---

IN THE LABOUR APPEAL COURT OF SOUTH AFRICA

HELD IN JOHANNESBURG

CASE NO: JA52/02

In the matter between

MAZISTA TILES (PTY) LTD Appellant

And

NATIONAL UNION OF MINEWORKERS First Respondent

MOTHLOKI & 143 OTHERS Second& Further Respondents

JUDGMENT

JAFTA AJA

Introduction

[1] The appellant has been involved in the manufacturing industry since 1927 when it was formed. It produces slate tiles for roofing and flooring purposes at its plant at Swartruggens. The second and further respondents were its employees at that plant. They are members of the first respondent which is a well- known trade union in the mining industry. During April 2001 the second and further respondents (to whom I shall refer as “the employees”) were dismissed from the appellant’s employ. They regarded that dismissal as unfair for a number of reasons. Naturally, the appellant regarded it as fair. A dispute then arose as to the fairness of the dismissal.

[2] In due course the respondents referred the dismissal dispute to the Labour Court for adjudication and sought the reinstatement of the employees as well as payment of compensation. The dismissal was challenged on three principal bases, namely, that: the dismissal was automatically unfair, it was not effected for a fair reason and that a fair procedure was not followed. The Labour Court upheld the three contentions raised by the respondents and ordered the employees’ reinstatement with full benefits. With the leave of this Court, the appellant now appeals against the judgment and order issued by the Labour Court.

The facts

[3] Due to fierce competition in the tile manufacturing industry, the appellant started losing its market in 1995 and considered restructuring its business in order to regain the lost market and remain competitive. The appellant first raised the issues of productivity and restructuring with the employees’ union during wage negotiations in 1997. It raised the same issues again in the wage negotiations for 1998 and 1999. The appellant’s concern at that stage was that certain units at its plant were operating at half their normal capacity causing financial loss to the company. Meanwhile its competitors were able to produce tiles of good quality at lesser costs which led to lower prices than those charged by the appellant.

[4] In a letter dated 8 May 1997 addressed to the committee that represented the employees in the wage negotiations, the appellant highlighted the problem of low productivity and emphasized that the increase asked for by the employees could lead to retrenchment of approximately 75 workers. It went on to state that the number of workers to be retrenched could be cut down by half if the employees agreed to working hours proposed by the management. On 4 July 1997 the appellant addressed another letter to the first respondent inviting it to a meeting which was scheduled for 9 July. The invitation contained the agenda for the meeting which included an item on retrenchment.

[5] It is not clear from the record whether the meeting scheduled for 9 July 1997 was held but it is clear that meetings on retrenchment were held by the parties after that date. Mr Michael Tully (“Tully”), who was one of the three witnesses called by the appellant at the trial, testified that the appellant did not pursue the issue of retrenchment in 1997 because it thought that it could solve the problem by keeping operational costs low and bargaining harder with its suppliers. Apparently this did not succeed because the issue of retrenchment was raised again during wage negotiations in 1998 and also in 1999. On 1 January 1999 the parties agreed that they would negotiate the restructuring issue in a separate forum.

[6] On 5 March 1999 the first respondent addressed a letter to the appellant demanding that it be furnished with the reason for the proposed retrenchment and certain information relevant thereto. On 25 March the appellant responded thereto by a letter. It stated that the reason for retrenchment was the lack of orders from clients. It invited the first respondent to a consultation meeting scheduled for April 1999 with a view to finding a solution to the problem. The appellant said that in the event of the parties failing to find a solution, 16 workers would be retrenched. Again it is not clear whether the parties did meet but it appears that 16 employees were subsequently retrenched but they were all not members of the first respondent.

[7] During year 2000 the appellant still experienced problems relating to low production and the issue was raised with the first respondent. The matter was again referred to during the wage negotiations on 20 June 2000. The appellant and the first respondent agreed to set up a separate forum to deal with the restructuring process. This agreement indicated a change of attitude on the part of the first respondent. Prior to this the first respondent had declined to respond to the appellant’s plan on restructuring for the reason that the plan did not, according to the first respondent, involve job losses.

[8] After the conclusion of the agreement to set up a forum to consider and deal with restructuring, the appellant invited the first respondent to consultations on restructuring. The appellant proposed that benefits and conditions of employment should be revised by, inter alia, terminating both the hostel accommodation and the feeding scheme provided by the appellant to its employees. It also proposed changes to the remuneration structure then existing and that it be replaced with a remuneration structure linked to productivity. The appellant stated that the proposed changes were necessitated by operational requirements. However, at that stage the appellant did not contemplate retrenchment as a possible solution.

[9] The first respondent did not respond to the appellant’s invitation referred to above. The appellant was eager to have consultations on the issue of restructuring and it engaged the services of a firm called Henry Holland and Associates (“the firm”) to act on its behalf in taking the process forward. On 5 July 2000 the firm wrote a letter to the first respondent inviting it to a consultation meeting scheduled for 11 July. On 6 July Tully also addressed a letter to the shop stewards committee inviting it to the same meeting. On 7 July, Tully wrote to the first respondent bitterly complaining about its failure to respond to the appellant’s previous invitations to meetings and emphasizing that the meeting of 11 July would go on whether or not the first respondent attended.

[10] Indeed, on 11 July a meeting was held between the appellant and the shop stewards. The first respondent’s representatives did not attend the meeting despite having been invited to attend. At the meeting the appellant proposed to close hostels and stop offering accommodation to its employees as well as terminating the feeding scheme. It offered to increase wages to cover the costs of food and accommodation. The shop stewards did not object to the proposal but asked for time to consult the employees. It was decided that the appellant’s human resources manager, a Mr Walter Lukhuleni, would address the entire workforce on the plan on 13 July and invite them to put forward alternative proposals. The next meeting was scheduled for 19 July.

