2. The Legality of the Automatic Termination of Contracts of Employment. 1. From the General Secretary s Desk. In this Issue: JULY PDF

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In this Issue: JULY From the General Secretary's desk Recent developments in Labour Law: The legality of the automatic termination of contracts of employment Striking an unequal
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In this Issue: JULY From the General Secretary's desk Recent developments in Labour Law: The legality of the automatic termination of contracts of employment Striking an unequal balance in the power play Questions and Answers Section From the General Secretary s Desk The ELRC is pleased to provide stakeholders with its July 2013 Labour Bulletin. It contains notes on recent case law of relevance to the education sector as well as some critical commentary on decided cases. We hope to both inform and stimulate readers. Some of the issues covered are contentious. It goes without saying that the views are those of the authors alone. We would encourage an exchange of views on the jurisprudence generated by the courts and by the ELRC because these rulings shape the way the sector operates. We trust you will find value in these pages. Ms NO Foca ELRC, General Secretary 2. The Legality of the Automatic Termination of Contracts of Employment 1 Introduction The Labour Relations Act (66 of 1995) (LRA) protects employees against unfair dismissal. In terms of section 186(1)(a) dismissal means that an employer terminated a contract of employment with or without notice. In order to fall within the ambit of this provision and benefit from the protections afforded by the LRA, an employee must prove that an overt act on the part of the employer has resulted in the termination of the employment contract (Ouwehand v Hout Bay Fishing Industries ILJ 731 (LC)). The onus then shifts to the employer to prove that the dismissal is both substantively and procedurally fair, failing which the employee will be entitled to the remedies afforded by section 193 of the LRA. However, not every termination of an employment contract constitutes a dismissal and a number of scenarios exist where an employment contract terminates lawfully by operation of law. The termination of a fixed-term contract by effluxion of time, termination of the contract due to supervening impossibility of performance and the attainment of a contractually agreed or implied retirement age all give rise to the lawful termination of an employment contract. Similarly the statutory deemed-dismissal provisions of application to 1 employees in the public sector provide for the automatic termination of employment contracts in circumstances that the employee is absent without authorisation for a designated period of time. The effect of such automatic termination is that the employment contract terminates by operation of law and not by means of an act of the employer, resulting in the dismissal provisions of the LRA being legitimately circumvented. Labour-broking contracts typically include automatic termination clauses that provide for the automatic termination of employment contracts, between labour-brokers and their employees, when the broker s client no longer requires the services of such employees. Similarly employers have sought to rely upon grounds of supervening impossibility of performance in order to argue that an employment contract has automatically terminated in the instance of absconding and imprisoned employees. This article will be examining the legality of the automatic termination of employment contracts in these contexts and the impact on employees rights to protection against unfair dismissal. 2 The automatic termination of labourbrokers employees Section 198 of the LRA defines a temporary employment service (labour-broker) as any person, who, for reward, procures for or provides to a client other persons who render services or perform work for the client and who are remunerated by the temporary employment service. Section 198(2) stipulates that the temporary employment service is the employer of the person whose services have been procured for a client and limits the client s liability to joint and several liability with the employer for a contravention of the terms and conditions of a collective agreement, arbitration award, sectoral determination or provision of the BCEA (this working arrangement is endorsed by International Labour Organisation (ILO) Recommendation 197 of 2006). While it has been acknowledged that temporary employment services make a worthy contribution to the South African economy (in the Regulatory Impact Assessment of Selected Provisions of the Labour Relations Amendment Bill, 2010; Basic Conditions of Employment Amendment Bill, 2010; Employment Equity Amendment Bill, 2010; and Employment Services Bill, 2010 conducted by Benjamin and Bhorat for the Department of Labour (September 2010) the authors cautioned that the outright ban of labour-broking arrangements will have dire negative effects on employment and job creation bills/pro