestion given to it by NUMSA. To outsource the Human Resources services to a private company while retaining its staff component, the same economic turn around it achieved through Phakisa might have been achieved.

[34] The next consideration is about the retrenchment of the 7 employees who were never employed by Phakisa. Mr Tavendale testified that the Board of Directors gave him a mandate to effect a staff reduction by 10%. No evidence was produced by the respondent to suggest how the 10% was arrived at. On the contrary there is staff that Phakisa had to add on to that of 63 sometime after retrenchment. Mr Tavendale testified also that an attempt was made to trace there 7 dismissed employees which was however not successful due to them having not left their forwarding addresses. In this respect again, the evidence of the respondent points forwards there having been no cogent reason underlying the retrenchment of the 7 employees. It is a rather curious co-incidence that there was a mandate to cut the staff by 10%, which in this case was 7 employees and 7 employees tore their application forms to seek employment with Phakisa. The selection criterion used by the respondent against the 7 employees had not been agreed upon with NUMSA. The absence of the agreement in this instance, is a means which helps to establish that there never was a substantive ground to justify the retrenchment. I note though that none of the 7 applicants chose to testify so as to rebut the evidence of the respondent. By failing to testify they also declined to inform the court whether they have since found alternative employment in mitigation of their damages.

[35] Mr Graham submitted in his closing remarks, that the facts of their matter were similar to the facts in Nehawu and Others v University of Pretoria. I do not agree, I refer to a position of paragraph 4 of that judgment which reads:

“Prof van Zyl stated, among other things, that the respondent had to meet certain challenges facing it. He enumerated certain matters which he said required particular attention. The first of the matters he mentioned was that there would have to be a thorough reconsideration of the University’s core functions and the performance or execution thereof. He also stated that partnerships with the private sector would have to be investigated urgently, particularly through the outsourcing of support services.” (My underlining)

[36] The core functions and the performance or execution thereof by the labour force did not undergo any change for the respondent. The same positions were retained to execute the same functions. The facts of this matter are accordingly clearly distinguishable from those in the Nehawu case.

[37] It is in the light of all the above that I conclude that the dismissal of all 40 applicants by the respondent was not proved to have been substantively fair.

[38] All have asked to be re-employed. The respondent did not produce any evidence to suggest the contrary. The 63 employees were taken on a fixed term contract of 6 months which, I was informed, was renewed since the date they were employed by Phakisa. I find that it is in the interest of all applicants that they be re-employed. They have not tendered paying back the severance pay they received as a package from the respondent.

[39] In the circumstances, the following order will issue:

Order:

1. The respondent is ordered to re-employ each of the 40 applicants in respect of whom re-employment is still practicable.

2. Such re-employment is to take effect immediately at the termination of the current 6 months’ fixed term contract served by the staff working at the respondent’s industry through Phakisa.

3. The respondent is ordered to pay costs of this claim.

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CELE AJ

DATE OF HEARING: 18 AUGUST 2008

DATE OF JUDGMENT: 21 AUGUST 2008

APPEARANCE:

FOR THE APPLICANT: RUTH EDMONDS (RUTH EDMONDS ATTORNEYS)

FOR THE RESPONDENT: THOMAS M GRAHAM (GRAHAM ATTORNEYS)

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