THE LABOUR COURT OF SOUTH AFRICA, IN JOHANNESBURG JUDGMENT

Transcription

1 REPUBLIC OF SOUTH AFRICA Not reportable THE LABOUR COURT OF SOUTH AFRICA, IN JOHANNESBURG JUDGMENT Case no: JS 264/2010 In the matter between: M C ASMAL Applicant and SIFIKILE TECHNOLOGY SOLUTIONS (PTY) LTD Respondent Heard: 4 June 2012 Delivered: 23 July 2013 Summary: (Trial Retrenchment director substantively fair procedurally unfair - no formal invitation to consult no compensation). JUDGMENT

2 Page 2 LAGRANGE, J Introduction [1] The applicant complains that he was unfairly retrenched by the respondent company ( STS ) with effect from 31 January 2010 and has claimed 12 months compensation for alleged substantive and procedural unfairness. Common cause facts [2] The applicant was employed in April 2007 and held the position of Business Development Manager/SAP Business unit Head at the time of his dismissal. Around 18 December 2009 he received a letter of retrenchment dated 10 December 2009, which stated that: "You are aware that negotiations had been ongoing over the past few months, between STS and Siemens, our main business partner. Amongst other communications the "update on negotiations with Siemens" communiqué from Dumisani Khoza dated 1 December 2009 has reference. We regret to advise that the discussions have not yielded the intended outcome yet. As a result we are compelled to wind the company down and all levels of staff are affected. We further regret to advise that your position is affected. Without the Siemens contract the company is forced to wind down and there are no opportunities to accommodate you within the existing structure. Whilst every effort is being made to negotiate with SIS [Siemens] to take over some of the staff, no guarantees can be given and we can no longer extend the inevitable. You will be advised should anything materialise from these discussions during a notice period, relating to your position. Should SIS offer your position, the onus to accept the position is on you, once accepted a formal offer of employment by SIS will be put in place instead of retrenchment package by Sifikile.

3 Page 3 This letter serves as notice to you that your position is redundant with effect from 31 January You will be entitled to severance pay off 1 (one) week per completed year of service. All leave owing to you will form part of your package." [3] The letter from the CEO, Mr D Khoza dated 1 December 2009 read: "Staff Communication: Update on Negotiations with Siemens last week Wednesday 23rd November I communicated to most of you that Sifikileis in strategic discussions with our main business partner, Siemens, and that these discussions could have a significant impact on Sifikile, its shareholders, management and staff. I also communicated certain expected timelines for the conclusion in principle of the strategic discussions and further undertook to apprise all staff members of these agreements as soon as possible. As arranged, I met with the Chief Executive Officer of Siemens Limited. I can confirm that we have reached an agreement in principle on the future of the partnership between Essex and Siemens and that this agreement will have an impact on the company structure, staff, management and shareholders. I cannot elaborate on the second nature of the this impact at this time, as the details have not yet been worked out, suffice to say that both parties will be taking all possible steps to ensure that the staff as the minimum possible impact. I expect to be able to communicate the detailed to you before the end of next week. In the interim I would like to request that we maintain our usual level of professionalism at all times and continue to offer our clients the best possible service." [4] It was conceded by the respondent that no employees received a notice in compliance with section 189 (3) of the LRA.

4 Page 4 [5] It is common cause that the applicant was paid the sum of R 105,680-00, being a variable portion of his remuneration due to him, and a retrenchment package amounting to R123, [6] On 1 June 2012, the applicant made an offer with prejudice that he would accept payment of three months remuneration as compensation, which was open for acceptance by the respondent until the end of the lunch break on the first day of trial. Issues in dispute [7] The applicant believes that there was no commercial justification for his retrenchment and, if there was, the company failed to consider other alternatives. Furthermore, the applicant claims the employer never justified his selection for retrenchment. The respondent claims that the company was in dire financial straits and all employees were retrenched. Moreover, the company was in the process of being wound up. In the circumstances, it contends that there were compelling reasons for retrenchment. [8] From a procedural perspective, the applicant claims that the employer failed to disclose information it should have in terms of section 189 (3) of the Labour Relations Act 66 of 1995 ( the LRA ) and, in particular, the reasons for the retrenchment. He also claims that the employer failed to conduct proper consultations with a view to reaching consensus as required about in terms of section 189 (2) of the LRA. [9] The employer conceded that even though strict compliance with the provisions of section 189 of the LRA was lacking, the applicant had an opportunity to consult with it. The respondent also maintains that, as a director of the company, the applicant was aware that the winding up was imminent and he was present at all meetings where decision-making took place. The applicant disputes that he was involved in such decisions. [10] There are also incidental areas of dispute concerning the applicant's remuneration and whether he was appointed as a director of the company in November 2007 or January 2008, though it was common cause he was a director by The difference between the parties over the applicant s remuneration concerns a variable portion of his salary which was

