BHUNU
JA: This
is an appeal against part of the judgment of the Labour Court (the
court a
quo)
handed down on 26 January 2018. The appeal is against that part of
the
judgment
which
upheld
the arbitrator's award granting the respondent's members an 11
percent wage increase.
FACTUAL
BACKGROUND OF THE CASE
The
facts giving rise to this appeal are by and large common cause. The
undisputed facts are that the appellant is the owner of a group of
companies whereas the respondent is a trade union representing
employees of Gold Star, a trading division of the appellant.
The
parties deadlocked during collective bargaining negotiations for wage
increases for the period 1 January 2011 to 30 June 2011. The
respondent was claiming a basic salary increase from US$157 to US$180
per month. It did not claim any increase for housing allowance on
behalf of its members.
On
the other hand the appellant objected to the respondent's members
being awarded any increase pleading economic hardship.
Both
parties proffered evidence before the arbitrator. Having carefully
considered the evidence before him, he issued the following order:
“I
herein award as follows:
(a)
Basic salary is increased from US$157 by 11 percent to US$174.27 per
month for the lowest paid employee.
(b)
Housing allowance is increased from US$50 by 11 percent to US$56.50.
(c)
The total award per lowest paid employee is US$230.77.”
In
coming up with that award the arbitrator took into account the
employees' basic needs and weighed them against the employer's
economic hardship.
In
exercising his discretion he came to the conclusion that although the
company was in economic dire straits, with proper management and
realignment of its operations it could afford an increase of 11
percent across the board for both wages and housing allowances.
This
is what the arbitrator had to say at p2 of his award:
“The
2011 financial statement also showed a loss of US$16,375,557. Clearly
the fortunes of the company are not that bright. The cost of
employment seems to be on the higher side but, it appears the
management salaries chew also a huge chunk. Those are some of (the)
things that also need alignment. The other costs were for was sugar
(sic)
production which seems to be on the higher side.
However
the cost should be recovered from sale through proper pricing.”
In
assessing the basic needs of the employees the arbitrator accepted
and took into account that it was common cause that rentals in the
high density suburbs were pegged at US$60 to US$80 per month. He also
found that it was common cause that groceries amounted to US$100 per
month per person.
The
arbitrator also took into account the comparative evidence placed
before him that employees in related subsectors earned a total of
between US$250 to US$281 per month.
In
conclusion he remarked that:
“For
the avoidance of doubt, I have taken into consideration the harsh
environment the employees are in and the company… However had the
company been performing, I would have awarded a US$300 basic salary
increase and housing allowance of over US$100 but that would be to
bury the company.”
Aggrieved
by the arbitrator's award, the appellant appealed to the court a
quo
with
partial success.
Its
complaints were that the arbitrator erred in relying on financial
statements of the entire group of companies instead of only on those
of Gold Star. It further complained that the arbitrator awarded the
employees an increase in housing allowance which they had not asked
for.
The
court a
quo
upheld the appellant's complaint that the arbitrator had
misdirected himself in awarding an increase in housing allowances
which no one had asked for. It however dismissed the appellant's
appeal against the award on wage increases of 11 percent.
The
appellant's grounds of appeal raise a single issue for
determination by this Court.
The
sole issue for determination is whether or not the court a
quo
erred in upholding part of the award granting the employees an 11
percent salary increase.
ANALYSIS
OF THE FACTS AND THE LAW
Whether
or not the court a
quo
erred in upholding the arbitrator's award of an 11 percent wage
increase is a question of fact.
It
is trite and a matter of elementary law that for the appellant to
succeed it must prove on a balance of probabilities that the award
was so irrational in its defiance of logic such that no arbitrator
properly exercising his or her discretion would have made such an
award. See Hama
v National Railways of Zimbabwe
and Sable Chemical Industries Ltd v Easterbrook.
THE
LAW
The
appellant's appeal is premised on the well-known principle of
company law to the effect that a company has a separate and distinct
existence from other personalities as enunciated in the familiar case
of Salomon
v Salomon & Co Ltd.
In
that case Lord HALSBURY LC had this to say:
“It
seems to me impossible to dispute that once a company is legally
incorporated it must be treated like any other independent person
with its rights and liabilities appropriate to itself. And that the
motives of those who took part in the promotion of the company are
absolutely irrelevant in discussing what those rights and liabilities
are.”
The
principle of law laid down in Salomon
v Salomon (supra)
has found wide recognition in our jurisdiction in a plethora
of cases.
In
Deputy
Sheriff Harare v Trinpac Investments (Pvt) Ltd & Anor
PATEL J as he then was, restated the legal principle as follows:
“The
cardinal principle of company law, as enunciated in
Salomon
v Salomon & Co Ltd [1897] AC 22 (HL)
and
Dadoo
Ltd & Others v Krugersdop Municipal Council
1920
AD 530 at 550 is that a company is a separate entity distinct from
its members.”
