Brief Summary

Employment Law — Termination of contract of employment — Applicants claimed unlawful termination of fixed-term contracts by South African Airways — Respondent contended contracts were ultra vires due to non-compliance with legislative requirements and internal policies — Court found that the contracts constituted employment agreements, not consultancy agreements, and that the termination was unlawful as the Respondent failed to follow due process — Applicants entitled to reinstatement.

Comprehensive Summary

Summary of Judgment

1. Introduction

These were two consolidated applications brought in the Labour Court in terms of section 77(3) of the Basic Conditions of Employment Act 75 of 1997 (as amended). The applicants sought relief arising from the termination (described by the respondent as “annulment”) of what they contended were fixed-term contracts of employment.

The parties were Peter Hudson (first applicant) and Dirk Robert Bulder (second applicant), on the one hand, and South African Airways SOC Limited (SAA), a public entity and company governed by the South African Airways Act 5 of 2007 and the Public Finance Management Act 1 of 1999, on the other.

Procedurally, the two matters (case numbers J545/13 and J543/13) were heard together following a consolidation ruling based on common parties and substantially common facts. A preliminary jurisdictional point was raised by SAA, namely that the relationship was one of independent contracting rather than employment, which would have affected the Labour Court’s jurisdiction. The Court determined that the agreements were contracts of employment, and proceeded to decide the merits.

The general subject-matter of the dispute concerned whether SAA lawfully terminated the applicants’ fixed-term employment contracts on the basis that they were ultra vires and void ab initio because the appointments were made without compliance with the legislative and policy framework governing a public entity (including an asserted moratorium on appointments), and whether the applicants could rely on ostensible authority and/or estoppel to enforce the contracts and obtain reinstatement.

2. Material Facts

The material facts accepted and relied upon by the Court were presented against the backdrop that SAA is a public entity subject to statutory and governance prescripts, including accountability for the expenditure of public funds.

It was common cause that each applicant signed a fixed-term written agreement with SAA in November 2012. The first applicant’s contract was signed on 19 November 2012 for three years (to 18 November 2015) and recorded an appointment as Marketing Manager of Air Chefs, with remuneration and travel benefits. The second applicant’s contract was signed for one year (13 November 2012 to 12 November 2013) with an appointment described as a level 2 manager / financial manager role to assist SAA-related entities, also with a high annual remuneration and travel benefits.

On 17 January 2013, each applicant was informed in a meeting (separately) by SAA’s General Manager: Human Resources, Ms Thuli Mpshe, that SAA’s Board had resolved to annul their contracts. The reason provided was that the Acting CEO, Mr Kona, allegedly lacked mandate to appoint them and did not follow the required appointment procedures, and that there was a moratorium on new appointments. Letters titled “Notice of annulment of fixed term contract” were provided; the applicants signed acknowledging receipt. The annulment was stated to have immediate effect, subject to statutory notice.

A central factual foundation for SAA’s position, which the Court accepted as showing non-compliance with governance prescripts, was that the appointments occurred without adherence to SAA’s recruitment and selection requirements and without necessary approvals. The Court recorded, as illustrative examples drawn from the papers, that there were no advertisements for newly created posts, no standard recruitment process, no job evaluation or job profiles developed before appointment, and that at least one of the positions (Marketing Manager of Air Chefs) did not exist in the relevant organogram. The papers also supported that the applicants reported to Kona in circumstances SAA contended were anomalous, that relevant subsidiary management (including Air Chefs leadership) was not involved, and that no budget allocation and no Board approval supported the appointments.

The Court also treated as material that the applicants were former senior employees of SAA and, on SAA’s version accepted for motion purposes, ought to have been aware of the nature of the prescripts governing appointments at a public entity. The Court further recorded that SAA’s Board investigated the appointments and resolved (under resolution 2013/B03) to annul/terminate the agreements on the basis that they were ultra vires and void ab initio.

To the extent facts were contested, the judgment indicated that the papers revealed disputes of fact, and the Court approached the matter through motion-proceedings principles, treating the respondent’s version (where disputed) as prevailing unless untenable. The Court did not resolve the case on a credibility-based oral hearing, but on application of the motion rule to the pleaded material.

3. Legal Issues

The Court was required to determine, first, a status/jurisdictional question: whether the relationship created by the written agreements was that of employment or independent contracting, since that affected whether the Labour Court had jurisdiction to entertain the contractual claim under section 77(3) of the BCEA.

The central merits question was whether the applicants’ contracts were legally valid and enforceable given SAA’s statutory character and governance framework, or whether the contracts were ultra vires and void ab initio due to non-compliance with peremptory legislative and policy prescripts (including the moratorium and approval processes).

A further legal issue concerned the application of law to fact: whether, assuming the Acting CEO presented himself as authorised, the applicants could rely on ostensible (apparent) authority to bind SAA, and whether the doctrine of estoppel could prevent SAA from denying the validity of the contracts.

Finally, in light of the motion-proceedings posture and disputes of fact, there was an issue about the appropriate method of factual determination on affidavit, including application of the Plascon-Evans approach as reinforced by subsequent authority cited.

4. Court’s Reasoning

On the preliminary point, the Court examined the text and content of the agreements and the parties’ submissions. It emphasised contractual features indicative of employment, including references to the respondent as employer, hours of work, probation, disciplinary processes under SAA’s disciplinary code, notice provisions, and direct supervision by Kona. The Court also considered contextual indicators raised by the applicants, such as having employee numbers, payslips, and UIF deductions. Applying the applicable tests distinguishing employee status from independent contractor status, the Court concluded the agreements were employment contracts, thereby rejecting SAA’s jurisdictional objection.

