IN THE LABOUR APPEAL COURT OF SOUTH AFRICA HELD AT JOHANNESBURG

									Case NO: JA 7/09
							
In the matter between:				

SCHEME DATA SERVICE (PTY) LTD  	 Appellant                      
	
and

E MYHILL N.O 			               		       1st Respondent
 
THE COMMISSIONER FOR CONCILIATION,	     2nd Respondent	             
MEDIATION AND ARBITRATION      	          
			        3rd Respondent 
G SIMPSON                                 			3rd Respondent

____________________________________________________

JUDGMENT BY:				C.J. MUSI, AJA
_____________________________________________________

CORAM:       WAGLAY DJP, TLALETSI JA et C.J. MUSI AJA
_____________________________________________________

DELIVERED ON:       1 OCTOBER 2010

[1]	The appellant dismissed the third respondent on 16 October 2003 for the reason based on its operational requirements. The third respondent alleged that her dismissal was unfair and referred an unfair dismissal dispute to the second respondent (the Commission for Conciliation Mediation and Arbitration, CCMA). The dispute remained unresolved after conciliation and the third respondent referred it to arbitration.

[2]	The first respondent ( the commissioner) found that the third respondent’s dismissal was substantively and procedurally unfair. The commissioner ordered the appellant to pay the third respondent an amount of R86 100.00 compensation which is the equivalent of seven (7) months of the third respondent’s salary at the time of her dismissal.

[3]	 The appellant launched a review application against the commissioner’s finding, wherein it inter alia alleged that the second respondent did not have jurisdiction to adjudicate the dispute. It argued that in matters concerning the dismissal of a single employee for operational reasons, the second respondent has jurisdiction only when the dispute centres on substantive fairness, and not where the issue concerns procedural fairness. It cited the matter of Rand Water v Bracks NO and Others as authority for its proposition.

[4]	The court a quo analysed the Rand Water v Bracks decision and came to the conclusion that the interpretation of section 191 (12) of the Labour Relations Act 66 of1995 (the LRA) in that case is plainly wrong. The court a quo found that  a single employee has an election to refer the dispute to the second respondent or to the Labour Court irrespective of whether  the  substantive fairness and/or the procedural fairness of the dismissal is in dispute and that the second respondent has jurisdiction to adjudicate the dispute.

[5]	With regards to the merits, the court a quo found that there was no “just cause” for upsetting the first respondent’s award and dismissed the review application with costs.

[6]	The appellant applied for leave to appeal. The court a quo granted leave to appeal only in respect of its finding that the second respondent had jurisdiction to adjudicate the dispute. The appellant then petitioned the Judge President for leave to appeal against the court a quo’s judgment on the merits. The petition was granted.

[7]	Before us Mr Snyman, on behalf of the appellant, correctly jettisoned the ground of appeal based on the second respondent’s lack of jurisdiction.

[8]	The facts of this matter are to a large extent common cause. The appellant is an insurance replacement agent. The third respondent was employed by the appellant on 1st September 1993 to make tea and attend to faxes. She was ultimately promoted to the position of General Manager during 1999/2000.

[9]	Mr Kim Walmisley-Crown (Crown) purchased the appellant’s shares during 2002. He and Ms Angie Gordon (Gordon) became directors of the appellant. Gordon was appointed the Managing Director of the appellant, whilst the third respondent retained her position as General Manager. When the shares of the appellant were acquired, Crown was still employed by another company and rendered his services (financial management) on a part-time basis to the appellant.

[10] 	The appellant was not doing well. Its turnover in 2002 was R25 million, R27 million in 2003 and R 24 million in 2004. During 2003 Crown decided to be personally involved in the appellant. He joined the appellant on a full-time basis. He earned about R 5000.00 per month when he worked part-time for the appellant. When he joint on a full-time basis he earned R25 000.00 per month. The applicant was earning approximately R12 300.00 per month. The business was not big or profitable enough to afford him and the third respondent. It was decided to make the third respondent’s position redundant.

