Collective and individual bargaining: Locking out?

1 Comment

1. 

   Graham Giles on November 6, 2011 at 5:09 pm

   “An employer in the private sector needs to be able to survive and prosper economically. To do this the employer must meet changed market circumstances and be competitive. To meet the changes of the market adaptations are required. An employer needs the flexibility to deploy, reasonably quickly and efficiently, the resources at the employer’s disposal. Various options are open to an employer to achieve this. One of them is the lock-out route which is used to compel acceptance of a demand. It is recognised that in a collective bargaining situation (and I would add in an individual bargaining situation) an employer may bargain and exercise economic power against employees” [per Landman J, as he then was – see below].

   Employers wishing to change conditions of employment of employees must do so lawfully and fairly. In the absence of consent employers really only have two choices:

   #1 Follow the statutory procedures (LRA section 189), base the reason for dismissal on the operational requirements of the enterprise and ensure that the termination is lawful, notify the employee (usually at least four weeks) or pay instead of notice and pay severance pay.

   #2 Follow the statutory procedures (LRA section 64) and implement a lockout, without pay, until there is an agreement to the change.

   If employers adopt the approach in #1 the termination dispute may be referred to the CCMA or the Labour Court and the employer must prove that there was a fair reason to terminate based on operational requirements.

   Some guidance is provided in LRA section 189A(19), although that subsection really only applies to dismissals of large number of employees.

   Section 189A(19) reads:
   “(19) In any dispute referred to the Labour Court in terms of section 191 (5) (b) (ii) that concerns the dismissal of the number of employees specified in subsection (1), the Labour Court must find that the employee was dismissed for a fair reason if—
   (a) the dismissal was to give effect to a requirement based on the employer’s economic, technological, structural or similar needs;
   (b) the dismissal was operationally justifiable on rational grounds;
   (c) there was a proper consideration of alternatives; and
   (d) selection criteria were fair and objective”.

   However, if employers adopt the approach in #2 and implement a lockout, any dispute is regarded as a dispute of ‘interest’ and must be resolved by power-play and not by arbitration or adjudication.

   What about locking out only one employee ?

   But what if the employer wants to change the conditions of employment of only one employee. May the employer lock that employee out to compel the employee to accept the changes ? According to the Labour Court the answer is yes. In that event, and provided the employer does not dismiss the employee, any dispute cannot be referred to arbitration nor adjudication.

   Many years ago Samsung Electronics (Pty) Ltd acquired a business with all its employees and decided to change the conditions of employment of two employees. The resulting dispute progressed through many phases but eventually was finally decided by justice Landman, now an acting judge in the Labour Appeal Court. These extracts are from his judgment, reported as Schoeman v Samsung Electonics (Pty) Ltd (1999) 20 ILJ 200; [1998] JOL 3656 (LC) with the footnotes omitted:

   “Assessment

   15. The applicants were dismissed on 21 July 1997. Were their dismissals fair? In order to decide this I need to determine why they were dismissed. Once this is established I will be able to determine whether the dismissals were substantively fair or not and whether the correct procedure had been followed. Depending on the answers further inquiries may need to be made.

   16. The crux of the matter was that the applicants declined to accept that the annual review was a process of unilateral wage setting or at most a process of individual wage bargaining. They also failed to realise that they did receive an increase in their salaries even though the commission component was restructured by lowering it from 0,5 to 0,23%. They were comparing apples with oranges but they did not know it – although they should have realised this.

   17. Samsung was entitled to review the applicants’ respective salary packages with effect from 1 January 1997. I accept, for purposes of this case, that the practice was to review upwards. The new or revised package based on the on-target earnings was an upward review. Mrs Rossouw candidly conceded this. The applicants wanted the new benefits on offer but they also wanted the commission to remain at 0,50 and not be reduced to 0,23%. They thought that the offer was demotivating, did not acknowledge their inputs and worth, and they would have had to write double their sales. They were already working harder. They were genuinely unhappy, aggrieved and distressed. Ms Schoeman felt cheated. The gaol post had been changed but nevertheless Mrs Rossouw, during the first half of 1997 while the dispute was in progress, still managed to meet her budgeted sales and thus her on-target earnings.

