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[2010] ZALCJHB 35
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Chilliebush v Johnston and Others (JR1234/08) [2010] ZALCJHB 35 (26 January 2010)
IN
THE LABOUR COURT OF SOUTH AFRICA
(HELD
IN BRAAMFONTEIN)
Case
number: JR1234-08
In
the matter between:
CHILLIEBUSH
APPLICANT
V
COMMISSIONER
JOHNSTON
1
ST
RESPONDENT
CCMA
2
ND
RESPONDENT
MIYENI
3
RD
RESPONDENT
JUDGMENT
AC
BASSON, J
[1]
The Applicant Chilli Bush Communications (Pty) Ltd (hereinafter
referred to as “the applicant”) applied to this
Court for
an order setting aside the ruling of the 1
st
respondent
(Commissioner Johnston - dated 30 May 2008). The applicant sought an
order in the following terms: “
Eric Gordon Miyeni was not
dismissed by Chilli Bush Communications (Pty) Ltd)”.
In the
alternative the applicant requested that the dispute be heard
de
novo
by a different commissioner of the 2
nd
Respondent
(the Commission for Conciliation, Mediation and Arbitration –
hereinafter referred to as “the CCMA”).
During argument
both parties were, however,
ad idem
that this Court should, in
the event of setting aside the ruling, substitute the decision of the
1
st
respondent. It must also be pointed out that the
parties were
ad idem
that the ruling of the commissioner
should be reviewed and set aside. I will return to this point
hereinbelow.
Background
facts
[2]
The 3
rd
respondent, Mr. Eric Miyeni (hereinafter referred
to as “the respondent”) was previously the managing
creative director
of the applicant. He referred an unfair dismissal
claim to the CCMA on 3 January 2007.
The
proceedings before the CCMA
[3]
At the commencement of the proceedings the applicant raised a point
in limine
that the CCMA did not have jurisdiction to deal with
the unfair dismissal dispute referred to it because the respondent
was not
an employee. The (first) commissioner who presided over the
proceedings upheld the point. That decision was, however, set aside
on review and the matter was referred back to the CCMA.
[4]
Commissioner Stone (the second commissioner) thereafter ruled that
the respondent was indeed an employee of the applicant and
that the
CCMA therefore did have jurisdiction to hear the matter.
Arbitration
proceedings before the 2
nd
Respondent (Commissioner
Johnston)
[5]
On 25 March 2008 the matter was set down for arbitration before
Commissioner Johnson (the 2
nd
respondent in this
application and the third commission seized with the dispute). The
parties agreed that Commissioner Johnston
would only determine the
first two issues namely whether or not the respondent was “
an
employee”
of the applicant and, in the event of it being
held that he was, whether or not the respondent was “
dismissed”
by the applicant.
[6]
The hearing commenced on the 25
th
of March. It appears
from the record that the commissioner was uncertain as to how the
proceedings should continue. She adjourned
the matter so that she
could consult with a senior commissioner. She was apparently advised
that evidence should be led on the
questions of employment and
dismissal and, if she required further information, she would ask for
it. This approached caused some
concern for the parties because it
was unclear to the parties what the nature of the proceedings would
be. The commissioner responded
to the concerns and indicated that she
could write a ruling and if the ruling “
finds that [Miyeni]
wasn’t an employee and that there was no dismissal then it will
end there, the matter will be dismissed
”. If the ruling
answered the two questions in the positive, it would then be
necessary for the parties to lead evidence on
the question of the
fairness at a later stage.
[7]
The parties
then proceeded to lead extensive evidence about whether or not the
respondent had been employed and if so, whether he
had been
dismissed. Towards the end of the proceedings, Commissioner Johnston
once again stood the matter down to consult with
a senior
commissioner. In her consultations with the senior commissioner, the
latter presumably brought the existence of Commissioner
Stone's
ruling (dismissing the
in
limine
objection to jurisdiction)
[1]
to
Commissioner Johnston's attention. Commissioner Johnston accused the
parties' legal representatives of unethical conduct for
failing to
draw the ruling to her attention.
[8]
Both legal representatives explained that,
because Commissioner Stone's ruling had been made even prior to
conciliation and before
any evidence had been led, it was by no means
clear that Commissioner Johnston was bound by the finding that the
respondent was
an employee of the applicant. Rather than waste time
having that debate, it had been decided that the quickest and
cheapest way
to proceed was to continue as agreed in the
pre-arbitration meeting and described above. Since the evidence on
the questions whether
the respondent was an employee and whether he
was dismissed would necessarily be similar, there would be no
prejudice or delay
caused by proceeding in the way agreed upon in the
pre-arbitration meeting.
[9]
On 3 June 2008, Commissioner Johnston made
a ruling in terms of which she concluded that, since no evidence had
been presented to
the arbitration that the ruling (of Commissioner
Stone) had been set aside and unless this was done by the Labour
Court, Commissioner
Stone’s ruling that the respondent was an
employee, still stood. Commissioner Johnston then ordered that the
matter should
be set down for arbitration before another commissioner
solely to determine whether a “
dismissal”
occurred and, if so, whether such a dismissal was substantively and
procedurally fair.
