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[2012] ZALCCT 34
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Melomed Hospital Holdings Ltd v Commission for Conciliation Mediation and Arbitration and Others (C 345/11) [2012] ZALCCT 34; (2013) 34 ILJ 920 (LC) (15 August 2012)
Reportable
Of interest to other judges
REPUBLIC OF
SOUTH AFRICA
THE LABOUR COURT OF SOUTH AFRICA,
CAPE TOWN
JUDGMENT
case
no: C 345/11
In the matter between:
MELOMED HOSPITAL HOLDINGS LTD
Applicant
and
CCMA
First Respondent
D WILSON N.O.
Second Respondent
DR ADRIAN BURGER
Third Respondent
Heard
:
3 August 2012
Delivered
:
15 August 2012
Summary:
Review – true nature of employment relationship
– parties formed an Inc in order not to contravene HPCSA rules.
True
employer remained Melomed.
JUDGMENT
STEENKAMP J
Introduction
Who was the true employer of the third respondent, Dr Adrian Burger?
That is the pertinent question that arises in this application
for
review.
The arbitrator (the second respondent) found that the applicant
(Melomed) was the true employer. Melomed wishes to have that
finding
reviewed and set aside. Its argument is that Dr Burger was employed
by an incorporated company, Dr Adrian Burger Inc
(“the Inc”).
The further question, if Burger was Melomed’s employee, is
whether his dismissal was fair.
Background facts
The applicant, Melomed, operates three private hospitals in the
Western Cape.
It is common cause that Melomed wished to make use of the clinical
services of the employee, Dr Burger, in its emergency services
units. This need arose in the context of a previous arrangement it
had with a Dr Lamprecht. Lamprecht employed and paid doctors
to
perform clinical duties at Melomed’s emergency services units.
He had his own administrative and practice staff. But
Melomed was
concerned that it had very little control over Dr Lamprecht’s
movements and availability,
inter alia
because he was often
busy with cat scans of a different kind – he is an
international adjudicator at feline shows.
Having recently returned from a stint abroad performing
locum
duties, Burger entered into discussions with Melomed. They had a
number of meetings in September and October 2009. Burger was,
at
least initially, firmly under the impression that he would be
employed by Melomed. Apart from his own evidence at arbitration,
this is apparent from a contemporaneous email dated 2 October 2009
where he sought clarity on the terms and conditions of employment:
“
Mr
Chohan
With regard to the meeting that
we had last week, attended by Mr Bhorat, Ismail Bhorat, Mr Allie,
Junaid Akoojee and myself, I would
like the opportunity of opening
discussions with Melomed for me to work as Clinical Director of
Emergency Services forthwith.
I am interested in taking on
this job opportunity and would request from Melomed a formal proposal
of job description, responsibilities,
position, reporting structure
and salary at their earliest opportunity.”
Burger followed this up with a further email after a further meeting
took place on 6 October 2009. In this email, addressed to
Messrs
Bhorat, Allie and Chohan, Burger set out what he believed to be “a
reasonable package in terms of my future employment
as Head of
Clinical Services” for Melomed, including his job description;
monthly salary; a 48 hour work week; annual leave;
clear reporting
structure and key performance indicators, linked to an annual
performance bonus.
The parties agreed to a monthly salary of R90 000; a work week
of 48 hours; and 22 days’ leave per year.
While the parties were busy with their discussions, a problem became
apparent. In terms of the ethical rules of the Health Professions
Council of South Africa (HPCSA), private hospitals are precluded
from employing doctors to perform clinical duties.
In a clear attempt to circumvent these rules – or, at the
least, in order not to contravene the rules – Melomed
instructed its attorneys to form an incorporated company through
which Burger’s – and other doctors’ –
services would be provided to it. Melomed concedes that the Inc was
formed as a “special purpose vehicle”, although
it took
umbrage at Burger’s use of the word “device”.
Burger consulted with Melomed’s attorney, Mr Mohamed Darsot of
Edward Nathan Sonnenbergs, on 19 October 2009. It is common
cause
that Mr Darsot was tasked with drafting a contract; what is not, is
what form the contract would take.
Some nine months later, by 14 July 2010, Darsot – who is also
a Melomed board member -- had not produced the contract.