posed-amendmentbills/final_ria_paper_13sept2010.pdfa), a less commendable motivating factor for the engagement of labour-broking services is to circumvent the gamut of statutory rights and obligations that would typically arise in a standard employment relationship. Instead the contractual obligations of the labour-broker s clients are circumscribed by the commercial contract concluded and generally indemnify the client against any responsibility towards the broker s employees. To avoid allegations of unfair dismissal and unlawful termination labourbrokers typically include carefully constructed contractual provisions in employment contracts that provide for the automatic termination of such contracts in circumstances that the employer s contract with the client expires or the client no longer requires the services of the particular employee (in NUMSA v SA Five Engineering (Pty) Ltd ILJ 1290 (LC)). In a number of recent decisions the Labour Courts have considered the legality of these provisions. In Sindane v Prestige Cleaning Services ( BLLR 1249 (LC) 1250) the court considered whether the applicant, formerly employed as a cleaner by the respondent in terms of a fixed-term eventuality contract of employment (Sindane v Prestige Cleaning Services supra 1250), had been dismissed within the meaning of the LRA. The employee had been terminated as a result of the client scaling down its contract with the employer brokers, by cancelling a contract in terms of which an extra cleaner had been provided to them. The contract stipulated that, upon termination of the broker s contract with the client to whom the employee rendered services, the employee s employment contract with the employer broker would automatically terminate. The court was satisfied that, in circumstances when an act of the employer is not the proximate cause of the termination of the employment contract, it does not constitute a dismissal. In reaching its decision the court distinguished the finding of the Labour Court in SA Post Office Ltd v Mampeule ( BLLR 792 (LC)) which considered the impact of a provision in an employment contract that provided for the automatic termination of the contract upon the occurrence of an external event. In this matter 2 the employee was appointed CEO of the employer in terms of a 5-year fixed-term contract and was also appointed as an executive director on the employer s board of directors. The employer s articles of association stipulated that the employee s appointment as executive director was an inherent requirement of the job and that, if the executive director ceased to hold office for any reason whatsoever including removal by the shareholders, his contract terminated automatically and simultaneously with the cessation of office. Following the employee s removal from the board of directors he was advised that his contract of employment had terminated automatically. The Labour Court considered an interlocutory application to determine whether such termination constituted a dismissal regulated by the LRA. The court held that any act by an employer that directly or indirectly results in the termination of a contract of employment constitutes a dismissal. As the employer had terminated the respondent s contract of employment by severing the umbilical cord that ties the respondent s employment contract to his membership of the applicant s board of trustees (SA Post Office Ltd v Mampeule supra 793) the act of severance constituted a dismissal. In considering the legitimacy of automatic termination clauses, the court held that such clauses are impermissible in their truncation of the provisions of chapter 8 of the LRA and, possibly even, the concomitant constitutional right to fair labour practices... Provisions of this sort, militating as they do against public policy by which statutory rights conferred on employees are for the benefit of all employees and not just an individual, are incapable of consensual validation between parties to a contract by way of waiver of the rights so conferred (SA Post Office Ltd v Mampeule supra 803). The court in Sindane distinguished the finding of the court in Mampeule on a number of grounds. In Mampeule the termination was based on the employer s decision to remove him from the board of directors following allegations of misconduct. In such circumstances, the court held, he ought to have been afforded an opportunity to contest the fairness of his termination. On the other hand, in Sindane, the court was satisfied that the applicant had not been dismissed as the termination of his employment contract was triggered by a third party and not by the employer. In reaching this decision the court relied upon the wording of section 186 of the LRA which defines dismissal as the termination of the contract of employment by the employer. In finding that the contract terminated as a result of a specified event as opposed to an overt act on the part of the employer the court was satisfied that the termination did not fall within the ambit of section 186. The Labour Appeal Court subsequently reconsidered on appeal the