IN THE LABOUR COURT OF SOUTH AFRICA
HELD AT DURBAN
Case Number: D424/97
In the matter between
Applicant
and
Respondent
JUDGMENT
Maserumule AJ
1 The Applicant seeks an order declaring his alleged retrenchment by the
Respondent to be unfair, and payment of compensation.
2 The Respondent has pleaded, firstly, that the Applicant was not an employee as
defined by the Labour Relations Act No. 66 of 1995 (“the Act”) and, secondly,
that even if he was an employee as defined in the Act, his dismissal was not
unfair.
3 In support of his contention that he was an employee, the Applicant, in addition to
giving evidence himself, led the evidence of four witnesses. These were the
employee of the placement agency which placed the Applicant with the
Respondent, the Respondent’s former bookkeeper and two other former
employees of the Respondent.
4 The evidence establishes that the Applicant worked for the Respondent as a
Project Manager. He was paid a monthly salary by the Respondent but no
deductions were made from his salary in respect of Pay As You Earn (PAYE) or
Unemployment Insurance Fund (UIF). He was also provided with a company car
and a garage card and used the car for both business and personal purposes.
Likewise, all other employees of the Respondent, including the bookkeeper
whose status as an employee was not challenged, had no deductions made in
respect of PAYE and UIF. The Applicant was answerable to the Respondent’s
directors and took instructions from them.
5 The Respondent sought to rely on the fact that deductions were not made from the
Applicant’s salary in respect of PAYE and UIF, that the nature of Applicant’s job
did not require constant supervision, and a requirement for the Applicant to submit
invoices for its contention that he was not an employee, but an independent
contractor. It was, however, undisputed that for seven months leading up to his
departure, the Applicant did not submit invoices but was nevertheless paid his
monthly salary.
6 On the evidence available, I have no hesitation in concluding that the Applicant
was an employee as defined in the Act. In reply to the Applicant’s Statement of
Case, the Respondent pleaded that “an oral agreement was reached between the
Applicant and the Respondent on 1 September 1997 whereby the Applicant would
be retrenched ...”. The Respondent also pleaded that “[t]he Applicant commenced
employment with the Respondent in March 1996", that the Respondent met with
the Applicant to discuss “the possibility of retrenchment” and that the Applicant
and Respondent entered into an oral agreement “whereby the Applicant would be
retrenched” (own underlining).
7 No attempt was made by the Respondent’s only witness, Mr Nicholas Wentzel, to
explain why its plea was formulated as above if the Applicant were an
independent contractor and not an employee. Neither did the Respondent amend
its plea prior to or during the hearing. Taken together with the Applicant’s
evidence, and that of his witnesses, it is clear that the special plea relating to
absence of jurisdiction on this basis was an afterthought and a not too subtle
attempt by the Respondent to avoid having to answer the Applicant’s claim that he
was unfairly retrenched. The Respondent’s deplorable and unlawful conduct in not
making deductions required by law from its employees’ salaries cannot change the
nature of the true status of the Applicant and, for that matter, of its other
employees. I therefore conclude that the Applicant was an employee as defined in
the Act and the Court has jurisdiction to adjudicate his dispute with the
Respondent.
8 I now turn to deal with the merits of the allegation by the Applicant that he was
unfairly dismissed because the Respondent did not consult with him in the manner
required by section 189 of the Act.
9 Both the Applicant and Mr Wentzel gave evidence about the circumstances which
led to the present dispute. The evidence will be referred to cumulatively, save
where disputes exist. In the latter event, I will refer to each witness’s version of
what occurred insofar as it may be necessary.
10 The Respondent’s principal business was that of project management in the
engineering field, which was done on a consultancy basis. It charged a fee for
overseeing projects carried out at its client’s businesses.
11 The Respondent began experiencing financial difficulties in early August 1997,
primarily as a result of the failure of a company called Thermosil to pay a debt of
R1.2 million to the Respondent. As a result, meetings were held with employees
about the problem. All other employees were informed that they would be
retrenched. The Applicant, however, was assured that his position was secure as
he still had projects to complete, but was requested to propose a different
remuneration structure which would take into account Respondent’s cash flow
problems.
12 Mr Wentzel testified that on 26 August 1997, one of the Respondent’s clients,
David Whiteheads, cancelled its contract which simply made the Respondent’s
position worse. On the same day, Mr Wentzel briefly discussed the consequences
of the cancellation of the contract with the Applicant, and he testified that he
thinks that at the time of the discussion they both (i.e. Wentzel and the Applicant)
realised “that the inevitable was that he [the Applicant] would not have any more
employment as of that day ”. A letter of possible retrenchment was then issued the
next day, inviting the Applicant to make written representations regarding the
possible retrenchment.
13 On 29 August, the Applicant was informed that he would not be paid his salary for
the month, due to insufficient funds in the Respondent’s bank account. What
happened thereafter is in dispute, but it appears that the Applicant and Mr Wentzel
met on 1 September and attempted to resolve the crisis. What is clear from the
evidence is that both sides made proposals with certain preconditions, but no
agreement was reached.
14 On 4 September, the Applicant referred a dispute about his alleged unfair
retrenchment to the Commission for Conciliation, Mediation and Arbitration for
conciliation. The dispute could not be resolved and was referred to this Court for
adjudication.
15 The Applicant and the Respondent have agreed, as recorded in the pretrial
minute, that the date of the applicant’s dismissal is 2 September 1997. The
Applicant earned, in total, R10 000.00 per month, made up of a salary of R6
500.00, and a car allowance of R3500.00, inclusive of insurance, petrol and
maintenance costs.
