Van Rooyen & Others v Blue Financial Services (SA) (Pty) Ltd (2010) 31 ILJ 2735 (LC)

Principle:
The obligation to consult over alternative employment and to take steps to accommodate affected employees is more onerous where the rationale for a proposed retrenchment is to improve profitability.

Facts:

The employees had been employed by Future Finance (FF) which changed its name after the sale of shares in FF to the company's holding company. The staff previously employed by FF received training in a certain product, but, when sales of the product were not satisfactory to the company, it decided to assess the business model applicable. The company identified the structure of the regional manager position as the sole cause of the poor sales performance. A management consultancy was appointed to develop a profile for the position of regional manager. Thereafter all regional managers, including the employees, were expected to undergo assessments to determine their eligibility for appointment to the new posts. Only five of the employees were assessed as being acceptable candidates, and two of those were appointed to the new posts. The others were given the choice of alternative positions or retrenchment, and they chose retrenchment. The employees approached the Labour Court for relief contending that their retrenchment had been both substantively and procedurally unfair.

The court found that there was no dispute that the business previously operated by FF was profitable and that the company's restructuring was designed and implemented to generate profit levels that management considered acceptable. The court recognized that the company found that structural change relating to the regional managers was necessary to improve its operating efficiency and to increase the sales of its products. The court was satisfied that the company had established that the difference in job content between the old and new profiles of the regional managers' positions was sufficiently significant to justify the requirement that the employees be assessed for suitability. The court was accordingly satisfied that the company had established a fair commercial rationale for its decision to restructure its  business operations and that the change rendered the employees redundant. It was also satisfied that the company had applied clear and transparent criteria when selecting candidates to be offered appointment to the new posts.

The court was, however, of the view that there had been no search for consensus. After two meetings the employees were invited to make written representations, which they did in a considered document, which called for a considered response and further engagement by the company with the employees. Instead the company was dismissive of the document, and failed to engage further with the employees on their proposals before dismissing them.

The court noted that the company did not find itself in circumstances in which urgent and drastic measures were necessary in order to ensure the survival of the enterprise. The business was profitable and the company was merely restructuring to generate greater profits. While from the perspective of substantive fairness the court has recognized an employer's right to restructure for reasons relating to profitability and increased efficiency as opposed to reasons which threaten the financial viability of the business, it seems that in the former case the obligation to give serious consideration to reasonable proposals made by employees or their representatives, especially in relation to alternatives to retrenchment and the prospects of accommodation in alternative employment, is more onerous. This was not a case where any delay in the consultation process would have resulted in unsustainable losses for the company, or which might otherwise have justified bringing the consultation to an abrupt end.

The court found therefore that the obligation to consult over alternative employment and to take steps to accommodate affected employees was more onerous in this matter where the rationale for the proposed retrenchment was to improve profitability.

As the retrenchment was only procedurally unfair and the employees did not seek reinstatement, the court was of the view that compensation equivalent to four months' remuneration was appropriate.

Extract from the judgment:

[15]   The test to be employed when determining the substantive fairness of a dismissal for reasons related to an employer's operational requirements is now well established. In relation to what is commonly referred to as the 'need to retrench', the court must not defer to the employer, at least not in the sense that the court is bound by the employer's say-so or that it should necessarily accept the rationale proffered by the employer for the retrenchment at face value. In other words, fairness is found not only in the consultation process and in the justifiability of the employer's decision on rational grounds; the reason must be fair. This is an objective enquiry that the court must undertake on the basis of the information available to it. The applicable principle is well expressed in BMD Knitting Mills (Pty) Ltd v SACTWU (2001) 22 ILJ 2264 (LAC) , where the Labour Appeal Court (per Davis AJA) said the following: 

'The starting-point is whether there is a commercial rationale for the decision. But, rather than take such justification at face value, a court is entitled to examine whether the particular decision has been taken in a manner which is also fair to the affected party, namely the employees to be retrenched. To this extent the court is required to enquire as to whether a reasonable basis exists on which the decision, including the proposed manner, to dismiss for operational requirements is predicated. Viewed accordingly, the test becomes less deferential and the court is entitled to examine the content of the reasons given by the employer, albeit that the enquiry is not directed to whether the reason offered is the one which would have been chosen by the court. Fairness, not correctness is the mandated test.'

[16]   The application of fair selection criteria is the second component of substantive fairness. There is a procedural component to the enquiry - s 189(2) (b) requires the parties to consult and to attempt to reach consensus on the method for selecting the employees to be retrenched. Section 189(7) gives substantive content to this requirement by stipulating that the employer select the employees to be retrenched according to selection criteria that have been agreed or, in the absence of agreed criteria, fair and objective criteria must be applied.

[17]  To the extent that the present case concerns a requirement that employees apply for posts within a restructured organizational template, the legitimacy of this approach was recognized by the Labour  Appeal Court in Vancoillie v Santam Life Insurance Ltd (2003) 24 ILJ 1518 (LAC) . It is not a strategy that is without risk to the employer seeking to implement it. In his article 'Corporate Restructuring and "Applying for your own Job" ' (2002) 23 ILJ 678, Prof Alan Rycroft warns at 682: 

'Caution must be applied when an employer declares all jobs to be redundant because, unless the employer is closing or moving, that clearly cannot be an accurate description of what changes the employer is seeking to make. Modifying a job and its responsibilities does not make that job redundant because jobs are normally constantly being redefined and adapted. It is difficult not to see the device of making all positions redundant as anything else other than a mechanism to avoid the basic purpose of retrenchment law, namely the protection of employees from dismissal over which they have no control and for which they are not at fault. The mechanism is open to abuse because jobs can be redefined in a way  that deliberately excludes existing employees, whilst in reality the function performed by those employees are not redundant but simply allocated to another position. This mechanism all too easily lends itself to retrenching employees who are perceived to be "dead wood" or "difficult" but who would be awkward or difficult to dismiss by means of an ordinary disciplinary hearing. For these reasons, employers will bear the onus of showing how the new jobs are different from the old jobs. If they are not sufficiently different, the employer will have to show why skills could not have been upgraded rather than resort to retrenchment.'

