Exploring the idea that increasing profits is a legitimate operational requirement: Revisiting a twenty-year-old impulse

Authors: Bhavna Ramji, Jeremy Phillips & Ihsaan Bassier

ISSN: 1996-2177
Affiliations: Institute for Poverty Land and Agrarian Studies, University of the Western Cape; Director, Cheadle Thompson & Haysom Inc; Associate, Cheadle Thompson & Haysom Inc; Centre for Economic Performance, London School of Economics and Political
Science; Southern Africa Labour and Development Research Unit, University of Cape Town
Source: South African Law Journal, Volume 140 Issue 3, p. 521-549


This article is intended as a catalyst to re-open a debate that was closed perfunctorily and prematurely in the 2000s: is increasing the profits of an already profitable company an operational requirement for purposes of the LRA? We review key retrenchment judgments in these scenarios over the past 20 years and advance two main arguments. First, the debate should be re-opened because the current position that increasing profits is an operational requirement for purposes of the LRA is based on obiter remarks that have been elevated, without in-depth inquiry, to the position of binding authority. Secondly, if the debate is re-opened, there are compelling reasons why increasing profits of an already profitable company should not constitute an operational requirement. To this end, we employ an interdisciplinary approach that combines legal and economic knowledge and demonstrates that, despite earlier opinions, the current position is destructive to the LRA, the position unduly favours employers, and the judicial and scholarly assumptions about the effects of increasing company profits are not always economically correct. Ultimately, we argue that courts’ approach to retrenchments in the case of already profitable companies must be revisited with less deference to employers and with an openness to exploring different understandings of the definition of operational requirements in the LRA.