Brief Summary

Labour Law — Unfair Dismissal — Temporary Employment Service — Employees of a labour broker excluded from client’s premises and not reassigned work after refusing to sign a code of conduct — Employees’ claim of unfair dismissal upheld — Labour broker's failure to provide work and pay wages constitutes repudiation of employment contract — Employees entitled to compensation for unfair dismissal.

Comprehensive Summary

Summary of Judgment

Introduction

The matter concerned an appeal to the Supreme Court of Appeal from a decision of the Labour Appeal Court, Johannesburg. The appeal raised the question whether certain employees placed by a temporary employment service (labour broker) had been dismissed and, if so, whether that dismissal was unfair under the Labour Relations Act 66 of 1995.

The appellants were the National Union of Metalworkers of South Africa (NUMSA) and 46 individual employees (described in the judgment as the “second and further appellants”). The respondent was Abancedisi Labour Services, a temporary employment service provider that had employed the individual appellants and assigned them to work at its client, Kitsanker (Pty) Ltd, a division of Reinforcing Steel Holdings (Pty) Ltd (RSH).

Procedurally, after the employees were refused entry to the client’s premises and replaced, NUMSA referred an unfair dismissal dispute to the relevant bargaining council under section 191 of the Labour Relations Act. Conciliation failed. The employees then approached the Labour Court, which dismissed their claim (with costs), holding that the employees had not proved a dismissal because their employment relationship with Abancedisi continued. On appeal, the Labour Appeal Court reversed only the costs order, but otherwise agreed that the matter was premature and that the employees had not been dismissed. The employees (and NUMSA) then appealed further to the Supreme Court of Appeal. The appeal was unopposed, with the respondent filing a notice to abide the decision.

The general subject matter of the dispute was the operation of section 198 of the Labour Relations Act in the context of labour-broking arrangements, and whether the practical exclusion of workers from a client site, coupled with non-payment and non-reassignment by the labour broker, amounted to a termination of employment attracting the protections against unfair dismissal.

Material Facts

The court treated the background as mostly undisputed. The employees were members of NUMSA and had previously been employed directly by Kitsanker. In 1999, RSH decided to relocate Kitsanker’s operations and to manage its weekly paid production staff through a labour broker. Abancedisi was formed for this purpose, and in January 2001 it concluded a contract with RSH/Kitsanker under which Abancedisi would provide its employees to Kitsanker.

In February 2001, the employees were voluntarily retrenched by Kitsanker and immediately re-employed by Abancedisi, against NUMSA’s advice. Each employee signed a “Limited Duration Contract of Assignment”, making them employees of Abancedisi and placing their services at Kitsanker’s disposal. The court noted that, in substance, the work location and terms and conditions remained the same as before; what changed was the identity of the formal employer.

In July 2001, the employees engaged in a two-hour work stoppage at Kitsanker and raised complaints, including a demand relating to their supervisor. Kitsanker responded by requiring employees to sign a code of conduct largely aimed at regulating industrial action. The employees asked for a week to consult NUMSA but were given until the next morning.

On 6 July 2001, employees who refused to sign the code were refused entry to the premises. On 9 July 2001, they were again refused entry and were replaced with new workers, who were subsequently employed by Abancedisi. After the replacement, the excluded employees remained at the gates until threatened with removal by the police, after which they left to report to NUMSA.

After these events, Abancedisi’s representative, Mr van der Mescht, unsuccessfully attempted to persuade Kitsanker to take the excluded employees back and urged the employees to sign the code to return to work. He confirmed to the union organiser, Mr Tshoga, that the employees who refused to sign would not be permitted back and would not be paid wages because they were paid only for work performed. Despite this, Abancedisi maintained throughout that there was no dismissal because the employees remained “on its payroll”.

On 23 July 2001, NUMSA referred a dispute to the bargaining council alleging an unfair dismissal by Abancedisi. A meeting on 6 August 2001 followed, at which Mr van der Mescht reiterated that the contracts remained in place though wages would not be earned because no work was being done. He suggested three possibilities: signing the code and returning to Kitsanker; placement elsewhere if possible; or retrenchment if no placement could be found.

Conciliation on 31 August 2001 failed. Thereafter, Abancedisi did not communicate with the employees again. The employees ultimately launched proceedings in the Labour Court. Abancedisi’s defence was a point in limine that the referral was premature because it had not dismissed the employees.

