De Villiers v Superunion (Pty) Limited (JS1011/18) [2021] ZALCJHB 113 (27 May 2021)

IN THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG

Not Reportable

Case no: JS1011/18

In the matter between:

DOUGLASS

DE

VILLIERS Applicant

And

SUPERUNION (PTY) LIMITED

Respondent

Heard: 22-24 February 2021 and heads of argument submitted 5 March 2021

Delivered: 27 May 2021

Date delivered: This judgment was handed down electronically by circulation to the parties’ representatives by email and release to SAFLII. The date and time for hand-down is deemed to be 27 May 2021.

Summary: Retrenchment – alleged unfair dismissal – Whether reason for retrenchment and procedure followed fair or whether respondent used a stratagem

JUDGMENT

COETZEE, AJ

Introduction

[1] The parties conducted the trial on a virtual platform in accordance with Directive No: LC 01/2021.

[2] The parties led evidence from 22 – 24 February 2021 and furnished the Court with written heads of argument. The applicant filed heads by Friday 26 February 2021 and the respondent filed heads by 5 March 2021. The applicant indicated that it was not necessary to file a reply.

The facts

[3] The respondent terminated the employment of the applicant on 30 September 2018 for operational reasons. The applicant disputed the fairness of the termination contending that it was both substantively and procedurally unfair.

[4] The respondent presented the evidence of Ms Kanja Langenhoven, an Industrial Relations Team Leader from Labournet and Mr Mathew Weiss, the managing director of the respondent at the time. The applicant testified and both parties introduced documentary evidence in the form of a bundle.

[5] During 2016 the applicant and Mr Weiss (Weiss) entered into negotiations that continued into 2017. The applicant at the time was a shareholder and the managing director of Intergroup (Pty) Limited (Intergroup). During this time and all relevant times, Mr Weiss was and is the managing director of Brand Union (Pty) Limited (Brand).

[6] Intergroup and Brand were in competition. The initial purpose of the discussions was for Brand to acquire Intergroup. Brand's strategy with the expansion was to increase its turnover in new business by approximately 75% in 2018. The applicant claimed vast experience and expertise in creating new business especially in the Africa market where Brand lacked market share.

[7] The applicant in the trial claimed that Weiss at the time valued Intergroup at R30 million. Weiss disputed this and he was not convinced the business was worth that amount and instead of acquiring the business, the discussions resulted in what the parties termed a "hire to acquire". This means Brand employed the applicant as Vice Chairman: Africa, responsible for new business in Africa. Brand also employed the applicant's team at Intergroup.

[8] Brand then changed its name to Superunion. The deal meant that the applicant and members of his team joined Superunion as employees and the Intergroup intellectual property and clients became that of Superunion. The intellectual property consists mainly of case studies and presentations to clients. The server of Intergroup moved across to Superunion with its contents.

[9] To compensate the applicant for the intellectual property and client base, Superunion agreed to pay the applicant R2.835 million per annum, almost double what Weiss as the most senior employee of Superunion earned.

[10] In addition, Superunion and the applicant entered into a sign-on bonus for the applicant worth R3 million subject to certain conditions as well as a generous sales commission scheme for new business generated by the applicant.

[11] The applicant commenced employment with the respondent on 1 December 2017 as Vice Chairman: Africa.

[12] The parties further agreed that Superunion would put in place a business team to assist the applicant with the new business development portfolio. The business team would consist of a new Company Chairman with appropriate Broad Based Black Economic Empowerment credentials, a new Business Director, a Marketing Manager, and another Managing Partner for the Johannesburg Office. Superunion also would make available existing strategy and creative team resources to assist the applicant.

[13] Superunion conducts its business from Cape Town and Johannesburg offices. Superunion reported to its head office in London. Superunion submitted to London provisional quarterly forecasts followed by forecasts and budgets in an ongoing process. The financial recording and reports show the financial position of the business as a whole and not by regional office.

[14] When the name change to Superunion occurred, the respondent commenced branding the new name. It marketed its new name with the existing clients and elsewhere in the market.

[15] From December 2017 to January 2018 Superunion combined the budgets of Brand Signs and Superunion into one combined Superunion budget. In the beginning of 2018, the consolidated budget was approximately R48 million revenue which was almost double of what Brand's budget for 2017 was.

[16] By June 2018 the revenue generated by the applicant in his portfolio amounted to R4 million. The budget, based on expectations of the new business portfolio, provided for more than R20 million for the full year from the new business. Weiss testified that by June 2018 one could have expected new business revenue of half of the budgeted amount. The R4 million contribution derived from existing clients of Brand Signs and no new revenue had in fact been generated by June 2018 from the Africa market.

[17] Superunion had a BEEE Level 1 certification until May 2016. The applicant upon dismissal received R708 750 in lieu of three months' notice and R47292.72 in respect of accrued leave, both amounts subject to tax deductions. The applicant took up employment with Deloitte during February 2019.

The procedure

[18] The respondent on 25 July 2018 informed the applicant that it was contemplating a possible retrenchment. It provided the applicant with a notice in terms of section 189(3) (the notice).

[19] In the notice the respondent set out the reason for the contemplated retrenchment. The respondent during 2017 embarked on a growth strategy which included resourcing for growth and expansion during the year 2018. However, by 25 July 2018 the actual revenue against its budgeted revenue was a great cause for concern given that its new business target then was R8 million behind budget. The latest 2018 forecast at the time showed a R5 million revenue deficit from the budget and the conversion of the pipeline at the time was in question. That resulted in the respondent having to review its investment strategy and operating costs to ensure that its bottom-line profit commitments are achieved.

