IN THE LABOUR COURT OF SOUTH AFRICA
HELD IN JOHANNESBURG
Case Number: JR215/2004
In the matter between
P G GROUP (PTY) LTD APPLICANT
and
COMMISSIONER L MBAMBO N.O. 1ST RESPONDENT
THE NATIONAL BARGAINING COUNCIL
FOR THE CHEMICAL INDUSTRY 2ND RESPONDENT
PHILIP THOMAS PETER CLATWORTHY 3RD RESPONDENT
JUDGMENT
REVELAS J
1. This is an application to review and set aside a ruling in respect of jurisdiction made on 18
December 2003 by the first respondent, a Commissioner acting under the auspices of the
second respondent, in favour of Mr PTP Clatworthy (“the third respondent”).
The founding affidavit deposed to by Mr Stewart Jennings, reflects the following:
2. The third respondent was appointed as Director: Finance at P.G. Glass Holdings Ltd during
June 1989. During a restructuring exercise the third respondent was transferred to the
applicant in 2001 where he remained the financial director of the applicant.
3. His services as director were terminated on 30 September 2003 by the board of PGSI, the
holding company and sole shareholder of the PG Group. The third respondent’s services
were terminated by giving him notice in terms of Article 46.4 of the applicants’ Articles of
Association, (requiring that he resign as director) read together with Article 52 of the same
Articles of Association.
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4. The third respondent referred a dispute about an alleged unfair dismissal to the second
respondent on 21 October 2003. He sought reinstatement.
5. On 25 November 2003 the applicant raised an objection against the second respondent
having the necessary jurisdiction to conciliate the alleged unfair dismissal because the
applicant had not dismissed the third respondent. It was argued that the termination of his
appointment as an executive director was occasioned by the notice given to him in terms of
the two Articles referred to above.
6. The Commissioner found that the second respondent (“the Bargaining Council”) had the
necessary jurisdiction to conciliate the dispute. It is this ruling that the applicant wishes to
have set aside.
7. The applicant contends that the first respondent failed to apply his mind to the relevant
issue in dispute, namely that the second respondent did not have the necessary jurisdiction
to conciliate an alleged unfair dismissal dispute between the applicant and the third
respondent, since the latter was not dismissed by the former.
8. According to the founding papers’ the applicants case appears to be that it was not its wish
to dismiss the third respondent and that the decision to dismiss was taken by the its holding
company being the sole shareholder. Here I must pause to mention that just some months
prior to the termination of the third respondents’ services, the applicant made an attempt,
(apparently an abortive one), to retrench the third respondent. The correspondence
exchanged also suggest rather strained relations with undertones of acrimony between the
parties.
9. The applicant argued that the inability of the commissioner to appreciate that it was the
holding company, the sole shareholder of the applicant, who dismissed the third
respondent, was attributable to his failure to properly consider that unique relationship
between an executive director and a company’s articles of association.
10. The two articles, already referred to above, relied upon by the applicant provide as follows:
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Article 46.6:
“The office of director shall ipso facto be terminated if the director is given notice, signed by members
holding in the aggregate more than 50% of the total voting rights of all members then entitled to vote on a
poll at a general meeting, requiring that director to resign.”
Article 52 :
“The appointment of any executive director or managing director shall, without prejudice to any claim of any
nature whatever which any such director may have against the company, cease if for any reason he ceases to
be a director.”
11. The case argued for the applicant was that the articles of association gave the majority
shareholders the right to terminate the appointment of a director. The point was made that
there is no obligation upon a shareholder to act in the interests of the applicant in which he
holds shares, nor do the actions of a shareholder (in the absence of direct authority) bind a
company.
12. The articles of association confers the majority shareholder with a particular right. When
the shareholder in question became a member of the applicant it acquired the right to
remove a director, and in doing so, it did not act as a representative of the company but in
its own interests and its acts are not attributable to the applicant. By removing a director in
this way, a certain knockon effect is achieved in respect of the contract. It ends the
contract.
13. The argument went further to include the contention that the third respondent was not
employed by the shareholder and that the termination of his employment (or “appointment”,
which is the word the applicant prefers in advancing this particular argument) was effected
by the shareholder. The applicant therefore did not dismiss the third respondent in the
sense defined in section 186 (a) of the Labour Relations Act, 66 of 1995 (“the Act” or “the
sense defined in section 186 (a) of the Labour Relations Act, 66 of 1995 (“the Act” or “the
Labour Relations Act”).