[11]	Gordon approached Ferreira, a labour consultant, to assist her with the section 189 of the LRA process. Ferreira explained the requirements of a fair retrenchment, which includes considering alternatives to dismissal and severance pay, to her. Gordon told Ferreira that there might be a position as a voucher clerk available which could be offered to the third respondent but she was not sure whether she would accept the position. He drafted the section 189 notice wherein he omitted to mention anything about the alternatives to dismissal that were considered by the appellant.

[12]	On 1 October 2003 the notice of contemplated restructuring (the notice) was given to the third respondent - who was ten weeks pregnant. She became emotionally upset and went home. She informed her father (Graeme Douglas Macleod) about the notice and requested him to represent her during the consultations. Subsequently, on 7 October 2003, she gave him a written mandate to represent her.

[13]	On 7 October 2003 a consultative meeting was held whereat Gordon, Ferreira and Macleod were present. When Ferreira started explaining the reason for the possible retrenchment, Macleod informed him that it is not necessary to explain same because he (Macleod) is an experienced businessman and understands that the third respondent earns the highest salary and that Crown wants to become more involved in the business. He intimated that business logic dictates that the third respondent should be considered for retrenchment. He also stated that the purpose of his attendance was to negotiate a retrenchment package. He suggested that she be paid R 120 000.00 as a retrenchment package. Ferreira informed him that the package would be one week for every year of service which would have amounted to R35 330.00, for ten year’s service. They could not agree on an amount and a further meeting was scheduled for 10 October 2003 to finalise the package.

[14]	On 10 October 2003 the appellant made a counter offer of R85 000.00. Macleod rejected it because he was of the view that a fair package would be R124 708.00.

[15]	 The third respondent returned to work on 13 October 2003. She testified that she was at that stage entitled to four months maternity leave and that she would have been willing thereafter to do a half day job at the appellant for a salary of about R 5000.00 per month. On 16 October 2003 the third respondent was served with a notice informing her that her employment “will terminate on 16 November 2003 due to retrenchment”.

[16]	The commissioner analysed section 189 of the LRA and concluded that the word “must” in section 189(3) indicates that the requirements in the said section are peremptory. He concluded that the fact that appellant did not inform the third respondent or Macleod about the alternatives to retrenchment that were considered before proposing the dismissal and the reasons for rejecting each of those alternatives rendered her  dismissal substantively and procedurally unfair.

[17]	The court a quo found that the commissioner’s finding that the third respondent might well have accepted the alternative position had it been presented to her, thus avoiding retrenchment, was reasonable. The review application was therefore dismissed.

[18]	Mr Snyman correctly argued that there can be no doubt that the rationale for the restructuring of the appellant was sound. Mr Nel on behalf of the third respondent, did not dispute Mr Snyman’s contention.

[19]	Mr Snyman further argued that:
19.1The third respondent was the proper person to    select for retrenchment.       
19.2 There was in fact no alternative position.
19.3 Macleod agreed that consensus was reached that the third respondent should be retrenched.
19.4 The third respondent was not interested in consulting on the issue of alternatives to dismissal.
19.5 Both parties had an equal duty to seek consensus and that the third respondent had a duty to suggest alternatives.
19.6	The compensation awarded by the commissioner is excessive.

[20]	Mr Nel on the other hand argued that the third respondent might have taken an alternative position if it was offered to her became she testified that she would have considered it specifically having regard to the fact that she was pregnant and thus unemployable. He was of the view that the commissioner’s award was reasonable.

[21]	The third respondent has established that she was dismissed. The appellant therefore bears the onus to prove on a balance of probabilities that the dismissal was fair.