[20] The notice further sets out that the respondent had performed a structural review to determine the viability of all the positions compared to the business forecast at the time. The respondent wished to consult with the applicant as the current role of Vice-Chairman had been identified as one that could potentially be affected and therefore may become redundant in an attempt to realise some cost savings. The respondent was looking at all proposals on how the situation could be avoided or its consequences minimised.

[21] The respondent invited the applicant to consult with it to explore all possibilities to mitigate and where possible, avoid the potential of the proposed redundancy The respondent wished to minimise the number of redundancies. The respondent had no viable alternatives to offer in Johannesburg or Cape Town region. The respondent wanted to consider any proposed alternatives tabled by the applicant during the consultation process and would include such alternatives during the consultations as points of discussion.

[22] The notice indicated that the roles of Vice Chairman and one of the two financial managers may be affected and that the positions themselves would form the selection criteria. The respondent intended the retrenchment process to be finalised by 10 August 2018 and severance pay would be in accordance with what is required in terms of the Basic Conditions of Employment Act[1] (BCEA). The applicant was invited to make written representations regarding the in-principle decision of the respondent to retrench. Weiss testified that in order to reduce staff the respondent had already during March 2018 retrenched three employees in the Cape Town office.

[23] On 25 July 2018, Weiss, and Mr Kamlan Pather, a representative from Labournet who assisted the respondent, consulted with the applicant when the 25 July 2018 notice was handed to him. They took the applicant through the contents of the notice and informed him that further consultations would follow. Weiss testified that the purpose of this meeting was to discuss the applicant's proposed alternatives and the respondent's response thereto, to ensure that the applicant understood the respondent's responses and to address any further issues the applicant may have pursuant to the responses. It was proposed at this meeting, that a further meeting be held on 2 August 2018, which meeting did not materialise.

[24] Following upon the consultation the applicant on several occasions requested further information for purposes of the consultation process.

[25] On 31 July 2018, Mr Keith McKay (McKay) of the respondent acknowledged receipt of the applicant's request for information and informed him that the respondent would need motivation from the respondent in order for it to evaluate the reasoning behind the information sought by him. Mackay requested the applicant to confirm his reasoning behind the request in order for the respondent to evaluate same.

[26] In response thereto, on 1 August 2018, the applicant addressed an email to McKay, advising him that information and documentation sought were relevant in light of the fact that the notice referred directly to the financial position of the company and it is for that reason that the financial information be made available in order to enable the applicant to consider properly and prepare the alternatives to his retrenchment as requested.

[27] On the same date the applicant's attorneys addressed a letter to Weiss reiterating his request for information and relevant documentation. In the letter of 1 August 2018, the attorneys recorded their concern regarding the respondent previously having indicated the timing to finalise the retrenchment process on 10 August 2018. They regarded that as unfair and not conducive to a meaningful consensus seeking consultation process. The consultation process eventually concluded on 25 September 2018.

[28] On 2 August 2018 the applicant accepted a meeting with Weiss set for 8 August 2018 pending receipt of the requested financial data due from McKay.

[29] The respondent replied to the applicant on 3 August 2018 pursuant to a request for information and provided the applicant with certain information/documentation.

[30] On 6 August 2018 the applicant's attorneys of record sent a further letter to Weiss stating that the applicant had been unable to properly participate in a meaningful consultation process due to the company's failure and/or refusal to provide him with the required information. The respondent on 6 August 2018 replied and provided the applicant with further information.

[31] The applicant again requested further information on 7 August 2018. The respondent on 7 August 2018 replied and provided further information. The respondent specifically asked the applicant to confirm whether the information provided was what he requested or whether he required anything else.

[32] This was followed on 8 August 2018 with an email from Weiss to the applicant informing the applicant that the respondent did not keep the information he had requested in the format requested by the applicant. The applicant wanted information as per individual employee and the respondent replied that the information sought was available only at client level in the form of chargeable time. Weiss further informed the applicant that the respondent did not believe that the level of detail requested by him to be relevant and that the section 189 process is " … about the future not the past and the operational restructure [they] are considering is based on future revenue and profitability and not historic performance." Weiss also offered that the applicant could explain in the meeting what it is he wanted to prove and then maybe the parties could work together to come to a solution. Weiss further explained that the information provided and the client profitability sheet already provided to him should be sufficient for purposes of engaging in the consultation process. Weiss proposed the meeting to be scheduled on 13, 20 or 22 August 2018.

[33] The applicant responded on 10 August 2018 advising that the dates proposed by Weiss did not allow him sufficient time to prepare. The applicant did not mention that he was going on leave from 10 August 2018.

[34] On 10 August 2018 Ms Kanja Langenhoven, an Industrial Relations Team Leader of Labournet, representing the respondent, informed the applicant's attorneys and Weiss that the process would proceed on Monday, 13 August 2018 with what she called a second consultation. On 12 August 2018 the applicant responded and advised that he was unable to meet on any of the proposed dates proposed by Weiss as he was already on annual leave and that he would only be back in Johannesburg on 27 August 2018. The applicant, in cross-examination, was unable to explain why he failed to advise of his annual leave commencing 10 August 2018 in his email of 10 August 2018 but instead chose to state that he did not have sufficient time to prepare for the meeting scheduled for 13, 20 and 22 August 2018.

