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South Africa: Labour Appeal Court confirms the fairness of Coca-Cola’s retrenchments

11 June 2024
– 8 Minute Read

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Overview

  • We have recently discussed the landmark judgment handed down by the Constitutional Court on 17 April 2024, in Coca-Cola Beverages Africa (Pty) Ltd v Competition Commission & Food and Allied Workers Union.
  • Now we consider the recent judgment of the Labour Appeal Court (LAC), which deals with the fairness of the retrenchments that formed the subject-matter of the Constitutional Court decision.

We have recently discussed the landmark judgment handed down by the Constitutional Court on 17 April 2024, in Coca-Cola Beverages Africa (Pty) Ltd v Competition Commission & Food and Allied Workers Union. For an overview of the Constitutional Court decision, which considers the correct test for merger specificity of retrenchments, see our newsflash here.

In this article, we consider the recent judgment of the Labour Appeal Court (LAC) in National Union of Food Beverage Wine Spirits and Allied Workers v Coca Cola Beverages South Africa (Pty) Ltd, which deals with the fairness of the retrenchments that formed the subject-matter of the Constitutional Court decision.

The facts of this matter are discussed at high level in our previous newsflash. To recap, following a conditional merger, Coca-Cola Beverages South Africa (Pty) Ltd (CCBSA) embarked on a consultation process with the Food and Allied Workers Union (FAWU) and the National Union of Food Beverage Wine Spirits and Allied Workers (NUFBWSAW) as contemplated in section 189A of the Labour Relations Act, 1995 (LRA). In particular, CCBSA proposed to reduce the number of pre-seller positions, and to abolish the merchandiser role and replace it with a new role, with the same title, but different structure, at a lower level and rate of remuneration. Ultimately, some members of NUFBWSAW, who were employed as pre-sellers and merchandisers, were dismissed based on the operational requirements of CCBSA.

Aggrieved by their retrenchments and assisted by NUFBWSAW the employees approached the Commission for Conciliation, Mediation and Arbitration (CCMA) for relief, arguing that the dismissals were substantively unfair and seeking reinstatement and/or compensation. Subsequently, NUFBWSAW referred a statement of claim at the Labour Court advancing their contention. The union was unsuccessful at the Labour Court and appealed to the LAC. The issues for determination before the Labour Court and the LAC were the following:

  • whether the retrenchments constituted a breach of the merger conditions;
  • whether the retrenchments were automatically unfair in terms of section 187(1)(c) of the LRA; and
  • the substantive fairness of the dismissals.

Did the merger-specific condition impact the fairness of the retrenchment exercise?

The Labour Court, issuing its decision on 21 September 2021 and before the judgment of the Constitutional Court, considered the allegation that CCBSA was in violation of the merger conditions and that the asserted rationale for the retrenchments was a sham. The Labour Court did not itself conduct an analysis to determine any causal link between the merger and the subsequent retrenchments; it found that even if the retrenchments had been effected in breach of any conditions that attached to the merger, provided that the dismissals were effected for a fair reason related to CCBSA’s operational requirements, there was no unfair dismissal for the purposes of the LRA. In this regard, the merger-specific conditions did not preclude CCBSA from seeking to justify any post-merger retrenchment based on its operational requirements.  The issue was whether, for the purposes of the LRA, the dismissals were substantively fair.

The LAC endorsed the Labour Court’s approach. Hearing and issuing its decision after the Constitutional Court judgment, wherein it was held that there was insufficient evidence to establish that the merger was the principal reason for the retrenchment, the LAC found that the judgment was of neutral effect as it was not concerned with the fairness or otherwise of the retrenchment. Accordingly, the LAC focused on the remaining issues, i.e. whether the employees’ retrenchments were unfair, either for a reason that is automatically unfair, or for want of substantive fairness.

Were the dismissals automatically unfair?

In respect of the merchandisers, the union submitted that the employees’ dismissals were automatically unfair because the reason for dismissal was a refusal to accept a demand in respect of a matter of mutual interest between them and CCBSA. This was after the employees refused to accept the offer of appointment in the restructured merchandiser role, as an alternative to retrenchment.   

