Hogan Lovells Publications | Mining Newsletter | 26 May 2016

Downscaling of operations and retrenchments

Downscaling of operations and retrenchments: A new approach to compliance with the provisions of the Mineral and Petroleum Resources Development Act 28 of 2002 and sections 189/189A of the Labour Relations Act 66 of 1995

There have been glimmers of hope of a recovery in the mining industry, with certain commodities showing strong promise and recovery. The increase in demand for and the price of commodities such as manganese and gold have, however, not been sustained, and the demand for commodity and commodity prices have again been battered not only by worldwide economic conditions, but also events closer to home. Various events this year, generally, have had a significant impact on South Africa's economy. In addition, there have, unfortunately, been a number of significant events that have directly affected the mining industry. 

One of the unfortunate consequences of the global economic downturn, reduced demand for, and lower prices of commodities, is that a number of mining companies have had to downscale their operations, place them on care and maintenance or, in the worst cases, place the operations under business rescue, or into liquidation. 

One of the most intensely debated aspects in relation to downscaling of operations is the inter-relationship between the provisions of section 52 of the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA) and the provisions of section 189/189A of the Labour Relations Act 66 of 1995 (LRA), particularly where the holder of the mining right is not the employer as contemplated in section 189/189A of the LRA, in most instances, because the mining operations have been contracted out to a third party. 

Mining companies have often taken a holistic view, and considered compliance with the provisions of section 52 of the MPRDA, the contents of the Social and Labour Plan and the provisions of section 189/189A of the LRA together. More recently, mining companies have also had to consider compliance with the Regulations Pertaining to the Financial Provision for Prospecting, Exploration, Mining or Production Operations, 2015.
 
The inter-relationship, and compliance requirements, in relation to section 52 of the MPRDA, the Social and Labour Plan, and sections 189/189A of the LRA was considered and addressed in National Union of Mineworkers v Anglo American Platinum and Others (2014) 35 ILJ 1024 (LC) (the Anglo American Platinum Judgment), and this judgment provided guidance on the interpretation and application of the provisions of the MPRDA and the LRA. The Labour Appeal Court (LAC) judgment in the matter between Association of Mineworkers and Construction Union and Others v Buffalo Coal Dundee Proprietary Limited and Zinoju Coal Proprietary Limited, Case number JA42/2015 (the Buffalo Coal Judgment) distinguishes the Anglo American Platinum Judgment and essentially finds that the holder of a mining right, ultimately, remains responsible for the implementation of the process provided for under section 189/189A of the LRA, even where the holder of the mining right, has contracted out its mining operations to a third party, and the holder of the mining right is not the employer as contemplated in section 189/189A of the LRA. 

Putting aside for the moment, the debate whether or not the requirements of section 52 of the MPRDA are binding and must be complied with (due to the fact that the method of notification is not determined by regulation, as required, under section 52 of the MPRDA), section 52(1) of the MPRDA requires the holder of a mining right to notify the Minister of Mineral Resources in the prescribed manner where prevailing economic conditions cause the profit to revenue ratio of the relevant mine to be less than 6% on average for a continuous period of twelve months, or if any mining operation is to be scaled down or to cease with the possible effect that 10% or more of the labour force or more than five hundred employees, whichever is the lesser, are likely to be retrenched in any 12-month period. Section 52(2) and section 52(3) of the MPRDA then specify what must take place, once the Minister of Mineral Resources has been notified. Section 52(4) of the MPRDA provides that the holder of a mining right remains responsible for the implementation of the processes provided for in the LRA pertaining to the management, downscaling and retrenchment, until the Minister of Mineral Resources has issued a closure certificate (in terms of the MPRDA) to the holder of the mining right. 

In relation to every mining right, there must be an approved Social and Labour Plan. MPRDA Regulation 46 sets out the required contents of the Social and Labour Plan, which includes processes pertaining to management, downscaling and retrenchment. These processes must include the establishment of a future forum, mechanisms to save jobs and avoid job losses and a decline in employment, mechanisms to provide alternative solutions and procedures for creating job security where job losses cannot be avoided, and mechanisms to ameliorate the social and economic impact on individuals, regions and economies where retrenchment or closure of the mine is certain. 

Section 189/189A of the LRA makes provision for an employer who contemplates dismissing one or more employees for reasons based on the employer's operational requirements, to consult with any registered trade union whose members are likely to be affected by the proposed dismissals. In terms of section 189(3) of the LRA the employer is required to issue a written notice inviting the other consulting parties to consult with it and disclose in writing all relevant information. In terms of section 189(2) of the LRA the employer and other consulting parties must, in consultation, engage in a meaningful consensus seeking process. 