[35] On 15 August 2018 Langenhoven in a further email to the applicant provided new dates for a consultation being 28 August 2018, 3 September, and 5 September 2018.

[36] On 17 August 2018 applicant's attorneys again forwarded a letter to Weiss informing Weiss that the applicant, notwithstanding numerous requests, had not received all the documentation and information requested to enable the applicant to meaningful participate in the consultation process. In the same letter the applicant denied that there existed a valid reason and/or fair reason for the proposed retrenchments and for him to be selected for retrenchment and alleged that the respondent had ulterior motives to retrench him. The applicant in this letter set out his proposed alternatives to retrenchment.

[37] Ms Langenhoven sent an email on 4 September 2018 to the applicant's attorneys responding to the proposed alternatives set out in the letter of 17 August 2018. She stated on behalf of the respondent that the respondent had provided all the necessary information and documentation as requested by the applicant and denied that the retrenchment process was merely a stratagem without any substance or that it was done with an ulterior motive as contended by the applicant. She denied that the respondent withheld any business support functions from the applicant or failed to provide him with any new business support contending that the applicant failed to obtain the necessary revenue targets entitling him to receive a sign-on bonus and/or commission. In summary the alternatives to retrenchment proposed by the applicant were not viable. She addressed each alternative proposed by the applicant.

[38] The applicant's attorneys in reply to the letter of 4 September 2018 recorded by letter that the outstanding documentation included amongst others the respondent’s current BBBEE certificate and its current BBBEE strategy as well as information requested in the spreadsheet sent on 8 August 2018. The letter further dealt with and replied to the response from the respondent to the alternatives proposed by the applicant especially pointing out that the respondent had made new appointments which have been approved by the respondent's head office. Also, that a recruitment process was underway at the time, and that the applicant was requested to assist in interviewing a candidate for potential appointment as recently as 30 August 2018. According to the letter in the circumstances it was clear and evident that the respondent was busy with a retrenchment process while recruiting for new appointments without offering the applicant or considering him for any of the new appointments.

[39] The second consultation meeting only occurred on 19 September 2018 as the applicant, amongst others, took his annual leave in August. This consultation meeting was held between the applicant, Weiss, McKay, and Ms Langenhoven. At this meeting, Langenhoven advised that the consultation process had been exhausted. The applicant suggested one further alternative to his retrenchment, being the bumping of the Johannesburg Managing Director, Ms Keshni Deacon. The respondent undertook to consider the alternative and to revert to the applicant.

[40] The respondent on 19 September 2019 provided the applicant's attorneys of record with the relevant information regarding the position of the Johannesburg Managing Director and invited the applicant to consider bumping Ms Keshni Deacon as an alternative to retrenchment.

[41] On 20 September 2018 the applicant's attorneys by email informed Ms Langenhoven and the respondent reiterating the proposed bumping of the current Cape Town Managing Director (which the respondent had already declined) and that the applicant would accept the bumping of Ms Keshni Deacon provided that certain terms and conditions of his contract of employment be retained, such as the global bonus scheme, the sign-on bonus and the sales commission agreement. He would agree to the then salary of Ms Deacon of R82,000 per month.

[42] The respondent informed the applicant on 21 September 2018 that he could take up the position of Ms Deacon on the same terms and conditions applicable to her appointment. He was not prepared to do so and rejected the alternative position on those conditions.

[43] Ms Langenhoven on 25 September 2018 advised the applicant that there were no more alternatives proposed or considered and contended that all the points have been addressed during the consultation process. The company would therefore proceed to conclude the section 189 process whereupon the respondent terminated the applicant's services with effect 30 September 2018.

The applicant recorded the following issues for the Court to determine

[44] Whether the respondent provided the applicant with sufficient information to participate in a joint consensus seeking consultation process fairly and meaningfully in an attempt to reach consensus on the appropriate measures to avoid his retrenchment, the selection criteria and method for selecting him to be retrenched.

[45] Whether there was in general a valid reason for the retrenchment; whether there was a valid and/or fair reason to retrench applicant or whether the respondent had an ulterior motive.

[46] In the final analysis whether the dismissal of the applicant by the respondent was substantively and procedurally fair.

The information

[47] The applicant's main contention with regard to the lack of fairness of the procedure is that the respondent failed to provide the applicant with sufficient information to participate in a joint consensus seeking consultation process.

[48] Firstly, the applicant contends that when the section 189 notice was handed to the applicant the company had already, as recorded in the notice, conducted a review of its investment strategy and operational costs which the applicant was not a party to. The respondent, accordingly, did not when it handed the notice to the respondent, provide the applicant with the information it used to conduct a review of its strategy and operational costs when it reached its conclusions.

[49] Secondly, by that time the respondent had performed a structural review to determine the viability of all the positions within the company as compared to the current business forecasts, but the respondent did not provide the applicant with the criteria or information which it used and the outcome of this viability review of each and every one of the 35 employees employed by the respondent at the time. The applicant maintains that at no stage during the consultation process did the respondent provide the applicant with this information.