5 Page 5 commission based. The respondent maintains that since the commission was payable in advance on the basis of expected future sales, if those sales did not materialise, the applicant was not entitled to any remuneration above his fixed salary. His fixed salary amounted to approximately R 58, per month, which included his car allowance. Evidence [11] I do not intend to summarise all the evidence of the witnesses but to deal with those parts of the evidence most pertinent to the issues in dispute or necessary for relating the course of events. Mr F Acafao, a co-owner and a director of the respondent, and Mr C D Khoza, the non-executive chairman and co-owner of the respondent, gave evidence. The applicant decided not to lead any evidence, but contented himself with crossexamining these two witnesses. [12] Mr Acafao testified that the respondent company was established as a joint-venture with Siemens to service a contract Siemens had obtained from the Department of Labour. In terms of the arrangement 30% of the Department of Labour work was supposed to be performed by the respondent and that was supposed to provide 95% of the respondents revenue, but in practice Siemens was not passing on the work to it, even though but it did pay the respondent for work done. As a result the respondent was experiencing severe cash flow problems and was relying on credit from the shareholders to fill the monthly turnover gap of approximately R 600,000 and the balance sheet showed a deficit of approximately R 9.5 million. By October 2009, the respondent was technically insolvent and had been limping along for nearly 16 months in the hope that Siemens would eventually pass on the work to the respondent it was supposed to. At the board meeting which took place on 31 August 2009, it was agreed that if no business materialised from Siemens by the end of October the respondent would have to shut down. The applicant was present at the meeting and took the minutes which he circulated to those present on 3 September It was put to Acafaothat the outcome of the August board meeting was positive, he disagreed. He reiterated that merely because there was a statement about looking for

6 Page 6 new business that did not mean things were looking up as such statements were nothing new. [13] Khoza provided some insight into how the difficulties with Siemens arose. It seems that Siemens head office in Germany had decided that Siemens South Africa should no longer pursue local partnerships with other firms. Towards the end of October Siemens met with Khoza and advised him that the IT part of Siemens business would be done in-house in future. [14] By the next meeting on 27 October 2009 a settlement agreement was under discussion with Siemens. At that stage the firm estimated that Siemens owed it R 54 million. Acafao said that the applicant had calculated this value. The mediation process which had been under way for a few years had yielded no positive result. In early November Acafao sent a couple of s to the other board members expressing his exasperation with the failure of the board to take a final decision on the future of the respondent. Acafao was of the view that some of the board members were simply interested in retaining their salaries as long as possible and were not looking at the best interests of the company. He explained under cross-examination that he was compelled to act because the company could not continue to trade and he had a fiduciary responsibility as a director. At that stage there was no guarantee that there would be a settlement with Siemens, though it was hoped that Siemens would buy the respondent in order to retain its BEE status. Sometime in November 2009 Credit Guarantee, which had previously supported the firm with credit facilities, was no longer prepared to extend further credit to fund its operations and without this financial facility the firm could no longer trade according to Acafao. The withdrawal of Credit Guarantee put the sureties, which included Acafao, at risk [15] When Acafao was asked to comment on four new business opportunities identified by the applicant at the board meeting on 27 October 2009, he could not say why those opportunities did not come to fruition. The question of additional business opportunities came up again in early December 2009 in which Acafao expressed the view to the other directors that the firm should not do other business outside the Siemens account as