The Labour Court rejected the contention that the employees’ dismissals were automatically unfair for their refusal to accept alternative employment. NUFBWSAW contented that the retrenchment was designed to compel the employees to accept substantially reduced wages and different employment conditions. The Labour Court found that there was no demand made by CCBSA, but merely an offer of alternative employment in order to avoid retrenchments. Effectively, any subsequent retrenchments were not as a result of the employees refusing a demand, but a natural consequence of the section 189A process.

The LAC found that the appeal before it was similar to that of National Union of Metalworkers of SA & others v Aveng Trident Steel (A division of Aveng Africa (Pty) Ltd) (2021) ILJ 67 (CC), wherein the Constitutional Court found that it is not an automatically unfair dismissal for an employer to dismiss an employee who refuses to accept an offer of alternative employment made in the context of a retrenchment process, where the true reason for dismissal is the employer’s operational requirements.

The LAC further clarified that the sole enquiry under section 187(1)(c) is into the reason for dismissal and specifically, whether the reason for dismissal was a refusal by the employee to accept a demand made by the employer concerning terms and conditions of employment. In other words, would the dismissal have occurred had the employee not refused the demand, and was the refusal the main, dominant or proximate cause of the dismissal?

In the circumstances and on the analysis of the evidence, the LAC found that the claim of automatically unfair dismissal was correctly rejected as the offer of alternative employment on reduced wages and different terms was made to avoid retrenchment and CCBSA’s operational requirements were the main or dominant cause of the dismissals.

Were the dismissals substantively unfair?

In respect of the substantive fairness claim, the Labour Court found that there was a commercial rationale for the retrenchments. It was not for the Labour Court to determine the correctness of the solution adopted by CCBSA, but to assess whether such solution was fair, i.e. whether it was commercially rational and a reasonable option in all the circumstances. CCBSA had a fair reason to dismiss based on its operational requirements, owing to the economic headwinds it faced on the imposition of the ‘sugar tax’.

While concurring with the Labour Court in respect of this claim, the LAC emphasised that although employers have the prerogative to restructure their operations to maximise profits and operational efficiency, the courts do not have to accept the employer’s proffered rationale at face value, nor do the courts defer to employers.

The Labour Court further held that considering that all the merchandiser posts no longer formed part of the new organisational structure, the question of selection criteria did not arise and selecting the incumbents for dismissal after not being placed in the new structure was fair. This finding was not challenged.

Regarding the reduced number of pre-seller posts, the Labour Court accepted that fair and objective selection criteria, being ‘last-in-first-out’ (LIFO), skills, qualifications and experience, or a combination of these, were fairly applied except in the case of one employee, Mbatha.

The Labour Court’s finding in relation to Mbatha was also not challenged. The sole issue before the LAC was the general application of the selection criteria. In this regard, the LAC observed that only one of the 14 pre-sellers (Mbatha) gave evidence of their exclusion from alternative employment, and there was no evidence before the Labour Court that this single employee’s circumstances were the same or similar to any of the other pre-sellers selected for retrenchment. The LAC held that an employee seeking to claim unfair retrenchment in circumstances where alternative employment opportunities within the organisation are drawn to the attention of employees already selected for retrenchment, must at least plead the facts of the exclusion and the grounds on which the employee asserts that the exclusion was unfair. Such evidence will not be extrapolated from the circumstances of the employee who pleads their case.

In light of the above, the Labour Appeal Court dismissed the appeal.

Key takeaways

The key takeaways from this case are as follows:

  • Despite the existence of any merger conditions relating to retrenchments, in an unfair dismissal (retrenchment) claim, the Labour Court will consider the matter on the basis of fairness, in light of section 189 or 189A of the LRA. Provided that the dismissal is effected for a fair reason related to the employer’s operational requirements, a breach of any merger conditions will not mean that the dismissal is unfair for the purposes of the LRA.
  • The application of section 187(1)(c) of the LRA focuses on the enquiry whether the reason for dismissal was a refusal by the employee to accept a demand made by the employer concerning a matter of mutual interest, and whether the refusal was the main, dominant or proximate cause of the dismissal. It is not an automatically unfair dismissal for an employer to dismiss an employee who refuses to accept an offer of alternative employment made in the context of a retrenchment process, where the reason for dismissal is the employer’s operational requirements.
  • Employees that allege that their retrenchments are substantively unfair in circumstances where they have been excluded from alternative employment opportunities within the organisation, ought to plead the facts of their individual cases in order to prove unfairness.