Labour Court battle between SAA rescue practitioners and unions about more than airline's future

A South African Airways aircraft on the apron of Frankfurt Airport in 2018.
A South African Airways aircraft on the apron of Frankfurt Airport in 2018.
Silas Stein/picture alliance via Getty Images
  • As the date nears for creditors to vote on SAA's business rescue plan, unions are awaiting the outcome of a Labour Appeal Court ruling. 
  • The court is set to rule on whether it was unfair of the BRPs to issued Section 189 notices to commence a consultation process over proposed retrenchments in the absence of a business rescue plan.
  • Analysts say the ruling will have far-reaching consequences over and above the fate of the airline and its employees. 

As the creditors of embattled state-owned airline South African Airways get ready to vote on the airline's proposed business rescue plan later in the month, a key judgment is expected from the Labour Appeal Court which may change the business rescue landscape in SA. 

The Labour Appeal Court is set to rule whether it was indeed "unfair" of SAA's business rescue practitioners to have issued Section 189 notices in March this year to commence a consultation process over proposed retrenchments in the absence of a business rescue plan. 

SAA went into business rescue in December last year, after having received R30 billion in state bailouts over the past decade. Even now, four big banks hold government guaranteed loans to SAA totalling R16.4 billion.

The rescue practitioners appealed an earlier finding in the Labour Court that agreed with the National Union of Metalworkers of SA (Numsa) and the SA Cabin Crew Association (Sacca) that it was indeed unfair for Section 189 notices to be issued. The practitioners then turned to the Labour Appeal Court. Their appeal was heard earlier this week and judgment was reserved.

The May judgement stated that nothing precluded the practitioners from offering voluntary retrenchment. This left open the question of whether a draft business rescue plan would suffice before starting Section 189 consultations.

In the meantime, four unions have signed a final offer for voluntary severance packages offered by the Department of Public Enterprises (DPE). The DPE offer was rejected by Numsa, Sacca and the SAA Pilots Association.

The Labour Appeal Court ruling may have far-reaching consequences. 

"The creation of a moratorium on retrenchments before the adoption of a business rescue plan will make it difficult for business rescue practitioners to balance the rights of all affected persons, which include employees, creditors and shareholders," says Tobie Jordaan, a director at Cliffe Dekker Hofmeyr, who specialises in business rescue, restructuring and insolvency.

"The business rescue plan must contain sufficient detail to assist the creditors and employees in deciding whether to adopt or reject the plan. Practitioners are often criticised for publishing a 'vanilla' plan which leads to uncertainty amongst the creditors and employees."

Anli Bezuidenhout, a senior associate in the employment law department at Cliffe Dekker Hofmeyr, says based on the Labour Court's earlier SAA decision, an employer who is entering business rescue proceedings, has one of two options: either issue the notice to commence consultations before business rescue commences, or alternatively address the retrenchment of the employees in the business rescue plan and wait for the plan to be approved before initiating the retrenchment process.

"Consultation involves an exchange of views and ideas, in an attempt to resolve the employer's operational requirements with little or no impact on its employees. If, however, no agreement can be reached, the employer makes the final decision – subject to fairness," says Bezuidenhout.

Opposing objectives

Dawie van der Merwe, a director at BDO Business Restructuring, is a firm believer that a balance must be struck between the often opposing objectives of different sets of legislation.

"One needs to remind oneself that our law is unique in many respects with regard to its protection of the rights of employees as compared to many other jurisdictions. This high regard for the rights of employees is not only found in the Labour Relations Act (LRA) but extends to the Companies Act and, in particular, to the chapter on business rescue," says Van der Merwe.

In his view, Section 189 of the Labour Relations Act is often misquoted as merely providing for the "retrenchment" of employees, while it in fact requires of an employer to consult with its employees whenever there are circumstances that may have an impact on their employment. 

"The balance is, therefore, that an employer cannot merely dismiss an employee under circumstances of financial distress but should consult with employees in seeking resolution to the distress or alternatives to the dismissal of employees," says Van der Merwe.

"I submit that, if a company and its business rescue practitioner is unable to consult in terms of the provisions of section 189 of the Labour Relations Act or even to retrench employees during business rescue proceedings, that companies would simply avoid business rescue and rather seek to simply liquidate a company."

In the event of the liquidation of a company there is an automatic suspension of all contracts of employment.

Parallel processes

For Alex Eliott of Eliott Attorneys, the restructuring of a company's affairs and its labour force are inextricably linked. Therefore, it makes sense for the Section 189 retrenchment process to be conducted "in parallel" with the process of developing the business rescue plan.

"It is accepted wisdom in the [business] turnaround community that 90% of the problems with any company in financial distress are attributable directly to weak or corrupt management, not to labour or other externalities," says Eliott.

There are three schools of thought on how the Labour Relations Act and the Companies Act (which governs business rescue) should interact with each other in relation to retrenchments, he says.

The first is the view of the business rescue practitioners of SAA and many commentators within the business rescue community, and holds that retrenchments are allowed by the act and can take place within a business rescue in the absence of a business rescue plan.

The second view, usually supported by organised labour, is that retrenchments can only take place in terms of an adopted business rescue plan and the consultation process can only start once the plan is adopted.

"Clearly there are ideological underpinnings to each of these extreme positions," says Eliott.

The third school of thought is that the process of consulting on possible retrenchments must take place as part of and in parallel with the development of the business rescue plan and that the outcome of that process will be reflected in the final business rescue plan presented to the creditors for voting.

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