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[2016] ZALCCT 31
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De Wet v World Luxury Hotel Awards (Pty) Ltd (C 763/15) [2016] ZALCCT 31 (1 September 2016)
REPUBLIC OF
SOUTH AFRICA
THE LABOUR
COURT OF SOUTH AFRICA, CAPE TOWN
NOT
REPORTABLE
OF INTEREST
TO OTHER JUDGES
CASE NO: C
763/15
DATE: 1
SEPTEMBER
In the matter between:
MARINIQUE DE
WET
............................................................................................................
Applicant
And
WORLD LUXURY HOTEL
AWARDS (PTY)
LTD
...........................................................
Respondent
Heard: 29 -30 August
2016
Delivered:1 September
2016
Summary: Interpretation
of contract – contractual claim for severance payment where
employee resigned – entitled to
payment in terms of contract.
Judgment
STEENKAMP J
Introduction
[1]
The
applicant, Marinique de Wet, resigned. Yet she says she is entitled
to severance pay. That claim arises from her contract of
employment.
In order to decide whether the contract caters for this unusual
claim, it needs to be interpreted.
[2]
The
employee also claims outstanding leave pay. That claim is largely
uncontested, except for a period of 41 days during her notice
period.
She has conceded that she is not entitled to payment for that period
and she only claims the balance.
[3]
Both
claims come before this Court by way of referral in terms of rule 6
and a contractual claim in terms of s 77(3) of the Basic
Conditions
of Employment Act.[1]
[4]
The
applicant also claimed short payment of R16 350 on her salry for
October 2014 to February 2015; and an amount of R10 200 due
to an
incorrect calculation on her payslips for the period October to
December 2014. The respondent has conceded those claims.
Background facts
[5]
The
applicant, Ms de Wet, was appointed as manager of World Luxury Hotel
Awards (WLHA) on 4 September 2006. At that stage, she was
paid by a
legal entity known as Gatsby International Hotels (Pty) Ltd. The
business of an awards company for luxury hotels was
still an
embryonic one. She built it up together with the owner, Mr Brandon
Lourens. Apart from her monthly salary, a cell phone
allowance and a
petrol allowance, Lourens offered her a monthly incentive based on
the monthly turnover of WLHA. Lourens asked
his brother to draft an
employment contract in those terms. Lourens and De Wet signed the
contract on 22 September 2006.
[6]
Seven
years later, after World Luxury Hotel Awards (Pty) Ltd had been
registered, Lourens and De Wet signed a new contract of employment
with that legal entity. This time, De Wet asked her brother to draft
the contract. She and Lourens signed it on 1 March 2013. Both
of them
testified that he had “paged through it” before he
initialled each page and signed it in full; he disputed
that he had
read it properly.
Caveat emptor
,
as he would later realise – he said in his evidence before this
Court that he had signed it “to his detriment”.
(Only De
Wet and Lourens testified).
[7]
Like
the previous contract, the 2013 contract with WLHA also contained a
clause 3.2 in terms of which De Wet would be paid a commission
of 10%
of the firm’s monthly turnover. The business grew exponentially
– she put its value in 2015 at R13-14 million;
Lourens put it
at R8 Million. For that, she was rewarded handsomely. Apart from the
substantial commission based on turnover, she
received a monthly
basic salary of R30 000; a telephone allowance of R1 500; and car
allowance of R8 000.
[8]
The
employment contract contains an unusual clause with regard to
severance pay. More about that later.
[9]
In
February 2014 De Wet and Lourens renegotiated certain terms of the
contract. Her basic salary was raised to R31 770; the phone
allowance
increased with R1500; and the car allowance was raised to R17 000.
She asked for shares in the company; Lourens refused.
He agreed to
pay her a quarterly incentive based on sales income.
[10]
Later
in the same year, De Wet and Lourens had a disagreement about
payments due to SARS. She went on maternity leave and returned
in
October 2014. She testified that “things were not the same”
upon her return. She resigned on 1 January 2015. She
had to give two
months’ notice in terms of her contract of employment. Given
that she had more than two months’ leave
outstanding, they
agreed that she could stay at home during her notice period.
[11]
WLHA
calculated the amounts due to De Wet for salary, bonus and commission
payments as R219 138, 24. It sent her a letter on 24
February 2015
asking her to confirm that that amount would be “in full and
final settlement of all claims”. She did
not sign it. The
company eventually paid that amount into her bank account on 27
February 2015 without her acknowledging that it
was in full and final
settlement. (The company eventually acknowledged that it had used the
wrong basis for calculation of her
basic salary and telephone
allowance, following correspondence and her requests for payslips
between 27 February and 9 March 2015).