[11] At the time of the meeting of 11 July the appellant contemplated retrenchment as a possible solution in the event of the workers rejecting its proposal. As a result of that contemplation the appellant instructed the firm to give the first respondent and the workers notice of the restructuring. On 13 July the firm complied and issued a detailed notice. In that notice the firm gave the reasons for the proposed restructuring as being to:

1. establish an efficient and cost- effective structure whilst increasing turnover;

2. make the company more competitive as a South African supplier of natural tiles;

3. provide shortened lines of communication, control and direction;

4. position the company closer to the goal of being the most economical and natural tile supplier in South Africa.

[12] The notice also referred to alternatives considered by the appellant before proposing restructuring. It further stated that approximately 307 workers at Mazista Quarry would be affected. It concluded by inviting alternative proposals from the workers. On 13 July the firm also invited the first respondent to a consultation meeting which was scheduled for 19 July. The minutes of the meeting held on 11 July were furnished to the first respondent.

[13] On 19 July a further meeting was held. Once again the first respondent did not send any officials. The meeting was attended by the appellant’s representatives and the shop stewards. The minutes of the meeting reveal that the workers were consulted in relation to the proposed plan and that they did not object to it. It also appears from those minutes that the first respondent was aware of the plan and had a positive attitude towards it. The next meeting was scheduled for 27 July but it did not take place on that day. Instead, the appellant, which was concerned about the union’s non- attendance at the previous meetings, addressed a letter to the union’s regional secretary and drew his attention to the matter.

[14] The next meeting was held on 3 August between the appellant and the shop stewards. The union representatives did not attend. The appellant indicated that the hostels would be closed by not later than 1 December 2000 and also proposed 30 August as the date on which the feeding scheme would be terminated. The same parties met again on 17 August. At that meeting, the shop stewards informed the appellant that the workers rejected the draft agreement which it had given to all workers. In the draft agreement the appellant had proposed that the workers be given two options. In terms of the one option the workers were to become independent contractors who would be self – employed. Under the other option, the workers would become “incentive employees”. In terms of the latter scheme the workers would receive a reduced basic wage and an “incentive payment” based on their productivity. They said the workers wanted to remain employees of the appellant without changes to their terms and conditions of employment. Regarding the closure of the hostels, the workers proposed that it be delayed until new houses had been built. After deliberating, the parties agreed to adjourn the meeting and to meet on a later date.

[15] On 13 September a further meeting was held between the appellant and the first respondent. At this meeting the appellant enquired if the workers had any counter- proposals to its draft agreement which contained the two options referred to above. The first respondent informed it that the workers rejected the draft proposal. The reasons advanced were that there was no working area at the plant for independent contractors and the company’s machinery was old. Regarding counter- proposals the first respondent stated that the workers wanted the status quo retained. It proposed that the hostels should be converted into family units. It further said the issue of the feeding scheme should be negotiated with workers.

[16] The appellant was surprised by what it perceived to be a change of attitude on the part of the workers particularly in relation to the closure of the hostels. The appellant pointed out that in the previous meeting with shop stewards it was informed that the workers accepted the hostel closure and were excited about getting new houses. The appellant also responded to the reasons given by the workers for rejecting its proposal. It assured the union that its working area would be made available to all workers who were interested in participating in the scheme. Regarding the machinery the appellant stated that it was in the process of upgrading its machinery. After further deliberations the meeting adjourned and the parties agreed to meet again and the next meeting was scheduled for 28 September.

[17] On 21 September the appellant sent an invitation to the first respondent inviting it to the meeting scheduled for 28 September. On 27 September the appellant again sent a reminder to the first respondent about the meeting which was to be held on the following day. The district council which had been approached by the appellant to establish a township where its employees were to be accommodated was also invited to the meeting.

[18] The first respondent failed to attend the meeting on 28 September. The appellant did not take kindly to the union’s absence and instructed the firm to record its displeasure in a letter sent to the first respondent on 2 October. The first respondent was informed in that letter that the meeting it failed to attend had been rescheduled for 20 October. At that stage the appellant’s attitude was that the first respondent was being obstructive and that the latter’s conduct hampered its restructuring process. On 5 October the appellant sent a letter to the first respondent accusing it of obstructiveness and reminding it of an agreement signed by the parties in 1999 in terms whereof the first respondent had agreed that there was a need for engaging in a restructuring process. The appellant lamented the fact that the first respondent had attended only one of the six meetings already held. It concluded by urging the first respondent to attend the meeting of 20 October.

[19] The first respondent attended the meeting of 20 October where the appellant persisted on its proposal and pointed out that, should the parties fail to agree thereon, retrenchments would take place. The first respondent indicated that it was in principle not opposed to the proposal but that it wished to be furnished with details on how the proposal would be implemented. The appellant undertook to furnish it with such details and the parties agreed to meet once the first respondent had considered the detailed proposal.

[20] On 9 November the appellant furnished the first respondent with a detailed proposal and the parties had a further meeting on 10 November. At that stage the first respondent had not come up with a counter proposal except the earlier indication of preferring the retention of the status quo. At the meeting the appellant and the first respondent agreed to brief the workers on the issue separately and that the first respondent would submit any concerns raised by the workers on the restructuring process in writing.

[21] However, the first respondent did not revert to the appellant regarding concerns raised by the workers nor did it indicate that the proposal was accepted or rejected. On 21 November the appellant addressed a further letter to the first respondent urging it to respond as a matter of urgency. The first respondent failed to respond and on 28 November the appellant sent another letter to the first respondent pointing out that the consultation process had been carrying on for a long time and that the parties needed to finalise it. It invited the first respondent to a meeting on 1 December 2000 to complete the process.