In the matter under discussion, the holder of the mining right, namely Zinoju Coal Proprietary Limited (Zinoju) had contracted out its mining operations to Buffalo Coal Dundee Proprietary Limited (Buffalo Coal). Due to its financial position, Buffalo Coal gave notice in terms of section 189 of the LRA, in its capacity as the employer of the affected employees, employed by it. 

The key question addressed by the LAC, was whether Zinoju, in its capacity as the holder of the mining right, was entitled to or required to be part of the consultation process contemplated in section 189 of the LRA. The LAC answered this in the affirmative. 

In summary, the LAC held that:

• Section 200B of the LRA was not applicable, and Zinoju was not an "employer" through the deeming provisions of section 200B(1) of the LRA (despite Zinoju being a 70% owned and controlled subsidiary of Buffalo Coal). In this regard, the LAC held that while Zinoju and Buffalo Coal carried on associated or related businesses, it was not proved (by the appellants) that there was an intention to directly or indirectly defeat the purposes of the LRA or any other employment law or that the effect of the business arrangements was to directly or indirectly undermine the purpose of the LRA or any other employment law – Zinoju was therefore not the "employer" as contemplated in section 189 of the LRA.

• Section 101 of the MPRDA makes it clear that the holder of a mining right may engage the services of a contractor to mine on its behalf, but the holder of the mining right remains responsible for compliance with the provisions of the MPRDA. This was based on the LAC's interpretation of section 101 of the MPRDA read with section 52 of the MPRDA, the interpretation clause in section 4 of the MPRDA, and the provisions of MPRDA Regulation 46 (contents of the Social and Labour Plan).

• The court a quo had looked at the provisions of the LRA and the MPRDA in silos and followed a segmented approach. The LAC quoted, with approval, the judgment of Arse v Minister of Home Affairs and Others 2010 (7) BCLR 640 (SCA) where that court held "where different Acts of parliament deal with the same or kindred subject-matter, they should, in a case of uncertainty or ambiguity, be construed in a manner so as to be consonant and inter-dependent, and the content of the one statutory provision may shed light upon the uncertainties of the other". The LAC therefore concluded that it is clear from the content of section 52(4) of the MPRDA that the legislature was aware of the provisions of the LRA pertaining to the management of "downscaling and retrenchments", and therefore, that it was the intent of the legislature that the holder of the mining right remains responsible for the implementation of the processes provided for in the LRA pertaining to retrenchments consistent with the provisions of section 52 of the MPRDA, and the Social and Labour Plan. The LAC did, however, make it clear that the employer is, in terms of the LRA, responsible for the retrenchment process. In terms of section 52(4) of the MPRDA, the holder of the mining right however remains responsible for the implementation of the processes in the MPRDA in respect of the management of downscaling and retrenchment until the Minister of Mineral Resources has issued a closure certificate to the holder concerned. This is irrespective of the employer's duties in terms of the LRA.

• In summary on this aspect, the court held that while the employer is responsible in terms of the LRA for the retrenchment process, in terms of section 52(4) of the MPRDA, the holder of the mining right remains responsible for the implementation of the processes in the MPRDA including the management of the retrenchment process contemplated in section 52 of the MPRDA read with the MPRDA Regulation 42 and 46. The LAC's basis was that the holder of the mining right must submit a Social and Labour Plan and this obligation is not placed on a contractor. The LAC concluded that it would be senseless to require a Social and Labour Plan from the holder of the mining right and then leave the implementation in the hands of a contractor (who may be the employer) who has not submitted a Social and Labour Plan. The LAC stated "the intention was clearly to keep the mining right holder responsible where it is the employer and in the cases where it is not the employer". The LAC found that one of the stated objectives of the MPRDA, namely to ensure that holders of mining rights contribute towards the socio-economic development of the areas in which they are operating would not be achieved, if the holder of a mining right does not remain responsible for implementation of the processes, and that an interpretation whereby both the mining right holder and the employer would be responsible for the implementation of the retrenchment process, albeit one in terms of the MPRDA and the other in terms of the LRA, is consistent with the objects of the MPRDA, and should be preferred over the interpretation adopted by the court a quo (where the processes, were addressed in silos).

• Buffalo Coal was therefore required to invite Zinoju to be part of the retrenchment process. Zinoju also had a duty in terms of section 52(4) of the MPRDA to be part of the retrenchment process, and the failure of Zinoju to be part of the retrenchment process rendered the process procedurally unfair.

• Notwithstanding the above, reinstatement was not ordered, and the appeal was dismissed. 

This judgment, of the LAC is clear: there is an obligation on a third party contractor to involve the holder of the mining rights in the processes contemplated in section 189 of the LRA, and there is an obligation on the holder of the mining rights, to become involved in the retrenchment processes, and the holder of the mining right remains responsible for management of the implementation of the retrenchment processes, because of its obligations in terms of section 52 of the MPRDA, read together with MPRDA Regulation 46. 

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