[12]
On
9 March 2015 De Wet wrote to the company’s financial advisor,
Riaan Ebersohn, in these terms:[2]
“
Hallo Riaan
…
Wat my skeidingspakket betref het ek ook
regsadvies gekry en verskeie prokureurs het vir my gesê
dat dit betaal moet word, so laat weet asb voor of
op Woensdag wat julle posisie in verband hiermee is sodat ons dit so
gou as moontlik
kan uitsorteer.”
[13]
The
claim for severance pay was based on the contract of employment. The
respondent refused to pay it. Lourens responded on 12 March
2015:
“
I refer to your recent letters sent to
Riaan Ebersohn requesting a severance payment.
I must first express my surprise at the claim even
being made. You know as well as I do that it was never agreed that
any severance
was to be paid to you on resignation. In fact the
circumstances in which severance payments were to be made was never
discussed.
At the time that I signed your contract of employment I
did not read it. It was drafted by an attorney representing you and I
trusted
that you not include any out of the ordinary terms therein.
I’m advised that a clause providing for severance payment on
resignation is indeed very much out of the ordinary and I should have
been alerted to this if that is what you were thinking of
getting at
the time. Be that as it may, the fact is that the clause does not
provide for such a payment on resignation.”
[14]
The
applicant’s attorneys wrote to Lourens on 20 March 2015
reiterating her claim and quantifying it as R 1 375 845, 23 based
on
an average monthly salary of R179 849, 05. They said:
“
We have been instructed that the agreed
payment mechanism as set out under the heading ‘severance’
was specifically
done as an alternative to the receipt of shares in
the company as was promised to our client during the early stages of
the business.
We specifically disagree with your opinion that the
‘severance clause’ does not make provision for
resignation and to
this end your attention is once again directed to
the wording in paragraph 12.1. We take note of the legal advice that
you have
received in this regard, but believe that it is not
correct.”
[15]
The
applicant’s attorneys also claimed outstanding leave pay on her
behalf. The respondent’s then attorneys refuted
both claims.
After an initial and mistaken referral to the CCMA, she referred a
claim to this Court.
[16]
In
April 2015 the applicant started doing business in competition with
the respondent under the name of “Haute Grandeur Global
Hotel
Awards”, a company she had registered in November 2014. She is
not bound by a restraint of trade agreement.
Leave pay
[17]
The
applicant initially claimed outstanding leave pay for a period of
102.5 days. She accepted the calculation on her payslips that
she had
taken seven days’ leave. At the beginning of the trial she also
abandoned her claim for the 41 days’ leave
taken during her
notice period. She claimed the balance of 61.5 days’ leave,
quantified as R518 715, 63.[3]
[18]
In
its response to the statement of claim, the respondent did not take
issue with the calculation of leave pay; nor did it dispute
that the
applicant was entitled to leave pay other than during her notice
period. In response to her claim for leave pay during
the period
September 2009 to February 2015, the respondent merely pleaded that
she did not work out her notice period; that she
was permitted to
take leave for that period of two months instead; that her leave “was
accordingly taken in accordance with
the agreement between employer
and employee”; and that, “in the circumstances no leave
payments are due to the applicant
by the respondent”.
[19]
The
applicant has, as noted above, abandoned the claim for leave pay
during her notice period. R 518 715, 63.
Severance pay: the contract
[20]
The
main bone of contention is the claim for severance pay. It hardly
needs to be stated that a claim for severance pay for an employee
who
resigned of her own accord is highly unusual. But then, so is the
clause in the contract; it even provides for severance payment
where
the employer dismisses the employee for misconduct, other than gross
dishonesty. It reads:[4]
“
12. SEVERANCE
12.1 In the event that the employee’s
employment is terminated for any reason other than that of gross
dishonesty, the employee
shall be entitled to the payment of the
severance package on the terms as set out below.
12.2 Where the firm is sold to a party other than the
employee, the employee shall be entitled to a payment of a lump sum
(a x b)
calculated at 15% of her last month’s salary within the
firm’s employ (a) multiplied by the period 1 September 2006
to
the date of severance (b).
12.3 Where the employee’s employ within the
firm is terminated, the employee shall be entitled to a payment of a
lump sum
(a x b) calculated at 7.5% of her last month’s salary
within the firm’s employ (a) multiplied by the period 1
September
2006 to the date of severance (b).