[22] At the meeting of 1 December the first respondent informed the appellant that the workers had agreed to the closure of the hostels but only after the establishment of the township where they would be accommodated. It also informed the appellant that the workers had agreed to the termination of the feeding scheme provided that the company provided them with money for food. The first respondent further stated that the workers rejected the proposal on the independent contractor scheme and that they proposed that the status quo should remain unchanged. The appellant attempted to persuade the first respondent to change its position by further motivating its proposal. No agreement could be reached. At the conclusion of the meeting the parties agreed to have another meeting on 12 December.

[23] On 12 December the first respondent failed to attend the meeting. A letter addressed to it on that date by the appellant reveal that, when the latter telephoned the union official concerned and asked why he failed to turn up for the meeting, the official said that he had had no transport and the meeting was not confirmed. It appears further from that letter that the appellant rejected the reasons furnished as lacking in merit. In the same letter the appellant invited the first respondent to submit its alternative proposals within 48 hours.

[24] The record of the proceedings does not indicate whether the first respondent took up the invitation and submitted alternative proposals. A further meeting between the parties was held on 18 January 2001. It appears that a breakthrough was achieved at that meeting. Although the first respondent had indicated that its members wanted the status quo to be retained, at that meeting it accepted the appellant’s proposal as reasonable and promised to convince its members to accept it provided a specified amount was guaranteed as a fixed wage. The parties agreed that the basic wage should be fixed at an amount of R550 -00 including the cost for food. They agreed that a draft agreement reflecting the terms would be telefaxed to the first respondent for consideration by its legal unit. Both parties were optimistic that an agreement could be reached and signed by 29 January. As a result they agreed to have the next meeting on that day.

[25] The appellant could only furnish the first respondent with a copy of a draft agreement at the meeting of 29 January. Having perused the draft agreement, the first respondent raised concerns about the fact that the draft agreement reflected that the incentive scheme would run for one year and thereafter workers on that scheme would automatically become independent contractors. The first respondent pointed out that it would be very difficult for it to convince its members to accept the agreement because it had thought that the terms of the agreement were that, after a year of implementing the incentive option, the two options (ie the incentive and the independent contractor option) would still be available to workers. The first respondent stated further that during consultation with its members it had informed them that, after a period of a year, workers would still have a choice between the two options.

[26] The appellant responded by stating that the draft agreement could be modified to reflect that further consultations would be held on whether or not the incentive scheme should be made available to workers after a year provided that the first respondent agreed to the incentive scheme being implemented on 28 February 2001. The first respondent then indicated that it would still submit the draft agreement to its legal unit for approval. It stated that if the agreement was approved by the legal unit, it would be prepared to sign the agreement. On 31 January the appellant sent an amended copy of the draft agreement to the first respondent with a covering note suggesting 6 February as the date for the signing of the agreement.

[27] In terms of the amended draft agreement the appellant would have two types of workers, namely, the “incentivised employees and contractors”. All workers would sign individual agreements in terms of which they would accept the closure of hostels and the termination of the feeding scheme. During the currency of the incentive scheme, workers on that scheme could voluntarily be transferred into the independent contractor scheme. Clause 8 of the draft agreement read as follows:

“8. After one year from the date of this agreement, subject to consultation, it is the company’s intention that all Incentive Employees will become Contractors and the Incentivised Employee Scheme will fall away”.

[28] On 6 February a representative of the first respondent failed to arrive at the meeting scheduled for the signing of the agreement. The shop stewards were present at the meeting but refused to sign the agreement in the absence of the first respondent’s representative. The appellant contacted the union official by telephone who said that he could not make it to the meeting. The appellant then signed the agreement and handed it to the shop stewards with a request that they should take it to the first respondent’s representative for signing.

[29] The appellant did not receive any communication from the first respondent regarding the agreement. On 20 February the appellant addressed a letter to all its workers on the implementation of the restructuring process. In it the appellant, once more, lamented the first respondent’s non- cooperation and stated that, as the consultation process had ended in a deadlock, it had no other option but to go ahead with the structuring. The appellant informed its workforce that as from 1 March 2001 their conditions of service would change. The appellant stated that the workers could either choose to become “incentivised employees” or to be “independent contractors” failing which they would be retrenched and they would receive no severance pay as they would have rejected alternative employment. It further stated that the workers who refused to make a choice would be regarded as incentivised employees for a period of one year whereafter they would automatically be transferred to the independent contractor scheme.

[30] On 27 February the first respondent replied to the appellant’s letter of 20 February. The first respondent’s reply was couched in the following terms:

“While understanding your intention to implement the above process, we as the union feel that it is also proper to do so with all our members understanding the whole process and implications. We propose to meet with yourselves on the 06 March 2001 to finalise this matter. Prior to that we intend to have the mass meeting with our members. Be informed that our Regional person will be also attending on the 06/03/01.”

The appellant denied having received the first respondent’s letter of 27 February.

[31] It seems that the appellant felt that there was some confusion among the workers on whether or not an agreement had been reached between itself and the first respondent. Accordingly, the appellant convened a meeting of the workers on 28 February. The appellant explained the restructuring process to them as well as its intention to implement the proposed changes. During the meeting the workers informed the appellant that as from 1 March they would embark on a strike action. The appellant pointed out that the strike would be unprotected. It also contacted the union officials and later had a meeting on the strike with the first respondent and shop stewards. The attempts to avert the strike by both the appellant and the first respondent were unsuccessful.