[22]	 In SACWU & Others v AFROX LTD it was correctly stated that the employer must prove:
		“(a) the cause or reason for the dismissal…
		  (b) the defined “operational requirements” that the 
		        dismissal is based on…	     
		  (c) a fair procedure in accordance with section 189…
           (d) the facts upon which a finding of a substantively 
	       fair reason for the dismissal can be made…”

[23]	The appellant had a duty in terms of section 189 (3) (b) of the LRA to issue a written notice inviting the third respondent to consult with it and to disclose to the third respondent in writing all relevant information including the alternatives that it considered before proposing the dismissal of the third respondent and the reason for rejecting each of the considered alternatives. The appellant had a duty to take substantive steps, on its own initiative, to inter alia mitigate the adverse affects of the dismissal and to take appropriate measures to avoid the dismissal.	

[24]	It is clear from section 189 (3) (b) that the appellant had a duty to disclose to the third respondent all the alternatives to dismissal that it considered. It is therefore the appellant that sets the initial agenda for the consultations. That agenda should be bona fide and contain the necessary information in order to ensure that the parties engage in a join consensus-seeking consultation process. 	

[25]	In Kotze v Rebel Discount Liquor Group (Pty) Ltd this court dealt with a matter that had a similar factual basis. Mogoeng AJA, as he then was, stated the legal position as follows: “The correct legal position is that alternatives must still be disclosed even if the employer believes that they are likely to be rejected (see Eyre v Hough t/a Miller Eyre Travel (1999) 20 ILJ 1047 (LC) at 1052-3). This position holds even if the employer believes that the employee’s fate is sealed and that such consultation would be fruitless. After all the no difference rule is not part of our law (see Whall v Brandadd Marketing (Pty) Ltd (1999) 20 ILJ 1314 (LC) at 1321 A-B). Had the respondent approached the appellant with an open mind, the alternative would have been raised and seriously considered. Instead of disclosing and consulting on the alternative to the appellant’s retrenchment, the respondent was overzealous to reach an agreement on the retrenchment package. This is a wrong and undesirable procedure (Vickers v Aquahydro Projects (Pty) Ltd (1999) 20 ILJ 1308 (LC) at 1312A-C; Bank of Lisbon International v Pinheiro (1998) 19 ILJ 549 (LAC) at 553E-F). Logically, alternatives to retrench should be discussed before the terms of the retrenchment package (Pinheiro at 554C). Only when retrenchment is accepted or when consultation has taken place but no agreement can be reached may the package be discussed. ”       

[26]	It is common cause that there was a commercial rationale behind the restructuring and making the third respondent’s position redundant. Macleod also accepted that the decision to do away with the position was a pure business decision. Crown’s evidence in relation to the finances of the appellant was also not challenged. I am satisfied that there was a commercial rationale to restructure the appellant.

[27]	Ferreira’s evidence that Gordon informed him that there might be a position of a voucher clerk that could be offered to the third respondent but she doubted whether the third respondent would accept it is uncontroverted. Gordon did not testify. The third respondent was neither informed that she was considered for that position nor was she given any reason why she was not offered the position. The third respondent testified that she would have taken an alternative position had it been offered to her on a half day basis.

[28]	The commissioner correctly found that alternative positions were not discussed during the consultations. Ferreira testified that he did not discuss alternative positions with Macleod because he and Macleod understood the notice and he (Macleod) just wanted to discuss a retrenchment package.

[29]	Mr Snyman argued that both parties had an equal duty to engage in the joint consensus seeking process. He stated that, if the employee refused to consult on an issue the employer is entitled to accept such and not deal with the issue. I agree that both parties have a duty to consult bona fide in order to seek joint consensus. I will, for purposes of this judgment, accept that if one party unreasonably and with full knowledge of the facts and consequences refuses to consult on a particular issue the other party may accept such refusal and deal with other issues. In this matter, Macleod could not refuse to consult on the issue because firstly the subject was not broached by Ferreira or Gordon and secondly, because he was not aware of the possibility of an alternative position. Although both parties have a duty to consider alternatives to dismissal, the employer must initiate the search for alternatives and, most importantly, the employer bears the onus to prove on a balance of probabilities that the dismissal, as a last resort, was fair.