   18. What was Samsung to do? More importantly what did the law allow Samsung to do? An employer is permitted by the Constitution of the Republic of South Africa of 1996 to bargain collectively. An employer is also entitled to bargain on an individual basis. This is not a case about collective bargaining even though it involved two employees. Nevertheless the law relating to collective bargaining is instructive in an individual situation. An employer in the private sector needs to be able to survive and prosper economically. To do this the employer must meet changed market circumstances and be competitive. To meet the changes of the market adaptations are required. An employer needs the flexibility to deploy, reasonably quickly and efficiently, the resources at the employer’s disposal. Various options are open to an employer to achieve this. One of them is the lock-out route which is used to compel acceptance of a demand. It is recognised that in a collective bargaining situation (and I would add in an individual bargaining situation) an employer may bargain and exercise economic power against employees (see Ex parte Chairperson of the Constitutional Assembly: in re certification of the Constitution of the Republic of South Africa 1996 1996 (4) SA 744 (CC) at 795D–E [Note: see below for extracts]).

   19. An employer may not dismiss employees in order to compel acceptance of a demand but this does not prevent the employer resorting to dismissal for operational requirements in genuine cases (see SACWU and others v Afrox [1998] 2 BLLR 171 (LC)). R Benedictus and B Bercusson Labour Law – Cases and Materials Sweet and Maxwell (1987) say the following at 67 which is particularly relevant to this case:

   “Employees risk dismissal if they resist change. Should this occur the question will arise whether a dismissal for refusal to accept change is fair and also whether the employee is entitled to statutory redundancy compensation. The policy issue is between the right of the management unilaterally to change the work obligation and the right of the worker to adhere to the obligation he accepted. The protection of the employee depends on the court insisting that an employer demanding work changes compensate the employee who does not wish to accept them, and so, loses his employment.”

   20. Our law recognises that dismissal for operational requirements can be used not only in relation to an employer’s need to change the “work obligation” but also the remuneration of an employee (see WL Ochse Webb and Pretorius (Pty) Ltd v Vermeulen (1997) 18 ILJ 361 (LAC)).

   21. Samsung formed the view that the remuneration of the applicants was higher than they were prepared to pay. It was out of kilter with the market place. The applicants had been warned in 1996 that they were living off the high hog; they were in a windfall period; they were warned not to become accustomed to inflated earnings. On 5 February 1997 the revised package was offered. There is no evidence that Samsung, save an allegation in a letter which was not persisted with, was empowered by contract to unilaterally change or amend the remuneration package payable to the applicants (cf. Re Richmond Gates Property Co Ltd [1964] 3 All ER 936 (Ch D)). Samsung needed the applicants to consent to their offer of a revised package. The individual applicants were entitled to accept or reject the offer. They rejected it and continued to do so until their services were terminated on 21 July 1997.

   22. The applicants tried, as they were entitled to do, to negotiate a wage on a different basis to that which had prevailed in the past, namely a wage equivalent to actual earnings for the past year as opposed to targeted earnings for the past year. They thought, incorrectly, in my view, that the law would intervene in the bargaining relationship and come down on their side. They are mistaken. The law abstains from interfering in an individual or a collective bargaining situation. Market forces and other tactics dictate the outcome.

   23. Samsung set about to convince the applicants that they should accept the offer. Samsung did not want to lose the services of the applicants. They were loyal, hard working and a decided asset to the company.

   24. Samsung followed a line of action designed primarily to convince the applicants that Samsung was firm in its offer for reasons related to business or commercial considerations and that it would be to the applicants’ advantage to accept the offer.

   Samsung:
   • implemented the offer although this was not in substitution of the applicants’ consent. It was a tactic to induce them to accept the offer. They were showered with the new benefits and the reduced commission. But the applicants remained unmoved. They wanted more.
   • Samsung tried to reason with the applicants. It explained at length why it was making the offer that it did.
   • the applicants were afforded an opportunity to take legal advice (from attorneys other than the attorneys of record) although Samsung was resentful of this.
   • Samsung embarked on a lock-out; a route which is sometimes considered to be kinder and more economically efficient than embarking immediately on a retrenchment exercise for operational reasons.
   • the lock-out was withdrawn as regards Mrs Rossouw on 11 May 1997 and as regards Ms Schoeman on 12 June 1997. It made no difference, the applicants wanted their 0,50 % commission.
   • an application was made in between by the applicants to the Labour Court but this application did not succeed for jurisdictional reasons. Advice by the Department of Labour to claim what was allegedly owing was not implemented.