14. The applicant submitted that the actions of the shareholder were imposed on it by virtue of
the articles of association and consequently the applicant had no alternative but to treat the
appointment of the third respondent as terminated and had no discretion in this regard. His
employment, whether at the level of contract or relationship, was terminated by operation of
principles of supervening impossibility of performance. Under this principle, supervening
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impossibility discharges the contract by operation of law and the discharge of a contract of
employment by operation of law, does not fall within the definition of dismissal as
envisaged by section 186(a) of the Act.
15. The termination of the third respondent’s employment therefore does not constitute a
dismissal and therefore no unfair dismissal relief is available to him.
The above submissions amount to essentially two propositions, they are:
1. The applicant did not dismiss the third respondent (as set out in the
applicant’s founding affidavit) and,
2. The third respondent, being a director of a company, is not an
employee, by virtue of the applicant’s articles of association which
precludes a director’s recourse to the Act when his or her appointment
is terminated.
Who dismissed the third respondent?
16. A company operates through its various organs (shareholders, directors,
managing director and committees of directors). The Companies Act No. 61of 1973, its
articles of associations and the common law determines how its powers will be
distributed amongst these organs.
17. In terms of Section 220 of the Companies Act the members of a company,
in a general meeting, may by extraordinary resolution, remove directors before the
expiration of their terms of office. It was argued on behalf of the third respondent that
when the members of a company exercise powers in a general meeting
and make a decision, that decision is the company’s decision which is bound
thereby, and is not a decision of the members themselves.
18. In terms of Article 30 of the applicant’s articles of association, all members
entitled to vote at a general meeting shall be deemed as if it was passed at a general
meeting. The resolution to remove the third respondent as director of the
meeting. The resolution to remove the third respondent as director of the
applicant pursuant to Article 46.4, was unanimously approved during an
extraordinary board meeting of PGSI Limited which was conducted by
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telephonic conference. (See page 26 of the record). The notice of dismissal to
the third respondent states that:
“PGSI Limited, being the holder of all voting rights entitled to
vote on a poll at a general meeting of PG Group, hereby gives you
notice in terms of Article 46.4 of the Articles of Association of PG Group
requiring that you resign as director of PG Group”.
19. The decision to remove the third respondent was clearly made in terms
of Article 46.6 and 30. The decision was taken by members in a general
meeting. Therefore it is a decision of the applicant itself and not a decision of PGSI
Limited. One of a company’s primary rules of attribution is that the decision of
members in a general meeting constitutes a decision of the company itself.
(See Meridian Global Funds Management Asia Ltd v Securities Commission [1995]
3 All ER 918 (PC) at 922J923B ).
20. The decision to dismiss, taken by PGSI Limited, is in law the
applicant’s decision and therefore the latter terminated the third respondent’s
appointment as director.
Is the third respondent, as a director protected by the Labour Relations Act?
21. Mr Brassey, on behalf of the applicant, has in effect invited me to revisit
the question of whether a director of a company is an employee and entitled to protection
under the Labour Relations Act. It has been argued (in the 1980’s mostly), that this
question was not properly considered by the industrial court and
insufficient weight had been given to the relevant company law principles
dealing with termination of directorships. This is also the approach which the applicant
has now adopted (See M P Larkin “Distinctions and differences: a company
lawyer looks at executive dismissals (1986) 7 ILJ 248 ).
22. If one has regard to the Labour Relations Act as a whole, it
is primarily designed to regulate employment relations between blue collar workers
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and their employers. Support for this observation can be found in the many sections and
schedules of the Act, pertaining to collective bargaining
collective agreements, the status of unions, retrenchments and the like. It may
also be observed in the provisions of the Act regarding the informal conciliation
and arbitration proceedings. None of these provisions have a direct bearing on the
situation where the services of a director, as employee, are
terminated. Yet, this court has always treated directors as employees and
protected unfairly dismissed directors under the Act. According to the applicant, this
approach is incorrect.
23. Larkin in his article ( supra) at page 252 warns that the company case law
which suggests that any contractual remedy a director may have is restricted to
damages, had been decided in the absence of the 1956 Labour Relations Act.
Under that legislation reinstatement became the appropriate remedy for an
unfairly dismissed director.
24. The definition of an employee in section 213 of the Labour Relations
Act is a wide one. It reads:
“ ‘employee’ means
(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 any employer”
This definition would surely apply to most, if not all, directors.