[30]	I agree with the commissioner and the court a quo that Macleod could not have waived the right to discuss alternatives because the appellant did not prove that he was aware of the right. There is no evidence that Macleod knew about the possibility of an alternative position and what the legal consequences would be if he waived the third respondent’s right to consult about it.  The appellant failed to establish that Macleod, with full knowledge of the third respondent’s right decided to abandon it, expressly or by conduct inconsistent with an intention to enforce it.

[31] Ferreira as an experienced labour consultant ought to have known firstly, that he must include the alternatives considered and the reason for their rejection in the notice. Secondly, he ought to have known that alternatives to avoid the dismissal must be discussed during the consultation. In fact, his omission to mention the alternatives considered in the notice and his subsequent omission to discuss it with Macleod, in my view lead to the ineluctable inference that there was never an intention to mention the possibility of an alternative position to the third respondent. Ferreira testified that there was no specific reason for not mentioning alternatives in the notice. This fortifies the inference.

[32]	Although Macleod presented himself as a knowledgeable and experienced businessman. Ferreira should still have informed him about the possibility of an alternative that could be offered to the third respondent. Macleod’s arrogant know-it-all attitude probably lulled Ferreira into not discussing the alternative position but that is cold comfort to the third respondent - who was ultimately dismissed. The failure of the appellant to consult with the third respondent on a known but undisclosed alternative allows for the possibility that she might have accepted the alternative in order to retain her employment. If she accepted the appointment then she would not have been dismissed. This renders her dismissal both procedurally and substantively unfair. 

[33]	Mr Snyman argued that the compensation awarded by the commissioner is excessive in light of the fact that the third respondent as represented by Macleod did not approach the consultation with clean hands. He further argued that the commissioner did not exercise his discretion properly and lawfully. He could not point to anything on record in support of his contention.

[34]	The commissioner said the following with regard to compensation:
           “As the applicant’s dismissal was both procedurally and substantively unfair she is entitled to compensation. If she had been offered an alternative job by the respondent and had accepted it she would not have been entitled to the notice pay, leave pay and the severance pay she received. This amounted to R 60 371.40. She received a salary of R 12 300 per month when she was dismissed so she effetely received about 5 months’ salary when she left. She was a loyal employee of the respondent for about 10 years and was unemployed for about 11 months. In the circumstances it would be equitable for her to receive maximum compensation i.e. 12 months less 5 months = 7 months compensation.”

[35]	The determination of compensation is discretionary. The commissioner must exercise his/her discretion according to the dictates of fairness. The court will not lightly interfere with the exercise of that discretion.  The court may interfere with an award of compensation on review or appeal if such award is sufficiently disproportionate to that the court would itself have made.

[36] 	As stated above Mr Snyman could not point us to any misdirection that the commissioner committed in awarding the compensation. It is clear that the commissioner did not use his discretion capriciously or upon a wrong principle. He applied his mind properly and considered all the factors to be considered before making the award. I am of the view that the compensation is not sufficiently disproportionate as to warrant interference. The third respondent’s length of service is indeed an important consideration. It has been said that:
	 “the employment relationship gives rise to a mutual duty to loyalty. The longer the relationship the greater the duty. And of course loyalty ought to result in treatment infused with kindness, consideration and concern. It seems to me to follow that the shorter the employment relationship the less the bond of loyalty. Thus a relatively short employment relationship renders the breach of section 189 less serious (that) it would otherwise have been.”

[37]	I agree with the above statement. In this matter the third respondent loyally and diligently worked herself up from a person making tea and attending to faxes to the position of General Manager. The appellant is a relatively small business with a staff compliment of seven employees and the third respondent worked for it for 10 years. When the time came for the appellant to treat her with the necessary kindness and consideration by offering her an alternative position, it did not do so. I can not fault the commissioner’s reasoning and award. The appeal ought to be dismissed.

