Monday, April 06, 2009

Employees have a constitutional right to strike. But can they strike for an equity stake in the capital of their employer?
A strike is a concerted refusal to work by employees for the purpose of remedying a grievance or resolving a dispute over a matter of mutual interest. However, a strike over an unlawful demand will not enjoy protection under the Labour Relations Act.
Just what constitutes an unlawful demand is the subject of an endless debate, one aspect of which, however, recently came before the Labour Court. It involved the question of whether or not employees may strike in support of a demand from their employer for equity in the employer.
As part of its BEE objective, an employer allocated 10% of its shareholding to be acquired by its employees via a staff share trust. Employees and their representative trade unions tabled a demand for a 20% allocation.
When the employer did not accede to the demand, the union and employees declared a dispute. After the dispute could not be resolved at conciliation, the union and the employees threatened the company with strike action. 
The employer’s attitude was that such a demand was unlawful and the employees could not strike over the issue. The employees, on other hand, considered the demand to be of mutual interest. Hence they could lawfully strike over it.
When the employees persisted with their intention to strike, the employer approached the Labour Court seeking to prevent them from embarking on strike action.
Central to the dispute was whether or not the demand could be construed as a “matter of mutual interest” between the parties.
The employer sought to persuade the Court that the employees’ demand for increased shareholding was unlawful because, in the ordinary life of corporate institutions, it was impossible for a shareholder to increase his shareholding through strike action or any comparable instrument of coercion.
The only lawful medium to do so was through normal commercial activity, which was closely regulated through company legislation.
Further, the shares were:
·         Not equivalent to an employer’s profitability or its capacity to afford higher wages;
·         A defined and protected element of ownership;
·         Generally fully subscribed; and
·         Ordinarily dependent upon there being a willing seller on acquisition, with the buyer prepared to increase his price if sufficiently enthusiastic;
The employer contended that its shares were 100% subscribed. Other than the 10% shareholding allocated to employees, the remaining 90% wished to retain their shares and were strongly opposed to any attempt to dilute their shareholding.
On this basis, the employer maintained that the demand was unlawful.
The Court’s view was that where an employer company offered shares in itself to its employees to be acquired by the employees at an agreed price and the employees accept such an offer, the whole scheme of arrangement became a matter of mutual interest between an employer and an employee.
The Court compared the scenario to senior company employees who, as part of their remuneration, participated in a share incentive scheme. Such a scheme was no different to one in which junior employees were involved.
The Court maintained that part of the reason why senior executives participated in share incentive schemes was to be incentivised to manage the business to the best of their abilities in order for it to be more successful. The same principle was equally applicable to junior employees.
The Court held further that there was nothing wrong in principle in employees being entitled to demand that they be given an opportunity to hold shares in their employer company.
Employees need not necessarily wait for their employer to introduce employee share purchase arrangements. Indeed, they might such a demand of their own volition.
The Court concluded that the demand by employees for an increased shareholding in the company constituted a legitimate and lawful demand for an issue that was a matter of mutual interest between employer and employee.
The judgment is prone to practical difficulties. For example, it may be practically impossible for an employer to comply with a demand of this sort, especially where its shares are 100% subscribed and the existing shareholders are not prepared to dilute their shareholding, as it was the case in this matter.
It remains possible that an employer could challenge the lawfulness of the strike on the basis that it is impossible to comply with what is being demanded.
It is difficult to fault the logic that a strike should not enjoy protection where the demand is such that compliance is impossible – an observation supported by the presumption that the legislature never intends to create or promote absurd or impossible situations.
In the case in question, however, a demand by employees for an equity stake in their employer is a legitimate and lawful demand. Accordingly, employees may embark on strike action if their demand is not satisfied by their employer.
At the same time, the employees would need to comply with the prescribed pre-strike procedures before embarking on any strike action.
Henry Ngcobo is a director in the Employment Law Department of commercial law firm Bowman Gilfillan