finding of the court in SA Post Office Ltd v Mampeule ( BLLR 1052 (LAC)) and upheld the finding of the court a quo albeit on a different basis. In reaching its decision the court relied upon section 5(2)(b) and 5(4) of the LRA. Section 5(2) provides that no person may prevent an employee from exercising any right conferred by this Act. Section 5(4) provides further that [a] provision in any contract, whether entered into before or after the commencement of this Act, that directly or indirectly contradicts or limits any provision of section 4, or this section, is invalid, unless the contractual provision is permitted by this Act. The court noted that the onus rested on the employer in such circumstances to establish that the automatic termination clause prevailed over the relevant provisions in the LRA. The court was satisfied that parties to an employment contract cannot contract out of the protection against unfair dismissal, whether by means of an automatic termination clause or otherwise, as the LRA is promulgated in the public interest and not only to cater for the interests of the individuals concerned (see also Chillibush v Johnston BLLR 607 (LC) in which the court held that it is not permissible in the labour-law context to allow an employer to negotiate contractually the terms of a dismissal in advance). The court was satisfied that section 5 trumped the contractual provision, as the employer had failed to offer a clear explanation as to why the automatic termination clause had been independently triggered and the only explicable motive appeared to be to circumvent the unfair dismissal provisions of the LRA. Echoing this approach the Labour Court in Mahlamu v CCMA ( BLLR 381 (LC)) noted that the statutory protection against unfair dismissal is a fundamental component of the constitutional right to fair labour practices that serves to protect the vulnerable by infusing fairness into the contractual relationship, and that the LRA must be purposively construed to give effect to this. The court noted that, as the automatic termination provisions in the contract clearly falls within the section 5(2)(b) injunction, 3 the key consideration is whether such provisions are permitted by the LRA and whether it is permissible in the circumstances to contract out of the right not to be unfairly dismissed. (In answering this question the court relied upon the finding of the UK Court of Appeal in Igbo v Johnson Mathery Chemicals Ltd 1986 IRLR 215 (CA). In casu the employee entered into a holiday agreement with her employer that provided that the contract of employment will automatically terminate if the employee failed to work on a specified date. The court held that the contractual provision had the effect of limiting the statutory protection against unfair dismissal and was void.) The court noted that as a rule of thumb employers can make an agreement varying or waiving their rights under the Act but employees cannot do so by means of individual consent (Mahlamu v CCMA supra 388 referring to Brassey Commentary on the Labour Relations Act RS 2 of 2006 A9-6) as the right serves both the interests of other employees and the public interest. The court concluded that a contractual device that purports to render the termination of a contract of employment as something other than a dismissal, with the result that the employee is denied the right to challenge the fairness thereof in terms of section 188 of the LRA, is the very mischief that section 5 of the Act prohibits (Mahlamu v CCMA supra 389). The Labour Court in Nape v INTCS Corporate Solutions (Pty) Ltd ( BLLR 852 (LC) 868), criticized the finding of the court in Sindane as placing far too much emphasis on the rights of parties to contract out of the Act. In this farreaching decision the court, expressing contempt for labour-broking arrangements and their infringement of fair labour practices, was prepared to extend responsibility for the fair dismissal of the broker s employee to both employer and client. In this matter the employee of a labour-broker, while placed at a client, was found guilty of sending an offensive to another employee using the client s computer system. Following the client refused to permit the employee to return to its premises, the employee was retrenched by the employer. The Labour Court, assessing whether the employee had been unfairly dismissed, noted that in terms of the contract of employment the broker was entitled to dismiss the employee on grounds proven by the client to be reasonable and/or substantively and procedurally fair. The contract between the broker and its client permitted the client to request an employee s removal on any ground. The employer argued that the client had acted lawfully because it exercised an option permitted by the contract and that, in the circumstances, it had no alternative other than to retrench the employee. The court noted that, although the relationship between the broker and its client was lawful, it did not follow that all the terms of the contract which governed that relationship were also lawful. A contractual