Is this a
reviewable ruling?
[10]
Apart from the fact that the parties are
ad idem
that the
commissioner’s ruling should be reviewed and set aside and that
the Court should decide whether or not the respondent
was dismissed
by the applicant, it was submitted that the decision is, in any
event, patently reviewable. It was argued that even
if Commissioner
Johnson was of the view that she was bound by Commissioner Stone’s
ruling, she ignored the second question
that was before her namely,
whether or not the applicant was “
dismissed
”.
[11]
I am in agreement that the ruling ought to be reviewed and set aside.
Commissioner Johnston acknowledged in her ruling that
there were two
questions before her: The first was whether or not the respondent was
an employee of the applicant and secondly
whether or not the
applicant was dismissed. By failing to consider the second
question she failed to apply her mind to the
evidence and material
that was placed before her and arrived at a decision that no
reasonable commissioner could have arrived at.
[12]
Both parties submitted that this Court
should substitute the decision and that, in any event, it would be
appropriate for this Court
to do so for the following three reasons:
(i) Firstly, the dispute was referred to the CCMA almost two years
ago. (ii) The parties
decided on the approach of separation of issues
because, in their view, it lent itself to a speedy resolution of this
dispute.
After extensive evidence was led on the two issues of
employment and dismissal, the parties are entitled to a ruling. It
would
be costly and time-consuming for the parties to be required to
lead all of that evidence again before another commissioner. (iii)
There is ample evidence on record before this Court to enable this
Court to decide the two issues that were before Commissioner
Johnston. (iv) A consideration of whether the respondent was an
employee and whether or not he was dismissed raises primarily legal
questions. It was submitted that this Court is better equipped than
the CCMA to determine such questions. I am in agreement with
these
submissions and will therefore proceed with deciding the two issues
that were before Commissioner Johnston.
Common
cause facts
[13]
It is common cause that the respondent was appointed as managing
creative director of the applicant on 5 April 2006 and that
he was
responsible for the management of the business affairs of the
applicant. He was also a 20% shareholder of the applicant
in terms of
the shareholders agreement. Paragraph 8.7 of the shareholders
agreement states that –
“
Should any
shareholder:
8.7.1 cease to be a
director of the company; or
8.7.2 have his or her
employment with the company terminated by his or her resignation or
by the remaining shareholders, with the
approval of the chairperson
of the board of directors, on two months’ written notice, then,
in either event, such shareholder
shall be obliged to resign as
director and to offer to sell his or her shares and loan account in
the company.”
[14]
On 14 November 2006, Mr. Dlamini and Mr. Hefer caused a notice of a
shareholders meeting to be delivered to the respondent
calling for a
meeting of the shareholders to be held on Thursday 7 December 2006 at
11H00. Prior to the commencement of the shareholders’
meeting
on the 7
th
of December, the respondent caused a letter to
be delivered to the applicants’ representatives (Matjila
Hertzberg & Dewy)
in terms whereof the respondent cancelled the
shareholders’ agreement; tendered the return of his 20%
shareholding in the
company; indicated that he did not regard the
agreement as binding on him; tendered to resign as director of the
applicant (because
he was of the view that the applicant had
repudiated the shareholders’ agreement in various respects);
indicated that he
will not be attending the shareholders’
meeting and indicated that he remained an employee of the applicant
and tendered
to perform such obligations.
[15]
In the absence of the respondent, the shareholders of the applicant
resolved that: -
“
Eric Miyeni is
removed as a director of the company
and
from his post as managing creative director with immediate effect
.
[2]
To the extent
necessary and ex abundanti cautela the suspension of Eric Miyeni by
the company be ratified in view of Mr Miyeni’s
contention that
such suspension is irregular.”
[16]
It was
common cause that the applicant complied with the provisions of
section 220
[3]
of the Companies
Act
[4]
in removing the
respondent as a director.
[17]
On 8 December 2006, the applicant’s
attorneys wrote to the respondent’s attorneys stating the
following: That the applicant
was of the view that, because the
respondent’s appointment as managing creative director ended
with his removal as a director,
there was no further position for him
at the applicant. The applicant was further of the view that the
shareholders' agreement
superseded any previous employment contract
of the applicant. The applicant therefore disputed that the
respondent remained an
employee of the applicant and that he was
entitled to any remuneration. Despite stating emphatically that there
was no position
for the respondent to fulfil at the applicant, the
latter invited the respondent to suggest on what basis he could
remain employed
by the applicant.
[18]
On 3 January 2007 the respondent referred
the dispute to the CCMA. The aforementioned invitation to the
respondent was declined
because the respondent was of the view that
he had already made it clear in the letter sent on 7 December that he
still believed
he could continue to serve as managing creative
director.
The
applicant’s case
[19]
It is the
applicant’s case that the respondent was not dismissed and that
any employment relationship with the respondent
terminated when the
respondent resigned as a director of the applicant and/or when he
cancelled the shareholders agreement. It
appears from the heads of
argument submitted on behalf of the applicant that it was also the
case of the applicant that the employment
of the applicant
automatically terminated upon his removal as a director. In support
of this argument the applicant referred to
English law
[5]
and to section 62 of the applicant’s Articles of Association.
