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IN THE LABOUR COURT OF SOUTH AFRICA
(HELD AT BRAAMFONTEIN)
BRAAMFONTEIN CASE NO: J1107/00
2002-02-04
In the matter between
DAVID LONG Applicant
and
HR CONNECT (PTY) LTD Respondent
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J U D G M E N T
Delivered on 4 February 2002
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REVELAS J:
1. The applicant, Mr David Long, a former employee of the
respondent, claims that he was unfairly dismissed by
the respondent. The applicant's case is that the
dismissal constituted an automatically unfair dismissal
in that he was dismissed by the respondent because he
refused to accept a unilateral change to his terms and
conditions of employment, being that he would no
longer be paid a salary but only commission whereas in
the past he had earned a salary over and above
commission.
2. The applicant seeks the following relief:
1. 1. Compensation equal to 24 months' remuneration at
the rate of R16 000,00 per month, alternatively an
amount equal to the remuneration of R16 000,00 per
month for the period between 17 September 1999 and the
date of this hearing, subject to the maximum of 24
months.
2. The applicant's salary for September 1999.
3. Outstanding commission in the amount of R45 515,80.
4. Reimbursement of expenses in the amount of R2 463,03,
and,
5. The applicant's September 1999 expenses in the amount
of R1 963,15.
3. The respondent's case is that at the stage when the
applicant claimed he was dismissed, i.e. 17 September
1999, he was no longer employed by the respondent as
his employment contract had lapsed the previous month
and inasmuch as he was still with the respondent in
September 1999 he left the respondent's employ of his
own free will. The respondent's case is further that
it had twice made the applicant a firm written offer of
reinstatement which the applicant unreasonably had
rejected.
1. 4. The parties entered into an employment agreement
during 1998 after the applicant had responded to an
advertisement placed by the respondent which conducts
business as a personnel recruitment agency and earns
its income from placement in certain industries. After
some discussions between the applicant and Ms Anne
Fresen of the respondent, it was felt that the
applicant was overqualified for the post as advertised
and that the respondent should rather employ the
applicant.
5. Ms Fresen held 40 per cent of the shares in the
respondent who first was a close corporation and then
became a company. Ms Fresen's brother owns the
remaining 60 per cent of the shares.
6. The respondent is a small business and Ms Fresen wished
to expand the business of the respondent and the
applicant was greatly skilled in computers. He also
had other qualities such as administrative skills which
rendered him suitable to become the respondent's
general manager which he also did become. According to
Ms Fresen the applicant's strong point was his
administrative skills. The applicant also wanted to
develop the company and become a major shareholder in
it after leaving the corporate world.
7. On 31 August 1998 the parties entered into a fixed term
employment agreement which would expire on 31 August
1999, the following year. The agreement also contained
a share option agreement and an undertaking that the
respondent would convert to a private company with
limited liability. In terms of the agreement if the
applicant was still an employee on 1 August 1999, that
is the following year, he would be given shares in the
company subject to certain provisions being that
certain financial targets, (that is income earned by
the respondent), should be met.
1. 8. Except for two staff members all the other
recruitment employees of the respondent, (there were
approximately seven including the applicant), were paid
salaries over and above a commission, based on certain
percentages of the respondent's general income and not
on specific placements.
9. The applicant was appointed at a salary of R10 000,00
which in February 1999 was increased to R16 000,00 per
month and he earned certain commissions based on
certain fixed amounts which would be earned by the
respondent.
10. According to the evidence by Ms Fresen supported by the
evidence of Mr Barnes, the respondent's logistics
manager, it became apparent during May 1999 that the
respondent was no longer doing so well financially and
there was also a slump in the recruitment business. It
was then decided to restructure the commission
structure in terms of which the respondent's employees
were remunerated. The applicant was tasked to find a
solution for this problem.
11. Consequently, during August 1999 the applicant put
forward a revised commission scheme which he reduced to
writing and wherein it was stated that the reason for
the revision was because the current structure was not
yielding performance as it was lacking in incentives
and recruitment, the lifeline of the respondent, was
not 'focused.'
1. 12. The new commission structure which is a departure
of the former structure in terms of which employees
were placed in different categories which earned
certain percentages according to certain forms of
income.
13. It is common cause between the parties that during and
prior to August 1999 it became quite clear to the
parties that the targets set out in the share option
agreement between the applicant and the respondent,
would not be met and that the agreement was about to
expire at the end of August and that the applicant, as
a result would not be able to receive any shares.
