The court battle between trade unions and the business rescue practitioners (BRPs) tasked with turning South African Airways (SAA) around could have serious implications for business rescue proceedings across the country. This after the labour court ruled that employees could not be laid off in the absence of a rescue plan.
The ruling is, however, being challenged.
In their submission for leave to appeal the court’s ruling, SAA rescue practitioners Les Matuson and Siviwe Dongwana argue that the court’s interpretation of Section 136 of the Companies Act related to the responsibilities that BRPs have to employees during a business rescue is wrong.
The pair contend that the court in fact provided employees with more rights than is legally permissible, and in turn undermined the rights of the employer, in this case SAA.
“Prior to business rescue, the employees of a company were at risk of a fair dismissal for operational requirements,” say Matuson and Dongwana in court papers submitted to the Labour Appeals Court dated May 15. “Under the interpretation of Section 136 provided by the judgment, the employees are better off than before business rescue commenced.”
In arguing for the court to grant them leave to appeal, they further state that the matter is not only significant to the parties, but also the insolvency and rescue community at large “especially in these times of anticipated economic hardship.
Temporary protection, damaging consequences
The pair state that preventing a financially-distressed company from reorganising the business pending the finalisation of a rescue plan will have “unintended deleterious consequences for business rescue which are disproportionate to the temporary protection of employees.”
In his ruling in the case brought by the National Union of Metalworkers of SA (Numsa) and the SA Cabin Crew Association (Sacca), Judge André van Niekerk found that the BRPs issued retrenchment notices to employees (via their unions) prematurely and without completing a business rescue plan first. Van Niekerk ruled that the notices were “procedurally unfair” under Section 136 and should be withdrawn.
Section 136 provides that during business rescue proceedings employees continue to be employed under the same contractual terms of employment. The subsection states that retrenchments “contemplated in the company’s business rescue proceedings plan is subject to Section 189 and 189A of the Labour Relations Act (LRA)” and other labour legislation.
The BRPs say the section needs to be looked at in the context of Chapter 6 of the Companies Act dealing with business rescue.
Under business rescue, administrators are given the rights of a company’s board and management, and are granted a moratorium against creditors and parties who have a legal claim against the company.
In other words: “It affords that supervisor a breathing space to take hold of the company’s business, investigate it and propose to creditors, shareholders and other stakeholders a way forward,” state the BRPs.
“It seeks to take the burden of usual legal obligations away from the BRP during this process, permitting the change, suspension or even cancellation of those obligations.”
Section 136 is about preserving ‘existing rights’
Given the special powers that BRPs have under rescue proceedings with regard to contractual obligations, Matuson and Dongwana say Section 136 is aimed at “preserving” the existing rights of employees that are stipulated in the employment contracts in line with the LRA.
“There is no sign at all that it was intended to go further and provide employees with additional rights and protections, least of all an immunisation against dismissal,” they state.
By way of example, Matuson and Dongwana ask that, in the event that BRPs discover that one or more people are stealing from the company, would they not be allowed to dismiss these employees for misconduct?
Or, should the company incur significant losses because a ‘key’ employee is incapacitated, are the BRPs prohibited from dismissing (fairly) them for incapacity?
“There is no good reason why the existence of business rescue should confer immunity on those who misconduct themselves or who are otherwise incapacitated from complying with their contracts of employment,” they say.
What employees are entitled to, however, is protection from unfair dismissal.
At the same time, the BRP, as the company’s manager, also has the right to dismiss workers for operational reasons, as provided for by the LRA.
“Section 136 has not added an additional burden on the employer, nor has it granted employees an additional right over and above those conferred by the contracts of employment and labour legislation,” argue the BRPs.
“It is submitted that the court has gone beyond the usual power to interpret legislation, and effectively amended it, thereby usurping the power and function of the legislature.”