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SOUTH AFRICA: COLLECTIVE BARGAINING IN THE CONTEXT OF BUSINESS RESCUE PROCEEDINGS

By Rosalind Davey,Chloë Loubser Friday, April 30, 2021
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In a recent judgment about business rescue, the Labour Court has had to consider a number of collective bargaining issues, including whether a lock-out is permissible during business rescue proceedings or whether it constitutes the suspension of employment contracts by the employer, which is prohibited by section 136(2A)(a)(i) of the Companies Act. 

In The Airline Pilots Association of South Africa v South African Airways and others (unreported, J 1507/2020, 29 December 2020), the general thrust of the arguments conveyed by the Airline Pilots Association of South Africa (the Association) representing the pilots employed by SAA, is that a business rescue practitioner is not permitted to engage in collective bargaining during business rescue proceedings. These arguments were ultimately rejected by the Court.

It is well-known that SAA was placed in business rescue in December 2019 and that a business rescue plan was adopted in June 2020. The business rescue plan contemplates the retrenchment of the majority of employees of SAA and changes to terms and conditions of employment of remaining employees. However, the terms and conditions of SAA’s pilots are regulated by a collective agreement that terminates only if replaced by another collective agreement and is not terminable on notice.  

In order to give effect to the business rescue plan, SAA attempted to secure the Association’s agreement to cancel the collective agreement and to negotiate new terms and conditions for the pilots. The Association refused and, following a referral of a dispute to the CCMA, SAA instituted a lock-out in terms of which pilots who were members of the Association were excluded from the workplace, until SAA’s demands to cancel the collective agreement and negotiate new terms and conditions were accepted. 

The Association instituted urgent proceedings in the Labour Court seeking a final order declaring the lock-out to be unlawful and unprotected, relying on four grounds. The first and primary ground is that the lock-out is prohibited by section 136(2A)(a)(i) of the Companies Act, as it constitutes a suspension of the pilots’ contracts of employment. The Court disagreed and held that a protected lock-out is an indemnified breach of contract in terms of the Labour Relations Act (LRA), and does not amount to the suspension of employment contracts. In addition, section 136(2A) of the Companies Act specifically contemplates that agreed changes to terms and conditions of employment may be secured during business rescue.

The Court noted that collective bargaining is a legitimate vehicle through which to secure consent to changed terms and conditions and this necessarily involves the right to industrial action. A business rescue practitioner may, therefore, engage in collective bargaining and initiate any legitimate economic pressure (such as a lock-out) in order to secure consent to proposed changes to terms and conditions of employment. Even if the lock-out did amount to the suspension of employment contracts (which the Court found it did not), the provisions of the LRA trump the limitations imposed by the Companies Act, and business rescue practitioners are consequently permitted to institute a lock-out in terms of the LRA. 

The remaining three grounds raised by the Association were similarly rejected. In brief, the Court held that the fact that SAA has been placed in business rescue and its operations have been grounded or limited does not mean that there is no ‘workplace’ in respect of which a lock-out can lawfully be implemented. The Association’s contention that the lock-out was unlawful because there is no ‘workplace’ was accordingly misplaced. The Association also contended that the lock-out notices were invalid because the lock-out applied only to certain employees and because the demands were different to the those contained in the referral of the dispute to the CCMA. This argument was rejected by the Court on the basis that it is perfectly acceptable for a lock-out to apply to specific employees only and that at a factual level, the CCMA referral and lock-out notice reflected the same issue in dispute.

Lastly, the Association contended that the lock-out was unprotected because SAA’s demand sought to interpret or apply a collective agreement and must, therefore, be resolved by arbitration. The Court held that the true issue is that SAA seeks to cancel the collective agreement and agree new terms and conditions and that this is manifestly not a matter that concerns the interpretation or application of the existing collective agreement. 

The key take-away from the judgment is that business rescue proceedings do not preclude collective bargaining and do not prohibit business rescue practitioners from locking out employees under the LRA in order to exert pressure on employees to accede to demands. The Companies Act permits changes to terms and conditions of employment by agreement during business rescue, and collective bargaining is a legitimate vehicle through which to achieve agreed changes to employment terms.