CCT Case: 62 /2014
In the appeal between:
IVOR CHARLES STRATFORD First Appellant SHEILA MARGARET STRATFORD Second Appellant CLEAN NGOMA Third Appellant ERIC DLOKOLO Fourth Appellant ANDRIES ADONIS Fifth Appellant and
INVESTEC BANK LIMITED First Respondent THE MINISTER OF JUSTICE AND
CONSTITUTIONAL DEVELOPMENT Second Respondent
MINISTER OF LABOUR Third Respondent
SECOND RESPONDENT’S WRITTEN SUBMISSIONS
INTRODUCTION
1. The appellants have been granted leave to appeal to this Court1 against the judgment and order of 14 August 2013 by Mantame J2 in the Western Cape Division of the High Court (‘the High Court’).
2. The High Court dealt with both the application by the petitioning creditor for a final order of sequestration of the first and second appellants’ joint estate and with the appellants’ counter-application for an order declaring that section 9(4A) of the Insolvency Act 24 of 1936 (‘section 9(4A)’ and ‘the Insolvency Act’) is unconstitutional and invalid insofar as it does not make provision for the service of a petition on employees who are not employed a business operation of their employer.
3. The High Court granted a final order of sequestration and dismissed the counter-application.
4. The appellants now appeal against both of those orders.
1 Volume 5 pp. 576-7.
2 Volume 5 pp. 539-68.
5. As the interest of the second respondent (‘the Justice Minister’) is limited to the constitutional relief sought in the counter-application, these submissions are confined to that.
6. In dismissing the counter-application the High Court referred to the interpretation of section 9(4A) in Gungudoo,3 namely that it applies only to persons employed in a business operation, and not to domestic workers; and it held that, thus interpreted, section 9(4A) was not unconstitutional.
7. In their application for leave to appeal to this Court the appellants repeated the premise of their constitutional challenge to section 9(4A) in the High Court, namely that as section 9(4A) ‘only demands service of the founding papers on employees of a business prior to the granting of a sequestration application… employees not employed in a business, especially domestic employees, are excluded from the prescripts and protections contained in section 9(4A)’.4 They also repeated their contentions that section 9(4A) is unconstitutional and invalid because it unjustifiably infringes the rights in sections 9, 10, 23 and 34 of the Constitution of the
3 Gungudoo and Another v Hannover Reinsurance Group Africa (Pty) Ltd 2012 (6) SA 537 (SCA).
4 Application for leave to appeal: founding affidavit p. 30 para 67.
Republic of South Africa, 1996 (‘the Constitution’). 5 They consequently asked that they be granted leave to appeal to this Court, in order that in the appeal proceedings they could ask that section 9(4A) be declared unconstitutional and invalid.6
8. In their written submissions in this Court, however, the appellants do not ask for an order declaring section 9(4A) unconstitutional and invalid. Instead, they ask for an order declaring that the term
‘employees’ therein ‘includes both domestic employees, as well as employees in a business operation of an employer’.7
9. As we understand the legal position, the basic elements of any argument in support of the order the appellants now seek are the following:
9.1. the Constitution requires that section 9(4A) be interpreted in conformity with the Constitution;
9.2. section 9(4A) is reasonably capable of a meaning which includes domestic employees; and
5 Application for leave to appeal: founding affidavit pp. 30-33 paras 67-80.
6 Application for leave to appeal: founding affidavit pp. 18-19 paras 33.1, 34 and 35.1.
7 Appellants’ written submissions p. 47 para 84.3 (8).
9.3. if, as the SCA held in Gungudoo, the term excludes domestic employees, then section 9(4A) unconstitutionally infringes the rights in sections 9, 10, 23 and 34 of the Constitution.
10. The Justice Minister disputes the correctness of the propositions in paragraphs 9.2 and 9.3 above.
11. In what follows, therefore, we shall address the meaning of the term
‘employees’ in section 9(4A) and constitutional challenge to its exclusion of domestic employees.
THE MEANING OF ‘EMPLOYEES’ IN SECTION 9(4A)
12. The relevant part of section 9(4A) of the Insolvency Act provides as follows:
‘(4A)(a) When a petition is presented to the court, the petitioner must furnish a copy of the petition -
(i) to every registered trade union that, as far as the petitioner can reasonably ascertain, represents any of the debtor’s employees; and
(ii) to the employees themselves —
(aa) by affixing a copy of the petition to any notice board to which the petitioner and the employees have access inside the debtor’s premises; or
(bb) if there is no access to the premises by the petitioner and the employees, by affixing a copy of the petition to the front gate of the premises, where applicable, failing which to the front door of the premises from which the debtor conducted any business at the time of the presentation of the petition. . . . (emphasis added)’.