FINDINGS
16 The evidence establishes that in early August, when the Respondent consulted
with its other employees with a view to their possible retrenchments, the
Applicant was dealt with separately as his position was not under threat. He was in
fact assured that his position was secure.
17 It is also clear from the evidence of Mr Wentzel that up until 26 August, the
Respondent did not contemplate retrenching the Applicant. The only issue under
consideration, which arose prior to the meeting of 26 August, was the
restructuring of his remuneration package.
18 According to Mr Wentzel, it was only on 26 August that it became clear that the
Applicant would have to be retrenched, hence the letter of 27 August. It is also
clear that the situation deteriorated badly over the next two days, mainly because
of the Respondent’s inability to pay the Applicant his August salary. The result
was that no meeting at which a genuine attempt to reach consensus could be held.
The only discussions which took place were on 1 September 1997, but these
centred on an attempt to agree on a severance package, as by then the Respondent
had decided to retrench the Applicant.
19 That the Respondent was in financial difficulties is not in dispute, and the
Applicant conceded this fact in his evidence. It is also equally clear from the
evidence of the Applicant and Mr Wentzel that the process of seeking to reach
consensus did not even get off the ground.
20 As Mr Wentzel said, by 26 August he had decided that the Applicant had to be
retrenched. There had been no consultation with the Applicant as, up until then, it
had not been intended that he would be retrenched. It follows that the letter of 27
August inviting the Applicant to make written representations on his possible
retrenchment was not written in a bona fide attempt to reach consensus as required
by the Act (Cf. Johnson & Johnson v Chemical Workers Industrial Union 1998
(12) BLLR 1209 (LAC)).
CONCLUSION
21 I conclude that the dismissal of the Applicant by the Respondent on 2 September
1997 was not preceded by consultations conducted in a bona fide attempt to reach
consensus on the issues set out in s189(2) of the Act. I accordingly find that the
dismissal of the Applicant was unfair because the Respondent did not follow a fair
procedure prior to the dismissal, which was, on the available evidence,
necessitated by its operational requirements arising out of severe cash flow
problems.
RELIEF
22 It is my view that the Respondent’s breach of its obligations arising from s189 of
the Act was sufficiently serious to warrant an exercise of my discretion in favour
of the Applicant in respect of the payment of compensation.
23 Following the failure of conciliation to resolve the dispute, the Applicant initially
referred his dispute to the CCMA for arbitration. The arbitration took place on 18
November 1997. The Commissioner ruled that the CCMA had no jurisdiction to
arbitrate the dispute and that it had to be referred to this Court for adjudication.
The referral was made on 10 December 1997. This caused a delay of about a
month, for which the Respondent cannot be held responsible. In calculating the
compensation due to the Applicant, a month will be deducted from the total
period.
24 The Applicant was dismissed on 2 September 1997. This hearing was concluded
on 30 October 1998. The period between the date of dismissal and the last day of
the Court hearing adds up to 13 months and 26 days. From this a month is to be
deducted, for the reasons furnished above, leaving a total of 12 months and 26
days.
25 Section 194(1) of the Act sets out the formula for the calculation of compensation.
The subsection does not prescribe the maximum permissible compensation. On
the other hand, s194(2) limits compensation to a maximum of 12 months’ pay
where a dismissal was not for a valid reason. The question that arises is whether
compensation under s194(1) can exceed the 12 month limit set out in s194(2).
26 In my view, the limitation in s194(2) applies equally to compensation payable
under s194(1). The reference in s194(1) to compensation which is to be “ not less
than the amount specified in subsection (1), and not more than the equivalent of
12 months’ remuneration ” (my underlining) clearly contemplates that the
compensation payable under s194(1) can never exceed that payable under s194(2).
The present case is, however, an example of an unexpected difficulty, where the
period used for calculating compensation in section 194(1) is in fact more than the
maximum prescribed by s194(2).
27 I do not believe that it was intended to afford an employee whose dismissal is
unfair only because of unfair procedure more compensation than an employee
whose dismissal was without a valid reason. To interpret s194(1) differently from
what is set out herein would undoubtedly lead to an absurdity which could not
have been intended by the legislature.
28 If compensation under s194(1) were to exceed the equivalent of 12 months’
remuneration, s194(2) would not make sense, in particular, the portion of the
section underlined above. In my view, s194(1) must, in a case like the present, be
read in the context of the whole section on compensation, including s194(2).
29 Clearly, it must have been within the contemplation of the drafters of the Act that
disputes would be arbitrated or adjudicated within a reasonable time and certainly
within a period of twelve months from the date on which they arose. At least, this
is what a reading of ss194(1) and (2) suggests, and that is how the section should
be interpreted.
30 Sections 194(1) and (2) obviously require amendment to remove the apparent
ambiguity. Until this is done, the Court is required to interpret the Act in a manner
consistent with its purpose.
31 It follows that in the present matter, compensation payable to the Applicant cannot
exceed the equivalent of 12 months’ remuneration. The order that I make is
accordingly as follows:
31.1 The Respondent is ordered to pay to the Applicant compensation equivalent to 12
months’ compensation;
31.2 In calculating the payment in 29.1, the Applicant’s remuneration is to be taken as
R10 000.00 per month;
31.3 The total amounts, less lawful deductions, will bear interest at the legal rate from
date of this judgment to date of payment;
31.4 I make no order as to costs.
Maserumule AJ
Judge of the Labour Court
DATE OF HEARING: 14 September, 30 October 1998
DATE OF JUDGMENT: 12 February 1999
For the Applicant: In Person
For the Respondent: Mr C Haralambous of Francois Medalie Inc