provision that enables a labour-broker to withdraw an employee placed with a client, the court held, is contrary to public policy and in breach of the employee s constitutional right to fair labour practices. The court noted that, in spite of legislative approval of labour-broking services, labour-brokers and their clients are not at liberty to structure their contractual relationships in a way that would effectively treat employees as commodities to be passed on and traded at the whim and fancies of the client (Nape v INTCS Corporate Solutions (Pty) Ltd supra 862). The client of a labour-broker has a legal duty to do nothing to undermine an employee s rights to fair labour practices, unless the limitation is justified by national legislation (Nape v INTCS Corporate Solutions (Pty) Ltd supra 863). The court added that, in applying the right not to be unfairly dismissed, it is not bound by contractual limitations created by the parties and may not perpetuate wrongs exercised by private parties who wield great bargaining power ((Nape v INTCS Corporate Solutions (Pty) Ltd supra 864). The court noted further that there is nothing in the text of section 198 of the Act that indicates that a labour-broker and a client may limit the right of an employee not to be unfairly dismissed, and a court is not bound by contractual limitations created by parties through an agreement that conflicts with the fundamental rights of workers. It concluded that any clause in a contract between a labour-broker and a client which allows a client to undermine the right not to be unfairly dismissed is against public policy and unenforceable. While the court acknowledged that an employee has no right of recourse against a client of a labour-broker for unfair dismissal, it was of the view that brokers are not powerless when forced by their clients to treat their employees unfairly. It suggested that brokers in such situations may approach a competent court to order the client to refrain from such conduct and in appropriate circumstances the court may go so far as to order the client to reinstate an unfairly dismissed employee. The willingness of the court in Nape to move beyond its legislative mandate, by implying public-policy considerations into the 4 contract so as to temper unfair contractual and legislative provisions, is to be applauded. What is apparent from these judicial decisions is that labour-brokers may no longer hide behind the shield of commercial contracts to circumvent legislative protections against unfair dismissal. A contractual provision that provides for the automatic termination of the employment contract under-mines an employee s rights to fair labour practices, is contrary to public policy, unconstitutional and unenforceable (Grogan The Brokers Dilemma 2010 Employment Law 6). As noted by the Namibian Supreme Court in Africa Personnel Services (Pty) Ltd v Government of the Republic of Namibia ( BLLR 15 (NmS)) agency workers are not commodities and such employees are to be afforded equivalent respect and protection of their human and social rights as employees in standard employment relationships (supra 74). While it still remains to be seen (pending further deliberations by labour, government and business) whether labour-broking arrangements will be regulated or prohibited it is apparent that the con-tractually and statutorily sanctioned commoditisation and exploitation of labourbroking employees will no longer be immune from judicial intervention. 3 Automatic termination due to impossibility of performance In terms of common-law principles of contract, a contract terminates automatically when it becomes permanently impossible to perform the terms of the contract due to no fault on the part of either party. In the context of an employment contract impossibility of performance will result in the automatic termination of such contract and will not constitute a dismissal. Supervening impossibility of performance occurs when performance of the obligation is prevented by superior force that could not reasonably have been guarded against (Brassey The Effect of Supervening Impossibility of Performance on Contract of Employment 1990 Acta Juridica 22 23). This may include physical impossibility such as acts of nature, the death of an employee, acts of state (such as imprisonment or conscription of an employee), or acts of third parties (such as strikes) that prevent an employee from working or an employer from providing employment. Impossibility must be absolute and must not be attributable to the fault of either party. The defence of impossibility of performance has been raised in a number of scenarios, with limited success. 3 1 Termination at the instance of shareholders The defence of impossibility of performance was rejected by the Labour Court in PG Group (Pty) Ltd v Mbambo NO ( BLLR 71 (LC)). In this matter the court considered whether a resolution by members of a company, removing the employee from office, constituted a dismissal (in terms of section 220 of the Companies Act 6
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