A further factual aspect relied upon by the Supreme Court of Appeal concerned the employment contract terms, particularly that the contract commenced with the Kitsanker client arrangement and continued until completion of the “last assignment” in accordance with schedule “A”, and that schedule “A” recorded that the assignment would endure until Kitsanker no longer required the employees’ services “for whatever reason”.

Legal Issues

The central legal question was whether, on the evidence and properly construed contractual terms, the employees were dismissed by Abancedisi when they were excluded from the client’s premises, replaced, not reassigned, and not paid wages.

Flowing from that, a further legal question was whether any dismissal found to have occurred was unfair in terms of sections 186(1)(a), 188(1), 192(2), and 194 of the Labour Relations Act, given Abancedisi’s stance that the relationship continued and its failure to initiate retrenchment procedures or otherwise justify termination.

The dispute involved application of law to fact, anchored in the interpretation of the employment contract (a legal question) and the legal characterisation of the respondent’s conduct as repudiation/breach and termination under the statutory definition of dismissal (a mixed question). It also entailed a consequential statutory fairness enquiry under section 188(1), which depends on the employer’s justification and procedure (again application of legal norms to the proved facts).

Court’s Reasoning

The court approached the enquiry by treating the employment contract as the starting point for determining the parties’ legal rights and obligations. It focused on the meaning of “assignment” in clause 2.1 (referring to the “last assignment” for which the employee is employed in accordance with schedule “A”) and on schedule “A”, which provided that the assignment would terminate when Kitsanker no longer required the services of the employees “for whatever reason”.

The Supreme Court of Appeal rejected the interpretation adopted by both the Labour Court and Labour Appeal Court, namely that “assignment” referred to the overall commercial relationship between Abancedisi and Kitsanker that could continue despite the exclusion of the particular employees. In the Supreme Court of Appeal’s analysis, that interpretation was inconsistent with the contract’s plain language and with the agreed factual setting that the contract was conceived for the Kitsanker project and did not guarantee work beyond that assignment. The court emphasised that the contract envisaged that the individual employee’s assignment would terminate when Kitsanker no longer required the employee’s services, and it considered it clear that this occurred when Kitsanker excluded the employees and filled their positions with replacement workers.

The court also relied on how Abancedisi’s own representative explained the contractual scheme in cross-examination, namely that the contract came to an end when Kitsanker indicated it did not want the employees any longer. The court treated this as reinforcing the conclusion drawn from the contractual text.

Having concluded that the assignment ended, the court analysed the consequences of Abancedisi’s conduct thereafter. It applied the principle that a refusal to allow an employee to do the work he was engaged to do may constitute wrongful repudiation and a fundamental breach of the employment contract, giving the employee an election either to stand by the contract or to terminate it. The court found that Abancedisi did more than simply leave employees without work after exclusion; it also did not pay wages and did not take steps consistent with an ongoing employment relationship. Beyond the asserted “retention on the payroll”, the court considered that nothing resembling a genuine employment relationship remained. On that footing, irrespective of whether Abancedisi subjectively intended repudiation, its conduct amounted to a material breach entitling the employees to cancel the contract.

On the Labour Appeal Court’s finding that the employees acted “too soon” and that the referral to the bargaining council was premature, the Supreme Court of Appeal disagreed. It reasoned that section 191(1)(b) requires referral within 30 days of dismissal, and on the court’s view the employees were dismissed between 6 and 9 July 2001, while the referral occurred on 23 July 2001, within the statutory period and after the union had ascertained the respondent’s position. The Supreme Court of Appeal also rejected the characterisation of the situation as an “indefinite suspension”, holding that this was unsupported by the evidence and that the alternative remedies suggested by the Labour Appeal Court were irrelevant to whether a dismissal had occurred.

With dismissal established, the court turned to the statutory framework. It referred to section 186(1)(a), which defines dismissal as termination of a contract of employment by the employer with or without notice. It then applied section 192(2), which places the onus on the employer to prove fairness once dismissal is shown. Under section 188(1), a dismissal not automatically unfair is unfair if the employer fails to prove a fair reason related to conduct, capacity, or operational requirements, and fails to show compliance with a fair procedure. The court held that Abancedisi advanced no substantive defence and led no evidence justifying the dismissals, nor did it initiate retrenchment procedures. It therefore failed to discharge the onus to prove fairness.