This section reads as follows:
“
MANAGING
DIRECTOR
62. The directors may
from time to time appoint one or more of their body to the office of
managing director or manager for such
term and at such remuneration
(whether by way of salary or commission or participation in profits
or partly in one way or partly
in another) as they may think fit and
may revoke such appointment subject to the terms of any agreement
entered into in any particular
case …. But his appointment
shall determine if he ceases for any reason to be a director.”
The
respondent’s case
[20]
On behalf
of the respondent it was submitted that he was indeed an employee of
the applicant and that he was dismissed as contemplated
by the Labour
Relations Act
[6]
(hereinafter
referred to as “the LRA”). In support of this argument
the Court was referred to case law which supports
the notion that a
director will ordinarily also be an employee of the company (see
further the discussion below).
Questions
before the court
[21]
Before turning to a discussion of the applicable principles, it is
necessary to again restate what is before this court:
(i)
Firstly, was the respondent
an employee
of the applicant? and
(ii)
Secondly, (and in the event it is held that the respondent was an
employee
of the applicant), was the respondent
dismissed
by
the applicant?
Was
the respondent an employee of the applicant?
[22]
I am in agreement with the submission on behalf of the respondent
that the applicant has not, either in the affidavits filed
in this
court or in the heads of argument, advanced any arguments to the
effect that the respondent was not an employee. On this
basis alone,
I am of the view that the respondent was an employee.
[23]
However, irrespective of the fact that this conclusion can be drawn
purely in light of the papers, the fact that the respondent
was an
employee can be substantiated in any event with reference to the law
and the evidence that was placed before the commissioner.
[24]
At
the outset it should be pointed out that there is persuasive
authority for the notion that a director may, and will ordinarily
also be an employee of a company. A director who is also an employee
will effectively therefore hold two positions and will act
in two
different capacities. Different laws will also govern the two
positions held by the same individual: As a director of a
company
he/she will be governed by the provisions of the Companies Act and as
an employee, he/she will be governed by the LRA.
Strong support for
this notion is to be found in
PG
Group (Pty) Ltd v Mmambo NO & Others
[7]
(a review against a decision of an arbitrator of a bargaining
council), the arbitrator dismissed an
in
limine
application similar to the one initially brought by the applicant in
the present case. In the
PG
group
–case
the respondent was the financial director of the applicant. He was
removed from this position by the board of the holding
company of the
applicant. The applicant argued that the respondent had not been
dismissed but that his services had been terminated
by notices given
to him by the board in terms of the company’s articles of
association. In that case the applicant relied
on two clauses of the
company’s articles of association in support of its contention
that the respondent had not been dismissed:
"The office of
director shall ipso facto be terminated if the director is given
notice, signed by members holding in the aggregate
more than 50% of
the total voting rights of all members then entitled to vote on a
poll at a general meeting, requiring that director
to resign."
"The appointment
of any executive director or managing director shall, without
prejudice to any claim of any nature whatever
which any such director
may have against the company, cease if for any reason he ceases to be
a director."
It
was argued on the strength of these two clauses that the respondent
had not been dismissed and secondly, as a director of the
company,
the respondent was not an employee of the company. The court referred
to section 213 of the LRA and held that the definition
of an employee
would apply to most, if not all, directors:
"[29]
Neither the Labour Relations Act, nor the Companies Act nor, in this
case, the applicant's articles, specifically precludes
a director
from enjoying the protection of the Labour Relations Act. More
importantly, s 220 of the Companies Act, which allows
a company to
make short shrift of a director's career, expressly requires a right
to a hearing (s 220(2)). The Constitution which
requires fair
administrative action, demands that such a hearing must be fair.
Whether that hearing was fair or not, should not
be finally
determined by the shareholders or the company's board of directors.
It is inconceivable that in such an enquiry the
ordinary principles
of employment law would not be relevant. It follows that the obvious
remedy available to an unfairly dismissed
director would lie in the
provisions of the Labour Relations Act. However, in the light of the
dual capacities in which a director
holds office, it is questionable
if directors are entitled to reinstatement.”
[8]
[25]
I am in agreement with the submission that
there is no reason why directors cannot fall under the definition of
an employee in terms
the LRA. Whether or not it is so
de
facto
will, of course, depend on the
facts. See also
PG Group
where the Court held as follows:
“
[26]
A director may act in certain capacities and perform the kind of work
which appears to disqualify him or her from having the
status of an
employee. On the other hand, a director may also perform duties as an
employee of the company. The office and duties
of a director are
separate. The type of work done by a director is not a dependable
criterion as the nature of a director’s
actual day to day work
may vary greatly.
[27] Directors are the
holders of an office within the company. Rights and duties attach to
that office and flow from statutory
and common law of companies. A
contractual relationship between a company and a director may not be
necessary. Yet more often than
not, contracts of employment are
concluded between directors and companies, as was indeed done in this
matter. The third respondent’s
letter of appointment by the
applicant contains the standard terms which are normally expected to
be found in a contract of employment.