Applying
the timeless dictum
laid down in Salomon
v Salomon (supra)
it
is plain that entities comprising a group of companies maintain their
separate and distinct legal personalities although they fall under
one umbrella or legal owner.
Latching
onto that doctrine learned counsel for the appellant argued that as
the appellant had a separate and distinct legal personality, the
arbitrator erred in having regard to the financial statements of the
whole group. He ought to have restricted himself to the financial
statements of Gold Star. So the argument goes.
The
rule in Salomon
v Salomon (supra)
is however not cast in stone. It is only a general rule subject to
exceptions particularly in labour matters where the courts and
tribunals are enjoined to dispense equitable social justice.
In
DHN
Food Distributors Ltd v London Borough of Tower Hamlets
the court observed that:
“Professor
Gower in his book on company law says:
'there
is evidence of a general tendency to ignore the separate legal
entities of various companies within a group and to look instead at
the economic entity of the whole group'.
This
is especially the case when the parent company owns all the shares of
the subsidiaries, so much so that it can control every movement of
the subsidiaries. These subsidiaries are bound hand and foot to the
parent company and must just do what the parent company says.…
This
group is virtually the same as a partnership in which all the three
companies should, for present purposes be treated as one and the
parent company should be treated as that one.”
The
principle that emerges quite clearly from the DHN
Food Distributors case (supra)
is that in appropriate cases involving group or holding companies and
their subsidiaries, the court or tribunal is not strictly bound by
the dictates of the doctrine of separate corporate legal personality.
This
enables them to look at the economic outlook of the whole group in
order to do real and substantial justice between the parties as the
economic perspective of the group and its subsidiaries may be
intricately interwoven and difficult to unravel unless holistically
considered.
It
is ironic that the appellant is objecting to being treated as a
partner of Gold Star when it sowed the seeds of implied partnership
by intervening on behalf of Gold Star and litigating on its behalf.
By so doing it became the employer in partnership with Gold Star
which was not a party to the proceedings.
At
p17 of the record of proceedings, learned counsel for the appellant
acknowledged that the appellant was legally obliged to produce the
questioned statements in terms of s76(1) of the Act. The section
provides as follows:
“76
Duty of full disclosure when financial incapacity alleged
(1)
When any party to the negotiation of a collective bargaining
agreement alleges financial incapacity as a ground for his inability
to agree to any terms or conditions, or to any alteration of any
terms or conditions thereof, it shall be the duty of such party to
make full disclosure of his financial position, duly supported by all
relevant accounting papers and documents, to the other party.”
It
is common cause that it is the appellant that was pleading financial
incapacity to pay the increased wages claimed by the respondent.
Thus
by virtue of s76(1) of the Act, it was obliged to produce its own
financial statements to justify financial incapacity to pay the
amounts claimed.
Gold
Star was not obliged to produce any financial statements as it was
not a party to the proceedings and had not pleaded incapacity to pay
the amounts claimed.
In
any case, at p12 of the record of proceedings, the appellant makes it
clear that there were no separate financial statements for Gold Star.
Learned counsel for the appellant submitted that:
“There
is need for full disclosure we have consolidated accounts for the
whole group it does not make individual company (statements)
financials.”
That
statement puts this case squarely within the ambit of the DHN
Food Distributors case (supra).
This
is for the simple but good reason that the appellant was in absolute
control of the group's finances to the exclusion of its
subsidiaries including Gold Star.
This
explains why it litigated in its capacity as the employer without
joining Gold Star which it now alleges is the real employer separate
and distinct from it.
Had
it been so, then the appellant would undoubtedly have joined Gold
Star to the proceedings considering that it was ably represented by
counsel at every stage of the protracted proceedings. This it did
not do, thereby exposing itself as the real employer. Had it not been
the real employer it could not have fought Gold Star's battles in
its absence and without its mandate.
Section
3(1) of the Act, only applies to employers and employees except those
excluded under ss(3). The appellant not being one of those excluded
by the Act, it is fully bound by the Act as the employer.
Thus
the arbitrator's award binds the appellant and not Gold Star
which was not a party to the proceedings.
That
being the case, we find no merit in the appellant's protestations
that the arbitrator improperly pierced the corporate veil.
We
come to that conclusion because the appellant appeared before the
arbitrator and argued the case in its capacity as the employer and
not a proxy of Gold Star thus the arbitrator correctly treated it as
such.