[32] On the 1^st March the workers commenced with a strike. The appellant and the first respondent held a meeting on 2 March at which the first respondent requested that the appellant should suspend the implementation of the restructuring process until the union had held a meeting with its members to resolve the misunderstanding among the workers. The first respondent promised to have a meeting with its members on 4 March in an attempt to persuade them to return to work. On 4 March the first respondent informed the appellant by means of a letter that the workers would resume work on 5 March. On that date the appellant advised the workers that they were suspended pending the outcome of a disciplinary enquiry.

[33] The disciplinary hearings were held on 6 March. The employees were found guilty and were given a final written warning. On the same day the appellant issued an invitation to the first respondent to return to the consultation process. The parties then met on 7 March. They resolved that the appellant would furnish the first respondent with a copy of the proposed changes on the same day and that the first respondent would consult its members until 11 March before the parties’ next meeting which was scheduled for 12 March. The parties further agreed that, should the workers reject the proposed changes, s189 of the Labour Relations Act of 1995 (the Act) would be applied. That is the section that sets out the procedure that must be followed by an employer when he contemplates the dismissal of employees for operational requirements.

[34] According to Tully a copy of the proposal was sent to the first respondent on 7 March. Tully subsequently telephoned the union for its response but was informed that the first respondent had not received the proposal. He then sent a copy on 12 March. At that stage the appellant was frustrated by what it perceived as the first respondent’s lethargic attitude towards the finalisation of the restructuring process. The appellant addressed a letter to the first respondent on 13 March and urged it to respond to its proposal by not later than 15 March. On 14 March Tully had a telephonic conversation with a union official who informed him that the first respondent would only meet and consult its members on 15 March. They agreed that the next meeting between the parties would be held on 19 March.

[35] The parties met on 19 March and the appellant asked for the first respondent’s response to its proposal. The latter stated that its members held the view that the proposal was unacceptable because they would lose their long service if it was implemented. The appellant then asked the first respondent to put its counter proposal on the table. The first respondent stated that it had none other than that the workers wanted the status quo to be maintained. The appellant respondent by stating that in view of the fact that the first respondent had no counter proposal, it would inform it about what was going to happen to the workers once its directors have met.

[36] On 22 March the appellant addressed a further letter to the first respondent in which it recorded its disappointment with the rejection of its proposal after a consultation process that had lasted for 9 months. The appellant informed the first respondent that its members were being retrenched and stated:

“As has been laboriously and repeatedly explained the company wishes to survive well into the future but this is impossible under the current structure.

In terms of section 189 of the LRA, the company hereby inform the union and its members, that the consultation process in so far as the final decision of dismissal is concerned, has now been exhausted and that all workers are dismissed from the employ Mazista Quarry with effect of 26/03/ 2001 (sic), for operational reasons. All effected (sic) workers will be given notice of 30 days as per BCEA and will be expected to work their notice out. Please note that the last working day for all workers will be Thursday 19^th April 2001.”

The letter concluded by inviting the first respondent to a meeting on 29 March to consult on severance packages and other incidental issues.

[37] The first respondent replied to the appellant’s letter on the same day. In its brief response the first respondent stated:

“It is our understanding that the process that we were engaged in was not consultation on redundant procedures but rather negotiations on the change of the conditions of employment. Whiles (sic) we don’t have any problem with the proposed meeting of the 29 March 2001 at Mazista Quarry, an attitude is that we will be consulting for the first time with yourselves on the above issue, in terms of section 189 of the LRA. It is further more to our (sic) believe that all the related issues should be discussed in the (sic) consult process in terms of the labour relations Act.

[38] At the meeting of 29 March the first respondent and the appellant discussed the contents of the first respondent’s letter of 22 March pertaining to whether previous consultations between the parties were held in terms of s189 of the Act. Persisting in its stance that consultations were conducted in terms of s 189, the appellant enquired from the first respondent which of the requirements of the section had not been complied with in the previous meetings. The first respondent replied by stating that the issues such as the selection criteria, the disclosure of information and assistance to be rendered to the workers to be retrenched had not been discussed and it suggested that those issues be considered. The appellant responded by saying that it also wished to discuss the issues raised save for the disclosure of information which it maintained to have made. The appellant also invited the first respondent to furnish it with counter proposals to its proposal. The appellant’s proposal then was that the workers should either accept the new conditions of employment or be retrenched with no severance pay. The first respondent said that it had no counter- proposals because it believed that that was the first meeting to discuss retrenchments. The first respondent then declared a dispute on the issue.

[39] Shortly after the parties’ meeting and on the same day, the first respondent referred the dispute to the Commission for Conciliation Mediation and Arbitration (“CCMA”). The following day the appellant addressed a letter to the first respondent informing it that all workers who had refused offers of alternative employment would be dismissed with effect from 26 April 2001 as stated in a notice of 22 March. It stated further that no severance pay would be paid to the workers to be retrenched because they had refused alternative employment.

Proceedings in the Labour Court.

[40] In due course the dismissal dispute was referred to the Labour Court for adjudication. The respondents contended that the employees were dismissed because the appellant wanted to compel them to accept its proposal to change their terms and conditions of employment. It contended that the dismissal was, therefore, in breach of sec 187 (1)(c) of the Act. Section 187(1)(c) reads:-

“(1) A dismissal is automatically unfair if the employer, in dismissing the employee, acts contrary to section 5, or, if the reason for the dismissal is-

(a) …..

(b) …...

(c) to compel the employee to accept a demand in respect of any matter of mutual interest between the employer and the employee.”

Furthermore, they argued that the dismissal was not effected for a fair reason relating to the appellant’s operational requirements and that a fair procedure was not followed in the process leading up to the dismissal.