13. The Insolvency Act does not define the term ‘employees’.
14. We acknowledge that the terms ‘any of the debtor’s employees’ and
‘the employees’ in section 9(4A) are, on the face of things, wide and unqualified and hence capable of including domestic employees.
15. We however submit that when those terms are interpreted in their context (including the background and apparent scope and purpose of section 9(4A) and related provisions elsewhere in the Insolvency Act and in other legislation), as they must be,8 more specifically in the context of the ‘package’ of amending legislation enacted in 2002, namely:
sections 44 and 50 of the Labour Relations Amendment Act 12 of 2002 (‘Act 12 of 2002’) (which replaced section 189 in the Labour Relations Act 66 of 1995 (‘the LRA’) and inserted section 197B into the LRA);
sections 2 and 3 of the Insolvency Second Amendment Act 69 of 2002 (‘Act 69 of 2002’) (which inserted section 9(4A) into and replaced section 11 of the Insolvency Act); and
8 Mistry v Interim Medical and Dental Council of South Africa and Others1998 (4) SA 1127 (CC) paras 17-18; Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others 2004 (4) SA 490 (CC) para 89; Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) para 18.
sections 7 and 8 of Act 69 of 2002 (which inserted section 346(4A) and 346A into the Companies Act 61 of 1973),
then it is clear that the term ‘employees’ means persons employed in a business conducted by the debtor.
16. In this regard the Justice Minister respectfully agrees with the reasoning and conclusion of the SCA in Gungudoo.9
17. In interpreting section 9(4A) the SCA in Gungudoo considered the background to the adoption of the provision. The SCA noted the following:
17.1 One of the objects of the amendments to the Insolvency Act and the Companies Act 61 of 1973 (‘the old Companies Act’) by Act 69 of 2002 was to ensure that employees of debtors facing sequestration or winding-up were notified of the proceedings before a provisional order was granted and of the provisional order itself (if granted).
17.2 It is significant that these amendments were preceded by an amendment to the LRA, namely the insertion of section
9 Gundugoo paras 34-41.
197B10, which came into operation on 1 August 2002 and requires an employer facing financial difficulties that may result in sequestration or winding-up to notify a ‘consulting party’ contemplated in section 189(1) of the LRA of this fact. 11 An employer that applies to be wound up or sequestrated, or receives an application for its winding-up or sequestration, must therefore supply a copy of the application to the ‘consulting party’. Although a ‘consulting party’ is not
10 Section 197B of the LRA provides as follows:
“Disclosure of information concerning insolvency
(1) An employer that is facing financial difficulties that may reasonably result in the winding up or sequestration of the employer must advise a consulting party contemplated in section 189(1).
(2) (a) An employer that applies to be wound up or sequestrated, whether in terms of the Insolvency Act, 1936 or any other law, must at the time of making application, provide a consulting party contemplated in section 189(1) with a copy of the application.
(b) An employer that receives an application for its winding up or sequestration must supply a copy of the application to any consulting party contemplated in section 189(1), within two days of receipt, or if the proceedings are urgent, within 12 hours.”
11 Gungudoo para 36. Section 189(1) of the LRA provides as follows:
“Dismissals based on operational requirements
(1) When an employer contemplates dismissing one or more employees for reasons based on the employer's operational requirements, the employer must consult- (a) any person whom the employer is required to consult in terms of a collective
agreement;
(b) if there is no collective agreement that requires consultation-
(i) a workplace forum, if the employees likely to be affected by the proposed dismissals are employed in a workplace in respect of which there is a workplace forum; and
(ii) any registered trade union whose members are likely to be affected by the proposed dismissals;
(c) if there is no workplace forum in the workplace in which the employees likely to be affected by the proposed dismissals are employed, any registered trade union whose members are likely to be affected by the proposed dismissals; or
(d) if there is no such trade union, the employees likely to be affected by the proposed dismissals or their representatives nominated for that purpose.”
defined in the LRA, section 189(1) of the LRA calls for an employer that contemplates dismissing one or more workers for operational requirements to consult employees in terms of a collective agreement, or in the absence of a collective agreement, with a workplace forum, trade union or other representative body of the employees or the employees themselves.
17.3 Section 189 requires the employer to consult only with employees that face dismissal for the operational requirements of the employer, not all employees that fall within the broad definition of an employee in section 213 of the LRA.12 The term ‘operational requirements’ of an employer, which is defined in section 213 of the LRA as concerning
‘requirements based on the economic, technological, structural or similar needs of an employer’, is one which refers to the employer’s business requirements only. The rationale for section 189(1) is therefore to enable employees engaged in the employer’s business operations, or their representatives, to explore possible solutions with their
12 Gungudoo para 37.
employer to obviate the need for dismissal or to limit the number of dismissals for operational reasons.