Burger’s
attorneys addressed a letter to Melomed asking that it confirm that
it had indeed instructed ens to draft a written
agreement, failing
which it would be seen as a repudiation.
In the meantime, Burger had started working at Melomed from 1
November 2009. At that stage, the Inc had not been incorporated.
He
fulfilled clinical as well as administrative functions. Melomed paid
him a monthly salary, although the payslip reflected
“Dr
Adrian Burger Inc”. Melomed deducted PAYE and UIF from his
salary. The employer’s income tax number was
that of Melomed.
He was given a Melomed business card on which his job title was
reflected as “Clinical Manager –
Emergency Services”.
He was required to work 48 hours per week for Melomed.
Chohan issued a letter to all staff and to doctors referring
patients to Melomed, announcing Burger’s appointment as
“General Manager – Medical Emergency Services.”
The Inc was registered on 26 November 2009. There is no evidence
before the arbitrator or this court of a pre-incorporation contract.
Burger was the sole shareholder and director of the Inc; however,
Melomed exerted control over it, to the extent that only Melomed
officials, and not Burger, had signing powers on the Inc’s
account. The registered address of the Inc was that of Melomed.
Melomed handled all human resources functions, administration and
payroll regarding Burger’s employment, as well as the
employment of other doctors.
Burger had weekly meetings with Melomed’s Chief Operating
Officer, Mr Ahmed Chohan. According to Burger, this was necessary
because he reported to Chohan; Chohan’s version is that Burger
merely “reported” to him in the capacity of
a service
provider. Burger wanted to have a personal assistant employed;
Chohan refused.
At no stage did the parties enter into a written agreement, despite
Melomed having retained the services of attorneys throughout.
This
failure would lead, as it so often does, to an unfortunate
obfuscation of the true agreement between the parties. And it
shows
that often, as Samuel Goldwyn supposedly remarked, “a verbal
contract isn’t worth the paper it’s written
on”.
In January 2010 it came to Melomed’s attention that foreign
doctors (known as “supernumeraries”) were not allowed
to
be employed in South Africa in accordance with HPCSA guidelines.
Chohan brought this to Burger’s attention. Chohan also
told
Melomed’s HR department that no supernumeraries were to be
employed.
Burger testified that he wanted to give the ‘supernumeraries’
some time to structure their affairs before they ceased
performing
services for Melomed.
Melomed terminated the purported agreement between it and the Inc on
16 July 2010 – i.e. two days after Burger’s
attorneys
had demanded that the contract between the parties be finalised --
claiming that the Inc was in breach of contract,
as the services of
the supernumeraries had not been terminated. On 15 July 2010 Burger
had met with Melomed and demanded to see
the bank statements of the
Inc, which he had not seen until then. He saw that two amounts of
R170 000 and R100 000
respectively had been transferred to
Melomed without his knowledge. He then revoked the signing powers of
Melomed’s officials
and became the sole signatory on the Inc’s
bank account.
At this stage, there was still no written agreement in existence
between Melomed on the one hand, and either the Inc or Burger
on the
other hand.
Burger reported for duty on 19 July 2010 and Melomed’s Allie
told him that Melomed had terminated the agreement. Burger
referred
an unfair dismissal dispute to the CCMA.
On 10 September 2010 Melomed launched liquidation proceedings
against the Inc.
The argument at the CCMA
At the CCMA, Melomed raised a jurisdictional point that Burger was
not its employee. The arbitrator ruled that he would first
hear
evidence and argument on the merits, and then rule whether Burger
was indeed Melomed’s employee or not.
In its founding affidavit dealing with the jurisdictional point,
Melomed’s CEO, Rielthewaan Allie, submitted that the Inc
was
in fact a temporary employment service (“TES”) as
defined in section 198 of the Labour Relations Act
1
;
and that Burger was employed by the Inc acting as a “labour
broker” or TES.
It appears that this argument was not pursued at arbitration, once
the parties had led their evidence. Instead, Melomed’s
attorney argued that it was not the true employer, based on the
‘dominant impression’ test. (Both parties were legally
represented at arbitration).