[41] In Court a quo came to the conclusion that the dismissal was automatically unfair. The Court a quo said the following among other things:

“46. The parties had reached a deadlock in respect of changes to conditions of employment. There are prescribed procedures in the Act that the respondent should have complied with if it wished to pursue the matter further. The process of redundancy and changes to conditions of employment are two distinguishable aspects and each has a specific procedure to be complied with.

47. The only inference that can be drawn from the evidence that was led is that the reason for the retrenchment was to compel the individual applicants to accept the respondent’s proposals on changes to their terms and conditions of employment.

47. The purpose of the retrenchment was simply to put pressure on the dismissed employees to accept the respondent’s proposed changes to their terms and conditions of employment. The dismissal accordingly falls squarely within the prohibition contained in the provisions of section 187 (1) (c) of the Act. The dismissals amount to an automatically unfair dismissal.”

[42] Regarding substantive and procedural unfairness the Court a quo took the view that the evidence led established that the discussions between the appellant and the employees’ representatives related to the appellant’s proposal on changing terms and conditions of employment, which, so the Court a quo held, did not amount to consultation on retrenchment as envisaged in s189 of Act. It also held that the appellant had failed to show that the dismissal was for a fair reason because, in that Court’s view, the appellant had options, other than dismissal, available to it to deal with the matter. The Court a quo reasoned that the appellant could have “implemented its agreement with the individual applicants and if necessary, used discipline to enforce it” or it could have “utilised a lock– out to effect the changes to terms and conditions of employment it desired”. The Court a quo found that the outsourcing of the quarry indicated that the reasons put forward by the appellant did not justify the dismissal because the jobs for the dismissed workers still existed. As a result the Court a quo concluded that the dismissal was procedurally and substantively unfair. As already stated, it ordered the employees’ reinstatement.

The appeal

[43] On appeal the appellant challenged the Court a quo’s finding that the dismissal was automatically unfair or alternatively that it was without a fair reason and it was procedurally unfair. Mr Redding, who appeared for the appellant, submitted that the dismissal in the present matter was not in breach of sec 187(1)(c) and was, therefore, not automatically unfair as contemplated in s 187(1) (c) of the Act. He submitted that the dismissal effected in this case was not of the nature covered by the section because it was a final dismissal. Reliance for this contention was placed on the decision of this Court in Fry’s Metals (Pty) Ltd v NUMSA & others (2003) 24 ILJ 133 (LAC) where it was decided that a dismissal that is of a final nature falls outside the ambit of sec 187 (1)(c).

[44] Mr van der Riet, who appeared for the respondents, argued that the appellant’s aim in holding consultations with its employees was to persuade them to accept changes to terms and conditions of employment. In this regard he argued that the appellant also wished to retain its skilled employees. Mr Van der Riet submitted that in the light of this the only probable inference to be drawn from the proved facts is that the dismissal was effected in order to compel the employees to agree to the new terms and conditions of employment proposed by the appellant. He submitted that the present matter was distinguishable from Fry’s Metals on which the appellant relied. He also argued that the pronouncement on the meaning of s187 (1) (c) in Fry’s Metals was obiter and that we should not follow it. In the alternative, Mr van der Riet submitted that the meaning given to s187 (1) (c) in Fry’s Metals was incorrect as it ignored the clear language of the section.

[45] I do not agree that the pronouncement on the meaning of s187 (1) (c) in Fry’s Metals was obiter. At the beginning of its judgment in that case the Court succinctly defined the issues it was required to determine as follows:

“(a) Does an employer have a right to dismiss employees who are not prepared to agree to certain changes being effected to their terms and conditions of employment when such changes are necessary for the viability of the employer’s business or undertaking or are necessary to improve productivity or efficiency in the business?

(b) If an employer has such right, what is the relationship between that right, on the one hand, and, on the other an employee’s right implicit in s 187 (1) (c) of the Labour Relations 66 of 1995 (the Act) not to be dismissed for the purpose of being compelled to agree to a demand in respect of a matter of mutual interest between employer and the employee?”

The Court then proceeded to consider the proper meaning of the section in the context of those issues.

[46] In Fry’s Metals this Court drew a distinction between a dismissal which is effected in order to compel employees to accept a demand in respect of a matter of mutual interest and a dismissal for operational requirements. In that case Zondo JP expressed himself as follows at para [31]:

“… In the light of all of the above I conclude that there is a distinction between a dismissal for a reason based on operational requirements and a dismissal the purpose of which is to compel an employee or employees to accept a demand in respect of a matter of mutual interest between employer and employee. The distinction relates to whether the dismissal is effected in order to compel the employees to agree to the employer’s demand which would result in the dismissal being withdrawn and the employees retained if they accept the demand or whether it is effected finally so that, in a case such as this one, the employer may replace the employees permanently with employees who are prepared to work under the terms and conditions that meet the employer’s requirements.”

[47] The next issue for consideration is whether the dismissal was effected for a purpose such as is contemplated by sec 187(1)(c) of the Act. In the present case the changes to terms and conditions of employment proposed by the appellant were intended to lead to the termination of the employment between the appellant and the employees. The appellant wanted the employees to terminate their employment relationship with it and become independent contractors. Furthermore, when it eventually decided to dismiss them, such dismissal was not a temporary measure which was to be withdrawn if the employees accepted the proposed changes. It would, therefore, have made no sense for the appellant to dismiss the employees in order to compel them to agree to a termination of their employment. Accordingly, the present dismissal does not fall within the definition of an automatically unfair dismissal contemplated by s 187 (1)(c).