Both parties regarded the third
respondent as an employee.”
(I
will in the discussion hereinbelow refer to the facts which point to
the conclusion that the respondent in the present matter
was, in
addition to being a director of the applicant, also employed as an
employee of the applicant).
[26]
Henochsberg
[9]
in his discussion of article 61 (which provides for the appointment
of a managing director or manager from their body) also states
that a
manager so appointed in terms of article 61 may also be an employee
of the company.
[27]
The respondent argued, with reference to
the
PG group
-case,
that there is thus firstly no reason why directors cannot fall under
the definition of an employee and secondly that, even
if a particular
company’s articles of association (or a shareholders’
agreement) provides that a director may be removed
from office by the
board of shareholders of the company, this does not necessarily mean
that the director who is also an employee
is not protected by the
LRA. This, the respondent submitted, will be so even if the articles
of association (or the shareholders’
agreement) contain an
express provision ending a particular director’s appointment in
a particular post once that person
ceases to be a director. I will
return to the latter aspect in more detail hereinbelow.
[28]
I am therefore of the view that it is clear
from the
PG group
-case
that where a director holds two positions (one as director and one as
an employee) his/her rights as an “
employee”
will not be affected by the fact that he/she is also a director.
There is also clear authority for the view that an employee’s
rights in terms of the LRA will not be limited by the Company’s
Act: See
Whitcutt v Computer
Diagnostics & Engineering (Pty) Ltd
(1987) 8 ILJ 356 (IC) where the Court held as follows:
‘
Accordingly
he submits that where the relationship of employer and employee is in
fact nothing other than the relationship between
company and
director, the industrial court “simply has no jurisdiction in
the matter”. He further adds: “Where
the termination of
an employment relationship is no more than the natural and inevitable
consequence of the termination of a directorship
then the industrial
court should not intervene.”
This issue as to
whether applicant was an employee in terms of the Act was raised once
more by the court at the end of the proceedings
and Mr Mostert
conceded that applicant could be regarded as an 'employee'.
The
court is of the view that applicant's position in his capacity as
employee can be separated from his capacity as director and
prospective shareholder. It could not have been the intention of the
legislature that the behests of the Companies Act could have
curtailed any rights of employees covered by the Act. Bearing in mind
the objects of the Act, i.e. sound labour relations based
on the
principles of equity and fairness the court fails to see how any
employee's rights under the Act could be curtailed”
.
[10]
[29]
Moreover,
in so far as it may be argued that there is a conflict between
company law and labour law, section 210
[11]
of the LRA is clear that labour law shall prevail. (I will also point
out in paragraph [34] hereinbelow that it was also envisaged
in the
shareholders’ agreement between the applicant and the
respondent that he could also be appointed as an employee of
the
applicant.)
Does the
evidence support the conclusion that the respondent was an employee?
[30]
In deciding whether or not an individual is
an employee or not, the courts will normally apply the dominant
impression test (see,
for example,
Denel
(Pty) Ltd v Gerber
(2005) 26 ILJ 1256
(LAC). In a recent decision
Hydraulic
Engineering Repair Services v Ntshona &
Others
(2008) 29 ILJ 163 (LC) the Labour Court held that a 50% shareholder
(the respondent) in a company who was also its marketing
director was
an employee in light of the fact that he received regular monthly
salary as a marketing director; monthly pay slips
indicated that UIF
was deducted; the respondent was involved in the running of the day
to day activities of the company. In applying
the dominant impression
test the Court concluded that the respondent was an employee of the
applicant (the company) despite the
fact the fact that he held 50% of
the company and as such could veto any decisions of the board.
[31]
In the present case the respondent argued
with reference to the evidence that it is clear that it was from the
outset the intention
that the respondent would play a crucial part in
the running of the business, particularly in light of the fact that
the respondent
came on board as a consequence of the need to find a
BEE partner. The Court was also referred to the letter in which the
respondent
was notified of his appointment as a managing creative
director. In this letter the respondent was
inter
alia
told that “
[i]n
order to ensure your remuneration is commensurate with the additional
responsibilities of this position, the Board is pleased
to advise
that a 21% salary increase will apply with effect from1 May 2006
.”
This, the respondent argued, is indicative of the fact that he was
appointed as an employee and that the remuneration was
indicative of
the fact that he was compensated for his added responsibilities. It
was also the evidence of Ms. Hefer (the only
witness for the
applicant) that the respondent was issued with the standard payslip
that was issued to all employees. She also
acknowledged that at the
time no remuneration was paid to directors in their capacity as
directors of the applicant. This, the
respondent argued, was clearly
indicative of the fact that the respondent was paid for the functions
he performed as an employee.
The payslip of the respondent further
showed that the respondent was subjected to UIF deduction.