17.4 It therefore follows that section 197B of the LRA requires an employer to disclose information concerning an insolvency only to those employees that are employed in the employer’s business.13
18. The SCA further examined the language used in section 9(4A), and concluded that it suggests that the draftsman had employees of a business in mind.
18.1 The first indication is the fact that section 9(4A)(a)(i) commences with the requirement that the sequestration petition be furnished to every registered trade union that, as far as the petitioner can reasonably ascertain, represents any of the debtor’s employees’. 14
18.2 The second indication is the petitioner’s obligation, in section 9(4A)(a)(ii)(aa), to furnish a copy of the petition to the
‘employees themselves’ ‘by affixing a copy of the petition to any notice board to which the petitioner and the employees
13 Gungudoo para 37.
14 Gungudoo para 39.
have access inside the debtor’s premises’. The SCA pointed out that a notice board is associated with a business – not a private residence – and the word ‘premises’ is usually used to refer to a house or building occupied by a business or for an official purpose.
18.3 The SCA placed particular emphasis on the requirement, both in section 9(4A)(a)(ii)(bb) and in section 11(2A)(b), that notice be given to the employees at ‘the premises from which the debtor conducted any business at the time of the presentation of the petition’ (our emphasis).
19. The SCA further observed that sections 346(4A) and 346A of the old Companies Act are virtually the mirror images of sections 9(4A) and 11(2A) of the Insolvency Act. While section 346(4A) refers to
‘notice of the winding-up application being served on the employees of the company at its premises’, section 346A says that the winding- up order is to be served on the employees at the ‘debtor’s premises’.
This, the SCA stated15, obviously refers to the company’s business premises, which again strengthened the SCA’s view that the references to the ‘debtor’s premises’ in section 9(4A)(a)(ii)(aa) and 11(2A)(b)) of the Insolvency Act also relate to business premises.
15 Gungudoo para 40.
20. The SCA consequently concluded16 that the purpose of the relevant provisions inserted into the LRA, Insolvency Act and the old Companies Act, which were adopted as a package in 2002, was to ensure that where a debtor conducts a business, notice of sequestration or winding-up proceedings must be given to employees of the business. Consequently, where employees are not employed in a business operation, there is no obligation to notify them of the sequestration proceedings.
21. The Justice Minister’s answering affidavit in the High Court17 gave certain particulars of the run-up to the amendments to the three statutes, showing that the amendments were the product of an agreement between government, labour and business in NEDLAC.
We submit that it would be appropriate for this Court to have regard to the Justice Minister’s evidence of the travaux préparatoires.18 We further submit that the memorandum on the objects of the Bill which became Act 69 of 2002, in particular, underscores the link between the relevant amendments effected by the Act and sections 189 and 197B of the LRA, to which the SCA referred.19
16 Gungudoo para 41.
17 Vol 4 pp 419-424 paras 7-14.
18 Mansingh v General Council of the Bar and Others 2014 (2) SA 26 (CC) para 27.
19 Volume 4 pp 464-6, especially p. 464 para 1.2.
22. We accordingly submit that, properly interpreted, section 9(4A) applies to employees engaged in a business only.
THE CONSTITUTIONALITY OF SECTION 9(4A)
23. The question is therefore whether the interpretation of section 9(4A) given by the SCA renders the provision unconstitutional for the reasons claimed by the appellants.
24. The appellants claim that section 9(4A) is unconstitutional based on the four rights contained in the Bill of Rights referred to above.
THE RIGHT TO FAIR LABOUR PRACTICES IN SECTION 23
25. We submit the exclusion of domestic workers from section 9(4A) of the Insolvency Act cannot be seen in isolation. Its impact and, hence, its constitutionality, must be assessed in a broader legislative context. We submit that when that is done it is clear that domestic workers are adequately protected during insolvency.
The Sectoral Determination
26. The LRA and the Basic Conditions of Employment Act 75 of 1997 (‘BCEA’) were promulgated to particularise section 23(1) of the
Constitution,20 which states that everyone has a right to fair labour practices.
27. The Sectoral Determination 7: Domestic Worker Sector (‘the Sectoral Determination’), promulgated in terms of section 51 of the Basic Conditions of Employment Act 75 of 1997 (‘the BCEA’), 21 establishes conditions of employment and minimum wages for employees in the domestic worker sector in South Africa.
