Retrenchments: When can employers forgo a section 189(3) notice?

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The recent decision of the Labour Court in Padayachee v Serero N.O. and Others calls into question whether a section 189(3) notice is always required for a retrenchment to be considered fair. In this case, Shaba AJ found that, whilst being a mandatory requirement, the non-issuing by the employer of the section 189(3) notice did not render the employee’s dismissal unfair, as there had been ‘substantial compliance’ with the provision.

Factual background

In 2019, the Joburg Property Company (employer) decided to restructure its corporate structure, which would impact various job positions. The information technology department and position occupied by the employee, Kogilambal Padayachee, as Head: IT was affected on the basis that it was not providing the required strategic information technology advice.

The proposed corporate structure was discussed at the employer’s exco level, where the employee was present as an exco member. The corporate structure was also presented to, discussed with, and accepted by, the Local Labour Forum (LLF), which included the employee’s trade union, the Independent Municipal and Allied Trade Union (Imatu). Imatu was represented in the LLF by its shop steward. It was common cause that the employer did not issue a section 189(3) notice to Imatu or the employee, in relation to her proposed retrenchment.

The employee was ultimately dismissed on 30 September 2019 based on the employer’s operational requirements. She referred an unfair dismissal dispute to the South African Local Government Bargaining Council (Bargaining Council), which found her dismissal to be procedurally and substantively fair.

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Aggrieved by the outcome at the Bargaining Council, the employee instituted review proceedings in the Labour Court, alleging, among others, that the employer did not comply with section 189 of the Labour Relations Act, 1995 (LRA) in that the employer had failed to issue a section 189(3) notice.

Was the dismissal substantively fair?

In terms of section 188 (1)(a)(ii) of the LRA, a dismissal is substantively unfair if the employer, among other things, fails to prove that the reason for dismissal is fair based on the employer’s operational requirements.

The test to evaluate the substantive fairness of a dismissal related to operational requirements is that a fair reason is one that is bona fide and rationally justified, and informed by a proper and valid commercial or business rationale. The inquiry into the rationale for operational requirements is not to ascertain whether it would be chosen by the court, but whether it is objectively fair.

In the arbitration award, the commissioner found that the employer was not legally precluded from altering its structure to suit its operational requirements in circumstances where it was of the view that it was not deriving any economic value, or could not attain any of its objectives, from the erstwhile position or department of the employee.

Moreover, the employee rejected employment in an alternative position with a salary cut. On this basis, the commissioner found the employee’s dismissal to be substantively fair.

The Labour Court found that the commissioner’s finding in this regard was reasonably justified as it was in line with sections 188(1)(a) and 213 of the LRA as well as the Code of Good Practice: Dismissal based on Operational Requirements.

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The respondent had a valid and fair reason to terminate the employee’s employment based on its operational requirements, which the employee was adequately aware of as a member of exco and as accepted by her trade union, Imatu, during the LLF discussions.

Was the dismissal procedurally fair?

The Labour Court held that where an employee is represented by a trade union in retrenchment processes in terms of section 189 of the LRA, such person does not have to be consulted in parallel.

The Labour Court acknowledged the decision of the Constitutional Court in Solidarity obo Members v Barloworld Equipment South Africa [2022], as authority for the view that section 189(3) makes it obligatory for an employer to issue a written notice to consulting parties inviting them to consult and disclose in writing all relevant information specified in section 189(3)(a) to (j) of the LRA.

The Labour Court observed, however, that the circumstances for not issuing the section 189(3) letter in this case were peculiar. In particular, the Court considered the minutes of the LLF meeting which stated, among others, that ‘Labour supported the tweaked structure as presented by the management’. The employee had been represented by her union, Imatu, at that meeting.

Notice of no notice

Further, two months later and more than a month before the employee’s dismissal, the employer had issued correspondence to Imatu indicating, among others, that it was not necessary to issue a section 189(3) notice, as the parties were aware of the reasons for the contemplated dismissal for purposes of section 189(3).

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The employee became aware of this letter, but neither she, nor Imatu objected to, or took issue with, the correspondence by the employer and/ or the non-issuance of the section 189(3) notice.

The Labour Court accordingly held that the employer could not be blamed for not having issued a section 189(3) notice to Imatu. Despite not issuing the notice, the employer had substantially complied with section 189(1), (2) and (3)(a) of the LRA, and as such the meaningful and joint consensus seeking process was not necessarily contingent on the issuing of the section 189(3) notice. Moreover, Imatu also held the view that there was substantial compliance with section 189.

The Labour Court held that the commissioner’s findings were unassailable, as they fell within the bounds of reasonableness. Accordingly, the employee’s dismissal was confirmed to be substantively and procedurally fair.

Conclusion

The Labour Court cautioned that this judgment should not be taken as precedent that issuing a section 189(3) notice is not mandatory. Where the mandatory provisions are departed from, each case has to be decided on its own merit regarding substantial compliance with section 189(3).

The section 189(3) notice remains an important part of the retrenchment consultation process. Not only is the information contained in the notice necessary for the parties to engage in meaningful consultations; the notice itself serves an important evidentiary function when it comes to proving the fairness of retrenchments. It is also the marker that commences the time periods for consultations in large-scale retrenchments.

Despite the outcome of this case, employers would be well-advised to comply with the letter of the section and ensure that a notice is issued in each case.