The court expressly stated that it was not necessary to decide broader debates potentially raised by the matter, including the public policy and constitutional implications of automatic termination clauses. It nevertheless reiterated, in general terms, the Act’s purpose of giving effect to employee rights and the principle that termination should occur only for misconduct, incapacity, or operational requirements, in accordance with substantive and procedural fairness.

On remedy, the employees sought no reinstatement but requested 12 months’ compensation. The court held that substantial compensation was warranted and that the request fell within section 194, which permits compensation up to the equivalent of 12 months’ remuneration calculated at the employee’s rate of remuneration on the date of dismissal. The court saw no reason not to award the compensation sought.

Outcome and Relief

The Supreme Court of Appeal upheld the appeal with costs. It set aside the order of the Labour Appeal Court and substituted it with an order upholding the appeal in that court with costs, setting aside the Labour Court’s order, and replacing it with an order declaring that the dismissal of the second and further applicants was unfair in terms of section 188(1) of the Labour Relations Act.

The respondent was ordered to pay the second and further applicants 12 months’ compensation, calculated at their rate of remuneration on the date of dismissal. The respondent was also ordered to pay the costs of the Labour Court application, and the appeal costs followed the result.

Cases Cited

LAD Brokers (Pty) Ltd v Mandla [2001] 9 BLLR 993 (LAC)

SABroadcasting Corporation v McKenzie (1999) 20 ILJ 585 (LAC)

Niselow v Liberty Life Insurance Association of South Africa Ltd (1998) 19 ILJ 752 (LAC)

Myers v Abramson 1952 (3) SA 121 (C)

Stewart Wrightson (Pty) Ltd v Thorpe 1974 (4) SA 67 (D)

Stewart Wrightson (Pty) Ltd v Thorpe 1977 (2) SA 943 (A)

Info DB Computers v Newby & another (1996) 17 ILJ 37 (W)

Everson v Moral Regeneration Movement (2008) 29 ILJ 2941 (LC)

Council for Scientific & Industrial Research v Fijen (1996) 17 ILJ 18 (A)

National Union of Leather Workers v Barnard and Perry NNO 2001 (4) SA 1261 (LAC)

Legislation Cited

Labour Relations Act 66 of 1995 (sections 186(1)(a), 188(1), 191, 192(2), 194, 198)

Constitution of the Republic of South Africa, 1996 (section 23)

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The Supreme Court of Appeal held that, properly construed, the employees’ contracts linked their employment to the specific assignment at Kitsanker, which ended when Kitsanker excluded them and no longer required their services. Abancedisi’s failure to provide work after that exclusion, coupled with its failure to pay wages and its lack of steps consistent with an ongoing employment relationship, amounted to conduct constituting a repudiation and material breach that entitled the employees to cancel the contract, and it brought about a termination falling within the statutory definition of dismissal.

Once dismissal was established, Abancedisi bore the onus to prove that the dismissal was fair. Because it advanced no justification and did not demonstrate a fair reason or procedure under section 188(1), the dismissals were held to be unfair. The employees were awarded compensation equal to 12 months’ remuneration, calculated at the remuneration rate on the date of dismissal, together with appropriate costs orders.

LEGAL PRINCIPLES

A court determining whether an employee has been dismissed must have regard to the substance of the employment relationship, including the contractual rights and obligations underpinning the relationship, rather than merely accepting an employer’s characterisation that employment continues.

Where an employment arrangement is structured around a specific assignment to a client, and the contract provides for termination when the client no longer requires the employee’s services, the end of that requirement and exclusion from the client’s premises may signify the end of the assignment contemplated by the employment contract.

An employer’s conduct that prevents employees from performing the work for which they were engaged, particularly where accompanied by non-payment of wages and the absence of meaningful ongoing employment obligations, may constitute repudiation and a material breach of the employment contract, entitling employees to cancel the contract.

Under the Labour Relations Act, once the existence of a dismissal is established in terms of section 186(1)(a), the employer bears the onus under section 192(2) to prove that the dismissal was fair. If the employer fails to prove a fair reason and fair procedure as required by section 188(1), the dismissal is unfair.

Compensation for an unfair dismissal must be just and equitable and is capped at 12 months’ remuneration, calculated at the employee’s remuneration rate on the date of dismissal, as contemplated by section 194 of the Labour Relations Act.

National Union of Metalworkers of South Africa and Others v Abancedisi Labour Services (857/12) [2013] ZASCA 143; (2013) 34 ILJ 3075 (SCA); [2014] 2 All SA 43 (SCA); [2013] 12 BLLR 1185 (SCA) (30 September 2013)