LABOUR LAW

EMPLOYEES’ RIGHTS

DURING BUSINESS RESCUE PROCEEDINGS

The Companies Act attempts to offer protection to employees of companies placed under business rescue. CLEMENT MARUMOAGAE clarifies what these rights entail

Due to the impact of Covid-19, some companies had to close down while others were forced to operate under reduced capacity in South Africa. For those companies that were able to ‘survive’ the dire economic challenges brought by Covid-19, tough decisions had to be taken to ensure that operations continue.

Some of these companies requested their employees to work reduced shifts to avoid retrenchments. While others did not retrench employees but asked them not to render their services for a prescribed period to assess whether the economic conditions would improve, leaving some employees without income. Several measures were initiated by government to assist some of these companies to cope with the economic challenges brought by Covid-19. One of the measures was the promulgation of the Disaster Management Tax Relief Administration Act 14 of 2020, which among others, provided a tax relieve intended to alleviate cash flow challenges for tax compliant small and medium companies and the removal of penalties for the remittance of Pay As You Earn to the South African Revenue Services.

The government also initiated the much-criticised National Empowerment Fund which was designed to provide loans to small businesses. It also established the Solidarity Fund, which was meant to alleviate suffering and distress caused by the Covid-19 pandemic. Despite these and other measures, some companies could not withstand the dire economic conditions. They were either liquidated or placed under business rescue proceedings. Some of the businesses that were placed under business rescue also contemplated retrenching employees. This article discusses the rights of employees who were/are subjected to retrenchments when companies that employed them were/are placed under business rescue.

When the company is struggling fi nancially, either the directors thereof or any of the affected persons such as creditors may initiate a process of placing it under business rescue. In terms of section 129 of the Companies Act 71 of 2008, directors of a company can resolve to place the company under business rescue if the company is fi nancially distressed and there is reasonable prospect of rescuing it. Where no such resolution has been taken, any of the affected persons such as creditors, may also apply to a court for an order placing the company under business rescue. Once placed under business rescue, a Business Rescue Practitioner (hereafter Practitioner) must be appointed to try to save the company in line with the business rescue plan that he or she would have proposed. In terms of section 133 of the Companies Act, as a general rule once placed under business rescue, no one can initiate legal proceedings against the company to enforce any right without the written consent of the Practitioner or leave of the court. The Practitioner is provided a three-month space to try to save the company without worrying about dealing with claims against the company. In practice, one of the popular ways of trying to save companies is to reduce the wage bill of the company to increase the company’s cash fl ow. This is usually achieved through the retrenchment of the company’s employees. In terms of section 213 of the Labour Relations Act 66 of 1995 (hereafter LRA), retrenchments are understood as dismissals based on the operational requirements due to the economic, technological, structural, or similar needs of the employer. Covid-19 falls under the economic conditions that may persuade the Practitioners to retrench companies’ employees during business rescue proceedings. However, it is important for Practitioners to have regard to section 136(1) of the Companies Act that attempts to offer protection to employees of companies placed under business rescue. First, this provision provides that employees must be employed on the same terms and conditions immediately before the beginning of business rescue proceedings, unless there are reasons justifying deviating from such terms and conditions. Secondly, this provision demands that when Practitioners effect retrenchments during business rescue proceedings, such retrenchments must be carried out in terms of sections 189 and 189A of the LRA. This simply means that retrenchments effected during business rescue proceedings must comply with the South African labour laws. In particular, when effecting such retrenchments, practitioners must follow a fair procedure, which includes a meaningful joint consensus-seeking consultation process. Failure to meaningfully consult employees who are affected by retrenchments during the business rescue procedure will render such retrenchments unfair. Employees have a right to be consulted and given an opportunity to suggest measures that can be adopted to prevent retrenchments. It appears that should retrenchments not be effected in accordance with sections 189 and 189A of the LRA, employees will not be prevented by the moratorium created by section 133 of the Companies Act to litigate against their companies. Section 189A(13) of the LRA clearly provides that ‘[i]f an employer does not comply with a fair procedure, a consulting party may approach the Labour Court by way of an application for an order - (a) compelling the employer to comply with a fair procedure; (b) interdicting or restraining the employer from dismissing an employee prior to complying with a fair procedure; (c) directing the employer to reinstate an employee until it has complied with a fair procedure; (d) make an award of compensation, if an order in terms of paragraphs (a) to (c) is not appropriate’. In terms of section 210 of the LRA, this Act takes precedence over all other Acts of Parliament over labour matters that are usually adjudicated by the Labour Court. This means that employees subjected to unfair retrenchments during business rescue proceedings will be able to challenge through litigation. In South African Airways (SOC) Limited (In Business Rescue) and Others v National Union of Metalworkers of South Africa obo Members and Others 2021 (2) SA 260 (LAC) para 23, the Labour Appeal Court confi rmed that section 189A(13) of the LRA allows a consulting party to approach the Labour Court, which can correct any procedural irregularity as and when it arises so that the integrity of the consultation process can be restored and the consultation process forced back on track. Practitioners cannot decide to retrench employees after their business rescue plans have been adopted. It is important that, if retrenchments are part of their strategy to save companies, such retrenchments are included in the plans to be considered by affected parties. Practitioners cannot decide precisely who to retrench until they have outlined how companies will be restructured and saved through business rescue plans. The Labour Appeal Court in South African Airways (SOC) Limited, held that section 150 of the Companies Act makes it plain that the Legislature intended that rescue plans must precede retrenchments effected during business rescue proceedings. ‘In terms of s 150(2) [of the Companies Act] the business rescue plan must contain all the necessary information reasonably required to facilitate affected persons in deciding whether or not to accept or reject the plan’ (para 32). In conclusion, notwithstanding Covid-19 and its impact on the fi nancial health of companies, practitioners must ensure that they comply with the labour laws when performing their functions during business rescue proceedings. It is also important for employees to understand the powers of practitioners during business rescue proceedings and their limitations. Should they be subjected to unfair retrenchments, they do have a right to seek legal recourse during business rescue proceedings.

CLEMENT MARUMOAGAE

ASSOCIATE PROFESSOR WITS UNIVERSITY, SCHOOL OF LAW