28. Clause 24 of the Sectoral Determination provides for notice of termination of the employment relationship. It must be given in writing, except when it is given to an illiterate worker. A domestic worker employed for six months or less by the employer must receive one weeks’ notice of termination; whereas a domestic worker who has been employed for more than six months by the employer must receive four weeks’ notice of the termination. An employer and worker may agree to a longer notice period.
Employers may decide to waive the notice period, but the worker must still be paid for the notice period.
20 Gcaba v Minister For Safety and Security And Others 2010 (1) SA 238 (CC) para 10.
21 Government Notice R1068 in Government Gazette 23732 of 15 August 2002.
29. Clause 25 of the Sectoral Determination provides for payment of monies due at the termination of the employment. A domestic worker is entitled to all the monies due to him or her, including wages, allowances or other payments, paid time-off that the domestic worker has not taken, and untaken leave, where applicable.
30. In terms of clause 26 of the Sectoral Determination, if an employer of a domestic worker who resides at the workplace or in other accommodation supplied by the employer terminates the worker’s contract of employment before a date on which the employer is entitled to do so, the employer is required to provide accommodation for one month or until the contract could lawfully have been terminated, whichever period is the longer.
31. In terms of clause 27 of the Sectoral Determination, a domestic worker who is dismissed for reasons based on the employer’s operational requirements is entitled to one week’s pay for every completed year of continuous service with the employer. If there is a dispute about the entitlement to severance pay the domestic worker may refer a dispute to the Commission for Conciliation, Mediation and Arbitration.
32. In terms of clause 28 of the Sectoral Determination, on termination of employment a domestic worker is entitled to a certificate of service.
The LRA: Protection against Unfair Dismissal
33. Domestic workers are included within the scope of application of the LRA. Domestic workers who feel they have been unfairly dismissed may approach the CCMA.
The Insolvency Act
34. Section 38 of the Insolvency Act applies to all insolvent employers, irrespective of whether or not they carry on a business.22
35. It provides that the final trustee or liquidator may terminate the contracts of service of employees only after consultation with a person designated in terms of a collective agreement, workplace forum, a registered trade union, or a representative of employees, whichever may be applicable, on measures to save or rescue the business or a part thereof.
22 A Boraine & S van Eck ‘The New Insolvency and Labour Legislative Package: How Successful was the Integration?’ (2003) 24 ILJ 1840 at 1848.
36. In terms of s 38(6) the consultation must be aimed at reaching consensus on appropriate measures to save or rescue the whole or part of the business of the insolvent employer (a) by the sale of the whole or part of the business of the insolvent employer; or (b) by a transfer as contemplated in section 197A of the LRA; or (c) by a scheme or compromise referred to in section 311 of the old Companies Act, 1973; or (d) in any other manner.
37. If any of the consulting parties wishes to make proposals concerning any of the topics listed above, the party must submit written proposals to the trustee or liquidator within a prescribed period.
38. If the trustee or liquidator and an employee do not agree to continued employment, all suspended contracts are terminated within 45 days after the appointment of a final trustee or liquidator of a company or the date of appointment of a co-liquidator in terms of section 74 of the Close Corporations Act 69 of 1984, or if a co- liquidator is not appointed, the date of conclusion of the first meeting of creditors. However, the final trustee or liquidator may terminate the contracts of service of employees only after consultation with a person designated in terms of a collective agreement, workplace forum, a registered trade union, or a
representative of employees, whichever may be applicable, on measures to save or rescue the business or a part thereof.
39. Section 38 must be read in conjunction with s 98A, which provides for a preference for payment of employees’ claims for any salary or wages due to an employee (limited to R12,000 per employee), any payment (limited to R4,000 per employee) in respect of any period of leave to the employee which has accrued as a result of his or her employment by the insolvent in the year of insolvency or the previous year, whether or not payment thereof is due at the date of sequestration; and any payment due (limited to R4,000 per employee) in respect of any other form of paid absence for a period not exceeding three months prior to the date of the sequestration of the estate. The claim is a preferred claim against the free residue after the costs of sequestration and execution.
40. In terms of s 38(3) employees may also claim unemployment benefits in accordance with the provisions of the Unemployment Insurance Act 63 of 2001 as from the date of the suspension of their contracts of employment.
41. To sum up, once an employer is declared insolvent, all employment contracts with its employees are automatically suspended.
Employees need not then render service and are not entitled to remuneration except for unemployment benefits from the Unemployment Insurance Fund. A trustee or liquidator may then, after consultation with the employees aimed at reaching consensus on appropriate measures to salvage the business of the insolvent employer, terminate the suspended contracts of service. The employee is then entitled to claim from the insolvent estate for loss suffered by the suspension or termination as well as severance benefits in terms of s 41 of the BCEA.