14. According to Ms Fresen (supported by Mr Barnes), the
respondent had a financial crisis on its hands. This
was not seriously challenged by the applicant. The
respondent was not generating sufficient income to pay
salaries over and above commission. Crisis meetings
were held. Ms Fresen stated that at a meeting attended
by her brother and the applicant it was decided that
employees would be paid on a commission basis only and
that salaries would be done away with. The applicant
denies that he ever agreed to such a situation. It is
hardly likely that he would have, considering the
events followed and Ms Fresen's evidence that the
applicant had complained previously that he simply did
not earn enough with respondent in terms of commission
and salary and had indicated that he may have to leave
the respondent. However, I believe Mrs Fresen that
there was such a meeting. It is also common cause that
the applicant's curriculum vitae was advertised.
1. 15. August 31 1999 came and went. The agreement
between the parties had lapsed and the parties did not
enter into any new written agreement. Ms Fresen
testified that she permitted the applicant to stay on
because, as she put it, she would never put an employee
out on the street. She stated that she and the
applicant had agreed that he could 'stay on' until he
had found alternative employment.
16. It was in dispute that the applicant wanted to leave,
and on his version, he was still interested in becoming
a major shareholder and had hoped that matters would
improve at the respondent. It is common cause that the
applicant had asked for 'something in writing' after
his contract had lapsed. Ms Fresen said that she
informed the applicant that a new contract was out of
the question because of the respondent's financial
position. The applicant denied that this was her
response. His evidence was that he waited but nothing
in writing 'was forthcoming.'
17. It was argued on behalf of the applicant that there was
at the very least a tacit agreement that the contract
was extended in its exact terms. In my view this
cannot be. The specific targets, and dates for such
targets, were not achieved and the share option scheme
if it were to be continued, would compel the parties to
return back to the drawing board with less optimism due
to the financial situation at the time.
1. 18. In annexure A of the agreement however, the
remuneration structure was set out. In my view there
was not reason why this should not have continued after
August 1999. There was no change in his obligations.
The applicant still performed the same duties and at
that stage the applicant was not pertinently advised
that he would continue his duties at a lower salary.
19. Insofar as his remuneration is concerned, the terms and
conditions as contained in the lapsed contract, still
applied.
20. The financial crisis in the respondent increased. Ms
Fresen stated that it was necessary for a 'draconian'
action. On 15 September 1999 she announced that
recruitment staff would no longer be paid salaries and
only commission of 25 per cent. Two recruitment staff
members, Mrs DeSchene and Mrs Duminy, (the latter was
the applicant's teammate and “righthand person”) were
clearly traumatised by this announcement.
21. They were told either to accept or leave the
respondent's employ. An offer of retrenchment was also
offered as an option. The applicant was similarly
informed of this decision.
22. Mr Barnes testified that he was also told of this new
development but that he accepted the situation. He
stated that Ms Fresen was a generous employer who would
always pay more if there was more income generated. He
simply hoped that the current low income period
experienced by the respondent would pass and that
matters would improve.
1. 23. As to whether the applicant's services were
terminated by the respondent or not is the next
question. The applicant bears the onus to prove the
dismissal. Ms Fresen's version of the termination of
the applicant's services is that the applicant left of
his own free will because he did not want to accept
working without a salary only on the commission that
was offered by her and he informed her accordingly. He
allegedly stated that he would like to leave as soon as
he was paid what she owed him. According to Ms Fresen
her response was that she did not owe him any money
and that thereafter he chose to leave. She then asked
him to hand over the keys of his desk.
24. The applicant's version is that on 15 September he was
advised of Ms Fresen's decision regarding salary and
commission on a takeitorleaveit basis and he was
just as shocked at the announcement as the other
employees. He took time to consider the position and
advised Ms Fresen on 17 September 1999 that he could
not accept this change in his remuneration whereupon he
was told to empty his desk and hand over his keys. He
said that he was also frog marched from the
respondent's premises. It is common cause that Ms
Fresen gave Mr Barnes an instruction to accompany the
applicant to his office which he then did. She also
went to the applicant’s office almost immediately
thereafter.
1. 25. If the applicant decided to leave of his own free
will it is difficult to understand why it was necessary
for Mr Barnes to follow the applicant who was after
all, the general manager, to his office and to oversee
him clearing his desk and to accompany to him to his
vehicle upon his departure. The applicant’s version is
more probable on this aspect. Clearly the applicant's
departure was not amicable. The applicant also said
that he would have written a resignation letter if he
wanted to resign. This scenario is certainly
consistent with the way the applicant had done things.
He was a meticulous person, even on the version of Ms
Fresen, and there was evidence that he reduced
“everything to writing”.