[18]   Prof Rycroft observes that a decision by an employer that all jobs in a department are redundant avoids the need to decide selection criteria 'up front' for those who will be ultimately retrenched. The selection criterion effectively becomes the employee's failure to be appointed to a 'new' job, or the failure to apply for it. Prof Rycroft suggests in this regard that for the criteria for appointment to the restructured position to be fair, they have to be clear and transparent - the more vague the criteria, the more likely it is that in reality, the selection is made on the basis of a subjective view, thus crossing the line between a no-fault dismissal and one based on performance (at 680-1).

[19]   Fair procedure primarily requires that the parties engage in a meaningful  joint consensus-seeking process. This obligation, which has its origins in Johnson & Johnson v Chemical Industrial Workers Union (1999) 20 ILJ 89 (LAC) , requires at least that the parties attempt to reach consensus on the issues listed in s 189(2) and (3). More precisely, the employer must invite representations on these issues from the appropriate consulting party, seriously consider and respond to any representations that are made. Both parties are required, in good faith, to seek consensus. This is not a mechanical process - meaningful joint decision-making requires that the parties act with the honest intention of exploring the prospects of agreement. If no joint consensus-seeking process has occurred, the court is obliged to determine which party was responsible for this state of affairs. If it was the employer party, the dismissal is procedurally unfair (see Johnson & Johnson v Chemical Industrial Workers Union ).

Evaluation

[20]  This present case is not one of those where an employer seeks to draw a line between the corporate equivalent of excessive bleeding and imminent death, and to justify dismissal as a life-saving measure. There is no dispute that the business previously operated by FF was profitable, and that the new product lines introduced after the purchase of the equity in FF did not render the business unprofitable. The new management demanded a more favourable return on their investment and the proposed restructuring was the means to that end. The applicants concede that the sales of Blue products were not at a level which was acceptable to the respondent's management. What they contest is that the predominant reason for this lay in the existing managerial structure, and that the new structure developed by the respondent addressed the problems identified by the respondent as inhibiting the achievement of the levels of profitability that it demanded.
…

[22]  Klopper's evidence on the difference between the old and new posts was not unequivocal. He conceded that the respondent's profile and the described purposes of the positions were identical, and relied ultimately on a description of 'essential worker activities' to distinguish them. It is clear though that the regional managers would, in the restructured organization, be required to undertake additional responsibilities in relation to the expanded product lines and that the nature of their function would change. On balance, I am satisfied that the respondent has established that the difference in job content between the old and the new profiles of the regional managers' positions was sufficiently significant to justify the requirement that the applicants be assessed for their suitability for appointment to the new positions. …In short, I am satisfied that the respondent has established a fair commercial rationale for its decision to restructure its business operations and that the change rendered the applicants redundant, at least in the sense that its decision to assess the applicants' suitability for the restructured posts was fair in the circumstances.

[23]   To the extent that requirements of substantive fairness necessitate a  separate enquiry into the fairness and objectivity of the selection criteria applied by the employer, it is common cause in the present instance that there was no agreement regarding selection criteria… To adopt the approach suggested by Prof Rycroft, the fairness of the selection criteria applied in circumstances such as the present is dependent on clear and transparent criteria. In my view, the approach adopted by the respondent meets this test. Without passing any judgment on the scientific validity of the assessment conducted on the respondent's behalf, it cannot in my view be said that the process that formed the basis of the selection of those to be offered appointment to the new posts was entirely subjective or arbitrary (and therefore unfair), or that the criteria applied were not transparent.
…

[25]       As I have already indicated, the circumstance in which the respondent found itself was not one in which urgent and drastic measures were necessary in order to ensure the survival of the enterprise. The business in which the applicants were engaged was profitable, and the respondent's restructuring was designed and implemented to generate profit levels that it considered acceptable. While from the perspective of substantive fairness this court has recognized an employer's right to restructure for reasons relating to profitability and increased efficiency as opposed to reasons which threaten the financial viability of the business, it seems to me that in the former case, the obligation to give serious consideration to reasonable proposals made by employees or their representatives, especially in relation to alternatives to retrenchment and the prospects of accommodation in alternative employment is more onerous. This is not a case where any delay in the consultation process would have resulted in unsustainable losses for the respondent, or which might otherwise have justified bringing the consultation process to an abrupt end. 

[26]   Further, the respondent failed adequately at any stage to consult on selection criteria applied by the respondent. Given the significance of the assessments conducted by SHL (which effectively determined who was going to be selected for retrenchment); fair procedure demanded at least some engagement with the applicants on the outcome of the assessments that they had undergone, prior to their dismissals. Feedback on the assessment was provided only in February 2008, after letters of dismissal had been issued. Finally, the nature of the operational reasons relied on by the respondent to justify the applicants' dismissal required a concerted effort to secure alternative employment for those not appointed to the new posts. It was not sufficient, in my view, for the respondent simply to offer those who were declined appointment to the posts of regional manager the option of applying for appointment to vague and unspecified alternative employment, or to accept retrenchment on the respondent's terms. The obligation to consult over alternative employment and to take steps to accommodate affected employees in that employment is more onerous in circumstances such as the present, where the rationale for a proposed retrenchment is to improve profitability. The respondent failed to consult adequately on alternatives to retrenchment and failed to take sufficient steps to identify, offer and where possible accommodate the applicants in alternative employment. For these reasons, the applicants' dismissal was procedurally unfair.