[50] Thirdly, the respondent had considered whether or not it had any viable alternatives to offer the applicant in the Johannesburg or Cape Town region but the respondent also did not provide the applicant with any information regarding the alternatives considered, if any, and why these alternatives were found not to be viable. Again, the applicant maintains that at no stage during the consultation process did the respondent provide the applicant with this information.

[51] According to the applicant the respondent relied upon the financial information reflected on pages 225 – 231 of the bundle of documents in arriving at a decision to contemplate retrenchment and to make the position of the applicant redundant. The information on these pages were only provided to the applicant for purposes of the trial. This information, according to the applicant, was not provided to the applicant at any stage prior to his retrenchment.

[52] Further, it was only after the applicant and his attorneys repeatedly requested information and documentation that the respondent eventually provided him with some, but not all, of the information which he had requested. The applicant required this information to equip him to meaningfully participate in the process especially insofar as challenging the decision to retrench him, the selection criteria as well as considering and proposing alternatives to retrenchment.

[53] The applicant also contended that having regard to the financial information provided, it was evident that the company considered and reported on its profitability as a single entity and did not split the information between the Johannesburg office and the Cape Town office. The lack of such accurate information in respect of each office deprived the applicant of supporting his proposal that the respondent closed its Cape Town office.

[54] Further the financial information regarding the revenue split between the two offices was inaccurate and thus unreliable. In some cases, work was done by both offices in respect of certain clients while the entire revenue had been allocated exclusively to for instance the Cape Town office while the overhead costs were not. That, according to the applicant, presented a much more profitable Cape Town office that it in fact was.

[55] In this regard, according to the applicant, the profit and loss statement arbitrarily also split the costs between the Johannesburg office and the Cape Town office on the basis of 2/3 to Johannesburg and 1/3 to the Cape Town office.

[56] The lack of reliable information, according to the applicant, prompted the applicant to insist upon detailed information in respect of the profitability of each one of the 35 employees to determine their profitability in respect of clients and projects. The respondent did not do so.

[57] It is contended that the lack of information on the revenue and costs split, rendered the whole procedure unfair. Weiss conceded that the detailed information could be obtained from the accounting system if needed be, but he regarded the information as irrelevant. The information was not readily available in the format the applicant wanted it as the respondent reported its financial position on the basis of it being one entity.

[58] A further submission is that there was a lack of information sharing in that the information concerning subcontractors or bonuses paid to employees during the relevant period were not disclosed to him.

[59] The applicant disputed that the respondent could rely upon the seniority and the position of the applicant in providing information that the applicant was aware of. In this instance the financial position of the company.

[60] The respondent in this regard referred to the following extract from Van Rensburg v Austen Safe Company[2] that a court should be

" … cautious when evaluating procedural fairness … in respect of Directors and Managers. An unduly formalistic approach to section 189 may lead to abuse of the consultation process. A Director who has more inside information … than an ordinary employee is in a better position to demand information in a manner calculated to delay the process or exert power, rather than to resolve issues.[3]"

[61] In evidence the applicant conceded that he was the highest-paid individual and a senior employee and as a consequence of that position had access to information about the respondent's business.

[62] The applicant, under cross-examination, was unable to provide any reasoning to support his allegation that he was not in a position to participate in a meaningful consultation process for lack of information. The respondent submits that much of the information requested by the applicant during the consultation process, not provided during that process, was provided to the applicant prior to commencement of the trial proceedings. The applicant was unable to show how that information would have assisted the applicant in the consultation process. The additional information that he received prior to the trial did not assist him during the trial in formulating an additional alternative to retrenchment based on that information.

[63] The respondent contends that the information sought by the applicant during the consultation process was in fact provided to him but not in the format that he requested the information. The respondent provided the applicant with the BBBEE information pointing out that it was available on its server and provided the applicant with the cost of the freelancers and the basis upon which the services were utilised. The respondent also provided the applicant with a detailed explanation in respect of the increases it paid to employees. This was during the consultation process.

[64] As to the information regarding the revenue generated by each individual employee in respect of each of the respondent's clients, and in the form of a spreadsheet prepared by the applicant for the respondent to complete, McKay replied that the full details of all people by department read with the profit and loss statement would enable the applicant to do the required calculations.

[65] As to the applicant's request that all the information be provided so as to reflect the data for the Johannesburg and Cape Town offices separately, Weiss testified that the respondent's revenue split by office was provided to the applicant as an attachment to McKay's email of 3 August 2018. As regards the profitability of the respondent's offices this information was also provided and detailed in the profit and loss sheet. The client profitability that the applicant requested was provided to him in a spreadsheet illustrating how profitable the frontlines were, based on the allocation of staff time to those clients as well as the proportion of the respondent's overhead cost allocated to those clients. The respondent also provided the staff profitability by individual. Weiss explained in his evidence with reference to Bruce Gourley, one of the Cape Town employees, as an example, and explained that he spent a total of 828 hours from January to June and that he spent 91% of his total working time and 63% of the time was charged to clients and the rest was non-chargeable time. Bruce Gourley generated R722 830 worth of revenue which was approximately R100 000 behind the target revenue for that individual. This held true also for other Cape Town employees such as Jacqui Richards and James Boulton. They were profitable resources and the time could be charged to a client and revenue could be generated. According to Weiss even though they did not meet their individual targets, they may have still been profitable and/or may have contributed to the respondent's revenue which the new business unit headed by the applicant could not do.