26. On the other hand, both Mr Barnes and Ms Fresen
testified that while the applicant was clearing his
desk and Ms Fresen came to the applicant’s office and
advised him of two big placement contracts which the
respondent had secured and which could bring in quite
some commission for the applicant, in the region of
R70 000,00 during September, but the applicant refused
to accept this offer. This scenario is not entirely
consistent with one where the employer had just
terminated the employee's services. It appears that
Mrs Fesen tried to persuade the applicant to stay. But
then on the other hand she could also have been
remorseful about dismissing the applicant in an
unguarded moment.
1. 27. At the very least there was a constructive
dismissal. On all versions, the applicant was faced
with a Hobson's choice. Either he accepted the new
situation or he could leave, and that was unfair. Both
parties would have been angry or upset in the
circumstances. I believe that is why the applicant was
accompanied to his vehicle under Mr Barnes'
supervision. That was also the appropriate way to
treat the general manager.
28. The applicant had also instructed attorneys in this
matter, who sent two letters on 17 September 1999 to
the respondent. It is necessary for purposes of
understanding this judgment to quote fully from the
relevant parts of these letters. The first letter was
faxed to the respondent and placed by the applicant on
Ms Fresen's desk. She apparently had not read this
letter before the second letter arrived and prior to
the services of the applicant were terminated:
"1. On 15 September your Anne Fresen called the staff together
and indicated to all recruitment staff that with immediate
effect all recruitment staff would be paid on a commission
basis only.
2. Our client has not accepted the unilateral and material
alteration of the terms and conditions of his employment as a
result of which refusal you have indicated to our client that
unless he accepts the unilateral alteration, you will proceed to
secure his dismissal.
3. Your Anne Fresen has indicated to our client that he has to
elect either to accept or reject the unilateral alteration and
advise his election today, 17 September 1999.
We confirm that:
(a) Our client does not accept the unilateral and material
alteration of the terms and conditions of employment.
(b) Our client will refer this dispute to the CCMA immediately and
simultaneously with this letter you will receive our client's
referral, an LRA form 1.11, to the CCMA.
(c) Your attention is drawn to our client's insistence that you
desist from unilaterally implementing the proposed changes to
the terms and conditions of our client's employment.
(d) Should you proceed with your stated intention to secure our
client's dismissal such dismissal will be regarded by our client
as an automatically unfair dismissal and shall be vigorously
opposed.
(e) Our client requires an unequivocal undertaking in writing from
you to restore the status quo by no later than the close of
business today, failing which our instructions are to pursue
with vigour the referral of the dispute to the CCMA."
29. Later in the day another fax was sent by the attorneys
of record of the applicant to the respondent's Ms
Fresen:
"1. You this morning, 17 September 1999, instructed our client to
return his keys to the offices and leave immediately.
2. You instructed our client to complete the placement he is
currently working on with SPL and if successfully completed
you would effect payment to our client of 50 per cent of the
commission due in respect of such placement.
Having regard to the aforegoing, we now have received
instructions to refer the automatically unfair dismissal of our
client to the CCMA and we have instructions to proceed to
enforce out client's right in this regard with vigour."
30. The attorneys conclude the letter by claiming
outstanding commission and the applicant's notice pay.
1. 31. Ms Fresen testified that she did not read either
of these two letters until much later. As stated
herein before the applicant's services were terminated
after the first letter had been faxed and this is
supported by the contents of the second fax.
32. Ms Fresen responded to these letters in a rather
aggressive letter to the applicant's attorneys. This
letter also needs to be quoted in full for an
understanding of this judgment:
"This letter is written without prejudice to our rights and with
a view to setting out certain facts and bringing the matter to
conclusion:
1. David Long has been counselled many times and on an ongoing
basis both formally and informally since May 1999 with specific
regard to nonperformance and poor performance. He is fully
aware of the extensive details of this.
2. As a result of David Long's noncompliance to fulfil a direct and
specific instruction given at our strategic planning meeting on
27 August 1999 by both the directors of HR Connect and then
failing to correct this, we made an offer to David Long whereby
he could have earned a considerable amount of commission.
(Possibly in excess of a hundred thousand rand or more over
the next two or three months) the details with which he is very
familiar and aware of the earning potential. Mr Long rejected
(illegible) We also offered to assist him to find a new career.
This negotiation has been going on for some time.
3. David Long was twice offered the opportunity to choose a full
disciplinary hearing on 15 and 16 September 1999 but instead
decided on the current legal action.
4. We did not dismiss David Long, he chose to leave, and it was
therefore not possible for us to follow any other procedures.