The arbitration award
The arbitrator summarised the evidence of all four witnesses at the
arbitration comprehensively in his arbitration award comprising
22
pages. He then analysed the evidence and arguments before him,
firstly having regard to the question whether Burger was Melomed’s
employee. (The legal representatives for both parties had filed
written submissions).
The arbitrator had regard to the definition of ‘employee’
in s 213 of the LRA, ie:
“
(a)
any person, excluding an independent contractor, who works for
another person or for the State and who receives, or is entitled
to
receive, any remuneration; and
(b) any other person who in any
manner assists in carrying on or conducting the business of an
employer...”
He noted that the presumption in s 200A of the LRA was not
applicable in view of Burger’s remuneration being above the
threshold; but he correctly noted that the factors outlined in that
section could provide “valuable insight” in deciding
the
question based on a ‘dominant impression’ test. He also
noted, once again correctly, that our courts have stated
that regard
must be had to the true nature of the relationship between the
parties, regardless of how the parties had chosen
to describe that
relationship in contract.
2
The arbitrator took six primary factors into account in order to
establish the true nature of the relationship between the parties:
The object of the contract was for Burger to render personal
services to Melomed, not to perform a specified job or to produce
a
specified result.
Burger rendered services to Melomed personally and not through
others.
Burger was required to work for Melomed on a full-time basis.
Chohan had a significant degree of control over Burger; this was
evident,
inter alia
, from the weekly meetings to discuss
operational issues and the fact that Chohan instructed Burger to
cease using supernumeraries.
The contract would have terminated on Burger’s death.
The parties had agreed on a five-year contract; the work was of an
ongoing nature and there was no specific result that would
have
brought about an end to the contract.
The arbitrator further took into account that Burger worked only for
Melomed and was wholly economically dependent on it. Furthermore,
Melomed equipped him with “tools of the trade” in the
form of fully equipped emergency units, a laptop and a white
coat.
He was designated as a General Manager and was issued with a
business card identifying him as part of the organisation.
Further factors pointing to an employment relationship were the
following:
Melomed deducted PAYE from Burger’s salary (although it did
not pay it over to SARS);
Burger was offered the opportunity to join Melomed’s medical
aid and pension schemes;
Burger’s monthly remuneration was for a fixed amount.
On the basis of all these factors, the arbitrator came to the
conclusion that the dominant impression was of an employment
relationship between Burger and Melomed.
Turning to the fairness of the dismissal, the arbitrator found that
it was clearly procedurally unfair: Burger was not informed
of the
allegations against him, nor was he given an opportunity to state a
case in response.
With regard to the first reason for dismissal – that Burger
had breached the agreement relating to repayment of money to
Melomed
– the arbitrator found that Burger had transferred money from
time to time and had undertaken to continue doing
so. This was not a
fair reason for termination.
The second reason – the continued use of supernumeraries –
was found to be unfair as well. The arbitrator found that
Burger was
in the process of phasing them out and Chohan – who was aware
of the fact that they were still being used –
did nothing
about it until things came to a head on 15 July 2010.
Having found the dismissal to have been unfair, the arbitrator
awarded Burger twelve months’ compensation. He took into
account that Melomed appeared to have acted vindictively in
terminating what should have been a five-year contract after nine
months.
Grounds of review
Mr
Ellis
, for Melomed, did not pursue the argument on review
that the Inc was a TES as defined in s 198 of the LRA, and therefore
deemed
to be Burger’s employer – perhaps wisely so.
As was the case in
Dyokhwe v De Kock N.O. & others
3
,
the Inc in this case neither “procured” nor “provided”
Burger to perform work for Melomed. When Burger
started working at
Melomed, the Inc had not even been formed. Legally or factually,
there was no TES in existence.
Instead, Mr
Ellis
focused his argument on the arbitrator’s
finding that Melomed was the true employer and the manner in which
he arrived
at his conclusion. This conclusion, he argued, was
unreasonable: a different legal structure (the Inc) had been
created, and
this legal entity was the true employer. He argued
that, in coming to the conclusion that he did, the arbitrator did
not clearly
analyse the evidence of the parties’ respective
witnesses.
This argument must be considered in the light of the purpose of the
legal structure that had been created and the evidence before
the
arbitrator.
