In the case of Duverge v Spanish Farm Guest House Lodge CC t/a Sky Villa Boutique Hotel and Another (C04/24; C252/2024) [2025] ZALCCT 24 (11 April 2025), the Labour Court delivered a ruling that highlighted the consequences for an employer who failed to follow the law book when it comes to a dismissal for operational requirements. The judgment serves as a useful reminder of some of the key principles when it comes to the fairness of a retrenchment.
Background to the dispute
Mr Duverge was originally employed by Sky Villa Boutique Hotel, as a general manager for two hotels, Sky Villa and Bungalow. His employment contract was subsequently transferred to Sky Villa (Pty) Ltd (Sky Villa). Sky Villa and Sky Villa Boutique Hotel are part of the Wiehahn Group (Group). In April 2019, the Group announced that Mr Duverge had been promoted to group general manager based on its intention to expand its hospitality business. Mr Duverge was not issued with a new employment contract reflecting this position.
Approximately four years later, Mr Duverge was informed that due to financial reasons the Group had decided not to expand the hospitality business and to make his position, as group general manager, redundant. He was subsequently issued with the notice contemplated in section 189(3) of the Labour Relations Act, 1995 (LRA), informing him of his possible retrenchment. The reasons for retrenchment recorded in the notice related to a partnership to be entered into with a specialised company, that was to provide ’specialised services’ for the hospitality industry that went beyond the scope of the current group general manager.
During the initial consultation meetings, Mr Duverge was informed that the reasons for the retrenchment were, in fact, unrelated to the appointment of the specialised company, and related to economic reasons, such as high overheads, interest rate increases and the redundancy of the group general manager position as a result of the decision not to expand the hospitality business.
Mr Duverge questioned why these reasons did not appear in the section 189(3) notice and stated that the notice should be amended. Further, he mentioned various alternatives to retrenchment (including existing vacancies) and sought clarity on the selection criteria to be used. Mr Duverge was met with aggression. The amended reasons for the retrenchment were provided to Mr Duverge some days later, and the employer maintained that no selection criteria were applicable, as the retrenchment affected a single position.
Mr Duverge noted his dissatisfaction with the consultation process and the treatment he received during the consultation meetings where he was called dishonest. He further noted that his proposed alternatives to his retrenchment were not considered, including the proposal that he be placed back into his original position as the general manager for both Sky Villa and Bungalow.
The employer rejected this proposal on the basis that this position no longer existed – it had been determined that each hotel required its own general manager. As for the possibility of bumping out the general manager of Bungalow (Ms Bouwer), the employer reasoned that the ‘last-in-first-out’ principle meant that Duverge could only potentially bump out the general manager for Sky Villa (Ms Kemp), as she had the shortest service. Mr Duverge was accordingly offered this position, as the only viable alternative, at a non-negotiable salary of ZAR 28 000 per month. At the time, Mr Duverge had been earning ZAR 80 250 per month and rejected this offer of alternative employment. He was subsequently dismissed. No severance pay was paid to him on the basis that he had unreasonably refused an offer of alternative employment.
Substantive fairness
The Labour Court emphasised that an employee whose position has been made redundant is not automatically dismissed and that the employer has an obligation to genuinely consider alternatives short of dismissal and exercise dismissal as a measure of last resort. It considered section 189(7) of the LRA, which required the employer to dismiss an employee for operational requirements according to selection criteria that is, absent an agreement, fair and objective.
The Court observed that the employer incorrectly rejected the proposal of bumping without any justification. It did not contend that bumping would have presented operational difficulties or that it would have been unfair. It simply dismissed the idea of bumping because Ms Bouwer was not the last person employed.
However, had the employer implemented bumping principles correctly, it would have bumped Ms Bouwer and Ms Bouwer would have, in turn, bumped Ms Kemp. The Court found that bumping would accordingly have satisfied the requirement of fair and objective selection criteria. There was thus an obvious alternative to dismissal that ought to have been implemented and on this basis, Mr Duverge’s dismissal was found to be substantively unfair.
Procedural fairness
The Court held that section 189 of the LRA sets out certain obligations for the employer for the specific purpose of ultimately achieving a joint consensus seeking process. The consultation process is designed to genuinely attempt to reach consensus on issues such as measures to avoid dismissals or measures to mitigate against the adverse effects of dismissal.
Referring to various Constitutional Court decisions on procedural fairness in retrenchment exercises, the Court found that the consultation process in this case fell short of a ’meaningful joint consensus seeking process’. Mr Duverge was insulted, had his proposed alternatives summarily rejected, and was accused of obstructing the process, of distorting facts, and of being disingenuous where he had legitimate questions.
The Court found that the employer had employed a checklist approach to the consultations without engaging genuinely on selection criteria and exploring alternatives. Therefore, the dismissal was found to be procedurally unfair.
Reasonable refusal of alternative employment
Section 41(4) of the Basic Conditions of Employment Act 1997 (BCEA) provides that an employee who unreasonably refuses to accept the employer’s offer of alternative employment, either with that employer or any other employer, is not entitled to severance pay.
The Court noted that Item 11 of the Code of Good Practice on Dismissal based on Operational Requirements clarifies that reasonableness is determined by considering the reasonableness of the offer of alternative employment and the reasonableness of the employee’s refusal. In the former case objective factors such as remuneration, status, and job security are relevant. In the latter, the employee’s personal circumstances are considered.
The Court found that the alternative employment proposed by the employer meant that Mr Duverge would have had to take an approximately 65% reduction in his remuneration. He also believed that this offer was made in bad faith where there were still other possible alternatives. Therefore, the Court found that the offer of alternative employment was unreasonable, and Mr Duverge could not have been expected to accept it. Accordingly, Mr Duverge’s refusal was found to be reasonable, and he was entitled to the payment of the minimum severance pay as set out in section 41(2) of the BCEA.
Appropriate relief
Noting that Mr Duverge did not seek reinstatement or re-employment, the Court considered various guidelines and principles developed by our courts in exercising its discretion to determine what is just and equitable compensation in line with section 193(1)(c) of the LRA.
The Court considered the unfairness of the dismissal, the length of service, the brief unemployment and severe disruption to Mr Duverge’s career path, as well as the treatment received by Mr Duverge during the consultation process. The Court awarded Mr Duverge compensation equivalent to eight months’ remuneration (three months for procedural unfairness, and five months for substantive unfairness).
Key takeaways
This case reiterates some important principles for employers to bear in mind when considering retrenchments:
- It is imperative that the rationale for the retrenchment exercise is clearly articulated in the section 189(3) letter and explained to potentially affected employees. Affected employees should also be provided with sufficient time to consider the rationale and test its legitimacy.
- Employers are statutorily obliged to consider fair and objective selection criteria, even when a single employee is affected by the retrenchment exercise. When bumping is suggested, this ought to be carefully considered.
- Mechanical box-ticking exercises when it comes to consultation should be avoided. The duty to engage in a meaningful consultation process extends to how the employer handles the actual consultation meetings and treats the affected employees during the process. This means that there should be space for debate, where each party’s input is genuinely considered before being rejected. Ultimately, the aim is to reach consensus on the issues that are discussed.
- An employee who reasonably refuses an offer of alternative employment would be entitled to the severance pay envisaged in section 41(2) of the BCEA. When considering reasonableness, both the reasonableness of the offer, and of the refusal, must be considered.