Because the matter was brought on motion and SAA contended that material disputes of fact existed, the Court stated that it would consider the facts on the papers in accordance with the Plascon-Evans principles, and referred to authority emphasising that final relief in application proceedings is generally granted only where justified on undisputed facts (subject to exceptions where a version is untenable).

Turning to the validity of the appointments and contracts, the Court situated SAA within its statutory environment as a public entity governed by the SAA Act and the PFMA, accountable to the Minister, Parliament, and the fiscus. On that footing, the Court treated compliance with applicable prescripts as peremptory rather than discretionary. It accepted that the Board investigated the appointments and resolved to terminate/annul the contracts because due process was not followed and a moratorium on appointments applied.

In applying these principles to the facts, the Court relied on the extent of non-compliance demonstrated on the papers, including the absence of recruitment processes, absence of budget approval, absence of Board approval, and the organisational anomalies around the posts and reporting lines. The Court considered these circumstances as indicating that the Acting CEO’s actual authority to conclude the agreements in the manner done was “marred” by non-compliance with binding prescripts.

On the applicants’ reliance on authority and fairness-based doctrines, the Court distinguished actual authority from ostensible authority. While acknowledging the concept of apparent authority as it appears to outsiders, the Court held that the surrounding circumstances were such that the applicants, given their prior senior roles within SAA, ought to have known that the required procedures had not been followed. The Court therefore did not accept the applicants’ contention that they could simply rely on Kona’s position to enforce the contracts.

The Court then dealt directly with estoppel and statutory illegality. It applied the principle that estoppel generally cannot be used where its effect would be to enforce an unenforceable arrangement or validate conduct that is unlawful or ultra vires. In that context, the Court invoked the public-interest dimension of illegality in relation to statutory bodies and held that permitting continuation of the contracts, even if the applicants claimed ignorance of procedural defects, would offend public policy and public interest, particularly given SAA’s obligations as a public entity. The Court weighed private prejudice to the applicants against the objective public interest in preventing unlawful expenditure and governance circumvention, concluding that the contracts could not be sustained.

The Court also addressed the applicants’ argument that SAA’s reasons did not fall within the termination clause. It referred to the contractual termination provision as including termination for any reason determined by law, and treated the legal invalidity of the contracts as falling within that framework. Ultimately, the Court held the contracts were ultra vires and void ab initio, meaning they were treated as having been invalid from inception due to non-compliance with peremptory prescripts.

5. Outcome and Relief

The Labour Court held that SAA’s decision to annul (terminate) the applicants’ contracts was lawful. The applicants’ applications for declaratory relief and reinstatement were dismissed.

The Court ordered that the application be dismissed with costs.

Cases Cited

Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A).

New Balance Athletic Shoe Inc. v Dajee NO 2012 ZASCA 3.

Trust Bank van Afrika Bpk v Eksteen 1964 (3) SA 402 (A).

Hely-Hutchinson v Brayhead Ltd and Another 1968 1 QB 549.

Strydom v Die Land-en Landboubank van Suid Afrika 1972 (1) SA 801 (A).

Legislation Cited

Basic Conditions of Employment Act 75 of 1997 (as amended), section 77(3).

South African Airways Act 5 of 2007.

Public Finance Management Act 1 of 1999.

Rules of Court Cited

No specific rule of court was expressly cited in the judgment; the Court applied motion-proceedings principles associated with the Plascon-Evans approach to factual disputes on affidavit.

Held

The Court found that, notwithstanding SAA’s preliminary contention, the agreements concluded with the applicants were contracts of employment rather than consultancy agreements, and the Labour Court accordingly proceeded to entertain the section 77(3) contractual claim.

On the merits, the Court held that the applicants’ appointments and contracts were concluded in breach of peremptory legislative and policy prescripts governing SAA as a public entity, including due process requirements and a moratorium on appointments. As a consequence, the contracts were ultra vires and void ab initio.

The Court further held that the applicants could not rely on ostensible authority or estoppel to compel performance of contracts that were invalid due to statutory/prescript non-compliance, particularly given the public-interest considerations applicable to a statutory body and public funds.

LEGAL PRINCIPLES

A contract concluded by a statutory body or public entity in a manner that fails to comply with peremptory legislative requirements or prescribed prescripts for validity may be ultra vires and void ab initio, with the result that it is treated as invalid from the outset and is not enforceable as a matter of law.

In motion proceedings where final relief is sought and material disputes of fact arise on the papers, the Court applies the Plascon-Evans approach, generally determining the matter on the respondent’s version together with the applicant’s admitted facts, unless the respondent’s denials are untenable on the papers.

Ostensible (apparent) authority is conceptually distinct from actual authority; however, where the circumstances indicate that a party knew or ought reasonably to have known that the agent’s acts were not compliant with peremptory prescripts, reliance on apparent authority may not avail that party to enforce an invalid arrangement.

The doctrine of estoppel is generally not available where its application would have the effect of validating or enforcing an illegal or ultra vires contract, particularly where doing so would involve judicial recognition of statutory illegality. In such matters, public policy and public interest, including the governance obligations of public entities and the protection of public funds, may outweigh the private interests of the representee seeking enforcement.

Hudson and Another v South African Airways SOC Limited (J545/13; J543/13) [2014] ZALCJHB 135; [2014] 11 BLLR 1132 (LC); (2014) 35 ILJ 3407 (LC) (24 April 2014)