[66] Weiss also testified that the respondent provided the applicant with a spreadsheet detailing the contribution of client service individuals to show how much revenue they generated on a client. Linda Cole for instance generated 833 from Old Mutual of the budgeted total of 3441. The information on the spreadsheet provided to the applicant was specifically created on the applicant's request and this was not the normal way that the respondent reported on this aspect of its financials.

[67] Further, the respondent provided the applicant with the full details of all employees by department and advised that this information read together with the profit and loss sheet, would enable the applicant to conduct the calculations in respect of the viability of the Cape Town office. According to Weiss this document was the quarter 3 forecast. The reason that the applicant's name was not included in this forecast with effect from September 2018 was to show the scenario and the effect on the finances of the respondent in the event that the applicant was to be retrenched. There was nothing sinister about this and it cannot be interpreted that the respondent had by that time already taken a final decision to retrench the applicant. It was merely a budget exercise. In addition, the budget was not withheld from the applicant but openly disclosed to him during the consultation process.

[68] The applicant contended that the information on pages 225 – 230 of the bundle was available to the respondent but not provided to the applicant until before the trial. The respondent disputed that the information was not provided during the consultation process. Weiss testified that the information on page 228 is the same as page 43A (which was provided to the applicant). Page 43 A in fact contained more information specifically in relation to the split costs between the Cape Town and Johannesburg offices that the applicant requested.

[69] Also, page 230 shows the same information as page 27 (that was provided to the applicant) and page 27 shows the split costs between Cape Town and Johannesburg as requested by the applicant and page 230 sets out the monthly amounts. In addition, pages 230 and 27 are updated versions of page 229 as page 229 reflects the quarter 1 budget while pages 230 and 27 reflect the updated quarter 2 budget of the respondent.

[70] Page 228 reflected the actual profit and loss while pages 252 -227 showed the budgeted profit and losses of the respondent for 2018.

[71] The respondent conceded that the information on page 231 of the bundle was not provided to the applicant as this sheet was prepared by the head office in London and shows that the respondent had been running at an operating loss.

[72] In respect of the Excel spreadsheet prepared by the applicant when he requested further information and in a specific format for the information, Weiss testified that the spreadsheet required the information of staff costs by client. The respondent did not complete the spreadsheet as that information had already been supplied to the applicant and sufficiently demonstrated the aspects he required and allowed him to draw the necessary conclusions therefrom. It was clear from the information already provided which employees and which part of the business contributed to the respondent's revenue. For Weiss it was not important whether an employee was profitable by client but what was important was whether an employee was profitable in general and what revenue they contributed. Page 29 showed the profitability rate of employees as well as whether those employees were generating revenue and therefore contributing to the business or not. According to Weiss the staff profitability overall was provided to the applicant and that was sufficient information.

[73] In this regard, Weiss testified that the data provided to the applicant clearly indicated why the respondent contemplated retrenchments, namely that there was no new business coming in and the new business function was accordingly financially unsustainable. In his view the unsustainability of the new business function was what needed to be consulted on and not the ancillary issues raised by the applicant. The applicant however persisted in attempting to address other issues relating to the profitability of each individual in circumstances where it was obvious that the revenue was converted in the existing client side of the business and no revenue was converted in the new business function.

[74] The applicant challenged the accuracy of the financial information allocation between the Johannesburg and Cape Town offices in support of his proposal that the Cape Town office be closed. In this regard Weiss explained that the respondent did not conduct the level of analysis that the applicant requested as the respondent did not deem it an accurate or useful way of evaluating the business. The respondent nevertheless provided the applicant with sufficient information relating to the split between Johannesburg and Cape Town.

[75] Weiss conceded that the allocation was not always in an exact form, but it was done on a quid pro quo basis. Sometimes Johannesburg employees worked on Cape Town clients, but the profit was allocated to Cape Town as the client relationship was with one of the Cape Town employees and vice versa.

[76] The two offices were part of one business and it was therefore extremely difficult to split the profit. The allocation of profit was essentially based upon where the client relationship lies. For example, if the client relationship existed with a Johannesburg employee, the profit allocation in respect of that client would go to Johannesburg despite the fact that Cape Town employees may have worked on a project for that client. When it was put to Weiss that the applicant would not have had knowledge of the client relationships and would therefore not have been able to utilise the information in a sufficient manner to contribute meaningfully, Weiss replied that the applicant was well aware of all of the client relationships, which employees held those relationships and how the relationships were structured. Weiss repeated that the real issue was that overall, the business was not generating any revenue in the new business function. Therefore, it was not helpful to look at the details in respect of issues which were effectively irrelevant in respect of that part of the business that was generating the only revenue.

[77] Weiss testified further that although the allocated profit numbers between Cape Town and Johannesburg were not hundred percent accurate of which employees worked on which clients, the numbers were still a good indication of where and by which employees the revenue was generated. Jacqui Richards, for example, was essential to the relationship between the respondent and Standard Bank. She moved to Cape Town, but Standard Bank requested to work with her specifically. Accordingly, whilst Standard Bank is a Johannesburg-based client, the relationship existed in Cape Town and the revenue would be allocated to Cape Town.

[78] According to Weiss, Old mutual was the second-largest client and although Cape Town employees did work for Old Mutual, all the revenue was attributed to Johannesburg. While there may have been inaccuracies these applied to both Johannesburg and Cape Town. The differences in profitability or revenue attributed to one office and not the other caused small and insignificant variances compared to the lack of revenue from the new business function.

