Restructuring in South Africa demands transparency

Goodyear’s announcement that it will close its South African operations after 78 years has underscored the profound impact corporate restructuring can have on local communities. With more than 900 jobs at risk, the closure of its Eastern Cape manufacturing facility highlights both the realities facing multinationals in shifting global markets and the obligations on employers to ensure that such transitions are handled with transparency and fairness.

South Africa remains an attractive destination for global companies looking to expand into emerging markets. Yet the economic environment is increasingly volatile. Global trade tensions, including tariffs imposed by the US—South Africa’s second-largest trading partner—have created significant uncertainty. Under the Trump administration’s new tariff regime, South African exports to the US are now subject to a 30% tariff, effective 7 August. Against this backdrop, multinational corporations face mounting pressure to balance financial sustainability with their responsibilities towards employees and the broader society.

Restructuring is often the tool businesses reach for in such circumstances. Goodyear’s decision to shut down its local manufacturing operations formed part of a wider restructuring of its Europe, Middle East and Africa (EMEA) business. While the company eventually concluded a retrenchment agreement that included an enhanced severance package, the process raised critical questions about how restructuring should be carried out in compliance with South African labour law.

The Labour Relations Act (LRA) requires that retrenchments be substantively and procedurally fair. This means not only that employers must have a valid operational rationale—whether economic, structural, or technological—but also that employees must be consulted meaningfully. The provisions of sections 189 and 189A are clear: employers must explore alternatives to retrenchment, disclose all relevant information, and engage in good faith to reach consensus where possible.

The recent case of HeroTel (Pty) Ltd v Moses and Others serves as a powerful reminder of these duties.

The HeroTel case

In 2020, HeroTel Group announced a retrenchment exercise affecting several of its entities, including its subsidiary Fusion Wireless. Fusion cited financial distress as the reason for proposed job cuts and invited employees and unions to consult. Yet employees challenged this justification, arguing that Fusion’s difficulties were not due to genuine financial hardship, but to intra-group restructuring. They alleged that key revenue-generating assets had been transferred to the parent company, weakening Fusion’s financial position.

The employees requested detailed financial records to test these claims. While the Commission for Conciliation, Mediation and Arbitration (CCMA) directed Fusion to provide four years of financial information, including intercompany dealings, Fusion failed to comply meaningfully and only produced a draft, unaudited statement.

The Labour Court found in favour of the employees, concluding that the retrenchments were predetermined and that Fusion had not properly considered alternatives or applied fair selection criteria. The employees were retrospectively reinstated.

On appeal, the Labour Appeal Court (LAC) upheld this ruling. It noted that Fusion’s conduct—including transferring clients and cancelling lucrative agreements before issuing its retrenchment notice—belied the claim of financial distress. Instead, the financial strain was largely self-induced by the transfer of business units within the group.

Critically, the LAC held that Fusion’s notice under section 189(3) failed to set out the true reason for the retrenchments. While companies are entitled to restructure, they must disclose their genuine motivation at the outset. By masking restructuring as financial hardship, Fusion had undermined the consultation process and rendered the dismissals substantively unfair.

Looking ahead

The HeroTel ruling underscores that retrenchment is a measure of last resort. Courts will not second-guess commercial decisions but will scrutinise whether the consultation process was genuine, transparent, and based on accurate disclosure of the reasons behind the decision.

Restructuring is an inevitable feature of today’s volatile global economy. However, as the Goodyear and HeroTel examples demonstrate, the manner in which restructuring is undertaken carries profound legal and reputational consequences.

International companies considering restructuring in South Africa must ensure that their processes are not only legally compliant but also rooted in good faith consultation. Transparency, accurate disclosure, and genuine engagement with employees are not optional extras—they are legal imperatives that safeguard both the fairness of the process and the trust of affected communities.

The message from the LAC is clear: employers have the right to restructure, but they must be honest about why they are doing so. Anything less risks legal challenge, reputational damage, and the loss of goodwill built over decades of local presence.