   24. Samsung’s next move was to consult with the applicants on the possibility of dismissal on basis of operational reasons, namely that Samsung was not prepared to pay more than market related salary packages. Samsung’s attorneys wrote to the applicant’s attorneys. Samsung wrote to the applicants restating their stance. Samsung commenced retrenchment proceedings on 23 June and outlined its contemplated date of dismissal. The pressure was now on. The writing was on the wall”.

   “26. The evidence of Mrs Solomon and Mr Le Roux points to the principal motive or reason why Samsung was content to have the applicants leave their service. They were too expensive at a commission based on 0,50%. Their previous packet was out of kilter with the market and despite appreciation of their intrinsic value they were not worth the old package to the company. At least this was the view of Samsung and it not for me to judge whether this was valid or not. The remuneration which an employer wishes to pay to its employees, in the absence of statutory regulation, is a matter above and beyond the purview of the law. Whether it is fair or unfair is a consideration which the bargaining parties will doubtless consider but it is plainly none of the court’s business.

   27. Nevertheless, even though the applicants were mistaken, they were entitled to pursue their legal remedies even if it were only to find out that they had no case. They cannot be dismissed merely for pursuing their legal remedies even if they are mistaken. However, where the pursuit of their rights leads to operational dislocation it may, in appropriate circumstances, give rise to a situation where dismissal, for operational requirements, as opposed to dismissal for the exercise of rights, becomes permissible. The occasions are liable to be extremely rare. Genuine operational requirements will have to be shown.

   28. The impending litigation was a reason for dismissing the applicants. It was inextricably linked to the crux of the matter. It was a reason for wanting to bring matters to a head. It was related to operational requirements. It was not the prime motivation. Nor could it have been for there is little to show that the litigation impeded the business efficacy of the employer in any meaningful manner, although it would have been decidedly awkward, uncomfortable and unsociable for a while”.

   “31. I am of the opinion that Samsung was motivated by commercial reasons in making its offer and in dismissing the applicants. The applicants failed to appreciate this. They laboured under the impression that they were entitled to a fair wage which was in excess of what was being offered and consequently and consistently rejected Samsung’s offer. The law does not know of the concept of a fair wage which is something other than a statutory minimum wage. Even on the last day of the trial, the applicants were unable to put a figure on the fair wage they sought. Samsung’s resort to consultation with a view to retrenching the applicants was a last ditch attempt in a series of reasonable steps to bring the reality of their lack of bargaining power home to the applicants. The applicants were entitled to reject the offer, this led to their dismissal. It was unfortunate.

   32. Samsung has shown that the dismissal of the applicants was substantively fair”.

   In re: Certification of the Constitution of the Republic of South Africa, 1996 1996 (10) BCLR 1253 (CC)

   “D. NT 23: LABOUR RELATIONS

   [63] There were two objections to NT 23.50 The first was that the omission of the right of employers to lock out workers is in breach of CPs II and XXVIII. The second ground of objection was that NT 23 fails to “recognise and protect” the right of individual employers to engage in collective bargaining as required by CP XXVIII.

   Lockout

   [64] The first and major ground for this objection was based on CP XXVIII which provides that:

   “Notwithstanding the provisions of Principle XII, the right of employers and employees to join and form employer organisations and trade unions and to engage in collective bargaining shall be recognised and protected. Provision shall be made that every person shall have the right to fair labour practices.”

   The objectors argued that in order to engage effectively in collective bargaining, bargaining parties must have the right to exercise economic power against each other. Accordingly, went the argument, the right to lock out should be expressly recognised in the NT. It is correct that collective bargaining implies a right on the part of those who engage in collective bargaining to exercise economic power against their adversaries. However, CP XXVIII does not require that the NT expressly recognise any particular mechanism for the exercise of economic power on behalf of workers or employers: it suffices that the right to bargain collectively is specifically protected. Once a right to bargain collectively is recognised, implicit within it will be the right to exercise some economic power against partners in collective bargaining. The nature and extent of that right need not be determined now.