[79] In summary the respondent contended that sufficient information relevant to the issues for consultation had been provided to the applicant.

Analysis of the procedural aspects

[80] The applicant's main contention is that the respondent did not provide the applicant with sufficient information to meaningful consult.

[81] The applicant joined the respondent in a senior position. His former business contributed to almost half of the budgeted revenue for 2018. It is conceivable that he must have had information of the financial performance of the respondent in respect of 2018. He could not have been in any doubt as to the performance, or lack thereof, of his section. He also had knowledge of at least some of the client relationships in the business.

[82] The respondent motivated the proposed retrenchment, and his selection for retrenchment with one of the financial managers in the Cape Town office, primarily on a change in the strategy of the respondent. While the strategy during 2016 and 2017 was to boost new income, and more specifically from the Africa market, the financials by July 2018 reflected that the strategy was not working. While the respondent has appointed the applicant and his team at great cost, it received no return on that investment. There was no new business revenue. Generally, it also meant that the business was heading for losses.

[83] The respondent had already in March 2018 tried to cut costs by retrenching employees from the Cape Town offices.

[84] In retrenching the Vice Chairman, it would mean a saving of R2.835m and the rest of the applicant's team could focus on generating revenue from existing clients.

[85] The applicant directed his focus on closing the Cape Town office or combining senior positions and retrenching senior employees so that he could retain his position. He was quite entitled to ask for information to support his views. The information he requested in the main was provided to him, albeit not in the format he requested the information.

[86] He made his proposals as to alternatives and the respondent dealt with those. In the end he had sufficient information to make and motivate his proposals. The information on the profitability of every employee with regard to each client could not be helpful as the client relationships overlap by office and by retrenching employees who contributed to the revenue stream would have been to the detriment of the respondent's business as the revenue relied upon client relationships.

[87] The information provided afforded him a good picture of the financial position of the business and where costs could be reduced. He had available the totals from the profit and loss account and detail in respect of other aspects.

[88] The true problem was in respect of the costs associated with the generation of new business from primarily Africa and the lack of any revenue by July 2018.

[89] The fact that with information the applicant received for purposes of trial he contended he did not have during the consultations, he was unable to suggest any further alternative or show that it was feasible to close the Cape Town office of retrench other senior employees (such as Weiss). In the end the financial information he submitted was not given to him, was either given or was subordinate to the more important considerations of client relationships and generating income from existing clients.

[90] I find that the respondent provided the applicant with the necessary information he requested. Consequently, the procedure was fair.

Analysis: Was there in general a valid reason for the retrenchment

[91] The respondent submitted that the alternatives proposed by the applicant all related to the viability of the Cape Town office and the revenue generated from existing clients as opposed to new revenue from new business. These alternatives such as to close the Cape Town office were to disrupt that part of the business which was generating income by closing profitable offices, retrenching cleaners and drivers and people with client relationships and those who had longer service than him.

[92] The applicant proposed closing down the Cape Town office, retrenching Weiss instead of the applicant and retrenching all the Cape Town employees and terminating the services of freelancers. The respondent deemed those without any operational basis. He conceded that there was a need to cut costs. He, however, proposed that he should have been given Weiss' position and that Weiss should have been retrenched instead of him. What is important is that according to his proposal he should have taken over Weiss' position on the applicant's existing terms and conditions of employment. The applicant earned double the remuneration of that of Weiss and a saving would have been limited. In addition, the proposal had no regard to the client relationships of Weiss generating revenue.

[93] The applicant joined the respondent as part of a strategic decision to expand the respondent's business. When the respondent issued the notice after approximately 8 months all that happened was that the respondent was saddled with additional costs and no revenue or any expected revenue for the rest of the financial year. The respondent's employees generated revenue from the existing clients. The applicant proposed a closure of part of the revenue generating business without offering any solution to the lack of income from new business. The strategic decision to the focus on generating revenue from the existing clients on this basis seemed a sound one.

[94] The respondent had reason to be concerned. It became evident that it may lose almost half of its budgeted income for 2018 while carrying increased costs to sustain the new business operation. A previous attempt during March 2018 to cut costs did not solve the real problem, that of no revenue from new business, the expertise of the applicant.

[95] There existed a valid general reason for retrenchments.

Was there a valid and/or fair reason to retrench the applicant or did the company have an ulterior motive

[96] The function of the court in scrutinising the consultation process is to pass judgement on whether the ultimate decision arrived at was genuine and not merely a sham. The court in BMD Knitting Mills (Pty) Ltd v SACTWU[4] obiter suggested the following approach that the Court should adopt:

"The word 'fair' introduces a comparator … . The starting point is whether there is a commercial rationale for the decision. But, rather than take such justification at face value, a court is entitled to examine whether the particular decision has been taken in a manner which is also fair to the employees to be retrenched. To this extent the court is entitled to enquire as to whether a reasonable basis exists on which the decision is predicated. Viewed accordingly, the test becomes less deferential and the court is entitled to examine the content of the reasons given by the employer, albeit that the enquiry is not directed to whether the reason offered is the one which would have been chosen by the court. Fairness, not correctness is the mandated test."

