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Exempting a ‘non-party’ employer from a bargaining council’s collective agreement, what does our law say?

By Venolan Naidoo, Senior Associate, Fasken

 

Section 32 of the Labour Relations Act 66 of 1995 (‘LRA’) makes provision for the Minister of Employment and Labour (‘Minister’), in accordance with the statutory requirements, to extend a collective agreement concluded in a bargaining council to a non-party employer that is within its registered scope and identified.

 

However, the Minister’s extension is not without exception. A non-party employer is entitled to seek exemption, or even partial exemption, from an extended collective agreement.

 

This should be in compliance with the relevant procedure and criteria (to the extent applicable, but which should be fair and promote the primary objects of the LRA). If a non-party employer is unsuccessful with exemption or if exemption granted is later withdrawn, it ought to be entitled to pursue an appeal to an independent appeal authority.

 

In both the Labour Court and Labour Appeal Court, a number of decisions have been made in addressing the question on the test and considerations to be applied when granting or refusing an exemption.

 

This article will discuss some of these.

 

In an earlier decision of Ncungama & Others v Bargaining Council for the Liquor Catering & Accommodation Trades, South Coast, KwaZulu Natal & another [2002] 8 BLLR 766, the Labour Court was faced with this question. The employer applied for exemption from the bargaining council’s provident fund (collective) agreement. The bargaining council refused to grant exemption as it claimed the benefits of the employer’s fund were less beneficial than its own fund. The employer thereafter sought to review that decision in the Labour Court. The employer claimed, amongst others, that the:

  • criterion on which the council based its decision was unconstitutional as it infringed on the right to freedom of association;

  • process of seeking exemption was procedurally unfair; and the

  • decision to refuse the exemption was unjustified.

 

Although the court in Ncungama & Others recognized that the right to freedom of association could be limited, it confirmed that the bargaining council failed to provide its written comments and should have given the employer an opportunity to respond to those comments which pertained to the exemption application. It concluded that the bargaining council, through its exemption panel, decided to refuse the exemption without hearing a response to those comments. The Labour Court held that this aspect constituted a material and procedural irregularity.

 

Furthermore, in Ncungama & Others, the bargaining council’s substantive reasons submitted to the court were, amongst others, that it would encourage employees to remain in employment in the trades under its jurisdiction. According to the bargaining council, this apparently secured the best interest rates for their investments i.e. the council’s provident funds.

 

Notwithstanding the latter reasons, the Labour Court held that these reasons were not cogent given the tenuous nature of the industry’s work. It further held that the refusal to grant the exemption was not only wrong but also a misdirection in failing to consider all the material information properly before it and that the council was partial in fettering its discretion in favour of its fund’s administrator.

 

The court accordingly reviewed and set aside the decision. It substituted this with the decision of granting the employer the exemption.

 

In Tao Ying Metal Industry (Pty) Ltd v Pooe NO and Others [2006] 5 BLLR 456, the Labour Appeal Court (‘LAC’) had to determine whether an exemption certificate granted in favour of an employer could still apply when the main collective agreement, from which exemption was initially granted, was thereafter replaced by another agreement. The bargaining council’s position, in line with the employer, was that the exemption operated even after the collective agreement was replaced.

 

The representative unions of the bargaining council disagreed and pursued enforcement proceedings against the employer in the CCMA. They claimed the exemption did not apply to the new collective agreement.

 

On appeal to the LAC, the conclusion of the court in Tao Ying was that the bargaining council acted ultra vires i.e. beyond its powers by purportedly recognising the operation of the exemption certificate in excess of the life of the collective agreement in which the exemption was sought.

 

In another decision of Trafford Trading (Pty) Ltd v National Bargaining Council for the Leather Industry of SA & others [2010] 1 BLLR 95, the Labour Court held that the employer had to prove:

  • the council was grossly unreasonable; and

  • that it denied the employer the right to fully and fairly hear the matter.

 

The court in Trafford Trading found that the council exhaustively dealt with each ground of the employer’s application and correctly held that both the bargaining council and appeal authority were correct to refuse the employer’s application for exemption.