42. Consequently, the granting of a provisional sequestration or liquidation order does not have the effect of terminating the contracts of employment of the employees, but instead suspends them, subject to interim arrangements that provisional trustees or liquidators can make with the employees if so authorized, with a view to such contracts only terminating if the provisional order is confirmed or the suspension was uplifted by operation of law upon the discharge of the order.23
THE RIGHT OF ACCESS TO COURTS IN SECTION 34
43. Section 34 of the Constitution provides as follows:
23 Van Zyl NO & others v Commission for Conciliation, Mediation & Arbitration & others (2012) 33 ILJ 2471 (LC) para 24; See also A Boraine & S van Eck loc ci.
‘Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum.’
44. Domestic workers are entitled to approach any court to resolve any legal dispute in relation to which they have a sufficient standing.
45. Section 9(4A) of the Insolvency Act does not preclude domestic workers from having justiciable disputes determined by courts.
THE RIGHTS TO EQUALITY AND DIGNITY IN SECTIONS 9 AND 10
46. Although the appellants rely on both equality and dignity, the focal point of their argument is indirect discrimination in contravention of section 9(3) of the Constitution (i.e. the infringement of dignity arises primarily from the discrimination).24
47. Section 9(3) prohibits discrimination on any or more grounds including ‘race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and birth’.
24 See especially appellants’ heads pp 32-33 paras 56-8.
48. We accept that section 9(4A) of the Insolvency Act differentiates between employees employed in the business operation of an employer facing sequestration and those who are not.
49. The appellants claim that their right to equality was breached by virtue of the fact that ‘the people who are negatively affected by the current interpretation of section 9(4A) are overwhelmingly poor, female and black’25. They therefore rely on indirect discrimination against black and females.
50. For the reasons which follow, however, we submit that any such indirect discrimination which this Court may find the appellants have established on the evidence (something which is not conceded), is justifiable in terms of section 36 of the Constitution on the bases discussed below.
JUSTIFIABILITY
51. As the SCA stated in Gungudoo, the purpose of ‘the relevant provisions of the LRA, Insolvency Act and 1973 Companies Act, which were adopted as a package, was to ensure that where a
25 Appellants’ heads pp 28-29 para 48.
debtor conducted business, notice of sequestration or winding-up proceedings must be given to employees of the business’.26
52. The SCA added in EB Steam Company that ‘[t]heir purpose is to enable the employees of an employer, facing winding-up or sequestration, or their representatives, to engage the employer and possibly the creditors with a view to protecting the position of the employees, insofar as it is reasonably possible to do so’.27
53. For the reasons given earlier when discussing the proper interpretation of section 9(4A), the corollary is that such engagements will not serve any useful purpose when the affected employees are domestic workers not employed in any business of the debtor/employer. There is therefore no warrant for the additional costs and administrative burden of requiring petitioning creditors to give notice to domestic workers.
54. We accordingly submit that any unfair discrimination and/or infringement of any of the other rights on which the appellants rely which may be found to result from the exclusion of domestic
26 Gungudoo para 41.
27 EB Steam Company (Pty) Ltd v Eskom Holdings Soc Ltd [2014] 1 All SA 294 (SCA) para 7.
employees from the reach of section 9(4A), is justifiable in terms of section 36(1) of the Constitution.
CONCLUSION
55. The second respondent accordingly asks that the appeal be dismissed.
A.M. BREITENBACH
N MANGCU-LOCKWOOD Second respondent’s counsel
Chambers Cape Town 7 August 2014
SECOND RESPONDENT’S AUTHORITIES
Gungudoo and Another v Hannover Reinsurance Group Africa (Pty) Ltd 2012 (6) SA 537 (SCA)
Mistry v Interim Medical and Dental Council of South Africa and Others1998 (4) SA 1127 (CC)
Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others 2004 (4) SA 490 (CC)
Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA)
Mansingh v General Council of the Bar and Others 2014 (2) SA 26 (CC) Gcaba v Minister For Safety and Security And Others 2010 (1) SA 238 (CC)
A Boraine & S van Eck ‘The New Insolvency and Labour Legislative Package: How Successful was the Integration?’ (2003) 24 ILJ 1840 Van Zyl NO & others v Commission for Conciliation, Mediation &
Arbitration & others (2012) 33 ILJ 2471 (LC)
EB Steam Company (Pty) Ltd v Eskom Holdings Soc Ltd [2014] 1 All SA 294 (SCA)
