No rescue plan, no retrenchments – Labour Court tells SAA BRPs

The Labour Court has upheld its ruling that business rescue practitioners (BRPs) cannot issue a notice to retrench workers without first publishing a business rescue plan, which South African Airways (SAA) administrators had sought to appeal.

The majority unions at the airline, the National Union of Metalworkers of SA (Numsa) and the SA Cabin Crew Association (Sacca), had argued that the retrenchment process the business rescue practitioners (BRPs) launched in March was procedurally unfair, because the practitioners had not published a rescue plan as specified in Section 136 of the Companies Act.

On May 7 Judge Andre Van Niekerk ruled in favour of the unions, ordering that the notice be withdrawn.

BRPs Les Matuson and Siviwe Dongwana, who published a rescue plan on June 6, argued in their appeal that Section 136 did not mean workers were immune from being dismissed for any reason in the absence of a rescue plan.

They argued that Section 136 does not provide additional rights to employees, and that employee rights would have to be balanced with the rights of an employer trying to ensure a reasonable rescue of a financially-distressed business.

Moot but important

At the time the BRPs launched their appeal of the Labour Court ruling, they had not published a final rescue plan.

While the outcome of the appeal will have no practical effect as the BRPs have now published a plan, in her judgment, acting deputy judge president Violet Phatshoane said it was important to consider the interpretation of Section 136 given that conflicting ruling on this legal question by the Labour Court.

This ruling will have implications for business rescue proceedings more widely, at a time when many companies are facing financial distress due to the Covid-19 pandemic and the ongoing lockdown restrictions.

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The matter was heard by Phatshoane, Judge Dennis Davis and Judge Cagney Musi.

Phatshoane said Section 136 should be looked at in the context of Section 6, which governs business rescue proceedings and the compromise made with creditors.

“The primary aim of a corporate rescue procedure is not merely to rescue a company or potentially successful parts of a business,” said Phatshoane, saying that the process aims to ensure the preservation of the entire entity, including jobs.

The central area of contention is Section 136(1)(b), which provides that employees may be retrenched as “contemplated in the company’s business rescue plan”.

Plan first 

“The words ‘contemplated in the company’s business rescue plan’ in my view signifies the existence of a corporate rescue plan which would conceptualise the commercial rationale for the retrenchments of employees,” said Phatshoane.

She said the most important reason for Section 136(1)(b) is to “safeguard employees from being subjected to retrenchments without a business rescue plan”.

A rescue plan must contain sufficient detail to assist affected persons in deciding whether or not they wish to accept or reject the plan, such as the background of the company, proposals and assumptions, and conditions where, among others, details of how the restructuring of the company will affect employees.

“To interpret Section 136(1)(b) in the manner contended would do violence to the language of the section,” said Phatshoane.

“The argument that it ought to be interpreted as permitting the BRPs to commence with the retrenchment exercise in the absence of the rescue plan is incongruent with the statutory architecture of the corporate rescue process.”

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The Act provides that a rescue plan should be published within 25 days after the rescue practitioners are appointed, and allows for extensions.

“It is clear from this provision that as the business rescue plan must be published within a short period, retrenchments would be contained in the plan as opposed to a piecemeal reconstruction of the company, which would allow a decision on retrenchments before a plan was published,” said Phatshoane.

It took Dongwana and Matuson more than six months to publish SAA’s rescue plan as the process was marred by challenges, including those related to obtaining the required post-commencement funding on time, government intervention regarding scaling down routes to cut costs, and operations being grounded due to the Covid-19 pandemic.

Fair labour practices 

Phatshoane further said that Section 136 is not at odds with the constitutional right to fair labour practices as stipulated in Section 23 of the Constitution, which Matuson and Dongwana’s lawyers had said that, while protecting the job security of employees, also allowed employers to reorganise and manage the business.

“There is nothing in the interpretation that I have given to Section 136 of the Companies Act that is at war with that spirit, purport, and objects of the Constitution,” she said.

Phatshoane upheld Judge Van Niekerk’s earlier ruling that the BRPs’ act to give notice of retrenchments without a plan was “premature, unfair and had to be withdrawn”.

Phatshoane also dismissed Numsa and Sacca’s cross-appeal regarding the BRPs offering voluntary severance packages to employees. The unions had argued that these packages were tantamount to retrenchment as they were introduced while the practitioners were “contemplating the dismissal of employees for operational reasons”.

The court said there is no law that bars the rescue practitioners from offering workers severance packages.

Most of the unions have now accepted the severance packages offered by SAA. This after the government’s negotiations with Numsa and Sacca resulted in an agreement that an additional 1,000 employees would not be retrenched, but would instead be placed on a temporary lay-off scheme.

Numsa and Sacca welcomed the appeal, saying it was important for the unions to “defend the decision of the Labour Court because the BRPs are not a law unto themselves.”

“Although the appeal was heard after the BRPs at SAA finally published a plan, it was important for us to defend the decision … because it had far-reaching implications for workers and the case is important for setting down clear guidelines for BRPs as a whole,” said the unions.

“The judgment is being studied and the company’s position considered,” said Matuson and Dongwana.

This article first appeared on Moneyweb and was republished with permission.

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