 

The Labour Court importantly concluded that the employer would perpetrate an injustice by paying its workers less than the prescribed rate and denying them those benefits should it be granted the exemption.

 

In Subaru Pretoria (Pty) Ltd v Motor Industry Bargaining Council (MIBCO) and others [2014] 5 BLLR 500, the Motor Industry Bargaining Council (‘MIBCO’) withdrew its initial exemption status granted in favour of the employer from an industry provident fund scheme (as arising from MIBCO’s collective agreement).

 

Membership of MIBCO’s two retirement provident funds were compulsory for all employees in the industry, unless an exemption applied (this is what the employer was ultimately seeking). The basis for MIBCO later withdrawing the exemption was that it realised the employer’s scheme was in fact a retirement annuity (‘RA’) which it saw as inferior in comparison to its industry’s provident funds.

 

In Subaru Pretoria, the Labour Court in reviewing the appeal authority’s decision noted that MIBCO indeed saw RAs’ as inherently inferior to its industry provident funds. It further noted that MIBCO applied its mind to this aspect when deciding to withdraw the exemption and gave reasons for this (MIBCO had earlier granted the exemption in error).

 

The appeal authority also applied its mind to this material factor. The Labour Court held that MIBCO did not rigidly apply its policy as contended by the employer, provided it independently determines whether the policy applies to each particular case in deciding to grant or refuse exemption.

 

In a relatively recent judgment of Golden Arrow Bus Services (Pty) Ltd v SA Road Passenger Bargaining Council & others (2019) 40 ILJ 2343, the Labour Court dealt with a review of an appeal authority’s decision in refusing to grant the employer’s partial exemption status from the bargaining council’s main collective agreement.

 

The appeal authority claimed it was precluded from deciding the employer’s exemption refusal as, according to it, there was already a pending dispute on wage levels and the appeal authority apparently did not want to amend the main collective agreement (as the appeal authority so believed).

 

The Labour Court in Golden Arrow Bus Services found that the appeal authority’s view was erroneous and held that it should have heard the appeal as required by the exemption procedure. The decision of the appeal authority was consequently reviewed, set aside, and remitted to be heard by a newly constituted appeal authority.

 

However, (as it later turned out) the newly constituted appeal authority’s decision resulted in a separate and further review application in the Labour Court and culminating in an appeal to the LAC. A discussion of the LAC’s decision will be dealt with later below in light of this judgment being delivered rather recently as at the time of the writing of this article.

 

Not much longer after Golden Arrow Bus Services in 2019, the Labour Court decided the case in Putco (Pty) Ltd v SA Road Passenger Bargaining Council & Others (2019) 40 ILJ 2389. The employer in this case also sought partial exemption from certain provisions of the bargaining council’s main agreement.

 

The employer in Putco placed sufficient evidence to demonstrate it could not afford to fully comply with the main agreement. It sought, amongst others, a certain delay in the implementation of a 9% wage increase and an exemption from payment of the 2018 annual bonus.

 

According to the employer, both these measures would likely yield cash flow relief and would avoid the risk of it proceeding to business rescue and/or further retrenchment. Notwithstanding the employer’s evidence submitted, both the exemption panel and appeal authority refused to grant the exemption. The employer thereafter pursued a review in the Labour Court.

 

In Putco, the Labour Court, in addition to confirming the test of reasonableness, held that the employer had placed special circumstances in the form of facts and evidence that justified an exemption from compliance. The court further concluded that appeal authorities ought to interrogate the evidence and must make a considered and reasoned decision on whether or not to grant exemption.

 

In this particular case, it found that it was not open for the appeal authority to reject the version of the employer in the summary terms that it did and to apply a different outcome based on what the appeal authority viewed as “equitable terms”. The Labour Court in Putco accordingly reviewed, set aside, and substituted the said decision with an order of granting the employer’s exemption.

 

As indicated above, and more recently, the LAC delivered judgment (on 14 May 2021) in the reportable decision of Golden Arrow Bus Services (Pty) Ltd v The South African Road Passenger Bargaining Council & Others (Case No. CA 4/2020).