25. Section 78 of the Act excludes a senior managerial employees from the
definition of an employee. However this is done in the context of workplace forums where
such a manager is not regarded as an employee if he represents the employer
in dealing with the workplace forum; or determine policy and take
decisions on behalf of the employer that may be in conflict with the
representation of employees in the workplace.
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26. A director may act in certain capacities and perform the kind of work which
appears to disqualify him or her from having the status of an employee. On
the other hand, a director may also perform duties as an employee of the company. The office
and duties of a director are separate. The type of work done by a director is not a
dependable criterion as the nature of a director’s actual day to day work may vary greatly.
27. Directors are the holders of an office within the company. Rights and duties attach to
that office and flow from statutory and common law of companies. A contractual relationship
between a company and a director may not be necessary. Yet more often than not,
contracts of employment are concluded between directors and companies, as was indeed
done in this matter. The third respondent’s letter of appointment by the applicant contains the
standard terms which are normally expected to be found in a contract of employment. Both
parties regarded the third respondent as an employee.
28. The argument that the Labour Relations Act does not apply to directors is largely
premised on the argument that employment is characterised by an imbalance in bargaining
power or in subordination. Therefore, the argument is that, financial, managing, and
ordinary directors have no claim to the status of an employee. This imbalance is not
capable of being described in such precise terms so as to particularly exclude a director from
the definition. It has been held that a director’s position is a dual one–a holder of office on
the one hand and an employee on the other. (See: Stevenson v Sterns Jewellers
(Pty) Ltd (1986) 7 ILJ 326 IC ). Company law too, is concerned with the disparity in
power between ownership and control.
29. Neither the Labour Relations Act, nor the Companies Act nor, in this case, the
29. Neither the Labour Relations Act, nor the Companies Act nor, in this case, the
applicant’s articles, specifically precludes a director from enjoying the protection of the
Labour Relations Act. More importantly, section 220 of the Companies Act, which allows
a company to make short shrift of a director’s career, expressly requires a right to a hearing
(section 220(2)). The Constitution which requires fair administrative action, demands
that such a hearing must be fair. Whether that hearing was fair or not, should not be finally
determined by the shareholders or the company’s Board of Directors. It is inconceivable
that in such an enquiry the ordinary principles of employment law would not be relevant.
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It follows that the obvious remedy available to an unfairly dismissed director would lie in
the provisions of the Labour Relations Act. However, in the light of the dual capacities in
which a director holds office, it is questionable if directors are entitled to reinstatement.
(See: Stevenson’s judgment supra).
31 Consistently the courts have rejected the argument that managerial employees should
be excluded from protection against unfair dismissal. The fact that a person is a
director of a company does not necessarily mean that he or she cannot also be an employee
in terms of the Labour Relations Act. The office of director and position of employee are
distinct from another but this court has over time investigated whether the dismissal of the
director as an employee was fair. (See Long & another v Chemical Specialists Tvl (Pty)
Ltd (1987) 8 ILJ (IC); Oak Industries (SA) (Pty) Ltd v John No & Another (1987) 8 ILJ
756 (N) and Whitcutt v Computer Diagnostics & Engineering (Pty) Ltd (1987) 8 ILJ 356
(IC)). Yet, the office held by a financial director, one would imagine, would
rather be of more concern to the Companies Act than to the Labour
Relations Act.
33. The first respondent (the Commissioner) can not be criticised for not deciding the
above issue. It was not raised before him. He only had to decide who had dismissed
the third respondent. On the facts before him, which included an employment contract and
termination of employment, the third respondent was regarded as an employee. This
point which is now raised, is indeed a rather novel approach to trite law. If he erred
in law, this does not per se render his ruling reviewable. This aspect should be raised at the
arbitration or adjudication stage and not in this review application.
34. In the circumstances the application must fail.
35 It was argued that a punitive cost order should be made against the applicant. I do
not agree that the arguments advanced by the applicant were calculated to cause delay or
are vexatious. At a later stage in the development of this dispute such an observation may be
correct. At this stage however, I must regard the applicant as a party who wished to test its
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case in terms of an approach which is not entirely incompatible with sentiments expressed
before in respect of the status of directors vis`avis the Labour Relations Act.
36. The application is dismissed with costs.
______________________
REVELAS J
For the applicant: Adv. M. Brassey SC with Adv. A. M. Redding
Instructed by Webber Wentzel Bowens Attorneys
For the third respondent: Adv. A. Franklin SC
Instructed by Deneys Reitz Attorneys
Date of hearing: 15 October 2004
Date of judgment: 26 October 2004
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