[21]
Two
other clauses are also relevant to the dispute. Firstly, although
neither “remuneration” nor “salary”
is
defined, remuneration is discussed under the following headings:
“
3. REMUNERATION
3.1 It is agreed that the employee’s
remuneration calculated on the terms set out hereunder [sic].
3.2 The employees agreed gross salaried remuneration:
R30 000, 00 per month.
3.2 [sic] The employee’s commission will be
calculated as follows:
10% of the firm’s monthly turnover.
3.3 The employee shall be entitled to the following
fringe benefits:
R1 500 telephone allowance;
R 8 000 car allowance.
3.4 The remuneration package, inclusive of salary and
benefits, as described above shall be subject to an annual increase
and/or
renegotiation at a minimum rate equivalent linked to the
inflation rate as per the annual adjustment in the Consumer Price
Index.
Such increase shall become effective upon the anniversary of
the effective date hereof.”
“
5. TERMINATION OF EMPLOYMENT
Either the employee or firm will be entitled to
terminate employment on written notice to the other party as follows:
5.1 Either party is required to provide two calendar
months written notice.”
[22]
The
contract also contains a standard non-variation clause; and a
stipulation that it contains the entire agreement between the
parties.
Principles of interpretation
[23]
The
principles for the interpretation of contracts are well known and
were recently summarised by the SCA in
Natal
Joint Municipal Pension Fund v Emdumeni Municipality
[5]
:
“
Over the last century there have been
significant developments in the law relating to the interpretation of
documents, both in this
country and in others that follow similar
rules to our own. It is unnecessary to add unduly to the burden
of annotations
by trawling through the case law on the construction
of documents in order to trace those developments. The relevant
authorities
are collected and summarised
in
Bastian Financial Services (Pty) Ltd v General Hendrik Schoeman
Primary S
chool. The present state of
the law can be expressed as follows. Interpretation is the process of
attributing meaning to the
words used in a document, be it
legislation, some other statutory instrument, or contract, having
regard to the context provided
by reading the particular provision or
provisions in the light of the document as a whole and the
circumstances attendant upon
its coming into existence. Whatever the
nature of the document, consideration must be given to the language
used in the light of
the ordinary rules of grammar and syntax; the
context in which the provision appears; the apparent purpose to which
it is directed
and the material known to those responsible for its
production. Where more than one meaning is possible each possibility
must be
weighed in the light of all these factors. The process
is objective not subjective. A sensible meaning is to be preferred
to
one that leads to insensible or unbusinesslike results or undermines
the apparent purpose of the document. Judges must be alert
to, and
guard against, the temptation to substitute what they regard as
reasonable, sensible or businesslike for the words actually
used. To
do so in regard to a statute or statutory instrument is to cross the
divide between interpretation and legislation. In
a contractual
context it is to make a contract for the parties other than the one
they in fact made. The ‘inevitable point
of departure is the
language of the provision itself’, read in context and having
regard to the purpose of the provision
and the background to the
preparation and production of the document.”
Evaluation
[24]
Against
the background of these principles, the Court has to decide two
issues:
24.1
Is
the applicant entitled to severance pay even though she resigned?
24.2
If
so, what is the basis for calculation: remuneration or basic salary?
Entitlement to severance pay
[25]
In
order to decide whether the applicant is entitled to severance pay in
terms of clause 12 of the contract, the starting point
is the
language of the clause itself.
[26]
It
hardly bears repetition that the clause is an unusual one; but, as Mr
Lourens conceded in his testimony, he is bound by the contract
as it
stands; “it is what it is”, whether he took the trouble
of reading it properly before he signed it and initialled
each page
or not.
[27]
The
clause is unusual because it does not provide for severance pay only
if the contract of employment is terminated for operational
requirements. Neither does it provide for “no fault”
dismissals only, contrary to what Mr
O’Dowd
initially proposed. Indeed, it is quite
clear that, even if the employer had to dismiss an employee for
misconduct, other than gross
dishonesty, she would still be entitled
to severance pay – it provides for payment in the case of
termination
for any reason
other than gross dishonesty. That is a highly unusual scenario. It
also distinguishes the facts of this case from that of this
Court in
Rogers v Exactocraft (Pty) Ltd
[6]
,
to which Mr
O’Dowd
referred in his argument. In that case, this Court adopted a
purposive approach to interpreting the intention of the legislature
in relation to severance pay in the context of s 84 of the BCEA. The
Court also noted:[7]
“
The purpose of severance pay has been
the subject of some debate. A comprehensive study[8] showed
that the origin of mandated
severance pay can be traced to three main
events: the creation of labour codes; the first events of large scale
industrial restructuring
starting at the end of the 19th century and
pressures of the interwar high unemployment episode; and the
expansion of the welfare
state after WWII. Despite these common
origins, the review of existing severance pay programs showed that
countries use widely
differentiated designs, or at least parameter
values. The paper also examined the economic rationale for severance
pay and found
partial support for all three hypotheses it advanced:
that severance pay serves as a social benefit payment, a human
resource management
tool, and a job protection mechanism.