The
appellant's reliance on the cases of Mkombachoto
v Commercial Bank of Zmbabwe & Anor,
Sheriff
& Ors v Dube & Ors
and Pacific
Ltd v Lubner Controlling Investments (Pty) Ltd & Ors
is misplaced as the award had nothing to do with ordering the
appellant to pay anyone's debts or piercing the corporate veil.
The
appellant was simply being ordered to pay in its personal capacity as
the employer.
WHETHER
THE ARBITRATOR'S AWARD WAS IRRATIONAL
We
now turn to consider whether the arbitrator's award was irrational
as alleged by the appellant or at all.
The
appeal is premised on the argument that the award is irrational in
that it was made in circumstances where the appellant was in
financial distress and in no capacity to pay the salary increase of
11 percent as ordered by the arbitrator.
On
the other hand the respondent countered that the appellant was
obliged to pay a decent living wage to its employees.
In
argument it was submitted that Zimbabwe having ratified the United
Nations instrument on the Universal Declaration of Human Rights 1948,
it was bound by its provisions.
It
is petinent to note that Zimbabwe has not ratified this Universal
Declaration of Human Rights. However, it is an instrument that is
universally recognised and applied in this jurisdiction. Article
23(3) states that:
“Every
person who works has a right to just and favourable remuneration
ensuring for himself and herself an existence worthy of human
dignity, and supplement if necessary by other means of social
protection.”
Further
reliance was placed on Article 11(1) of the International Covenant on
Economic, Social and Cultural Rights 1966, which provides that:
“The
States Parties to the present Covenant recognise the right of
everyone to an adequate standard of living for himself and his
family, including adequate food, clothing and housing, and to the
continuous improvement of living conditions. The States Parties will
take appropriate steps to ensure the realization of this right,
recognizing to this effect the essential importance of international
co-operation based on free consent.”
The
principles set out in the two instruments are of fundamental
universal importance bidding the judiciary and tribunals to uphold
and preserve human integrity and the dignity of workers.
Although
acknowledging that the respondents are entitled to a living wage the
arbitrator found it imperative to balance the employee's interests
against the employer's capacity to pay the increased wages.
As
alluded to elsewhere in this judgment, the arbitrator made a careful
analysis of the facts before him and arrived at a delicate balance of
the two competing interests before him. He finally came to the
conclusion that although the appellant had made a loss, its employees
were entitled to a modest 11 percent wage increase.
Comparative
evidence proferred by the respondent shows that even after the
increase its members were some of the least paid in the industry.
It
appears that the appellant is labouring under a serious
misapprehension that an employer who makes a loss cannot be ordered
to pay its employees any increase in wages.
The
mere fact that an employer is operating at a loss is no licence for
it to pay slave wages not worthy of human dignity.
We
are of the considered view that an employer operating at a loss may
still be ordered to pay a reasonable wage increase to its employees
to avoid them falling into destitution and loss of human dignity.
An
employer who cannot pay decent wages pertaining to the industry has
no business continuing to operate subjecting its employees to slave
wages.
The
appellant's plea of incapacity to pay lacks merit in circumstances
where it was unable to rebut the respondent's allegation that its
management were being paid huge salaries. It also failed to rebut the
evidence to the effect that it could afford the increase if it were
to shed excess labour in the form of casual labour.
It
is also ironic that the appellant accuses the arbitrator of
irrationality by suggesting that one of its subsidiaries Country
Choice which made a profit could prop up Gold Star. This is because
Country Choice was already financially assisting another distressed
unit of the respondent in Bulawayo.
This
prompted the Arbitrator to remark at p149 of the record of
proceedings that:
“The
respondent submitted that its business is facing viability challenges
since the inception of the US dollar in 2009 to the effect that its
Bulawayo Plant was forced to close. The
Bulawayo Plant's financial burdens are being incurred
by the Harare Plant and Country Choice Foods…” (My
emphasis)
There
is therefore no irrationality in the suggestion that Country Choice
Foods could assist its distressed sister company financially.
DISPOSITION
In
the result we come to the conclusion that there is absolutely no
merit in this appeal. Costs will follow the result.
It
is accordingly ordered that:
1.
The appeal be and is hereby dismissed with costs.
2.
The appellant bears costs of the appeal.
GWAUNZA
DCJ: I
agree
BERE
JA: (No
longer in office)
Coghlan,
Welsh & Guest,
the
appellant's legal practitioners
Lovemore
Madhuku Lawyers,
the
respondent's legal practitioners
1.
Page 4 of the record
2.
1996 (1) ZLR 64 (S)
3.
2010 (2) ZLR 342 (S)
4.
[1897] AC 22 (HL)
5.
HH121–11
6.
[1976] 3 All ER 462 (CA) at 467
7.
2002 (1) ZLR 21
8.
2014 (2) ZLR 688 at p690
9.
1993 (2) SA 784 (C)
