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09 Feb 2021
BY Brian Patterson AND Shivani Moodley

Labour Court hands down new judgment on business rescue

The South African Airways (“SAA”) saga continues, with another Labour Court judgment handed down on 8 February 2021.

Given the financially parlous position that SAA has been in, even throughout its business rescue proceedings, the Department of Public Enterprises (“DPE”), SAA’s sole shareholder and sole lender, offered SAA employees a salary settlement agreement. In terms of that agreement, SAA employees would waive their rights to eight-months’ remuneration, in exchange for three-months’ remuneration, payment of their 13th cheque and a lump sum in respect of a 5.9% increase with effect from April 2019. Many trade unions and individual employees accepted this deal, in order to receive immediate payment.

The National Union of Metalworkers of South Africa (“NUMSA”) and the South African Cabin Crew Association (“SACCA”), two major unions in SAA’s business, did not accept this agreement and launched an urgent application in the Labour Court. They sought an order that:

  1. SAA’s and the business rescue practitioners (“BRPs”) conduct was unlawful and unfair, in that they made payment of the settlement amounts to employees who had waived their rights, but not to employees who had refused to do so; and
  2. SAA make payment of those amounts to all its members, within seven days of the judgment.

SAA and the BRPs opposed the application. The Minister of Public Enterprises, as government’s representative as the sole shareholder, launched an application to intervene in the proceedings.

Application to intervene

The Labour Court granted the Minister of Public Enterprises’ application to intervene in the matter. This was done on the basis that section 146 of the Companies Act, 2008 provides that a holder of any issued security in a company in business rescue has the right to participate in any court proceedings arising during the business rescue proceedings. This right exists as a matter of law and a party need not establish a direct and substantial interest in the matter.

A costs order was made against NUMSA and SACCA for having opposed that application, in circumstances where there was no merit in doing so and where NUMSA and SACCA ought to have cited the minister at the outset.

The moratorium on legal proceedings

Section 133 of the Companies Act provides that a party may only litigate against a company in business rescue if it has sought and been granted consent by the BRPs to launch such litigation, alternatively, if the High Court has granted the party leave to litigate.

NUMSA and SACCA did not seek the BRPs consent to litigate against SAA, nor did it apply for leave to litigate against SAA (either in the Labour Court or High Court). The unions sought to argue that in labour matters, leave need not be granted.

The Labour Court held otherwise and upheld the interpretation of section 133 of the Companies Act – the BRPs must either consent to the litigation, or the High Court must grant leave to litigate. The Labour Court further confirmed that it lacked the jurisdiction and power to grant a party leave to litigate, as that is a power that is expressly reserved for the High Court in terms of the Companies Act.

Jurisdiction

The Labour Court held that it did not have jurisdiction to adjudicate over NUMSA and SACCA’s complaints. In essence, their claims were founded in section 135(3) of the Companies Act, in terms of which they sought equal treatment with other creditors. The Labour Court unequivocally held that that was an issue that the High Court had jurisdiction to adjudicate over, which jurisdiction the Labour Court lacked.

No discrimination

The Labour Court further held that even if the moratorium on legal proceedings did not apply, there could have been no unfair discrimination against those of NUMSA and SACCA’s members who refused to sign the salary settlement agreement and that SAA did not act unlawfully. All employees were given the opportunity to accept that deal, which particular employees refused. The Labour Court reiterated the fact that an employee is lawfully permitted to compromise his/her rights to remuneration. 

Furthermore, the Labour Court concluded that even though the Basic Conditions of Employment Act, 1997 provides that an employee has a right to be paid remuneration within seven days of that remuneration becoming due and owing, when an employer is in business rescue, that right must be read with the Companies Act. The Companies Act specifically provides that employees’ remuneration constitutes a post-commencement finance claim, which must be dealt with in terms of the Companies Act and/or the business rescue plan.

The unions’ application was dismissed.

Final comments

This judgment is a reportable one and is important for a number of reasons in respect of employment and business rescue law and will likely be the subject of further discussion.

It is useful in that it clearly sets out the boundary line of where the Labour Court has jurisdiction and where the High Court has jurisdiction in respect of labour disputes which arise while a company is in business rescue.

Furthermore, the issue of the moratorium on legal proceedings has now been clearly clarified by the Labour Court, where there was previously a grey area in the law on this issue. The matter may be subject to an application for leave to appeal.

ENSafrica acted for SAA and the business rescue practitioners.

 

Brian Patterson

Employment | Executive

bpatterson@ENSafrica.com

+27 82 338 9835

 

Shivani Moodley

Employment | Associate

smoodley@ENSafrica.com

+27 82 560 4064