[48] An employer who is desirous of effecting changes to terms and conditions applicable to his employees is obliged to negotiate with the employees and obtain their consent. A unilateral change by the employer of the terms and conditions of employment is not permissible. It may so happen, as it was the position in the case, that the employees refuse to enter into any agreement relating to the alteration of their terms and conditions because the new terms are less attractive or beneficial to them. While it is impermissible for such employer to dismiss his employees in order to compel them to accept his demand relating to the new terms and conditions, it does not mean that the employer can never effect the desired changes. If the employees reject the proposed changes and the employer wants to pursue their implementation, he has the right to invoke the provisions of s 189 and dismiss the employees provided the necessary requirements of that section are met.

[49] The fact that the dismissal came about after the employees’ rejection of the proposed changes cannot affect the fairness of the dismissal if the employer established that it was effected for a fair reason relating to his operational requirements and not in order to compel the employees to accept the proposed changes. The prohibition in s 187(1) (c) cannot apply to it as long as it was effected for a purpose other than to compel the employees to accept the employer’s demand. In Chemical Workers Industrial Union v Algorax (Pty) Ltd (2003) 24 ILJ 1917 (LAC) Zondo JP emphasized that what is most important is to determine the purpose of the dismissal. The learned Judge President stated at para [37]:

“[37] Such an employer may then dismiss the employees for operational requirements in order to get rid of them permanently and employ a new workforce that will be prepared to work in accordance with the needs of his business. In such a case the employer will be dismissing the old workforce because the contracts of employment he has with them can no longer properly serve his operational requirements. That was the nature of the dismissal that the employer effected in TAWU & others v Natal Co- operative (Pty) Ltd (1992) 13 ILJ 1154 (D) as well as in Fry’s Metals (Pty) Ltd v NUMSA & Others (2003) 24 ILJ 133 (LAC). However, in a case where it requires the working of short- time, such as has been referred to above, the employer could take the attitude that for certain reasons such as their experience and skills he does not want to get rid of his workforce permanently but wishes to retain them and for that reason dismiss them not for the purpose of employing others in their position permanently but for the purpose of compelling them to agree to work short- time. If he did that, he would be hoping that the implications and consequences of dismissal would be such that the employees would feel they should rather agree to the employer’s demand and face such consequences. Under the repealed Labour Relations Act 28 of 1956 (the old Act), such a dismissal was permitted. Under the current Act it is not permitted and it is automatically unfair. From this it must be abundantly clear that the existence of valid operational requirements does not prevent a dismissal being effected for the purpose contemplated by s 187 (1) (c). What is most important is to determine what the purpose of the dismissal is.”

[50] In this matter, the purpose of the dismissal was, in the language used in Algorax, to get rid of the entire workforce of the appellant and replace it with independent contractors. When the appellant decided to dismiss the employees, it had no intention of later withdrawing the dismissal and re-employing them. Instead what appears to be clear is that even after the dismissal the appellant was prepared to engage them not as employees but as independent contractors. Consequently, the present dismissal has none of the two essential features of an automatically unfair dismissal identified in Fry’s Metals and Algorax. As a result I conclude that the Court a quo erred in holding that the employees’ dismissal constitutes an automatically unfair dismissal as contemplated in s 187 (1) (c).

Substantive unfairness

[51] As it appears above, the Labour Court’s conclusion to the effect that the dismissal was substantively unfair was based on two key findings. The first finding was that the appellant had alternative options to dismissal by means of which it could have implemented its proposal. As an example of such options the Labour Court suggested that the appellant could have unilaterally implemented the proposal and if the workers resisted, it could have enforced the implementation by disciplinary action or used a lockout. For this finding reliance was placed on the decision of the Labour Court in NUMSA & others v Fry’s Metal & others (Pty) Ltd (2001) 22 ILJ 701 (LC) and SACWU v AFROX Ltd (1999) 20 ILJ 1718 (LAC) at 1731. It needs to be noted that the decision of the Labour Court in Fry’s Metal has since been overturned by this Court on appeal in the Fry’s Metal case referred to above. As to the reference to 731 of the judgment of this Court in Afrox, a reading of that page of the judgment does not reveal any support for that finding of the Labour Court nor is there support for that proposition anywhere in the judgment of this Court in Afrox.

[52] The other finding is that the appellant failed to prove that the increase in production costs and decrease in productivity justified the retrenchment of the employees because it did not close down the quarry but simply outsourced it as the jobs for the retrenched employees still existed.

[53] It seems to me that the alternative options suggested by the Court a quo as having been available to the appellant were not viable options. It is not permissible for an employer to unilaterally change the existing terms and conditions of employment applicable to his employees. Nor will he be justified to institute disciplinary action against the employees who resist the implementation of the unilaterally changed terms and conditions. The employees’ resistance against such unilateral changes cannot be regarded as constituting misconduct. In my view, the reliance on both Fry’s Metals and Afrox on this point was misplaced.

[54] Furthermore, I do not agree that the continued production at the quarry invalidates the reason given for dismissal. In a case where a dismissal for operational requirements is directly linked to the employees’ rejection of the proposals to changing terms and conditions of service, the continuing existence of the employees’ jobs is irrelevant to the determination of whether or not there was a fair reason for the dismissal because such dismissal would have been necessary by virtue of changing business requirements and not that the jobs themselves were redundant. As it was stated in Algorax an employer who requires to effect changes to terms and conditions of service due to operational needs of the business may dismiss the employees who reject such terms and replace them with new employees who are prepared to work in accordance with the needs of the business provided the requirements of s 189 are met.

