What happens to my employment contract during business rescue proceedings?
With the high prevalence of companies going into business rescue due to the current economic climate in an attempt to avoid liquidation, many employees have become affected and it is important to know and understand your rights in these circumstances.
What is Business Rescue?
Business rescue proceedings (“BR”) are simply a lifeline to companies who are financially distressed and an attempt to save the company from liquidation if at all possible. The proceedings provide the company breathing space by the appointment of a Business Rescue Practitioner (“BRP”) for the temporary supervision of the company, and the management of its affairs, business and property, a temporary moratorium (stay) on the rights of claimants against the company or in respect of property in its possession; and the development and implementation, if approved, of a business rescue plan to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity (section 128(1)(b)).
The Law
For an employee to know his rights with in in the employment context of a company with subject to business rescue proceedings, the Labour Relations Act (“LRA”) must be read and considered together with the provisions of the Companies Act no. 71 of 2008 (Chapter 6) and the Insolvency Act no. 24 of 1936 (as amended).
Section 136 of the Companies Act provides for the “Effect of business rescue on employees and contracts.—(1)Despite any provision of an agreement to the contrary—
(a) during a company’s business rescue proceedings, employees of the company immediately before the beginning of those proceedings continue to be so employed on the same terms and conditions, except to the extent that—
(i) changes occur in the ordinary course of attrition; or
(ii) the employees and the company, in accordance with applicable labour laws, agree different terms and conditions; and
(b) any retrenchment of any such employees contemplated in the company’s business rescue plan is subject to section 189 and 189A of the Labour Relations Act, 1995 (Act No. 66 of 1995), and other applicable employment related legislation.
(2) Subject to subsection (2A), and despite any provision of an agreement to the contrary, during business rescue proceedings, the practitioner may—
(a) entirely, partially or conditionally suspend, for the duration of the business rescue proceedings, any obligation of the company that—
(i)
arises under an agreement to which the company was a party at the commencement of the business rescue proceedings; and
(ii)
would otherwise become due during those proceedings; or
(b) apply urgently to a court to entirely, partially or conditionally cancel, on any terms that are just and reasonable in the circumstances, any obligation of the company contemplated in paragraph (a).
[Sub-s. (2) substituted by s. 87 (b) of Act No. 3 of 2011.]
(2A) When acting in terms of subsection (2)—
- a business rescue practitioner must not suspend any provision of—
- an employment contract; or
(ii) an agreement to which section 35A or 35B of the Insolvency Act, 1936 (Act No. 24 of 1936), would have applied had the company been liquidated;
(b) a court may not cancel any provision of—
- an employment contract, except as contemplated in subsection (1);
(ii) an agreement to which section 35A or 35B of the Insolvency Act, (Act No. 24 of 1936), would have applied had the company been liquidated; and…..
(3) Any party to an agreement that has been suspended or cancelled, or any provision which has been suspended or cancelled, in terms of subsection (2), may assert a claim against the company only for damages.
(4) If liquidation proceedings have been converted into business rescue proceedings, the liquidator is a creditor of the company to the extent of any outstanding claim by the liquidator for any remuneration due for work performed, or compensation for expenses incurred, before the business rescue proceedings began.
What is important to remember is that during business rescue proceedings, unlike during liquidation proceedings where the contract of employment’s are suspended, your contract of employment, encompassing the terms and conditions including the employer’s policies and procedures or rules and standards, continue in the normal course; in other words you may still be disciplined for misconduct, performance managed, and even conceivably be retrenched in accordance subject to and approved and agreed business rescue plan.
In the recent Labour Court case of NUMSA versus SAA[1] the court found that a BRP could engage employee’s and conclude voluntary retrenchment agreements even in the absence of a business rescue plan. What is important to remember is that even in business rescue proceedings the provisions of section 189 and 189A of the LRA remain applicable and must be complied with by the BRP whether engaging employees in voluntary retrenchment’s and/or where there is a business rescue plan in place, involuntary retrenchments.
If in doubt of your rights consult us for advice and assistance before taking any action.
NB: Please note that this article is for informational purposes only and not for the purpose of providing legal advice. Should you require more information on this topic or any issue arising out of this please contact Allardyce & Partners on 011-234 2125 or enquiries@www.allardyce.co.za
[1] National Union of Metalworkers of South Africa (NUMSA) obo Members and another v South African Airways (SOC) Ltd and others [2020] JOL 46875 (LC)