7 Page 7 that business had a low profit margin and could entail debt collection problems. In this regard, there was clearly a difference of opinion between Acafao and the financial director Mr T Vidiera, who agreed that even though the profit margin on such business only amounted to 10% on average and that it was necessary to be selective when doing such work, it still brought in a contribution of between R 50,000 to R100,000 per month. In defence of his view, Acafao emphasised that given the monthly losses the business was suffering, it was doubtful that it would have the resources to sustain such ventures, and there had been talk of new business of this kind for two or three years already. Khoza was also challenged about the firm's failure to take up any of the business opportunities highlighted by the respondent. He emphasised that the firm s main business did not involve the provision of hardware and that additional business could not sustain the salary bill of the firm. [16] Khoza testified that he met with staff on 23 November and that the applicant convened the meeting and took the minutes. The purpose of the meeting was to update staff on the current negotiations with Siemens. He agreed that formally speaking this was the only meeting at which the issue of retrenchment was discussed but there had been several meetings with directors, which the applicant had attended before the meeting with staff. At that stage the firm had no business but was putting in place, a plan to close the business down. According to him, staff were well aware of the situation and were worried about their jobs and could not have had a different understanding of the situation. She emphasised that everyone knew the firm was in trouble, she agreed that the written communication to staff, which confirmed what had transpired that the meeting with staff on 23 November 2009, did not say that the relationship with Siemens had come to an end. As he explained that, "if you run a business you don't just say the business is over because people will stop behaving professionally." The written staff communication entitled Update on negotiations with Siemens issued on 1 December 2009 reads: "last week Wednesday 23rd November I communicated to most of you that Sifikile was in strategic discussions with our main business partner, Siemens, and that discussions could have a

8 Page 8 significant impact on Sifikile, its shareholders, management and staff. I also communicated certain expected timelines for the conclusion in principle of the strategic discussions and further and took to apprise all staff members of these agreements as soon as possible. As arranged, I met with the Chief Executive Officer of Siemens Limited. I can confirm that we have reached an agreement in principle on the future of the partnership between Sifikile and Siemens and that this agreement will have an impact on the company structure, its staff, management and shareholders. I cannot elaborate on the exact nature of this impact at this time, as the details have not yet been worked out, suffice to say that both parties will be taking all possible steps to ensure that the staff has the minimum possible impact. I expect to be able to communicate the detail to you before the end of the week. In the interim, I would like request that we maintain a usual level of professionalism at all times and continue to offer our clients the best possible service." [17] Khoza agreed that this communication effectively was a minute of what was said at the meeting. He agreed that the company could have been more forthcoming on the implications of the Siemens discussions for staff. When asked if there were other discussions with staff following the meeting Khoza claimed that there were a number of discussions with everyone right up until the time that the sheriff came to attach furniture. Khoza testified that at that point the applicant would have known that the company was closing and that there was no new business coming in, and. he would have known what it meant for his position. [18] Siemens was willing to employ staff but did not want to transfer them directly. The plan was that people working at the Department of Labour, which was Siemens s client would be retrenched and interviewed. [19] Ultimately, Acafao says he took the decision to wind down the company around 12 December 2009, though judging from s he sent to his fellow directors it is more likely that the decision in principle was taken at the beginning of December. This is also more consistent with the fact that

9 Page 9 the retrenchment notices were issued on 10 December Khoza conceded that the decision to shut down the respondent had already effectively been taken by this time. Acafao said that if operations had not been wound down the firm would have been liquidated. The pertinent portions of the letter to the applicant, which he received on 18 December 2009, read: "You are aware that negotiations have been ongoing for over the past few months, between STS and Siemens, our main business partner.... We regret to advise that the discussions have not yielded the intended outcome yet. As a result we are compelled to wind the company down and all levels of staff are affected. We further agreed to advise that your position is affected. Without the Siemens contract the company is forced to wind down and there are no opportunities to accommodate you within the existing structure. Whilst every effort is still being made to negotiate with SRS to take over some of the staff, no guarantees can be given and we can no longer extend the inevitable. You will be advised should anything materialise from these discussions during your notice period, relating to your position. Should SiS offer your position, the onus to accept the position is on you, once accepted, a formal offer of employment by SiS is will be put in place instead of retrenchment package by Sifikile. This letter services noticed you that your position is redundant with effect from 31 January You will be entitled to severance pay of 1 (one) we per completed year of service. All leave pay owing to you will form part of your package...."