   [65] The objectors also argued that, by including the right to strike but omitting the right to lock out, the employers’ right to engage in collective bargaining is accorded less status than the right of workers to engage in collective bargaining. However, the effect of including the right to strike does not diminish the right of employers to engage in bargaining, nor does it weaken their right to exercise economic power against workers. Their right to bargain collectively is expressly recognised by the text.51

   [66] A related argument was that the principle of equality requires that, if the right to strike is included in the NT, so should the right to lock out be included. This argument is based on the proposition that the right of employers to lock out is the necessary equivalent of the right of workers to strike and that therefore, in order to treat workers and employers equally, both should be recognised in the NT. That proposition cannot be accepted. Collective bargaining is based on the recognition of the fact that employers enjoy greater social and economic power than individual workers. Workers therefore need to act in concert to provide them collectively with sufficient power to bargain effectively with employers. Workers exercise collective power primarily through the mechanism of strike action. In theory, employers, on the other hand, may exercise power against workers through a range of weapons, such as dismissal, the employment of alternative or replacement labour, the unilateral implementation of new terms and conditions of employment, and the exclusion of workers from the workplace (the last of these being generally called a lockout).52 The importance of the right to strike for workers has led to it being far more frequently entrenched in constitutions as a fundamental right than is the right to lock out. The argument that it is necessary in order to maintain equality to entrench the right to lock out once the right to strike has been included, cannot be sustained, because the right to strike and the right to lock out are not always and necessarily equivalent.

   [67] It was also argued that the inclusion of the right to strike necessarily implies that legislation protecting the right to lock out, such as the LRA, would be unconstitutional. The objectors argued that such a result would be in breach of CP XXVIII. The argument is based on a false premise. The fact that the NT expressly protects the right to strike does not mean that a legislative provision permitting a lockout is necessarily unconstitutional, or indeed that the provisions of the LRA permitting lockouts are unconstitutional. The effect of NT 23 will be that the right of employers to use economic sanctions against workers will be regulated by legislation within a constitutional framework. The primary development of this law will, in all probability, take place in labour courts in the light of labour legislation. That legislation will always be subject to constitutional scrutiny to ensure that the rights of workers and employers as entrenched in NT 23 are honoured.53

   [68] The second ground for this objection was that, in failing expressly to protect an employer’s right to lock out, the NT does not comply with CP II which requires that “all universally accepted fundamental rights, freedoms and civil liberties” shall be provided for and protected in the new Constitution, “due consideration [having been given] to, inter alia, the fundamental rights” contained in the IC.

   The objector argued that, in drafting the Bill of Rights in the NT, the CA was required to give due consideration to all the rights entrenched in the IC, which meant that rights contained in the IC should be omitted only if there were good reasons for so doing.

   Although it is true that the CA was required to give due consideration to the provisions in the IC, there is nothing in CP II which restrains it from departing from those provisions once it has done so, unless it is shown that the provisions fall within the class of “universally accepted fundamental rights and freedoms”.

   The objectors did not suggest that the CA had not paid due consideration to the provisions of the IC. It also cannot be said that the right of employers to lock out workers is a universally accepted fundamental right as contemplated by CP II. The right to lock out is recognised in only a handful of national constitutions and is not entrenched in any of the major international conventions concerned with labour relations. It cannot be said, therefore, that the omission from NT 23 of a right to lock out is in conflict with CP II.

   The Right of Individual Employers to Bargain Collectively

   [69] The second objection levelled at NT 23 is based on the failure to entrench the right of individual employers to engage in collective bargaining. The objection was based on CP XXVIII which provides that

   “the right of employers . . . to engage in collective bargaining shall be recognised and protected.”

   The objectors pointed out that NT 23 specifically entrenches only the rights of employers’ associations to engage in collective bargaining, and does not specifically entrench the right of individual employers to engage in collective bargaining.

   It is true that NT 23 does not protect the right of individual workers to bargain, but individual workers cannot bargain collectively except in concert. As stated above, collective bargaining is based on the need for individual workers to act in combination to provide them collectively with sufficient power to bargain effectively with employers.

   Individual employers, on the other hand, can engage in collective bargaining with their workers and often do so. The failure by the text to protect such a right represents a failure to comply with the language of CP XXVIII which specifically states that the right of employers to bargain collectively shall be recognised and protected. This objection therefore succeeds”.