In another article, the author[9]
considered South African case law (none of which specifically dealt
with the application
of s 84 in the circumstances of this case) and
came to the conclusion that s 41(4) of the BCEA rewards the employer
for offering
or securing alternative employment for the employee.
It promotes sustained employment by giving employers an incentive to
procure alternative employment for employees facing dismissal for
operational requirements. Absent such an offer, the employer
has to
pay severance pay – whether it is to “tide the employee
over” until he or she finds another job, as some
commentators
would have it, or to reward the employee for long service, does not
really matter.”
[28]
In
Exactocraft,
the
question was whether the employee was entitled to severance pay in
terms of ss 41 and 84 of the BCEA when he retired and was
then
contracted to work for the company again, after which he was
retrenched. But in this case, the applicant’s claim is
founded
in contract. It is clear from the contract itself that she would be
entitled to severance pay even if she were to be dismissed
for
misconduct other than gross dishonesty. But is she entitled to it
where she resigned?
[29]
Mr
O’Dowd
argued that the clause is only intended to deal with termination at
the behest of the employer, i.e. dismissal. But that is not
what it
says. Perhaps, in future, the parties will be alive to the dangers of
drafting in the passive voice. But because they chose
to enter into
an agreement that the applicant’s representative had drafted in
the passive voice, this dispute was referred
to this Court.
[30]
Clause
12.1 states – in peremptory terms – that the employee
“shall be entitled” to severance pay “in
the event
that the employee’s employment is terminated
for
any reason[10]
other than that of gross
dishonesty.” Clearly, she would be entitled to severance pay if
the employer dismissed her for any
reason other than gross
dishonesty. That is a termination at the instance of the employer.
But resignation is termination of the
contract at the instance of the
employee.[11] The language of the clause itself, therefore, does not
restrict it to termination
by the employer.
[31]
The
parties made a contract. And as Mr Lourens accepted, they must live
with it. As the LAC stated in
Young v
Lifegro Assurance Ltd
[12]
,
to which Mr
O’Dowd
referred:
“
It is for the parties to the contract of
employment to agree on the terms and conditions which will govern
their relationship including
the rights and obligations which will
flow from the termination of the agreement.”
[32]
Turning
to context, the context of the contract of employment as a whole must
be taken into account. And in clause 5, under the
heading – in
bold capital letters – “
TERMINATION
OF EMPLOYMENT
”, the parties reiterate
the trite principle that either the employee or the employer is
entitled to terminate employment
on written notice to the other
party. Read together with clauses 12.1 and 12.3, that would suggest
that, unusually, an employee
terminates her employment is also
entitled to severance pay.
[33]
With
regard to the purpose and background of the contract, it is also
significant that two different scenarios are envisaged in
clause 12.2
and 12.3. If the firm is sold to a party other than the employee, she
is entitled to a lump sum calculated at 15% of
her last month’s
salary multiplied by the period 1 September 2006 to the date of
termination. But, in terms of clause 12.3,
in all other circumstances
where her “employ within the firm is terminated”, she
gets only half that as severance.
In that context, it is difficult to
see why an employee who resigns – and thus terminates the
contract of employment without
any fault on her part – would
not be entitled to the same, lesser, payment as an employee who is
dismissed for misconduct
other than gross dishonesty.
[34]
Lastly,
then, the apparent purpose to which the clause is directed and the
material known to those responsible for its production
must be
considered. Ms de Wet – the person responsible for its
production – was clear in her evidence as to its purpose.
Lourens refused to give her shares. She did not have a provident
fund. She therefore calculated the amount of severance pay using
the
analogy of the industry norm for payments to provident funds, i.e.
7.5% of salary by the employee and 7.5% by the employer.
[35]
As
the Court stated in
Exactocraft
[13]
:
“
As explained in the article by Holzmann
and others, severance pay is both a form of compensation for a
no-fault termination of the
contract of employment as well as
recognition of the employee's 'investment' in the employer's
enterprise. This is captured in
an early case which, in justifying
severance pay, said the employee had 'sacrificed his best employment
years in building, or contributing
to, the business of the company'.
[36]
In
this case, Ms de Wet also testified that the severance clause was
included to recognise her years of service to the company.