[55] Mr van der Riet submitted that the evidence placed before the Court a quo by the appellant was not cogent and not sufficient to establish reasons for retrenchment. I disagree. While it may be true that some of the evidence led had flaws, there was sufficient evidence which proved competitiveness as one of the reasons for the dismissal. The appellants Human Resources Manager, Mr Walter Lukhuleni (spelt Lukeleni), testified that when he joined the appellant in 1998 he was informed about the production targets each division was expected to meet and he observed that such targets were not met by the employees. He discussed the issue with the supervisors who were also elected shop stewards and new production targets were agreed to by him and the employees’ representatives. Notwithstanding this agreement the issue of productivity remained a serious problem because targets were not met, Mr Lukhuleni further testified. He also said that the issue remained a problem even after the appellant had taken remedial steps such as talking to supervisors and taking disciplinary action against individual employees who under -performed.

[56] The evidence referred to above was neither challenged nor rebutted by the respondents. In fact during his cross- examination Mr Lukhuleni was not cross- examined on that portion of his testimony. Therefore, it should be accepted as correct. His evidence showed clearly that production targets agreed to in order to make the appellant competitive were not met despite certain remedial steps having been taken by the appellant.

[57] The fact that during the period leading up to and at the time of the retrenchment the appellant made some profits does not mean that it was precluded from retrenching the employees. The appellant could still decide that its business required that the employees’ terms and conditions of service be changed in order to be more profitable and more competitive. If the employees rejected its proposal on changing the terms and conditions, as it was the position in this matter, then the appellant would be entitled to dismiss them for operational requirements under s189. In Fry’s Metals Zondo JP rejected an argument that a dismissal for the purpose of making more profit is not a dismissal for operational requirements. In this regard the learned Judge President said at para [33]:

“(T)hat argument has no statutory basis in our law. This is so because all that the Act refers to, and recognises, in this regard is an employer’s right to dismiss for a reason based on its operational requirements without making any distinction between operational requirements in the context of a business the survival of which is under threat and a business which is making a profit and wants to make more profit. Neither Thompson in his article nor counsel in his argument has pointed to any provision in the Act that can be relied upon to make the distinction. Accordingly, I would have rejected the contention in any event.”

[58] Therefore, I find that the employees in the present case were dismissed for a fair reason based on the appellant’s operational requirements and consequently that such dismissal was substantively fair.

Procedural unfairness

[59] Mr Redding argued that the Court a quo erred in concluding that the issue of retrenchment was not considered by the parties at their consultation meetings. The appellant contended that, although it did not expressly say that it was consulting the respondents in terms of s189, it was clear from the evidence led that such consultation was aimed at achieving a solution to existing operational requirements with retrenchment as a possibility should the parties fail to reach a consensus on the solution.

[60] The Court a quo, in concluding that the dismissal was procedurally unfair, also found that the appellant had regarded consultations on terms and conditions of employment to have been consultations under s 189 simply because they were necessitated by operational requirements. Insofar as reference having been made to closure of the quarry and retrenchment the Court stated:

“It is clear from the evidence that the reference to the retrenchment and closure of the business during the consultations on terms and conditions of employment during the period of July to February did not amount to an indication by the respondent [appellant] to the applicants [the respondents] that it wanted to discuss retrenchments with the first applicant [first respondent] as contemplated in section 189 of the Act. The discussions between the parties related to the respondent’s [appellant’s] proposed changes to terms and conditions of employment and did not amount to retrenchment consultations in terms of section 189 of the Act.”

[61] In support of the Labour Court’s judgment Mr van der Riet argued that the basic issues which should be considered at a consultation in terms of s189 are the need to retrench and the reason why the employer regards retrenchment as an appropriate measure in the circumstances. He submitted that the appellant referred to retrenchment only as a threat to influence the employees to agree to the enforcement of an agreement on changing the terms and conditions which was reached between the appellant and the first respondent.

[62] Before us Mr van der Riet adopted a position that differed from the respondent’s case in the Court a quo. In that Court the respondents had contended that they did not reach any agreement on the new terms and conditions proposed by the appellant. Before us Mr van der Riet submitted that an agreement was reached between the first respondent and the appellant but it could not be implemented because some of the workers did not accept the agreement. He argued that instead of retrenching the employees the appellant could have implemented the agreement. In other words Mr Van der Riet accepted that an agreement had been reached between the appellant and the respondents.

[63] The respondents’ contention on the existence of an agreement seriously undermines their argument on procedural unfairness because, if such agreement was reached, there could not be any complaint of procedural unfairness because this would mean that the consultation between the parties achieved the main objective of a consultation under sec 189 of the Act.

[64] However, the Court a quo decided the matter on the basis that the appellant had failed to indicate to the respondents that it wanted to discuss retrenchment as required by s189. While it may be true that the appellant did not expressly state that the consultations were held in terms of s189, it was, nonetheless, clear from the agenda of the issues to be considered at some of the consultation meetings that the parties were required to consider issues relevant to a consultation process in terms of the section. Even if the respondents had initially laboured under the impression that the purpose of the consultation was to seek the employees consent to the proposed changes to terms and conditions of service, such a misunderstanding must have been cleared by the terms and the language employed in some of the notices they received from the appellant.

[65] Tully’s evidence was to the effect that when the appellant contemplated retrenchment as a possible solution in the event of the employees rejecting its proposal on restructuring, it instructed the firm to give the necessary notice to the first respondent. Indeed, on 13 July such notice was issued to the shop stewards’ committee and the relevant portion thereof reads as follows:

“The company has now reached a stage where it needs to enter into consultation with all affected employees. Below are further details which in terms of the Labour Relations Act, need to be made available to the affected employees.

1. VALIDITY OF BUSINESS REASONS FOR RESTRUCTURING

As previously indicated by the company, the purpose of the restructuring is to ensure competitiveness and to secure the future of the company

2. APPROPRIATE MEASURES

• To secure all jobs

• To close the hostel

• To abolish the feeding scheme

• To restore dignity of all employees

3. SELECTION CRITERIA

The selection criteria would be for all employees at the Quarry.

