10 July 2020 by , and Business Rescue, Restructuring & Insolvency and Employment Alert

A Balancing Act: The Labour Appeal Court gives final verdict on SAA (in business rescue) v NUMSA employee retrenchment appeal

With the business rescue proceedings of the National Air carrier publicly on display, it is no surprise that the matter between South African Airways (SAA) and NUMSA, previously before the Labour Court (LC), and now the Labour Appeal court (LAC), has caught the attention of many South Africans.

As has been discussed in a previous article by CDH, the LC, and now the LAC, had before them the question as to whether a business rescue practitioner (BRP) could commence with retrenchment proceedings under section 189 of the Labour Relations Act 66 of 1995 (the LRA) prior to the adoption of a business rescue plan as contemplated in section 150 of the Companies Act 2008 (the Act).

Both courts had to consider the interpretation of section 136 of the Act, as well as consider the balance of rights of all stakeholders, including employees, in a business rescue process, as contemplated in the Act and the LRA.

In an attempt to rescue the business, the SAA BRPs issued s189/189A notices in terms of the LRA.

The effect of such, a section 189/189A notice, is to indicate to employees that that SAA is contemplating dismissals based on its operational requirements (i.e. that retrenchments may follow). The notice invites the impacted employees to consult with SAA on a prescribed list of topics which include measures to avoid the retrenchments.

NUMSA refused to participate in the section 189/189A process, and brought an application before the LC seeking a declarator that SAA and the BRP’s issuing of the section 189/189A notices to the employees was unlawful, alternatively, unfair, as this had come prior to the publication of the business rescue plan as contemplated in section 150 of the Act. The union further demanded that the notices be withdrawn, and the consultation process suspended until such time that a business rescue plan is published.

The LC ultimately found in favour of NUMSA.

As a result of the far-reaching effects that such a judgment could have on retrenchments in a business rescue setting, and the business rescue procedure as a whole, SAA and its BRPs took the decision on appeal, on the grounds that the LC had incorrectly interpreted section 136 of the Act and that the interpretation used by the LC imposed additional rights and obligations on the employers and employees over and above those imposed by the LRA.

The appellants also highlighted that the court a quo had wrongfully granted relief to the union from the provisions of section 133(1) of the Act which ordinarily prohibits legal proceedings against a company in business rescue without written consent of the BRPs.

The LAC, although having noted that many of the issues before it had now become moot (academic) due to the publication of the business rescue plan, in the interests of justice, continued to determine the issues raised before it.

In dealing with the grounds of appeal before it, the main appeal being that of the interpretation of section 136(1)(b) of the Act, the LAC ultimately upheld the LC’s decision and dismissed the appeal, thus finding that in the considering section 136 of the Act, the main objective of a business rescue is to provide for the efficient rescue and recovery of a financially distressed company, while balancing the rights and interests of all relevant stakeholders which included that of employees.

The court found that the success of rescuing the whole company naturally included the preservation of jobs. While the court sought to promote the constitutional right to security of employment, this finding has far reaching effects for both business rescue and retrenchment proceedings going forward, as this ultimately shifts the discretion of an employer to contemplate retrenchment. Previously, the commencement of the consultation process was dictated by when an employer contemplates retrenchment. During business rescue proceedings and following the judgment, however, the need to retrench must be rooted in the business rescue plan.

The court concluded with dealing with the issue of voluntary severance packages and found that there would be no reason as to why the BRPs could not unilaterally offer voluntary severance packages to the employees in the circumstances.

The decision reached by the LC and now the LAC has ultimately set a precedent of a creation of a moratorium on retrenchments when business rescue proceedings have commenced and before the adoption of a business rescue plan. This could bring about some unchartered challenges for BRPs going forward as they will have to continue to balance the rights of all affected persons, which includes employees, creditors and shareholders; while endeavouring to rescue a business in financial distress.

As a business in financial distress navigating through a multitude of obstacles in trying to balance the rights of all stakeholders, where a business in rescue is to contemplate retrenchment as a means of corporate restructure/reorganisation it is clear from the judgment above that voluntary severance packages should be considered, prior to that of retrenchment, in an attempt to balance the conflict between the BRPs duties to balance the rights of all affected persons and applying fair labour practices.

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