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The Grand Finale: Effect of procedurally unfair dismissals – Large scale retrenchments

Authors: Imraan Mahomed – Director and Member of the Management Board

Companies faced with large scale retrenchments and who have consulted with us on the process know that there are major risks associated with premature terminations prior to the 60-day facilitation process lapsing. The Labour Court in 2006 in the National Union of Mineworkers v De Beers Consolidated Mines (Pty) Limited decision found such dismissals to be invalid.  The consequence of an invalid dismissal outcome was that dismissed employees would be automatically reinstated. This was upheld by the LAC later in 2010.

However, five years later and early last year the LAC in reconsidering the De Beers outcome, in Edcon v Steenkamp and Others found that the legal effect of such dismissals was not invalidity but LRA type "unfairness". The effect of invalidity is automatic liability for back -pay to date of dismissal without any consideration of the substantive reason for retrenchment, the appropriateness of a retrospective award for compensation or even the financial viability of the business at the date of the order. A claim for "invalidity" in law is very different to a claim for "unfair dismissal". Also, the remedies are vastly different as can be seen.  

On Friday, 22 January 2016 the Constitutional Court handed down judgment in Edcon v Steenkamp and confirmed the 2015 position of the LAC. The failure to follow the proper termination procedures set out in section 189A does not mean an employer will face the prospect of having to reinstate an employee (and almost inevitably large numbers of retrenched employees) who were not required in the business in the first place for operational requirements and be automatically liable for years of back-pay. This saga on this chapter of section 189A is now finally put to rest.

This is a welcomed judgment for business, especially in very trying financial times. The judgment of the Constitutional Court does, however, emphasise the right of employees to strike in large scale retrenchment and this is going to become more prominent in the foreseeable future as unions take up the strike weapon to challenge large scale retrenchments. In 2015, we had already seen some early signs of a move in this direction from unions.

Those employers who have faced applications to the Labour Court since at least 2010 onwards (and we represent some clients facing such claims), where unions and individuals have challenged the validity of the retrenchment on the sole basis of having received premature termination notices, can now in light of the Constitutional Court judgement breathe a sigh of relief. These claims can no longer be pursued. However, these claims may now possibly be pursued as ordinary procedurally unfair dismissal claims. We will correspond with our clients who are facing such claims separately to properly consider the options going forward.

The recent spate of decisions in the Constitutional Court should now convince us that labour law is fast becoming "business law". Edcon dismissed 3000 employees between 2013 and 2014.  Its liability had it not succeeded in this litigation would have run into millions of rands, let alone the disastrous effect it would have on the operations of this national retailer in an already restructured business years later. Issues relating to employees in the workplace are becoming more of an operational legal business concern and need to be front of mind. 


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