Keil v Foodgrow,a division of Lesiurenet Limited (J428/97) [1998] ZALC 42 (26 June 1998)

IN THE LABOUR COURT OF SOUTH

AFRICA

(Held at Braamfontein)

Case Number: J428/97

In the matter between:

CAROL KEIL Applicant

and

FOODGRO, a division of LEISURENET LIMITED Respondent

_________________

JUDGMENT

[1] The applicant was employed by MacRib as National PRO and Marketing Manager from 1 February 1993. On 1 January 1997 MacRib’s business was transferred as a going concern to the respondent. The applicant continued in her position as National PRO and Marketing Manager in charge of MacRib. She was dismissed on 30 June 1997 for operational reasons.

[2] A proposed sale of respondent to Kairinos Foods Ltd had fallen through and respondent then decided to embark on a retrenchment exercise to alleviate its financial woes. The applicant was one of a number of employees who were identified for consultations as possible retrenchees.

[3] Pursuant to the decision to retrench employees, respondent sent out a letter on 22 May 1997, to employees advising them, inter alia of a possible need to retrench as a result of the restructuring of respondent’s entire operations. A consultation meeting was held with applicant on 26 and 27 May 1997. Respondent alleges that at this meeting applicant suggested two alternatives, one being to take over the work of Achilles Zoulas and the other to take over the position of Marius Batts. Zoulas occupied a position similar to applicants but was responsible for four business units: Black Steer, Bulldogs, Flame and Max Frangos. Batts was the Operations Manager.

[4] Respondent’s view to these suggestions was that they were not suitable. This is set out in the letter sent to applicant in which she was advised of the termination of her services. The letter, inter alia, states:

“(a) Achilles commenced employment with us on 1st July 1997 (sic), and therefore has longer service. Moreover, he has occupied a more senior position to you and has diverse functions in that he deals with all the brands within Foodgro. You commenced employment with us on 1st January 1997, and your duties have been confined purely to MacRib;

(b) Whilst you and Marius commenced employment on the same day, you have indicated that you are not au fait with numerous operations functions, more especially the “back of house” activities. These, you will appreciate, are critical in the operations functions.”

[5] In the same letter respondent stated that no further purpose would be served in continuing with the consultation process. The respondent further advised applicant that her services would be terminated on 30 June 1997 due to operational requirements. This letter is dated 30 May 1997 and it refers to two consultation meetings with applicant on 26 and 27 May 1997.

[6] Applicant testified that she heard of her retrenchment before she met with Raath & Zannopolis on 26 May 1997. She stated that at the meeting of 26 May 1997 she was told of her selection for retrenchment whereafter she requested to think about the matter. She stated that another meeting was scheduled for 13h00 on 27 May 1997 which she attended. At this meeting, she says, she voiced her unhappiness at the decision to retrench her and requested information on the decision, its reasons and her selection. She had in the meantime solicitted legal advice.

[7] It is common cause that the information she requested was not furnished. The next she heard of the matter was when she was handed the letter advising her of the termination of her services on 30 May 1997. Respondent’s evidence relating to the information she requested was that no purpose would be served thereby as most of the information had been furnished anyway.

[8] The reasons advanced for the decision to retrench are alleged excessive operating costs. It appears that 75% of respondent’s costs were attributable to salaries and wages. It also appears that the failure of the Kairinos Foods Limited deal also influenced the decision to embark on retrenchments. Applicant’s attack of respondent’s decision to retrench her is based on the fact that her business unit, MacRib, was profitable and could continue to sustain her, therefore her selection for retrenchment was unfair. She further argues that the respondent did not comply with Section 189 of the Labour Relations Act no 66 of 1995 (the Act). Despite such criticism of her dismissal applicant did not dispute the allegations that respondent was under financial strain.

[9] Whilst it might be so that MacRib as a business unit was profitable it is equally correct that it could not be viewed in isolation from the respondent as one whole enterprise. MacRib was part of the respondent’s enterprise and as such its profitability did not immunize it from the operational requirements or problems of the respondent. In addressing its operational problems the respondent was entitled to consider its enterprise as a whole. I do not therefore agree that the respondent did not have valid reasons to embark upon retrenchments. This is borne out by the fact that applicant was one of twenty-eight employees retrenched from May 1997 until 22 January 1998.

[10] Having identified retrenchment as a way of addressing its operational problems, respondent had to comply with Section 189 of the Act. It is through the constructive engagement implicit in this process that the need to retrench is confirmed as well as the selection of those employees who are to be retrenched. This Court, has in a number of decisions, stated that the consultation process envisaged in Section 189 is not sporadic nor superficial. It is a process that must be embarked upon by the employer before it has decided whom to retrench. The employer keeps an open mind during the consultation phase and must accede to requests for information on the issue by the consulted parties. See: NUMSA a.o. v Comark Holdings (Pty) Ltd [1997] 5 BLLR 589 (LC); NUMSA v Precious Metals Chains [1997] 8 BLLR 1068 (LC); CWIU v Johnson & Johnson (Pty) Ltd [1997] 9 BLLR 1186 (LC); Manyaka v Van der Wetering Engineering (Pty) Ltd [1997] 11 BLLR 1458 (LC).

[11] Whilst it is correct that the Respondent notified its employees, before it started with consultations no information was given to employees especially in relation to selection. As far as the applicant’s situation is concerned the only information given was in response to her suggestions involving Batts and Zoulas. My view is that the respondent was obliged to disclose the information it relied on to render applicant’s position, within the MacRib business unit, redundant and why she was selected. As a method of selection it appears that respondent used the last in first out method. However this also was disclosed in response to applicant’s suggestions.

