THE Constitutional Court’s ruling in favour of Coca-Cola Beverages Africa (CCBA) to retrench 400 employees has made a precedence-setting judgment, giving merged entities some leeway to lay off workers post merger proceedings.
This comes after the Concourt on Wednesday handed down judgment in an application for leave to appeal against the order and judgment of the Competition Appeal Court which had ruled against CCBA.
CCBA had been taken to task by the Competition Commission for retrenching the nearly 400 employees, allegedly in breach of merger conditions.
This as the Competition Tribunal in 2016 approved the merger of four bottling firms in South Africa into CCBA, subject to conditions such as maintenance of a certain numbers of employees for a certain period as well as a prohibition of certain retrenchments.
However, the Competition Tribunal permitted retrenchments unrelated to the merger, giving leeway for CCBA to effect lay-offs under circumstances such as those “required by operational requirements” in the ordinary course of business.
“Economic challenges were faced by Coca-Cola after the mergers,” reads a part of the ruling by the ConCourt.
It acknowledges the “deterioration in the economy” of South Africa in the past few years, and notes other constraints on companies such as rising taxes and escalating input costs as inflation firmed.
“From 1 April 2018, a sugar tax was imposed. Input prices rose sharply. Sales volumes declined and competitors gained market share,” explains the apex court’s ruling.
As a consequence of these headwinds, CCBA engaged the Competition Commission and organised labour representing its employees, indicating that it may have to initiate retrenchments.
It subsequently did so, leading to a complaint being filed with the Commission by the Food and Allied Workers Union (FAWU), regarding an alleged breach of merger conditions.
“The court considered that if the retrenched employees were subsequently rehired or replaced at lower salaries without eliminating duplicate posts, this suggested a cost-saving motive rather than one linked to the merger,” read the judgment.
It elaborated that while this may be unfair under labour legislation, it did not necessarily give rise to a breach of the merger conditions.
CCBA argued that in determining whether retrenchments were merger-specific, it must be determined whether the merger was the factual and legal cause of the retrenchments.
It further contended that the retrenchments were not merger-specific.
On the contrary, the Competition Commission maintained that CCBA’s leave to appeal should be refused as the company had consistently changed its case, thus causing prejudice to the commission.
It argued that CCBA was raising several new points, and that the beverages manufacturer’s case merely concerned the misapplication of an existing legal test.
The commission said CCBA had failed to show that any constitutional rights had been implicated in this matter, or that the Competition Appeal Court interpreted any legislation in a manner that was inconsistent with the Constitution.
Before the matter went to the Concourt, the Competition Tribunal had found that CCBA had substantially complied with the relevant merger condition, but the commission appealed the decision at the Competition Appeals Court and won.
The Competition Appeal Court criticised the tribunal for not treating the review as an ordinary review of administrative action.
In determining whether the retrenchments were merger-specific, it considered that there should be some nexus between the retrenchments and the incentives of the new controlling shareholder.
However, the Concourt granted leave to appeal, upheld the appeal, overturned the decision of the Competition Appeal Court and replaced it with a decision dismissing the appeal against the tribunal’s decision.
It emphasised that “due to the nature of mergers giving the newly merged firm control over the enterprise, there will always be some connection between the merger and subsequent” decisions.
“This broad nexus approach, however, could lead to inevitable findings of merger specificity and breach, even if other more immediate or dominant reasons existed for retrenchments,” it said.
In terms of costs, the Concourt found that CCBA had not made out any such case to suggest that the commission had acted unreasonably, frivolously or vexatiously, and thus ordered that each party bear its own costs.
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