10 Page 10 [20] It was suggested to Acafao in cross-examination that the applicant had no knowledge of the contract with Siemens. He disputed this, saying that the applicant was involved in the arbitration process with Siemens and also in determining how much the respondent was owed by Siemens. Khoza also confirmed that the applicant, as head of sales, was involved in negotiations with Siemens and that staff would not have been moved to Siemens without his input. However, Acafao could not say if the applicant had been part of the final negotiations with Siemens. Khoza also testified that the applicant had attended a number of meetings with Siemens as part of the board almost on a fortnightly basis before November [21] Acafao said he only received a communication from the applicant during the holiday period and that concerned a discussion about other business opportunities he was exploring. The applicant never expressed any unhappiness over the retrenchment at that time. Acafao could not understand how the applicant could complain that there was no discussion with him over the question of selection criteria, as the applicant was fully aware of the process and who would be transferred to Siemens. The applicant was not interviewed by Siemens because he was not working on the contract with the Department of Labour but was based at the respondent's offices in Bryanston. In the end everyone was either retrenched or transferred to Siemens. Khoza also testified that the applicant was able to take advantage of some of the other business opportunities which had been under consideration by the respondent. The applicant also came to see Khoza after receiving the retrenchment letter to discuss his involvement in other business ventures outside of the firm. [22] Siemens agreed to take on all the staff of the respondent except the nonoperational members of management who had no value to Siemens. According to Acafao, severance pay was still paid to staff who moved over to Siemens, though this is at odds with the retrenchment letter issued to the applicant which indicated that staff who were placed with Siemens would not get severance pay. [23] A settlement was finally reached with Siemens around March or April 2010, amounting to approximately of R 34 million, a considerable portion

11 Page 11 of which was used to pay creditors. The original contract with Siemens had been worth R 60 million. By that stage the sheriff had already been to the respondent s premises to attach furniture. Under cross-examination Acafao was asked why the respondent had taken no action against Siemens to recover what was owing to it. He explained that it had taken 18 months to get to the point of arbitration and then the parties had entered into discussions. That was about 14 months before the retrenchments. Acafao conceded that perhaps the respondent should have taken Siemens to court earlier. Acafao was asked why the firm had not sued Siemens. Essentially, his answer was that if they had done so Siemens would have stopped trading with the firm. As he put it, it would have been like "fighting an elephant". Khoza also emphasised that the view was that, Siemens would have been able to spend money on litigation and the matter would have spent years in court. [24] An issue which arose during the cross-examination of Khoza concerned the payment of approximately R 400,000 to a supplier known as MobSat, to cover its salaries and legal fees. This appeared from an undated document from Khoza apparently to Acafao, in which Khoza complains about the fact that the respondent was being saddled with the risks of the MobSat, whereas MobSat had been split off from the Sifikile business by agreement to be run as a separate business. I agreed to allow the introduction of this evidence even though it was only introduced for the first time in cross-examination of Khoza. Khoza's explanation for the payment was that in truth it was a loan to Sifikile Management Services, the holding company of the respondent, which was passed on to MobSat. Applicant s variable remuneration [25] It was common cause that the applicant received a monthly salary of R 58,494 and a variable component of remuneration which was commission based on sales. Khoza was pressed in cross-examination to agree that an amount of R 190,000 was still owing to the applicant in the form of unpaid commission. However, Khoza said he did not know what the applicant was owed even if it appeared to have been captured on applicants payslip