 

This related to the Labour Court’s decision discussed above (under Golden Arrow Bus Services) and where it was held that a newly constituted appeal authority hear the matter afresh. However, the newly constituted appeal authority, yet again (but for different reasons), did not find in favour of the employer in seeking partial exemption. To avoid confusion with the Golden Arrow Bus Services judgment which relates to the same parties, the LAC’s decision will be referred to as the Golden Arrow Bus Services LAC decision.

 

The facts before the LAC in this case pertained to the employer seeking partial exemption based on its envisaged alleviation of what the employer considered to be a wage disparity problem. This was due to the effect of the collective agreement in question which provided for an ‘across the board’ wage increase of 9%.

 

However, this did not take into account the employer’s historical anomaly of a “notch” system relating to salary increases. In regard to the latter, such created a substantial disparity between wage increases it was obliged to pay (as between its employees, which pre-dated the collective agreement in question) and, on the other hand, those increases which its competitors in the industry are obliged to pay.

 

The appeal authority’s primary findings in the Golden Arrow Bus Services LAC decision was that the employer’s motivation did not relate to the:

  • experiencing of “financial” or “job security” hardship; or

  • collective agreement in question resulting in unintended consequences.

 

As a result of refusing the exemption application, the employer pursued a review application in the Labour Court (i.e. the court of first instance in this case).

 

The Labour Court (before Prinsloo J) found in favour of the employer in reviewing and setting aside the appeal authority’s decision. It held that the appeal authority had no regard to “all relevant factors” set out in clause 13 of the exemption procedure (which sets out other factors). It found that the appeal authority misdirected itself as to the nature of the inquiry and committed a gross irregularity by failing to consider the matter on its merits.

 

However, the Labour Court ordered that an afresh appeal authority hearing take place as it did not have sufficient facts to substitute the decision.

 

The employer, dissatisfied by this particular outcome, then pursued an appeal to the LAC to the extent that it concerned the non-substitution of the appeal authority’s decision (which was in conjunction with a cross-appeal brought by the respondent parties).

 

The appeal court, in considering the matter in Golden Arrow Bus Services LAC decision, importantly held as follows:

  • it agreed with the Labour Court’s finding that the appeal authority confined the exemption application to only the ‘ability to comply with the requirements of the agreement’ or ‘circumstances where there are unintended consequences’;

  • it also agreed with the findings of the Labour Court that the appeal authority failed to consider all the other relevant factors set out in clause 13 of the agreement’s exemption procedure. Moreover, the clause further indicated the provision “which may include but is not limited to”. In other words, this entailed that the range can extend beyond the factors of clause 13 of the agreement;

  • it acknowledged the legal authority in Free Market Foundation v Minister of Labour and others [2016] 37 ILJ 1638 (GP) which held that an exemption application should be narrowly construed given the principles of voluntarism in collective agreements, but that one cannot invoke such principles of voluntarism to eschew a careful examination of the list of criteria set out in clause 13 of the agreement;

  • the appeal authority’s ruling omitted a detailed engagement with the unintended consequences and it was obvious that the parties did not agree to make all the wages the same. Additionally, it reiterated with authority that the purpose of collective bargaining in this sense is to ensure employers and employees in the subsectors should enjoy the same treatment and to also ensure that employers compete with their counterparts in a fair manner in order to sustain the industry and to prevent job losses;

  • the narrow approach adopted by the appeal authority resulted in a decision which also did not take into account the employer’s central argument that it would not be able to compete with new entrants in the markets. This was based on its obligation to maintain the wage rates in perpetuity (as was required by its status quo obligations viz-a-viz the collective agreement in question) which were far in excess of the industry minimum; and that

  • a reasonable decision-maker was obliged to take all relevant factors into account and not confine the enquiry as it so did.

 

However, the court in Golden Arrow Bus Services LAC decision agreed with the Labour Court’s conclusion that it did not have sufficient facts to substitute, and dismissed the appeal and cross-appeal.

 

For more information please contact Venolan Naidoo at [email protected]

 

Please visit www.fasken.com

 

 

 

 

 

 

 

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