[97] The applicant submitted that the respondent placed insufficient evidence before Court to reasonably justify the conclusion that the company has discharged the onus to prove that a revision of its investment was justified. Also, that pursuant to a structural review to determine the viability of all the positions when compared to the current business forecast it could justifiably identify the applicant's position that could be affected by its attempt to realise some cost savings. In essence the respondent took a commercial decision to no longer employ the vice chairman responsible for new business to save costs and rather focus on "farming" business from existing clients. According to the applicant the Court must examine whether this particular decision has been taken in a manner which is also fair to the applicant that was ultimately retrenched.

[98] The applicant disputes that it was a rational commercial or operational decision because in respect of new business it was common cause that the applicant brought in with the new business worth in excess of some R4 million. Secondly the respondent on an ongoing basis delayed and failed to provide the anticipated and planned new business support functions and to obtain a BBBEE level I certification. The third reason why it was irrational was because of the inaccurate financial information regarding the Cape Town office. For these reasons it was not an irrational commercial decision for operational requirements.

Analysis of the reason to retrench the applicant and the submission that it was a stratagem

[99] The respondent disputes the applicant's contention alleging that there was a valid and fair reason to retrench the applicant. I agree that it was not necessary or relevant for the respondent to look at each individual employee and its profitability when contemplating retrenchments in this matter. The applicant also requested that the profitability of each employee be attributed to a client in order to determine the viability of the Cape Town office. This would not have been possible or appropriate and the profitability or contribution of example the driver and the cleaner in the Cape Town office would not have been analysed and was not necessary to evaluate the duties and functions of each one of the 35 employees in determining the viability of the business as one entity or that of the Cape Town office.

[100] The consolidated revenue target, or the budget, at the beginning of 2018 was R48.234m, a significant increase from 2017. This included the revenue targets for the applicant's business upon joining the respondent and the respondent's budget. For that reason, it was not necessary to consider any other employee for retrenchment as the income generating fee earners all contributed to the revenue except for the new business function. The budgeted amount for new business was R16 312 000. By March no new business had been converted and the full budgeted amount was left for later in the year. The respondent could not afford to push out the new business target for later in the year without any prospect of income from that function. The figures showed that the respondent was making an operating loss for the majority of 2018.

[101] In summary, by July 2018 it was clear that the company was making a loss, but it had already during March 2018 retrenched employees in the Cape Town office and there was, according to Weiss, and objectively, no prospect of any new business being generated by the new business function headed by the applicant. In addition, the applicant's remuneration was double that of any other senior employee and that had a serious cost implication for the respondent.

[102] It is the applicant's case that the respondent employed a stratagem to acquire his business, to eliminate his opposition in the market, and then to dismiss him. This the respondent disputes.

[103] The respondent took the applicant and his team in good faith and in the belief that both parties would profit from the relationship. In reality, the applicant's business had collapsed inside the respondent's business and cost the respondent's business a lot more than the benefit gained from the relationship. Instead of deriving a benefit respondent regarded the reality, in the words of Weiss, as an "unmitigated disaster". The respondent was left bearing the cost of the applicant's employees but could reallocate those employees to the respondent's existing clients as there were no clients left from the applicant's business by July 2018. The R4 million for work done on the applicant's clients was still outstanding as the applicant never paid that to the respondent. The intellectual property of the applicant was barely used even while the applicant was still employed by the respondent they were often not used at all. Weiss testified that the intellectual property could mainly have been used in a new business function and if the respondent had benefited substantially from it, it would have converted into new business, which did not happen. The applicant removed the server with all the intellectual property when retrenched.

[104] A further reason that it was not a stratagem, was that the new business was forecast to generate R23 million. By June 2018 it was reasonably expected that approximately half of that forecast would have been made. What was in fact generated, was in respect of existing business brought with it by applicant and it was not new business. The R4 million had to be written off in any event. According to Weiss this was the main reason why the respondent had to close business by December 2019. On the facts the business was in trouble. If it were to be a stratagem to remove the applicant from the market the result was that the respondent removed itself also from that market when it had to close down.

[105] The applicant contended that he should not have been retrenched as the respondent failed to provide the anticipated support for the new business. This was part of the stratagem to eventually remove him. Weiss conceded that the applicant did not have all the support anticipated but testified that he did have support in the form of Weiss, that of a marketing manager for the entire period and the support of the strategy and creative teams and that in any event it was at least expected that the new business function would have realised some revenue by July 2018. The applicant complained that his marketing manager worked in other parts of the business and was not exclusively available to him. Weiss testified that the marketing manager reported directly to the applicant and it was for the applicant to manage her time appropriately and that shows it was no stratagem on the part of the respondent.

[106] It is clear that Weiss wanted the applicant to succeed as it was Weiss' own reputation that was on the line as a person who brought the applicant into the business. Weiss made attempts to appoint a business development manager but an offer in this regard was declined. The applicant held interviews with two persons and made an offer to both of them. The first one declined an offer and the second person accepted the job and stayed for only three months. The respondent would not have made these efforts when it wanted the applicant to fail.

[107] As far as the BBEE 01 certification was concerned, the applicant was brought on board for his expertise in Africa where, as conceded by the applicant, the certification was not necessary or relevant. The applicant should have been able to source new business in Africa without the certification but failed to do so. The same applies to the appointment of a BBBEE chairman. It would not have assisted the applicant in Africa.

[108] The applicant submitted that the respondent did not give his proposals any bone fide or serious consideration and therefore he should not have been retrenched.

