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General Moratorium & Labour Dispute Resolution: a potential conflict?

By Njabulo Kubheka of Gottschalk Attorneys and Practice Note Committee Member

Introduction
Section 133 of the Companies Act, 71 of 2008 (“the Act”), states that no legal proceedings against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with, in any forum, during business rescue proceedings, except with the written consent of the practitioner or with the leave of the court, and in accordance with any terms the court considers suitable.

The word ‘legal proceedings’ is not defined in the Act. This gave rise to conflicting views and findings by the courts regarding the interpretation of ‘legal proceedings’ in the context of business rescue and labour dispute resolution. At some point, there was uncertainty as to whether ‘legal proceedings’ extends to proceedings over which the labour court, labour appeal court, and commission for conciliation, mediation and arbitration (“CCMA”) have exclusive jurisdiction.

Discussion
The challenge comes based on the provisions of section 210 of the Labour Relations Act 66 of 1995 (“the LRA”). This section states that if any conflict relating to the matters dealt with in the LRA arises between the LRA and the provisions of any other law save the Constitution or any Act expressly amending the LRA, the provisions of the LRA will prevail.

The argument is that section 133 of the Act is in conflict with the dispute resolution provisions contained in the LRA to the extent that it seeks to prevent employees from instituting labour disputes against their employers during business rescue proceedings. It was argued that section 210 of the LRA should prevail over section 133 of the Act.

In the case of National Union of Metal Workers of South Africa obo Members v Motheo Steel Engineering CC [2014] JOL 32257 (LC), the court held that in terms of section 210 of the LRA, a matter dealt with in that Act prevails over the provisions of any other law save the Constitution or any Act expressly amending it. The court further held that section 133(1) of the Act does not expressly amend the provisions of the LRA as it might otherwise prevent legal proceedings, without the leave of a court or the relevant business rescue practitioner. It did not prevent the applicant from bringing this application.

In the case of Chetty v Hart (20323/14) [2015] ZASCA 112 (4 September 2015), the court held that the general moratorium applies not only to legal proceedings in court but also to arbitration proceedings.

In Fabrizio Burda v Integcomm (Pty) Ltd (unreported case no. JS539/12, 29 November
2013)
, the court held that the general moratorium is applicable to labour related disputes. In this regard, the court held that it did not appear that there was any conflict between s133(1)(a) of the Companies Act and the dispute resolution provisions set out in the LRA. In so far as there has been conflicting jurisprudence on the application of s133 of the Companies Act to dispute[s] arising out of the LRA, it appears to have been settled by the recent decision of the Supreme Court of Appeal in Chetty t/a Nationwide Electrical v Hart and Another NNO [2015 (6) SA 424 (SCA) paras 26-29].

In this case, the SCA interpreted s133 to place a moratorium, not only on legal proceedings in court but even arbitration proceedings.

Potential conflict
This above issue seems to be resolved now as the courts have, over the recent cases, accepted that the general moratorium extends to labour disputes. The above interpretation by the courts has, however, given rise to another legal challenge for the employees of a company that is subject to business rescue proceedings.

A business rescue practitioner of a company under business rescue is allowed to retrench the employees of the company as part of the plan to save the company in its financial distress.

In National Union of Metalworkers of South Africa (NUMSA) obo Members and Others v South African Airways (SOC) Ltd and Others [2020] 6 BLLR 588 (LC), the court held that in the business rescue plan, the business rescue practitioner may contemplate retrenchment of employees. The court stated that section 136 (1) (b) of the Act obligates the business rescue plan to subject itself to the provisions of section 189 and 189A of the LRA. This means that if the retrenchment is contemplated in the plan published by the business rescue practitioner, such retrenchment would be subjected to the provisions of the LRA.

Section 189A of the LRA deals with dismissals based on operational requirements by employers. Section 189A (13) states that if 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 compelling the employer to comply with a fair procedure, interdicting or restraining the employer from dismissing an employee prior to complying with a fair procedure and directing the employer to reinstate an employee until it has complied with a fair procedure.

Section 189A (17) of the LRA states that the application contemplated in subsection 13 must be brought no later than 30 (thirty) days after the employer has given notice to terminate the employee’s services or, if notice is not given, the date on which the employees are dismissed. In the context of business rescue proceedings, this means that the 30 (thirty) day period will fall during the proceedings. The question that follows then is whether the employees who have been given a notice during business rescue proceedings can make an application to the labour court in terms of section 189A (13) if there has been non-compliance with fair procedure.

The labour court in National Union of Metalworkers of South Africa (NUMSA) obo Members and Others v South African Airways (SOC) Ltd and Others [2020] 6 BLLR 588 (LC) was asked to consider whether there is a potential conflict between section 133 (1) of the Act and section 189A (13) of the LRA. However, the court decided not to entertain this issue on the basis that the factual question of whether retrenchment was contemplated by SAA in the proceedings was dispositive of the matter alone.

Therefore, there was no need to consider the potential conflict between the two sections.

In Sondamase and Another v Ellerine Holdings Ltd and Another (C669/2014) [2016] ZALCCT 53 (22 April 2016), the court held that by suspending the legal proceedings and giving the respondents “breathing space”, the employees are not deprived of their right to continue with their claim against the company at a later stage. The claim is only suspended during the period of business rescue proceedings. That does not appear to be in conflict with the provisions of the LRA.

There have been arguments that in as much as the general moratorium is applicable to labour related disputes, it should not extend to procedural challenges under section 189A (13) of the LRA. This should be the case because the applications under section 189A (13) cannot be brought at a later stage. The aim of section 189A (13) applications is to bring the consulting parties into good negotiation terms and ensure compliance with a fair procedure during the consultation process. An order given after business rescue proceedings have ended might not bring the parties into fair negotiation terms, and the consultation process would have ended by that time.

Furthermore, once the business rescue proceedings have ended, especially in cases where the rescue proceedings were unsuccessful, the reliefs under section 189A (13) will not be available to the employees later.

As it stands, should the issue of procedural challenge under section 189A (13) of the LRA arise, the employee will have to seek consent from the business rescue practitioner to proceed to the labour court. Should the practitioner not give consent, the other available option to the employee will be to approach the high court on an urgent basis to apply for an order to lift the general moratorium. In this case, section 133 of the Act then prevents the employees from making section 189A applications
directly to the Labour Court without the consent of the business rescue practitioner or
with leave of the court.

Conclusion
It is submitted that the general moratorium afforded to the company in business rescue should not be extended to procedural challenges under section 189A (13) of the LRA.
This limitation will allow the employees to exercise their rights in terms of section 189A (13) expeditiously and without incurring extra legal costs of having to obtain an order from the high court lifting the general moratorium.

While it is accepted that these rights of the employees are not denied but simply suspended, it is submitted that the suspension has a greater negative effect than those of limiting the application of the general moratorium to procedural challenges under section 189A (13) of the LRA.

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