April 2006
Edition 2

This month, we discuss a number of important judgments by the Labour Courts. The first deals with procedural fairness in dismissals, the second is concerned with substantive fairness in the form of a dismissal that was alleged to have been effected for a reason related to a Section 197 business transfer. The third judgment, handed down by the Labour Appeal Court, deals with the retrospectivity of reinstatement awards. The first two judgments are unreported, and we draw them to your attention because of their significance for industrial relations practice. The LAC judgment, CWIU and others v Latex Products (Pty) Ltd, has been reported at [2006] 2 BLLR 142 (LAC) and will be of particular interest to IR managers and lawyers.

NEHAWU and others v Avril Elizabeth Home deals with the review of an arbitration award, but in the course of its judgment, the Labour Court made some important comments on procedural fairness in dismissals for misconduct. The arbitrator (a CCMA Commissioner) had held that a dismissal was procedurally unfair because a disciplinary enquiry had been chaired by a subordinate to the CEO of a charitable institution, in circumstances where the CEO had been the complainant. This, said the Commissioner, gave rise to an apprehension of bias to an extent that it could not be said that the disciplinary hearing was fair.

The Labour Court examined the history of the procedural fairness requirement in unfair dismissal. It traced the development of the 'criminal justice' model, developed by the industrial court in the 1980's. This model required a workplace enquiry along the lines of a criminal trial, with charges of misconduct, evidence, the application of the rules of evidence, rules in relation to bias and the like. The Court noted that the new LRA had introduced an entirely different model. This model, which finds reflection in the Code of Good Practice: Dismissal, requires only an investigation by the employer, the formulation of any allegation that may flow from that enquiry, an opportunity for the employee to state a case in response to the allegation with assistance if required, a decision, and notice to the employee that he or she was free to pursue any dispute in the CCMA. The balance struck, said the Court, was one that lessened the procedural burden on employers while establishing a right to expeditious arbitration, on the merits and in the form of a rehearing, if the fairness of a dismissal was disputed. This meant that the 'criminal justice' model had no place under the LRA, unless employers continued to apply it in terms of their own procedures, or in the public sector, where administrative law requirements might demand it. But as a general rule, there was no need for employers to hold formal hearings before dismissal. This conclusion was fortified by the Code of Good Practice (the Code states that a 'formal hearing' is not required and makes no mention of a right to an appeal) and by international labour standards.

The rule against bias applied by the Commissioner was held to be part of the 'criminal justice' model, and out of line with the new conception of procedural fairness that the LRA introduced. The Commissioner's decision was therefore reviewable.

The second judgment of interest this month is Van der Velde v Business Design Systems and another. In this case, an employee dismissed a week before the business that employed him was transferred as part of a management buy-out, claimed that he had been dismissed because of the transfer, alternatively, for a reason related to it. The employer alleged that the employee had been retrenched on account of a necessary restructuring, and that it had complied with its obligations in terms of Section 189.

The difference, of course, is both profound and potentially expensive. A dismissal for a reason related to a Section 197 transfer of a business is automatically unfair, and subject to a compensatory award of a maximum of 2 years remuneration. An unfair retrenchment carries a potential penalty of 1 years' pay.

The Court dealt at some length with the way in which the line between a dismissal related to a transfer on the one hand, and a retrenchment on the other, might be drawn. This is always a difficult exercise, because as the Court observed, if the Act were to be applied literally, there would be very few dismissals either pre- or post transfer that wouldn't in some way be 'related to' the transfer, which is exactly what Section 187 prohibits. A balance had to be sought that recognised that restructuring, particularly after a transfer, was almost inevitable but also that Section 197 conferred important rights of job security on employees when businesses were transferred.

An additional problem that the Court addressed was the onus of proof in dismissal disputes where the employee alleges that he or she was dismissed for a reason that is automatically unfair. The Act is silent on this issue- where dismissal is effected for a potentially unfair reason (misconduct, incapacity or operational requirement), the onus is on the employer. But if an employee alleges an automatically unfair dismissal, where does the onus lie?