[12] The respondent’s justification for selecting applicant was that her service was shorter than that of Zoulas. Regarding her assuming Batt’s position respondent relied on applicant’s proffesed lack of knowledge of respondents operations functions. The contention against the Zoulas option is that when MacRib was acquired by the respondent a new contract of employment was concluded with applicant which effectively wiped out her length of service with MacRib. The clause in question are clause 1.1 and 9.1 which provide that:

“1.1 Your appointment as National MacRib P&L Marketing Manager is effective from 01/01/97.

9.1 This letter of appointment, as read with any disciplinary, grievance or other procedure or any regulations or other documents referred to herein as applicable from time to time, comprises the entire contract of employment. Any subsequent amendments will only be valid if they are reduced to writing and agreed to, and signed by both you and the Company.”

[13] Section 197(2)(a) and (b) provides that:

“(a) If a business, trade or undertaking is transferred in the circumstances referred to in subsection 1(a), unless otherwise agreed, all the rights and obligations between the old employer and each employee at the time of the transfer continue in force as if they were rights and obligations between the new employer and each employee and, anything done before the transfer by or in relation to the old employer will be considered to have been done by or in relation to the new employer.

(b) If a business is transferred in the circumstances envisaged by subsection 1(b), unless otherwise agreed, the contracts of all employees that were in existence immediately before the old employer’s winding-up or sequestration transfer automatically to the new employer, but all the rights and obligations between the old employer and each employee at the time of the transfer remain rights and obligations between the old employer and each employee, and anything done before the transfer by the old employer in respect of each employee will be considered to have been done by the old employer.”

[14] I am of the view that the agreement referred to in this section must be clear and unambiguous. It must be clear as to the new terms and conditions agreed upon and it must not be ambiguous about the parties agreement on those terms and conditions. It is important that such agreement be clear and unambiguous as it must be apparent which terms of conditions from the old employer survive and which are new.

[15] Section 197(2) specifically provides that all rights and obligations between the old employer and each employee of the time of transfer continue in force as if these were rights and obligations between the new employer and each employee, unless, of course, the parties agree otherwise. One of the rights of employees at the time of transfer is the right accruing by virtue of length of service. The new employer’s obligation in this regard is to recognise this length of service especially should it decide to retrench the employee concerned. This means that in the calculation of severance pay in terms of Section 196(1) the new employer must also take into account the employee’s length of service with the old employer. Another rationale for Section 197(2) is that, in effect, the employee’s service is not interrupted by the transfer as the employee continues to render service to the same employer who is now under new management or different shareholding.

[16] In view of the fact that employees whose contracts of employment are transferred without their consent any agreement on different terms and conditions can only have the effect of amending the old contracts. Where a business is transferred as a going concern new agreements do not therefore replace the old contracts. The old contract will be replaced by a new contract if the parties agree to change every aspect of the old contract. In this regard therefore an employee must expressly agree to waive his/her rights accruing by virtue of long service. In the absence of such express agreement or waiver the new employer is not absolved from recognizing the employee’s length of service with the old employer. A new contract will also replace the old contract where the old employer terminated the old agreement before the transfer.

[17] The clause in the agreement signed by respondent and applicant to the effect that her appointment was effective from 1 July 1997 does not affect her length of service with MacRib prior to 1 January 1997. Similarly clause 9.1 only applies to new terms and conditions specifically dealt within the new contract.

[18] I cannot therefore agree with Mr Cassim, counsel for respondent, that the agreement between applicant and respondent replaced the old one. I further find fault with respondent’s selection criteria in so far as applicant was viewed as having started with respondent on 1 January 1997 instead of 1 February 1993.

19] As far as consultation is concerned there is no doubt in my mind that the respondent initiated a consultation process. However the respondent did not comply with Section 189(3) as it did not provide applicant with the information on which it relied justifying applicant’s retrenchment as an option. The applicant on her own, after being informed that she was a likely candidate for retrenchment, requested information which was not granted.

[20] Piecemeal compliance with Section 189 is unacceptable. Section 189 is structured in such a way that the first step leads to the next and it is therefore not acceptable to only comply with one of those stages and ignoring the rest. As already alluded to above, respondent’s reasoning in selecting applicant was flawed as she had a longer service record vis-a-vis Zoulas. Respondent’s rejection of the Batt’s option is also flawed for the possibility that applicant’s length of service could be longer than his.

Respondent’s attitude to the Batt’s option aptly demonstrates respondent’s lack of an open mind. No evidence was tendered suggesting that applicant’s suggestion was debated with her. Respondent’s response to the suggestion only comes in a letter advising applicant that she has been dismissed. A dismissal for operational requirements is unfair if the employer fails to comply with Section 189. It is equally unfair if the employer relies on unfair selection criteria. The dismissal of the applicant was therefore procedurally unfair.

[21] I therefore make the following order:

1. The dismissal of the applicant on 30 May 1997 was procedurally unfair.

2. The respondent is ordered to pay applicant severance pay of one week for each year of service with effect from 1 February 1993. Severance pay already paid must be deducted.

3. The respondent is ordered to pay applicant compensation of 9 months salary calculated at a monthly rate of R19142,00.

4. The respondent is ordered to pay the applicant’s legal costs.

_______

Mlambo J

For the applicant: Mr N. Robb of Webber Wentzel Bowens Inc

For the respondent: Mr N Cassim instructed by Attorneys Massimo G Dus.

Date of hearing: 30 March 1998

Date of judgment: 26 June 1998