[32]
It was common cause that the respondent did
not have a written contract with the applicant. It was, however, the
evidence of the
respondent that he at least had an oral contract of
employment with the applicant. In the past, however, the respondent
had a contract
of employment with the applicant when he was
previously employed as a creative director. It was, however, the
contention on behalf
of the applicant that the shareholders’
agreement superseded the previous employment contract of the
respondent. In respect
of this submission, the respondent argued
that, if this court does not accept that the shareholders’
agreement superseded
the employment contract (as it should according
to the respondent), then the Court should accept that a contract of
employment
did exist as it was effectively conceded that, at least in
the past, the respondent had a contract of employment with the
applicant.
(I will return to this point hereinbelow.)
[33]
I am in agreement with the submission on
behalf of the respondent that the evidence points to the conclusion
that the respondent
was (apart from being a director) appointed as an
employee.
[34]
There are also indications in the
shareholders’ agreement that governed the relationship between
the respondent and the other
shareholders, that directors could also,
and would in fact also ordinarily be an employee of the applicant.
Clause 8.4 of this
agreement provides that:
“
Except
with the approval of 80% of the shareholders, the directors shall be
in the full employment of the COMPANY…
”
.
Clause
8.7 further provides that should any shareholder either cease to be a
director or have his/her employment with the applicant
terminated by
his or her resignation or by the remaining shareholders, with the
approval of the chairperson of the board of directors,
on two months’
written notice, then in either event, such shareholder will be
obliged to resign as director and offer his
other shares and loan
account to the applicant.
[35]
I am in agreement with the submission that
it is clear (apart from the other facts that point to an employment
relationship) that
the parties to the shareholders’ agreement
also envisaged that directors could be employed by the applicant and
that they
would fulfil two separate roles: one as a director and the
other as an employee.
[36]
It is therefore concluded that the
respondent was an employee of the applicant. As far as the first
question before this court is
concerned, it is thus answered in the
affirmative.
“
Automatic
termination” of the employment contract
[37]
Before I turn to the question more
specifically whether or not the respondent was “
dismissed”
by the applicant, I wish to make a few observations about the
question whether an employer and an employee can contractually agree
(either in a contract of employment or in the articles of association
of a company of which the employee is also a director) that
the
employment relationship shall automatically terminate in the event of
the termination of the employee’s directorship.
It is necessary
to consider this question in light of the letter dated 8 December
2006 to the respondent in which the applicant
suggested that the
respondent’s contract of employment was superseded by the
shareholders’ agreement and that the respondent’s
employment was simultaneously terminated on the termination of his
directorship.
[38]
Firstly,
I am not persuaded by the submission that the shareholders’
agreement superseded the contract of employment. Firstly,
the text of
the relevant resolution of the board clearly supports the conclusion
that there were two “acts of termination”
(see paragraph
[15]
supra
).
The one is the respondent’s removal as a director and the other
is his removal from his post as managing creative director.
Secondly,
there are persuasive policy reasons why it should not be accepted
that parties may contractually provide for the automatic
termination
of an employment relationship upon the occurrence of a certain event
such as for example, where a person is removed
as a director from a
company. By allowing an employer to contractually negotiate the terms
of a dismissal in advance is, in my
view, not permissible in the
labour law context: Firstly, providing for an automatic termination
in a contract of employment (or
as in the present case the articles
of association) will be in contravention of the provisions of
sections 5(2)(b) and 5(4)
[12]
of the LRA which prohibit an employer and an employee from agreeing
to limit an employee’s statutory rights.
[13]
A shareholders’ agreement can likewise not, in my view, limit
the statutory rights against unfair dismissal which an employee
enjoys in terms of the LRA. Secondly, such a limitation of an
employee’s right against unfair dismissal is in conflict with
applicable case law and more importantly, falls foul of the
constitutional right of every employee to fair labour practices (see
the next paragraph). See also
Denel
(Pty) Ltd v Gerber
[2005] 9 BLLR 849
(LAC) where the Court held in the context of
whether parties can effectively contract out of the LRA by styling an
employee as
an independent contractor as follows:
“
[24]
I am satisfied that the parties can resile from the position which
they had deliberately and openly chosen to take up and that
to reach
any other conclusion would be, in effect, to permit the parties to
contract out of the Act and to deprive, in particular,
a person who
works as an employee within the definition of the Act under a
contract of service of the benefits which the statute
confers upon
him. If I consider the policy of the Act I can see the dangers,
pointed out by Lord Justice Ackner in the course of
the argument, of
employers anxious to escape from their statutory liabilities under
this legislation of the Factories Act offering
this choice to persons
to whom they intend to employ, as Mr West was employed, as employees
within the definition of the Act and
pressing them to take that
employment – it may be even insisting upon their taking that
employment – on the terms that
it shall not be called that
employment at all, but shall be called a contract for services with a
self-employed person. I, therefore,
reject Mr Clifford’s
submission in its extreme form. To accept it would, I think, be to
prefer the minority view of Lord
Justice Lawton in Ferguson’s
case to the view of the majority both in Ferguson’s case and in
Massey’s case; and
I do not find anything in Massey’s
case which clearly indicates that, where the agreement to treat a man
as self-employed
is made as openly as it was in this case, the person
called self-employed is forced to accept that position, whatever the
reality
of the matter, when he comes to try and persuade an
Industrial Tribunal to hear a complaint of unfair dismissal. That
seems to
me to presuppose some kind of estoppel against invoking the
statute equivalent to, or closely analogous to, a power to contract
out of the Act; and to give effect to it would, in my judgment be
plainly wrong”
See
also
SA Post Office Ltd V Mampeule
(2009) 30
ILJ
664
(LC) where the Court unequivocally stated that a contract cannot
provide for the automatic termination of a contract of employment:
“
[45]
The effective cause of termination of the respondent's contract of
employment was clearly the minister's
removal of him from the
applicant's board of directors. The automatic termination clause is
impermissible and cannot rightly be
invoked to stave off the clear
and unambiguous effect of the minister's overt act.
