Author: Nicky Hardwick
The Labour Appeal Court recently handed down judgment in Herotel (Pty) Ltd v Moses and Others (CA05/2024) on the 10th July 2025, confirming that even when an employer has the right to restructure, a poorly constructed rationale or lack of transparency can render dismissals substantively unfair.
Background
Fusion Wireless (trading as Sonic Telecoms), a subsidiary within the Herotel Group, initiated a retrenchment process in 2020 citing financial difficulties, declining sales, customer churn, and increased competition from fibre providers. Employees, however, challenged the rationale, arguing that the company’s losses were self-inflicted. They alleged that Fusion’s profitable business units had been deliberately transferred to the holding company, Herotel, effectively draining Fusion’s revenue before retrenchments were announced.
During consultations, employees requested audited financial statements and inter-company transaction details to test the financial rationale. These weren’t provided and only unaudited drafts shared, leaving employees unable to engage meaningfully in the process. Retrenchments proceeded, and Fusion was later placed in liquidation. The remaining employees’ contracts were transferred to Herotel under section 197 of the Labour Relations Act (LRA).
The Labour Court found the dismissals substantively unfair, ordering reinstatement. Herotel appealed.
The Labour Appeal Court’s findings
The Court upheld the Labour Court’s ruling, finding that:
- The financial rationale presented in the section 189(3) notice was misleading, the apparent losses were largely the result of internal transfers and accounting decisions within the group, not genuine market pressures.
- The real reason for the retrenchments was the transfer of Fusion’s business to Herotel, a self-created financial crisis.
- The consultation process was undermined because employees couldn’t access critical financial information, making it impossible to test or challenge the employer’s stated rationale.
As a result, the dismissals were considered substantively unfair and the appeal was dismissed.
The Court emphasised that while employers are entitled to reorganise their businesses, fairness requires honesty and transparency in presenting the reasons for retrenchment. It reaffirmed that a decision to retrench must be both rational and reasonable, not simply commercially convenient.
Why this case matters for employers
This judgment reinforces several key principles:
- Consultation must be meaningful. Withholding relevant information, especially financial data central to the rationale, can invalidate the process.
- Restructuring within a group of companies must be handled carefully. Shifting business units or revenue streams between entities to justify retrenchments will likely be viewed as bad faith.
- Operational reasons must be genuine. Employers must ensure the rationale in the section 189(3) notice accurately reflects the business reality.
- Procedural and substantive fairness are intertwined. Even if the process appears compliant, a misleading or incomplete rationale can render dismissals unfair.
Key takeaways
The Herotel judgment serves as a clear warning: employers cannot rely on a manufactured financial justification or internal corporate restructuring to mask dismissals. A retrenchment must be based on authentic operational needs, and supported by transparent disclosure and genuine consultation.
At HRTorQue, we assist clients in managing retrenchments lawfully and sensitively, ensuring proper disclosure, meaningful consultation, and defensible rationale documentation that withstands scrutiny. Contact us today for more information.