[38]	When this appeal was lodged Bracks N.O and Another v Rand Water and Another supra was not yet decided by this Court. There were therefore two conflicting decisions on the interpretation of section191 (12) of the LRA. It was in the interest of justice that clarity be sought. The dictates of fairness and the law require that no order as to the costs of this appeal be made.

	ORDER

[39]	I therefore make the following order:
	(a) The appeal is dismissed.
	(b)  No order as to costs is made.

______________  
C.J. MUSI AJA
I agree.

______________   
TLALETSI JA
 
Appearances.

For the Appellants:	Mr Snyman
        Instructed by:	Snyman Attorneys

For the Third Respondent:	Mr AJ Nel
		  Instructed by:	Dean Caro and Associates

In the Labour Appeal Court of South Africa
Held at Johannesburg
Case no: JA 7/09
In the matter between:

Scheme Data Service (Pty) Ltd					  Appellant

and

E Myhill N.O						    1st Respondent

The Commisioner for Conciliation 			    2nd  Respondent 
Mediation and Arbitration

G. Simpson							    3rd Respondent

Judgment

Waglay DJP

[1]    	I have had the pleasure of reading the judgment prepared by Musi AJA in this matter. I agree that the failure by the appellant to inform the employee, whose position had become redundant, that she could be accommodated in another position, that was available, rendered her dismissal both substantively and procedurally unfair. I, however, believe that the compensation award made by the arbitrator is excessive in the circumstances and therefore open to interference by this Court.

[2]   	 I accept that the arbitrator or the Labour Court( sitting as a court of first instance) exercises a discretion when awarding compensation in terms of s194(1) of the LRA and that a Court of Appeal cannot interfere with the compensation award simply because, on the facts of the matter, it would come to a different conclusion. The Court of Appeal can only interfere with an exercise of a discretion when:
     “the lower court had not exercised its discretion judicially, or that it had been influenced by wrong principles or a misdirection on the facts, or that it had reached a decision which in the result could not reasonably have been made by a court properly directing itself to all relevant facts and principles.”[1]

[3]    	In this matter, in exercising its discretion, as to the amount of compensation it should award, the arbitrator only took into account the 10 years of loyal service rendered by the third respondent and the 11 months that she was unemployed after being dismissed. These were not the only two factors that were before the arbitrator. In order to exercise a discretion properly the arbitrator was required to consider “all the relevant facts and principles”. This in my view he failed to do. The arbitrator failed to consider the fact: (i) that the third respondent’s position had in fact become redundant; (ii) that while she held the position of a general manager earning R12300 a month the position she could have been offered was that of a clerk at a monthly salary of R5000.00; (iii) that the unemployment period of 11 months included the period when she may not have been in a position to take up any employment because she had just given birth. (iv) the appellant was a small business and the reason for the third respondent’s redundancy was the issue of affordability. 

[4]   	The failure by the arbitrator to take all of the above factors properly into account amounts, in my view, to a misdirection on the facts and the Labour Court should have interfere and set aside the award in respect of the compensation awarded by the arbitrator. Having regard to the facts recorded above, I believe, that the amount of compensation that should have been awarded to the third respondent is the sum of R 36 900,00 being the equivalent of 3 months salary at the rate she earned at the time of her dismissal and that is the amount which should be substituted for the amount awarded by the arbitrator.

[5]   	With regard to costs I believe that it is just an equitable that there is no order in respect of costs both in the Labour Court and in this appeal.

[6]     In the result I make the following order:

(a)   The appeal succeeds and the order of the Labour Court is set aside and replaced with the following order:         
(i)	That the award of the First Respondent under CCMA case no. GA 37354-03 dated 1 June 2006 is confirmed with respect to the finding that the dismissal of the third respondent was substantively and procedurally unfair.
(ii)	 That the compensation awarded in terms of the aforesaid award is set aside and replaced with the following:
 “the employer party must pay the employee party the sum of R36 900,00 as compensation”.

(iii)	That there is no order as to costs.

(b)	     There is no order as to costs in this appeal.

_____________________
Waglay DJP