[46]
In the result, the automatic termination provisions of article 8.3,
which regulates the termination
of the contract of employment and is
thus incorporated by reference therein, are impermissible in their
truncation of provisions
of chapter 8 of the LRA and, possibly even,
the concomitant constitutional right to fair labour practices (cf
B Igbo
v Johnson Matthey Chemicals Ltd
[1986] IRLR 215
(CA)). 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.”
[39]
Section 23(1) of the Constitution
entrenches the right of every employee to fair labour practices. The
LRA in section 1(a) gives
effect to this right by recognising the
right not to be unfairly dismissed in section 185 of the LRA. In
NEHAWU v University of Cape Town &
others
(2003) 24 ILJ 95 (CC), the
Constitutional Court confirmed that section 185 is an extension of
the constitutional right to fair
labour practices:
“
[42]
Security of employment is a core value of the LRA and is dealt with
in chapter VIII. The chapter is headed “Unfair Dismissals”.
The opening section, s 185, provides that “[e]very employee has
the right not to be unfairly dismissed”. This right
is
essential to the constitutional right to fair labour practices. As
pointed out above, it seeks to ensure the continuation of
the
relationship between the worker and the employer on terms that are
fair to both. Section 185 is a foundation upon which
the
ensuing sections are erected
.
An
employee therefore has a constitutional right not to be unfairly
dismissed (as this right is an extension of the right to fair
labour
practices). This is also in line with the purpose of the LRA which is
to give effect to the constitution and the rights
entrenched
therein.
[14]
Was the
respondent dismissed?
[40]
I have already pointed out that the
respondent’s case is that he was dismissed on 7 December 2006
as a consequence of a resolution
passed by the board of directors. I
am in agreement with this submission. It is patently clear from the
resolution that he was
dismissed. The respondent’s evidence
also supports this conclusion. It was his evidence that when he
arrived at work after
the date of the board meeting at which the
resolution was passed he was told by security guards that he may not
enter the premises.
A letter written on behalf of the applicant on 8
December also supports the conclusion that the applicant was also of
the view
that the respondent was dismissed by the applicant as a
consequence of the resolution passed by the board the day before (see
paragraph
[15]
supra
).
[41]
As already pointed out in the afoaregoing
discussion, the mere fact that that the respondent was lawfully
removed as director (in
terms of section 220 of the Company’s
Act) does not mean that the respondent is now deprived as an employee
from the right
to claim that he was dismissed and/or that his
dismissal was unfair. Apart from the policy considerations referred
to above, it
is also clear from a long line of cases that there is a
distinction to be drawn between the
lawfulness
and the
fairness
of a dismissal and the mere fact that a dismissal is lawful does not
mean that the dismissal is also fair. See
NUMSA
v Vetsak Co-operative Ltd
(1996)
17 ILJ 455 (A) where the Appellate Division (as it then was)
highlighted this distinction as follows:
‘
There
is no sure correspondence between lawfulness and fairness. While an
unlawful dismissal would probably always be regarded as
unfair (it is
difficult to conceive of circumstances in which it would not), a
lawful dismissal will not for that reason alone
be fair …
The
ultimate determinant is therefore fairness and not the lawfulness of
… the dismissal … .’
[15]
[42]
It also appears from the
PG
Group
- case and
Ntshona
(in which the Court followed the
PG
Group
-case) that labour law and company
law essentially operate in their own spheres (although at time they
have consequences for one
another). The most striking example is the
fact that detailed rules are contained in the Company’s Act
that deal with the
termination of the directorship of directors. In
the case where the director is also the managing director, specific
rules must
be followed. From a company law point of view it is thus
clear that the shareholders are entitled to terminate the
directorship
of any of the directors and that their discretion is
unfettered. Different rules, however, apply when dismissing an
employee in
terms of the LRA. Firstly, the discretion in terms of
labour law is not as unfettered as it is when removing a director and
secondly,
the procedures that need to be followed are far more
comprehensive. Lastly, fairness and not lawfulness is the overriding
principle
in labour law. It then follows that the fact that a company
is entitled to remove a director in terms of company law does not
mean
that the decision is immune from scrutiny in terms of labour
law. Furthermore, as already pointed out, the fact that a director
has been lawfully removed as a director does not mean that this
decision will also result in a fair dismissal (as an employee).
The
fairness of a decision to dismiss is subject to the determination of
either the CCMA or the Labour Court.