The further review ground – which becomes relevant only if
Melomed was Burger’s employer – is that the finding
of
an unfair dismissal is unreasonable; and that the award of
compensation equal to twelve months’ remuneration is not
justified.
Evaluation
This application for review was premised on
the reasonableness test set out in
Sidumo
& another v Rustenburg Platinum Mines Ltd & others
4
.
However, as this court has pointed out
previously
5
,
it is bound by the decision of the Labour Appeal Court in
SA
Rugby Players Association & others v SA Rugby (Pty) Ltd &
others
6
,
in which the LAC held that, in regard to a commissioner's finding on
jurisdiction, the question is not whether the commissioner's
finding
was reasonable but whether on the facts the applicant was an
employee. The basis of this approach, as Van Niekerk J pointed
out
in
Workforce Group,
7
is that a ruling on jurisdiction made by the CCMA is made for
convenience - the CCMA is a creature of statute and cannot decide
its own jurisdiction. Whether the CCMA has jurisdiction is a matter
for this court to decide. In other words, the issue before
the court
is whether, objectively speaking, there existed facts which would
give the CCMA the jurisdiction to entertain the dispute,
ie that
established that the third respondent (Burger) was an employee as
defined by s 213 of the LRA. That was indeed the first
question
posed by Melomed at the arbitration. If so, the further question is
whether the arbitrator reasonably concluded that
his dismissal was
unfair.
The applicant’s main argument on review with regard to the
true nature of the employment relationship was that the arbitrator
did not properly assess the evidence before him by evaluating the
respective parties’ evidence and making findings on
credibility and the probabilities. The applicant further submitted
that the arbitrator did not properly apply his mind to the
true
nature of the relationship.
Who was the employer?
The question of the true nature of the employment relationship has
vexed labour law scholars for decades.
8
Davis JA summed up the current state of the law in
SITA v CCMA
9
:
‘
[W]hen
a court determines the question of an employment relationship, it
must work with three primary criteria:
1 an
employer's right to supervision and control;
2 whether
the employee forms an integral part of the organization with the
employer; and
3 the
extent to which the employee was economically dependent upon the
employer. “
In the current case, the evidence before the arbitrator showed
unequivocally that Burger was subjected to Melomed’s
supervision
and control (as opposed to Dr Lamprecht); he formed an
integral part of Melomed’s organisation, to the extent that he
was
introduced as its General Manager: Medical Emergency Services
and carried a Melomed business card with this designation; and he
was entirely dependent upon Melomed for his remuneration, designated
as a monthly “salary” and paid by Melomed.
The arbitrator properly considered the evidence before him in order
to establish who the true employer was in this case, regardless
of
the legal structure that had been created in order to circumvent the
HPCSA rules. In this regard, he took into account,
inter alia,
the following factors:
Melomed paid Burger’s salary.
Melomed deducted PAYE and UIF from his salary (even though it
failed to pay over the tax deduction to SARS).
Burger worked only for Melomed.
Melomed (and specifically Chohan) exercised a significant degree of
supervision and control over Burger.
Burger was wholly economically dependent on Melomed.
Melomed equipped Burger with “tools of the trade” in
the form of fully equipped emergency units, a laptop and a
white
coat.
Burger formed part of the organisation - he was designated as a
General Manager and was issued with a business card identifying
him
as part of the organisation.
Burger was offered the opportunity to join Melomed’s medical
aid and pension schemes.
Burger’s monthly remuneration was for a fixed amount.
As Benjamin
10
suggested,
the definition of “employee”
in the LRA requires the courts to look more closely at the meaning
of the second part
of the inclusion and consider whether persons are
conducting their own businesses or merely assisting an employer to
conduct
theirs. Along that fault-line, he suggested, lies the true
divide between employment and self-employment. And that is exactly
the situation that pertained before the arbitrator in this case. The
evidence before the arbitrator led to a reasonable conclusion
that
Burger assisted Melomed in carrying on its business; he did not
conduct his own business. On the evidence before the arbitrator,
this conclusion was not only reasonable but correct.