More
specifically, she built it up from a mere concept to a business with
a value of between R8 million (on Lourens’s version)
and R13
million (on her version).
[37]
Taking
all these factors into account, I must conclude that, unusual as it
is, the contract does provide for a peremptory severance
payment to
Ms de Wet, even in circumstances where she resigned.
[38]
The
remaining question then is on what basis that payment must be
calculated.
Basis of calculation
[39]
The
formula on which the severance pay is calculated uses the employee’s
“last month’s salary” as a basis.
Mr
De
Kock
argued that “salary”
included her basic salary; telephone and car allowances; as well as
average bonus and commission
payments.
[40]
Once
again, the Court must take into account the principles of
interpretation summarised in
Natal Joint
Municipal Pension Fund.
[14]
[41]
The
plain language of clause 12.3 refers to “salary”. And
although that is not specifically defined, it must be read
in the
context of clause 3. That clause draws a fairly clear distinction
between “remuneration” and “salary”.
Remuneration includes “gross salaried remuneration”;
commission and fringe benefits. And it refers to a “remuneration
package, inclusive of salary and benefits”. In that context, it
appears to me that the draft of the document intended “salary”
to refer only to the basic salary, excluding benefits, commission and
bonuses. At the time of her resignation, the employee’s
last
month’s salary was R 31 770, 00.
[42]
The
use of the word “salary” in clause 12.3 also stands in
contrast to clause 8.4 which provides that the employee is
entitled
to “payment of her full remuneration package” during
maternity leave.
[43]
It
is so, as Mr
De Kock
pointed out, that the employee’s payslip reflects a net salary
(“
netto salaris
”)
of R219 138, 24 per month; but that net amount comprises a breakdown
of various categories, including “salary”
of (the wrongly
reflected amount of) R30 000; cell phone allowance; travel allowance;
commission and bonus.
[44]
I
conclude, taking into account the language of clause 12.3 read in the
context of the contract as a whole, that there is a clear
distinction
between “remuneration and “salary”; and that the
clause uses “last month’s salary”,
i.e. the lesser
amount, as a basis for calculation.
[45]
The
amount due to the employee, using the formula in clause 12.3, is
therefore:
7,5% x R 31 770 (a) x 102 months (b) = R 243 040, 50.
Conclusion
[46]
The
applicant is entitled to leave pay amounting to R 518 715, 63 and to
severance pay amounting to R 243 040, 50. The respondent
also
conceded her claim for short payments.
[47]
Both
parties asked for costs to follow the result. I see no reason in law
or fairness to disagree.
Order
[48]
I
therefore make the following order:
48.1
The
applicant is entitled to outstanding leave pay (except for her notice
period) and to severance pay calculated on the basis of
her salary as
set out in clause 12.3 of her contract of employment.
48.2
The
respondent must pay the applicant the following amounts by 30
September 2016, together with interest calculated at 9% per year,
due
from the date of this judgement to date of payment:
48.2.1
R518
715, 63 for outstanding leave pay;
48.2.2
R243
040, 50 for severance pay;
48.2.3
R26
550, 00 for short payment of her salary and in respect of an
incorrect calculation on her payslips.
48.3
The respondent
must pay the applicant’s costs, including the costs of counsel.
Anton Steenkamp
Judge of the Labour Court of South Africa
APPEARANCES
APPLICANT Coen de Kock
Instructed by Carelse Khan attorneys.
RESPONDENT: Sean O’Dowd of Bagraims
attorneys.
[1]
Act 75 of 1997 (the BCEA).
[2]
Only the second paragraph is
relevant to her claim in this Court.
[3]
This amount is based on an average
monthly income of R179 849, 05, comprising basic salary, allowances,
commission and bonus
payments.
[4]
Bold as in original.
[5]
2012 (4) SA 593
(SCA) para [18]
(footnotes omitted).
[6]
(2015) 34 ILJ 277 (LC).
[7]
At paragraphs
[26] – [27].
[8]
Robert Holzmann,
Yann Pouget, Milan Vodopivec and Michael Weber:
Severance
Pay Programs around the World: History, Rationale, Status, and
Reforms
(IZA DP No. 5731, May 2011).
[9]
DW de Villiers,
“The Entitlement to Severance Pay Revisited” (2010) 22
SA Merc LJ
114-126.
[10]
My underlining.
[11]
Cf Thompson & Benjamin South
African Labour Law (Service no 65, 2015) AA1-417.
[12]
(1991) 12 ILJ 1256 (LAC) at 1265
G-H.
[13]
Above para [32].
[14]
Above.