In order to assist all employees in making a meaningful representation to management we have to set all the relevant information pertaining to the proposed restructuring process.

(a) REASONS FOR THE PROPOSED RESTRUCTURING

If the company were to restructure in the manner proposed. The following business imperatives would be achieved:

• Render the company more competitive as a South African supplier of natural tiles.

• Establish an effective and cost- effective organisational structure whilst increasing turn over and thus becoming a more stable employer. In this way the company will be better placed to meet the difficult trading conditions in the future.

• Provide shortened lines of communication, control and direction.

• Position the company closer to its ultimate goal of being the most economical natural tile supplier in South Africa.

2. ALTERNATIVES CONSIDERED BY MANAGEMENT BEFORE PROPOSING RESTRUCTURING

The process of repositioning the company is an ongoing exercise which (sic) the poses a constant challenge to management who carry the responsibility of changing the company in a business and market environment. The purpose behind this approach is to constantly enhance the viability of the company by increasing our cost effectiveness to our clients and in this way, increase our competitiveness in the industry. We remain open for suggestions and discussions, which ensure that the company reaches its stated goal.

(c) NUMBER OF EMPLOYEES AFFECTED

Employees at Mazista Quarry. This total should not exceed 307 persons

(d) ALTERNATIVES TO THE PROPOSED RESTRUCTURING

In the event that the employees have alternative proposals to our proposed restructuring process, we would like to have such proposals to be tabled with management via their representatives.”

[66] The above notice formed the agenda of the meeting which was proposed for 19 July and to which the first respondent and the shop stewards committee were invited. This meeting was convened after the appellant had complained to the first respondent for its failure to attend the previous meetings. It is significant to note that the agenda consisted of the issues referred to in s189 (2) and (3) such as appropriate measures, reasons for restructuring, the number of the employees likely to be affected and the selection criteria. Furthermore, the notice states that the information given therein is furnished in terms of the Labour Relations Act.

[67] The relevant portion of s 189 reads as follows:

“(1) When an employer contemplates dismissing one or more employees for the reasons based on the employer’s operational requirements, the employer must consult-

(a) ….

(b) if there is no collective agreement that requires consultation-

1. …

2. any registered trade union whose members are likely to be affected by the proposed dismissals;…

(2) The employer and the other consulting parties must in the consultation envisaged in subsections (1) and (3) engage in a meaningful joint consensus- seeking process and attempt to reach consensus on-

1. appropriate measures

(i) to avoid dismissals;….

2. the method for selecting the employees to be dismissed; and

3. the severance pay for dismissed employees.”

[68] In Baloyi v M& P Manufacturing (2001) 22 ILJ 391 (LAC) the purpose of s189 (1) and (2) was described in the following terms at paras [20] and [21]:

“In short, s189 (1) provides for the identity of the parties to be involved in the process of consultation with the employer. Section 189 (2) sets out the agenda and objectives of the process to be adopted by an employer when the latter contemplates dismissing employees for reasons based upon operational requirements.

[21] Read together, the two subsections represent the codification of the standards which had previously been developed by way of the principle of fairness as contained in the concept of an unfair labour practice. Section 185 may well require that an employer must comply with both the substance and the form of the requirements as contained in s189, but it adds nothing to the content of the process to be followed.”

[69] In the present matter the appellant invited the first respondent whose members were likely to be affected by the restructuring to a meeting which was scheduled for 19 July and also issued an agenda which covered issues referred to in s189 (2). Moreover, it appears that, at the initial stages of the consultation process, the first respondent was prepared to reach consensus with the appellant by accepting its proposal and have appropriate contracts drawn up. It was only later that the first respondent indicated that the employees rejected the appellant’s proposal and preferred that the status quo be maintained. At that stage the appellant asked to be furnished with the employees counter- proposals but the first respondent failed to come up with any counter -proposals despite the appellant having pointed out that the employees would face retrenchment if an acceptable solution was not found.

[70] For the above reasons I am unable to agree that the consultation which took place between the parties did not comply with the requirements of s189 and that the dismissal was procedurally unfair. In my view, the respondents were given an adequate opportunity to furnish the appellant with whatever counter- proposals they had in order to avoid being retrenched and they had failed to do so. Instead, they claim that they perceived the entire process to have amounted to negotiations for the proposed changes to terms and conditions of employment. According to them the appellant should have commenced a fresh process of consultation when the employees rejected its proposal even though they had no counter- proposals to make. In view of the notice issued by the appellant on 13 July setting out the agenda of the meeting of 19 July, it is inconceivable that the respondents could still argue that the consultation was about changing the terms and conditions of service.

[71] In the light of all the above I conclude that the dismissal was fair both substantively and procedurally. Accordingly the appeal must succeed.

Costs

[72] As to costs Counsel on both sides asked that the costs of the appeal should follow the result and that the costs order in the Court a quo remain unchanged. As this suggestion appears to be fair I intend to give effect to it.

[73] Accordingly the following order is made:

1. The appeal is upheld with costs.

2. The order of the Court a quo is set aside and the following order is substituted for it:

“(a) The claim is dismissed.

(b) There is no order as to costs.”

JAFTA AJA

I agree.

ZONDO JP

I agree.

MOGOENG JA

Appearances:

For the appellants : Adv. A. Redding

Instructed by : Van Zyl Du Randt Incorporated

For the respondents: Adv. H. Van der Riet SC

Instructed by : Cheadle Thompson & Haysom Attorneys

Date of judgment : 22 September 2004

---