As the Labour Appeal Court pointed out in
Denel (Pty) Ltd v
Gerber
11
,
the mere fact that use is made of a legal entity such
as a company or close corporation to provide services, is no bar to
the
conclusion that a particular individual who was contracted to a
company, or who owned the company in terms of which he was
obligated to provide services to the alleged employer, was an
employee of the company that was contractually entitled to receive
such services – in this case, Melomed.
The arbitrator’s conclusion, based on the evidence before him
as outlined above, was in my view the correct one.
Fairness of the dismissal
Having found that Melomed was the true employer, the further
question before the arbitrator was whether Burger’s dismissal
was fair. He found that it was not. Was this a reasonable
conclusion?
There can be no doubt that the dismissal was procedurally unfair.
Having proceeded from the premise that Burger was not its employee,
Melomed did not follow any procedure in dismissing him; it simply
terminated the purported (oral) agreement with the Inc. The
arbitrator’s finding on procedural fairness is unassailable.
Was the dismissal substantively fair? The only argument proffered by
the applicant on review in this regard is that the arbitrator
should
nevertheless have considered Melomed’s
bona fide
belief
that it was merely terminating a commercial relationship between it
and the Inc.
This argument begs the question. Having found that Melomed was the
true employer, the question to be decided was whether there
was a
fair reason for dismissal. The arbitrator’s finding that there
was not, is not so unreasonable that no other arbitrator
could have
come to the same conclusion. He considered the evidence that Burger
was in the process of phasing out the supernumeraries.
Melomed’s
Chief Operating Officer, Chohan, was aware of the fact that the
supernumeraries were still employed, albeit on
reduced shifts, and
did nothing about it until matters came to a head on 15 July 2010.
The CEO, Allie, conceded that a period
of grace should have been
allowed on compassionate grounds, although he did not agree with the
time period. He also found that
Burger had transferred money to
Melomed, and that the further reason for terminating the contract –
ie that Burger had
not placed Melomed in funds to pay salaries –
was not a fair reason for dismissal. The arbitrator’s finding
that
neither reason for terminating the agreement was a fair reason
for dismissal, falls within the bounds of reasonableness, whether
or
not this court agrees with the finding.
The same holds true for the amount of compensation awarded. The
arbitrator found that Melomed acted vindictively when it terminated
what should have been a five-year contract after nine months. In
those circumstances, it was not unreasonable for the arbitrator
to
exercise his discretion to award the maximum compensation of twelve
months’ remuneration.
Conclusion
The arbitrator’s conclusion, based on the evidence before him,
is not unreasonable. The dominant impression created by
the way in
which the parties structured their relationship is that Melomed was
Burger’s true employer. That finding appears
to me to have
been the correct one. Having made that finding, the further finding
that the dismissal was substantively and procedurally
unfair was not
so unreasonable that no other arbitrator could have come to the same
conclusion. The award is not open to review.
Both parties asked that costs should follow the result. I see no
reason to disagree.
Order
The application for review is dismissed with costs.
_______________________
Anton Steenkamp
Judge of the Labour Court of South Africa
APPEARANCES
APPLICANT:
Edwin Ellis of
Edward Nathan Sonnenbergs Inc.
THIRD RESPONDENT:
Peter Kantor
Instructed by Slabbert
Venter Yanoutsos Inc.
1
Act
66 of 1995 (“the LRA”).
2
With
reference to
SABC v McKenzie
(1999) 20
ILJ
585 (LAC).
3
[2012]
ZALCCT 25 (21 June 2012).
4
2008
(2) SA 24 (CC);
(2007)
28 ILJ 2405 (CC)
; [2007] 12 BLLR 1097
(CC).
5
Eg
Workforce Group (Pty) Ltd v CCMA & others
(2012) 33
ILJ
738 (LC) para [2].
6
(2008)
29 ILJ 2218 (LAC)
.
7
Ibid.
8
See,
for example, Paul Benjamin: “An accident of history: Who is
(and who should be) an employee under South African Labour
Law”
(2004) 25
ILJ
787.
9
State
Information Technology Agency (Pty) Ltd v CCMA & Others
(2008)
29
ILJ
2234 (LAC) para [12].
10
Op
cit
789.
11
(2005)
26 ILJ 1256 (LAC)
,
cited with approval in
SITA
(supra)
para
[10].