5. Leave pay, if appropriate after doing the necessary
calculations and a certificate of service shall be forwarded in
due course. Mr Long has never handed his 'blue card' to us.
6. Salary due for September will be calculated and forwarded in
due course when all expenses can be reconciled. (David Long
currently has an executive loan which needs to be offset. This
was a special privilege.) It needs to be specifically noted that
it was never the intention of Mr Long or HR Connect that he be
'just an employee.' We have a contract indicating that he was
to have been a shareholder."
33. Subsequently and on the advice of her attorney, Ms
Fresen made the two offers of reinstatement through her
attorney of record which were rejected on the basis
that there was no offer of any payment or to restore
the status quo accompanied these offers.
34. It also argued that in the light of the contents of the
letter which was a disingenuous attempt to build up a
false case against the applicant, that the applicant's
refusal to accept the offer of reinstatement was
justified and reasonable.
35. The fact that no payment was offered in addition to the
reinstatement does not take the matter any further. It
was not the end of the month yet. Ms Fresen said in
her first letter that payments would be made as soon as
expenses could be reconciled.
1. 36. The contents of the letter calls for some
examination. The respondent attempted to persuade me
to rule that the letter was inadmissible as evidence
because it was written 'without prejudice.' I admitted
the letter as evidence because it was clearly not a
letter of compromise but a recording of the
respondent's case at that stage.
37. Ms Fresen stated that it was untrue that she had
invited the applicant twice to a disciplinary hearing
on 15 and 16 September 1999. Initially it seems to me
to have been a blatant and calculating lie on her part.
However, the applicant in his statement of case pleaded
that he was threatened by Ms Fresen with a disciplinary
hearing which gives credence to his version that he was
dismissed, but on the other hand it diminishes the
initial effect of Ms Fresen's letter on this aspect.
38. The letter does not detract from her credibility as I
have first indicated when she led evidence and during
argument. She had clearly acted in anger. She stated
that her anger was triggered off by the fact that the
applicant was her friend at one stage and then
instructed attorneys.
39. The respondent's attorney argued that the letter must
be judged in the light of the fact that Ms Fresen was a
layperson and reacted like 'a wounded animal' that was
hurt.
1. 40. I am not able to judge the letter in any such a
light. The letter was a very deliberate letter,
calculated to represent a situation favouring only the
respondent. I cannot question Ms Fresen's evidence
that she believed that the applicant's managing of the
business was a contributing factor to the financial
decline of the respondent. I am unable find that he was
entirely to blame for the situation, but he was the
general manager.
41. On her own version, Ms Fresen could not afford to pay
the applicant his salary and commission for September.
Given all these factors and other factors, a simple
offer of reinstatement could not rectify the wrong
being done to the applicant. Furthermore, I cannot
criticise the applicant in view of the
misrepresentation of the situation by Ms Fresen in her
letter, for rejecting the offer of reinstatement. Ms
Fresen had no reason to feel like a wounded animal.
The applicant was entitled to instruct attorneys in
this matter.
42. I do agree with the respondent's attorney that
Ms Fresen's letter, or her socalled 'mistake' seen in
the light of the offer of reinstatement does not
warrant compensation equal to 24 months' compensation.
The applicant's counsel also did not insist on such an
amount for compensation.
43. The applicant was treated unfairly but I have to take
into account that the applicant found new employment at
a higher salary since November 1999. He was thus out
of work for two months, for that length of time. Had
he accepted the offer of reinstatement, he would have
earned a lesser income.
1. 44. The applicant was employed as a manager. The
respondent had employed him partly, to improve the
income of the respondent and yet the income of the
respondent declined over a period of some months.
Managerial employees, unlike blue collar employees, are
paid to take risks. If matters had been different, the
applicant would have owned 50 per cent of the
respondent at this point. Even though he was entitled
to reject the offer of reinstatement given the
circumstances, it may have been wiser for him to return
to the company to negotiate some form of financial
settlement which he did not do. I make this comment
with due regard to the letters addressed to the
respondent's attorneys requesting certain payments. The
applicant had to litigate to be paid his salary for
September.
45. In all the circumstances I make the following order:
1. The termination of the applicant's services constituted
an automatically unfair dismissal.
2. The respondent is to pay the applicant compensation in
an amount equal to three months' remuneration at a rate
of R16 000,00 per month.
3. The respondent shall pay the commission to the
applicant for the month of September 1999 as well as
disbursements for September 1999 as set out in the
pretrial minute.
4. The respondent is to pay the applicant's costs on the
scale as between party and party.
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E. Revelas