The Court formulated the following test:

the Applicant must prove the existence of a dismissal and establish that the underlying transaction is one that falls within the ambit of Section 197;
the Applicant must adduce some credible evidence that shows that the dismissal is causally connected to the transfer. This is an objective enquiry, to be conducted by reference to all of the relevant facts and circumstances. The proximity of the dismissal to the date of the transfer is a relevant but not determinative factor in this preliminary enquiry;
if the Applicant succeeds in discharging these evidentiary burdens, the employer must establish the true reason for dismissal, being a reason that is not automatically unfair;
when the employer relies on a fair reason related to its operational requirements (or indeed any other potentially fair reason) as the true reason for dismissal, the Court must apply the two-stage test of factual and legal causation to determine whether the true reason for dismissal was the transfer itself, or a reason related to the employer's operational requirements;
the test for factual causation is a 'but for' test- would the dismissal have taken place but for the transfer?
if the test for factual causation is satisfied, the test for legal causation must be applied. Here, the Court must determine whether the transfer is the main, dominant, proximate or most likely cause of the dismissal. This is an objective enquiry. The employer's motive for the dismissal, and how long before or after the transfer the employee was dismissed, are relevant but not determinative factors.
if the reason for dismissal was not the transfer itself (because, for example, it was a dismissal effected in anticipation of a transfer and in response to the requirements of a potential purchaser of the business) the true reason may nonetheless be a reason related to the transfer;
to answer this question (whether the reason was related to the transfer) the Court must determine whether the dismissal was used by the employer as a means to avoid its obligations under Section 197. (This is an objective test, which requires the Court to evaluate any evidence adduced by the employer that the true reason for dismissal is one related to its operational requirements, and where the employer's motive for the dismissal is only one of the factors that must be considered).
if in this sense the employer used the dismissal to avoid it Section 197 obligations, then the dismissal was related to the transfer; and
if not, the reason for dismissal relates to the employer's operational requirements, and Court must apply Section 188 read with Section 189 to determine the fairness of the dismissal.

Applying this test to the facts of the case, the Court found that the employee had been dismissed by reason of the transfer and awarded him 12 months' remuneration as compensation.

Finally, CWIU v Latex Products deals with the situation where an order of reinstatement is made following a finding of unfair dismissal, and the retrospectivity of that order is considered. Section 193 permits reinstatement with effect from a date not earlier than the date of dismissal. Section 194 though fixes limits on compensation. In cases where the dismissal is not automatically unfair, the maximum is 12 months' compensation. Where it is automatically unfair, the maximum is 24 months. When a reinstatement order is to be made in circumstances where the dismissal took place within 12 months (using the example of a dismissal that is not automatically unfair) there is generally no difficulty. A discretion is exercised, and the order can be made retrospective, provided that it doesn't operate from a date prior to the date of the dismissal.

When the dispute is heard more than 12 months after the date of dismissal, a potential difficulty arises. Can a reinstatement order in these circumstances be made retrospective to the date of dismissal i.e. for a period longer than 12 months?

SA Latex Products establishes the rule that when a court or an arbitrator orders the reinstatement of an employee, that the order can operate retrospectively, but only for a period of not more than 12 months from the date on which the order was made. This decision settles the uncertainty created by the split decision of the LAC in Kroukam v SA Airlink, where views were expressed either way. In that case, Judge Dennis Davis held that there was no reason why order of reinstatement should not be capable of being made retrospective, even if the dismissal took place 12 months (or in the case of an automatically unfair dismissal 24 months) before the date on the order of reinstatement was made.

The Court in SA Latex Products referred to the Explanatory Memorandum that accompanied the LRA, and in particular, to provisions dealing with delays in finalising dismissal disputes and the prejudice caused when reinstatement orders are made years after a dismissal. The Court concluded that it was not competent to order the retrospective operation of a reinstatement order which "is in excess of 12 months in an ordinary unfair dismissal case." In other words, a reinstatement order can operate retrospectively from the date on which the order is made for 12 months or any lesser period that the court or the arbitrator considers appropriate. If the employee was dismissed on a date more than 12 months before the date of the order, that is of no consequence.

The judgment is a welcome clarification of the application of the LRA when reinstatement is ordered. This is particularly so when delays in finalising matters in both the CCMA and the Labour Court seem particularly acute. But delays are what ultimately cause prejudice to employers and employees in dismissal disputes. If all dismissal disputes were finalised within 12 months of the date of dismissal (the model introduced by the LRA envisaged a far shorter period) retrospective reinstatement is feasible and workable. Where orders are being made (as they are, particularly in the Labour Court) 3 or more years after the date of dismissal, retrospective reinstatement, even on the basis that it is to be applied following SA Latex Products, can be cold comfort for an employee and unduly onerous on an employer.

Electronic copies of the unreported judgments can be obtained from Su at su@elaw.co.za

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