03/16/2012 05:35 pm ET Updated Mar 16, 2012

Walmart In South Africa: 503 Laid Off Workers Reinstated As Condition Of Merger

A South African appeals court issued a decision last week that greenlights a merger between Massmart, one of the largest retailers in the country, and Walmart, the largest retailer in the world. The ruling essentially paves a way into sub-Saharan Africa for an American behemoth that's been eager to expand its international footprint as its domestic possibilities shrink.

But the ruling comes with a hitch. As a condition of the merger, Massmart must rehire 503 distribution workers that the company let go in the run-up to the merger -- layoffs that a South African union claimed Massmart issued in order to make itself a more attractive partner during Walmart's courtship.

For labor groups who oppose the merger altogether, the order to rehire those employees represents one victory in a larger, months-long legal battle that was ultimately lost. As for the more than 500 workers who will be reinstated, the ruling is probably close to monumental. South Africa now bears an unemployment rate of about 24 percent -- a figure that undersells the country's jobs crisis, since it doesn't account for discouraged job seekers outside the workforce. Many of the workers came from Nelspruit (Mbombela), a city situated in a largely rural area with high unemployment east of Johannesburg.

"It's a small town in a rural area, with mostly farm labor," says Bridget Kenny, an associate professor of sociology at the University of the Witwatersrand, in Johannesburg. "For workers to be reinstated in a job in Johannesburg is one thing, but it's more important in a place like Nelspruit. There are not a lot of [work] options. The way households work, it's often a single wage earner supporting multiple family members."

In addition to getting their jobs back, the Massmart employees are entitled to backpay covering the time between their reinstatements and their layoffs, which occurred in 2009 and 2010.

Walmart and Massmart have denied that the layoffs had anything to do with the impending merger. In a joint statement on the appeals decision, the companies said they "respectfully disagree" with the court's finding that the merger and the retrenchment were somehow linked. "Massmart and Walmart welcome the decision handed down by the Competition Appeal Court to approve the merger, and we are keen to work with interested parties to develop local suppliers and producers," the companies said.

The United Food and Commercial Workers (UFCW), the American union that often criticizes Walmart for its labor practices, supported the South African union that most strongly opposed the Walmart-Massmart merger, the South Africa Commercial, Catering and Allied Workers Union. SACCAWU has voiced concerns that Walmart's presence in the country will depress wages. Michael Bride, a UFCW official who was in South Africa for much of the court proceedings over the past year, argues that the ruling on the layoffs gives the merging parties a "black eye."

Massmart CEO Grant Pattison had claimed that the company's decision to lay off workers had long preceded the merger talks with Walmart. In its ruling, the court said Pattison had "considerable difficulty justifying this claim."

SACCAWU, Bride says, "is not happy that [Walmart] has been allowed in. It's a game-changer in the South African retail sector. As consequence of that, [the union] would be much happier if there were a blanket prohibition. But it knows it did a good job for 503 workers."

"There were 60 to 80 of them demonstrating every day," Bride adds, speaking of the laid-off workers. "They weren’t expecting to get their jobs back. Many were working as day laborers and had their kids move in with them to help support them."

In addition to ordering the rehirings, the appeals court ruling calls for Walmart and Massmart to help carry out a study on how South African suppliers can benefit from the merger. Labor unions as well as some government officials have concerns about the wider economic impacts that Walmart's entry into the country might have. Walmart is famous for the efficiency of its globalized distribution network, and some South Africans worry that the country's small- and mid-sized manufacturers will find themselves at a disadvantage.

The merger discussions have been front-page news in South Africa. Now that the appeals court has rubber-stamped it, South Africans will soon see if Walmart's presence does in fact alter the retail landscape.

"In some ways, no one knew what Walmart was in South Africa until this process happened," says Kenny. "And then the debate happened. It was vigorous. If you're a worker, now you understand that Walmart entering the country doesn’t just mean you get to buy cheaper things."