12 Page 12 screen as he did not know whether the applicant had done what he should have to earn the commission. In any event, any claim the applicant has for arrear commissions does not form part of this matter Evaluation Substantive fairness [26] Based on the evidence of the respondent s witnesses the following important conclusions can be drawn: 26.1 The central object of the company, which was to service the contract with Siemens was not achieved % of the respondents business was with Siemens, but Siemens did not honour the undertaking to provide the respondent with sufficient work, which undermined the viability of the respondent By the last quarter of 2009, the respondent was trading under conditions of insolvency and drastic measures were required if no settlement was reached with Siemens Business prudence and the fiduciary duties of directors necessitated the winding down of the respondents business Although there were some prospects for other work which the respondent might have undertaken, these prospects were not new and did not relate to the main business operations of the respondent The prospects of other work might have contributed a little to improving the cash flow of the business but could never sustain the costs of the business as a whole. [27] A natural consequence of winding down the business and ceasing to trade was that staff would no longer be required and retrenchment was necessary. The respondent did manage to negotiate with Siemens to employ the respondent's operational staff, but not the head office staff who were not directly involved in fulfilling the Siemens contract with the Department of Labour. It was never suggested by the applicant that he should have been included amongst the group of staff who were employed by Siemens. It seems from the evidence that he had been interested in

13 Page 13 pursuing some of the business opportunities which the respondent declined to take up, but it was never suggested that the company ought to have set him up to conduct such alternative business. [28] At most, it was indirectly suggested in cross-examination that the respondent could have pursued some of those other business opportunities, but there was never any evidence that the applicant had specifically proposed this as an alternative to his own retrenchment. It was also suggested that the company should not have assisted its holding company by providing a loan to subsidise MobSat, when it was in dire financial circumstances itself. There may be merit in this criticism but it is difficult to see how the position of the respondent would have been materially different if it had not made the line to its holding company. At best it would have marginally eased its cash flow position, but there's no reason to believe it would have staved off the need to wind down the business. [29] In the circumstances I am satisfied that applicant s retrenchment was substantively fair. Procedural fairness [30] It is indisputable on the evidence that the respondent did not disclose the true state of affairs to employees until it was inevitable that the business would close. At the very least, the company should have advised staff after the August board meeting that there was a possibility of retrenchment. At that stage, it had been decided that within two months the business would close if no satisfactory arrangement was reached with Siemens. No reasonable person could think that such a possibility did not entail contemplating the possibility of retrenchments, and a notice should have been issued in terms of section 189 (3) of the LRA. [31] However, the applicant was a member of the board and was present at the meeting in question. He was also present at the October board meeting. The evidence that he knew about the details of the Siemens contract and the value of what was owing to the respondent was not contradicted. There can be little doubt on the evidence that the applicant was privy to the same information as other board members and must have known that

14 Page 14 the closure of the business was on the cards as a real possibility in August and as a near certainty in October [32] It is common cause that no written notice in compliance with section 189 was issued to the applicant. There is also no indication on the evidence that he was specifically invited to discuss the implications of the closure of the business for his own position even if he knew that he would not be eligible for employment by Siemens. He must have known this because the evidence was that he was involved in negotiating who would be engaged by Siemens. [33] The respondent's attitude is that because of his position on the board the applicant was in a position to take up the issue of consultation with the respondent himself and was not prevented from doing so. It also makes the point that the applicant never raised the lack of consultation as an issue with the employer, even though he did have some discussion with both witnesses about taking up one of the business opportunities available to the respondent which it did not want to pursue. Moreover, it was argued that because the applicant had not testified he had failed to lay the basis for being paid compensation in the form of a solatium for injured feelings or a sense of grievance he might have suffered as a result of his retrenchment. [34] The applicant contends that the fact that there was a possibility of him raising the issue of consultation with the respondent did not relieve the respondent of its obligation to initiate consultations with the applicant. [35] The respondent argued that the case was closely comparable with that of Peach & Hatton Heritage (Pty) Ltd V Neethling & Others (2001) 22 ILJ 1349 (LAC). In that matter, managerial employees who had negotiated with their employer to buy out certain assets of the company to establish a new venture complained when they were not given the same severance packages as other staff who were not parties to the buyout. The LAC found, amongst other things that: In assessing the various factors regard must be had to the following. Prior to the invitation of 15 April 1998, the first and second respondents, as directors of the appellant, had been