[109] In this regard the main alternative proposal was that instead of retrenching the applicant, the respondent should have closed down the Cape Town office. The respondent correctly did not wish to do so because it wished to minimise the effect of any retrenchments and also minimise the number of retrenchments. To close the Cape Town office, the respondent would have to retrench six employees instead of two. Also, the office was profitable and contributed to 40% of the respondent's revenue and the relationship of some of the respondent's most important and largest clients with Cape Town employees. Closing the Cape Town office would have destabilised the respondent's relationships with revenue generating clients. This would have been counter-productive. The applicant did not have a business relationship with any of those clients. While the applicant disputed that he had no relationships, he presented no evidence that he brought in any business from any of those clients. Where the applicant may have had relationships with some of those clients, none generated any revenue.

[110] The applicant also proposed that the respondent could have saved R3 million by combining the positions of the managing director (Weiss) and the two managing partners, one in Johannesburg and one in Cape Town. This, according to Weiss, would not make sense as at least one of the positions had to be kept and there would have been a maximum cost saving of R1.7m per annum if the two managing partners were removed. This remain significantly less than the remuneration of the applicant. Apart from that, the managing partners were billable resources and they were profitable as they had the client relationships. The applicant was not billable and not a profitable function given that there was no new business.

[111] Removing Weiss from the business was not a viable alternative as his past employment had been recognised pursuant to various transfers and other service records of approximately 18 years. This was accordingly significantly more than the applicant's years of service if LIFO was to be applied. Weiss had revenue generating relationships with the respondent's main clients while the applicant's business ran dry in respect of the existing clients and the new business function which did not succeed. Further, the London headquarters would not have agreed to it as they had a long-standing relationship with Weiss. A cost saving of only R600 000 would have been achieved if Weiss had been bumped to business unit director which is an insignificant saving in the circumstances. It would also have to be accompanied by the retrenchment of another employee which would not minimise the number of retrenchments. It is clear that the respondent considered this proposal and rejected it for a rational reason.

[112] The purpose was to minimise the number of retrenchments and to retrench another six to seven business administration resources was not in line with the purpose of the exercise. Their functions are essential to the running of the respondent's business and the salaries were small. They comprised of four finance employees, two cleaners, a driver and one HR employee. One of the finance employees was in fact affected by the retrenchment. The combined saving in retrenching them would have been of the order of one month's salary of the Vice Chairman position.

[113] The salary increases implemented during this period had been budgeted for in January 2018 and had already been delayed by 6 months. The increases were also not large as the respondent took into account its financial position and totalled approximately R350 000 per annum. This was small compared to the Vice Chairman's annual salary. The increases were in line with the respondent's strategy of focusing on existing clients and doing away with a new business function that did not generate any revenue. The performance of those employees who received increases were needed to keep the business running and would ensure good and loyal employees remaining with the business.

[114] As to the cost saving in respect of the removal of freelancers, the respondent's business had two costing areas, that is fixed cost associated with permanent staff and variable costs associated with freelancers if and when there were capacity constraints or lack of in house expertise. According to Weiss the nature of the respondent's business was that freelancers were used because it would not make sense to have all such persons permanently employed at a fixed cost. Where some projects required additional work that could not be covered by permanent employees alone, freelancers were utilised because of their special skill set or capacity.

[115] The applicant was unable to reasonably gainsay or respond to or provide any further alternatives to the explanations above.

[116] The applicant submitted that the applicant should not have been retrenched because the respondent recruited during that time. Weiss conceded that the respondent appointed Karen Goggin, Deshni Deacon and Anastasia Cost during the retrenchment period. It as in line with the respondent's strategy of focusing on existing clients and increasing revenue in the existing client part of the business. Keshni Deacon and Anastasia Cost were client service roles needed to manage the existing clients and they were appointed to generate more revenue from existing clients. Karen Goggin was a graphic manager appointed to fulfil that function with existing clients as none of the respondent's other employees were able to fulfil that function.

[117] According to Weiss the main reason for selecting the applicant for retrenchment was due to the fact that the Vice Chairman position was linked to the new business function and it was clear that the new business function was no longer viable as the applicant did not show any potential ability to convert the revenue that was forecasted. Therefore, the decision to focus on existing clients.

[118] The respondent in fact considered the alternative proposed by the applicant and rejected them for rational, commercial reasons. The decision to retrench the applicant was rational, for justifiable commercial reasons and fair to both the parties.

[119] In summary, the respondent followed a fair procedure for a valid substantive reason to retrench the applicant.

Costs

[120] Both parties asked for a cost order. The respondent was successful in opposing the referral. The parties are not in an employment relationship. I regard the applicant's unsubstantiated allegation that the respondent from 2016 employed a stratagem to remove the applicant from the market in a serious light. It could only have been an immoral and dishonest stratagem, if it existed, stretching over two years. I take that into account in making a cost order.

[121] In the premises the following order is made:

Order

1. The application is dismissed with costs.

F. Coetzee

Acting Judge of the Labour Court of South Africa

Appearances:

For the applicants:

Adv Lourens Malan SC

Instructed by: Cilliers Attorneys

For the Respondent: David Woodhouse of Mervyn Taback Inc

[1] No. 75 of 1997.

[2] [1998] 1 BLLR 6 (LC)

[3] Ibid at p 97

[4] [2001] 7 BLLR 705 (LAC). See also FAWU v SA Breweries Ltd [2074] 11 BLLR 1093 (LC)