[43]
For completeness sake I must briefly refer
to some of the applicants’ submission. The applicant argued
that the position in
company law suggests that once the board makes a
decision to remove the managing director, he does not continue to be
an employee
of the company. It was also argued that the respondent
terminated his employment relationship himself by resigning as a
director
of the applicant. In support of its argument, the applicant
referred to Henochsberg Companies Act (Vol2 with reference to the
discussion
of article 61 which is similar to section 62 of the
applicant’s Articles of Association) that:
(i)
A managing director’s appointment as such terminates
automatically if he ceases for any reason to be a director.
(ii)
Irrespective of what the Articles or the contract between the company
and the managing director provide, the company can always procure the
termination of the managing director’s appointment
by removing
him as a director.
(iii)
The managing director’s removal as a director would be subject
to the
managing director’s claim for damages for any breach of
the contract that such termination entails.
[44]
I have several difficulties with the
applicant’s submission. I have already indicated that the
labour law and company law
operate in two different spheres (apart
from some overlaps in certain circumstances). Article 61 deals with
the appointment of
a managing director or manager from the body of
director and its removal. What the applicant relies on is the
discussion by Henochsbergs
of this procedure. I have no quarrel with
that and accept that this is the legal position in respect of the
appointment and/or
removal of a managing director or manager. It is
in any event not the question before this court. Where I do differ
from the applicant
is that the decision to remove him as an employee
is immune from scrutiny in terms of the labour law. In
PG
Group (supra)
, the court also rejected
the view that the employee who had lost his employment as a
consequence of a decision of the company’s
sole shareholder to
remove him as a director (which it was entitled to do) that this
could not be attributed to the company, and,
consequently, that the
company itself had not dismissed the employee in the sense defined in
section 186(1)(a) of the LRA:
“
The
decision to remove the [employee] was clearly made in terms of
articles 46.6 and 30. The decision was taken by members in a
general
meeting. Therefore it is a decision of the [company] itself and not a
decision of PGSI Limited [the sole shareholder].
One of a company’s
primary rules of attribution is that the decision of members in a
general meeting constitutes a decision
of the company itself
[authority citied].
The
decision to dismiss, taken by PGSI Limited, is in law the [company’s]
decision and therefore the latter terminated the
[employee’s]
appointment as director.”
[16]
[45]
The court was also referred to
Barlows Manufacturing Co Ltd and
Others v R N Barry (Pty) Ltd and Others
1990 (4) SA 608
(C) where
the Court held as follows at 611:
"
If the removal
occurs in breach of a contract with the company he may claim damages
that is provided in section 220(7). But, and
this is the significant
point, this is his only remedy. The shareholders may at any time
resume effective control."
[46]
I
do not read
Barlows
to be authority for the proposition that a director who is also an
employee has no remedies in terms of the LRA. There is no indication
from the decision in
Barlows
that the court came to this conclusion nor that this case involved a
director who was also an employee. On this basis alone the
case is
wholly distinguishable from the present case. The Court was also
referred to
Stevenson
v Sterns Jewellers (Ply) Ltd
(supra) as authority for the view that where a director is removed
from his position as a director, any employment relationship
under a
contract of employment terminates. Again, a reading of this judgment
does not support his contention at all. In fact, in
the
Stevenson
the applicant pursued remedies in terms of the (previous) LRA. No
point
in
limine
was raised remotely similar to the one raised in this matter. Lastly
the applicant, with reference to English law submitted that
English
law supports the principle that if a director is removed from his
position as a director, any employment relationship terminates
(see:
BMK
Ltd and BMK Holdings Ltd v JL Loque
[17]
).
The Court was also referred to the decision of the United Kingdom
Employment Appeal Tribunal in
Mountain
Springwater Co Ltd v MS I Colsby
[18]
for authority that the employment of the applicant terminated
automatically upon her removal as director. This does not mean that
the individual is deprived of his/ her remedies in respect of a claim
for unfair dismissal. This was also specifically recognised
by the
Employment Appeal Tribunal:
“
12.
This is where the judgment of Mummery LJ is so helpful in clarifying
the position. In Cobley, the director who was removed had
been
employed as chief executive for very many years. There was there no
doubt about the construction of the Articles, because,
in fact, the
matter depended upon an express contract, that the employment of the
Applicant terminated automatically upon his removal
as director: but
nevertheless, even in that situation, which we are satisfied is the
same as this case – once we have resolved
the issue in favour
of the Respondent, whereas the Tribunal would have resolved it
against the Respondent - the Tribunal then needs
to go on to consider
the question of unfair dismissal. Mummery LJ said the following in
his judgment at paragraph 20:
“
20.
I agree with [Counsel for the Applicant], that this does not mean
that the reason for the shareholders’ resolution removing
the
director is irrelevant to identifying the reason for his dismissal
from employment in proceedings for unfair dismissal or for
wrongful
dismissal. If, as in this case, removal from the board automatically
terminates the contract of employment, it will be
difficult to
dissociate the reason for the removal resolution from the termination
of the employment. One leads to the other. I
was not impressed
[Counsel for the Respondent’s] concern about the possible
difficulties in investigating and identifying
the reason for the
removal of a director at an EGM attended by the many shareholders.””