15 Page 15 involved in extensive discussions about the future of the appellant and the need to restructure to stem the losses. They had the opportunity to put forward their proposals and did so. If regard is had to the items referred to in s 189(2) and (3) of LRA, most of these issues would have been part of the respondent's input and knowledge as directors. It was in these circumstances unnecessary to enter into further consultation with them to reach consensus on ways to avoid retrenchment as they were aware of the facts and circumstances relating to the company. 1 [36] The similarities with this matter are obvious, save that in Peach s case the employer had nonetheless specifically asked all employees, including the respondent employees, to make written submissions on the strategic direction of the company following which a meeting would be held with them to discuss the company's future. 2 It was this invitation which led to the buyout proposal being made by the respondent employees. The LAC found that by going ahead with the proposal it was clear that the employees accepted their retrenchment, which was confirmed by the fact that they never communicated to the employer that they would prefer to remain in its employment. 3 The court further concluded that even if there had not been compliance with the LRA, it would not have been inclined to grant compensation in the circumstances. 4 [37] It is true that in this case no specific invitation was extended to the applicant to consult, but it is equally clear that in his discussions with the witnesses after the retrenchment notice the focus of his interest was in pursuing business opportunities available to the respondent in his own name. Had he genuinely felt ill treated by the company, at the very least one would have expected him to raise with them on those occasions the lack of consultation, or any other disgruntlement he felt at the time. 1 At , par [34]. 2 At 1355, par [27]. 3 At 1357, par [38]. 4 At 1359, par [40].

16 Page 16 [38] I do accept that it is not simply enough for an employer to say that there was an opportunity to consult, which was not taken up. The employer should clearly signal its intention to initiate the consultation process, which is one of the purposes section 189 (3) notice serves. Further, it should attempt to conduct consultations in accordance with section 189 (2) of the LRA. Consequently, I am satisfied that even though the applicant was privy to the internal deliberations of the company about its future and the prospect of retrenching staff, it ought to have provided a clear opportunity for the applicant to consult with it over his future before the final decision was taken to close the business in early December In this sense, his retrenchment was procedurally unfair. It is not sufficient to say he could have consulted had he wanted to. Relief [39] The question then arises whether this is a case in which compensation should be awarded for the procedural unfairness. Despite his seniority in the business of the respondent, the applicant has provided no evidence that he raised so much as a murmur of disquiet about his retrenchment at the time, or the lack of discussion with him about his own position. On the contrary, even though it must have been clear from early December that since he was not going to be one of those employees taken on by Siemens, his retrenchment was unavoidable when the business closed, he did make any attempt to question the need for his retrenchment either before or after receiving the letter. Clearly, he had access to his fellow directors and used that access to discuss his own personal business venture with him. On the evidence, there is no suggestion that he initiated these discussions in the form of proposing an alternative to his retrenchment, failing which he would challenge it. [40] Moreover, even though his representative challenged the respondent's witnesses on whether or not the respondent could have pursued previously undeveloped lines of alternative business, this was not something the applicant proposed at the time. He only expressed an interest in that as a private venture, not as the basis for his continued employment by the respondent. In short, this is a case in which the

17 Page 17 employee was well apprised of the reasons necessitating the closure of the business and in all probability of the implications thereof for himself. By not giving evidence on his own behalf, the applicant has not taken the court into his confidence as to the reason for not expressing his unhappiness with the process at the time and why he only discussed his future business plans when he did meet with the respondent's witnesses. [41] One is left with no sense that the applicant was in any way aggrieved. On the contrary, it appears that he was fairly enthusiastically pursuing new business interests that had become available to him through the respondent. Consequently, I believe that this is not a case in which it would be just and equitable to award the applicant any compensation. However, as he has been partly successful in the sense of obtaining a declaration in his favour, even if it something of a pyrrhic achievement, I do not think it would be fair to order him to pay the respondent's costs. Order [42] Accordingly, I find that the applicant's dismissal by the respondent was substantively fair but procedurally unfair. [43] No award of compensation is made. [44] The parties must each bear their own costs. R LAGRANGE, J Judge of the Labour Court of South Africa

18 Page 18 APPEARANCES APPLICANT: FIRST RESPONDENT: A Cachalia of Patelia Cachalia Attorneys J Campanella instructed by N Van Vuuren Attorneys Inc.