[47]
Lastly, the applicant has advanced the
argument that it would be unfair to continue to employ a director
after his directorship
(and shareholding) has come to an end. This
may be so but this is a question which is relevant in proceedings
where the commissioner
must consider an appropriate remedy in the
event of a finding that the dismissal was substantively unfair.
[48]
In conclusion: I am therefore satisfied that that the 3
rd
respondent was an employee of the applicant and that he was
dismissed. In respect of costs I am of view that the 3
rd
respondent is entitled to his costs.
[49]
In the event the following order is made:
(i) The
ruling of the second respondent is reviewed and set aside and
replaced by an order that the 3
rd
respondent was an
employee of the applicant and was dismissed on 7 December 2006.
(ii) The dispute
about the fairness of the dismissal of the 3
rd
respondent
is referred to the 2
nd
respondent to be determined by a
commissioner other than the 1
st
respondent.
(iii) The applicant is
ordered to pay the costs.
__________________
AC
BASSON, J
Judgment:
26 January 2010
For
the applicant:
Adv
AJR Booysen. Instructed by Matjila, Hertzberg & Dewey
For
the Respondent:
Adv
A Friedman. Instructed by Bowman Gilfillan
[1]
See paragraph [4]
supra
.
[2]
My emphasis.
[3]
“
220.
Removal of directors and procedures in regard thereto
(1)(a)
A company may, notwithstanding anything in its Memorandum of
Articles or in any agreement between it and any director,
by
resolution remove a director before the expiration of his period of
office.
”
[4]
Act no 61 of 1973.
[5]
See paragraph [46] hereunder.
[6]
Act 66 of 1995.
[7]
(2004) 25
ILJ
2366
(LC).
[8]
At paragraph [30].
[9]
Henochsberg
on the Companies Act
by Meskin: Vol 1 issue 1 at page 1041.
[10]
At
362G-J. See also the judgment in
PG
Group (Pty) Ltd v Mbambo NO & others
[2005] 1 BLLR 71
(LC) at paragraph 31 where the court referred to
this decision with approval.
[11]
Section
210 of the LRA provides as follows
:
“If any conflict, relating to any matter dealt with in this
Act, arises between this Act and the provisions of any other
law
save the Constitution or any Act expressly amending this Act, the
provisions of this Act shall prevail
.”
[12]
Sub-sections
(2)(b) and (4) thereof provide as follows:
‘
(
2)
… no person may do, or threaten to do, any of the following –
…
(b)
prevent an employee …
from exercising any right conferred
by this Act
or from
participating in any proceedings in terms
of this Act
;
…
(4)
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 … this section is invalid, unless the
contractual provision is permitted by this Act.
”
(My emphasis.)
[13]
Support
for this notion is also to be found in
Igbo
v Johnson Matthey Chemicals Ltd
[1986] IRLR 215
(CA) where a contract of service provided that
should the employee fail to return to work after his holiday “
your
contract of employment will automatically terminate on that date”
.
The Court of Appeal concluded that this constitutes a dismissal. The
Court held as follows with reference to section 140 of
the
Employment Protection (Consolidation) Act 1978, which provides that
-
“
(1[e]Except
as provided by the following provisions of this section, any
provision in an agreement (whether a contract of employment
or not)
shall be void in so far as it purports –
(a)
to exclude or limit the operation
of any provision of this Act; or
(b)
to preclude any person from presenting
a complaint to, or bringing any proceedings under this Act before,
an industrial tribunal.”
The
Court concluded as follows:
……
“
[19]
… it is impossible to avoid the conclusion that the provision
for automatic termination had the effect, if valid,
of limiting the
operation of the sections. It was therefore void by virtue of s 140.
In our judgment Ashraf’s case was
wrongly decided and must now
be overruled. We add that, in substance, the effect of the automatic
termination provision is the
same as if it had said in terms “in
the event of failure to return to work on 28 September, termination
of the employee’s
employment on that ground shall not
constitute dismissal under s 55”, or “shall not give
rise to any claim for unfair
dismissal”. Any such provision
would without doubt have been void as limiting the operation of the
sections. We can see
no ground for saying that a provision which has
the like effect does not limit such operation”
…
..
“
[21]
In the final analysis the question to be determined is whether a
provision for automatic termination upon failure to report
for work
on one specified future date, introduced by way of variation of a
subsisting contract of employment, has the effect
of limiting the
operation of ss 54 and 55. To hold that it does not is not in our
judgment possible when the effect is to convert
a right not to be
unfairly dismissed into a conditional right not to be unfairly
dismissed.”
[14]
See:
University
of Cape
Town
(supra)
at paragraph 41 where the Court held as follows: “
The
LRA must therefore be purposively construed in order to give effect
to the Constitution”.
[15]
At
460.
[16]
At
paragraphs 19-20.
[17]
Appeal no EAT/781/92 dated 5 February 1993.
[18]
Appeal no UKEAT/0855/04 dated 18 April 2005.