Brief Summary

Labour Law — Constructive dismissal — Unfair labour practice — Appellant, a freight distribution company, terminated the employment of the respondent, its branch manager, who claimed constructive dismissal and unfair labour practice after a brief tenure marked by poor performance and management issues. The Industrial Court found no jurisdiction to entertain the claim, but the Labour Appeal Court overturned this, ruling the dismissal was procedurally unfair. The central issue on appeal was whether the Labour Appeal Court's finding of procedural unfairness constituted an unfair labour practice. The Supreme Court of Appeal upheld the Labour Appeal Court's decision, affirming that the dismissal was indeed procedurally unfair, thus constituting an unfair labour practice.

Comprehensive Summary

Summary of Judgment

Introduction

The matter was an appeal to the Supreme Court of Appeal concerning an alleged unfair labour practice arising from the termination of an employment relationship. The dispute turned on whether the termination, accepted for purposes of the appeal as a constructive dismissal, was procedurally unfair, and on the appropriate quantum of compensation.

The parties were Unilong Freight Distributors (Pty) Ltd (the appellant, referred to in the judgment as “the company”), a road transportation business with its head office in Roodepoort and branches nationwide, and C Muller (the respondent), who had been employed as the company’s Wadeville branch manager for a short period in 1993.

The procedural history was as follows. After the respondent’s employment ended on 30 November 1993, he contended that he had been constructively dismissed and that this constituted an unfair labour practice. The company disputed this, maintaining that the respondent had accepted voluntary retrenchment. An Industrial Council could not resolve the dispute, and it was referred to the Industrial Court for determination under section 46(9) of the Labour Relations Act 28 of 1956. The Industrial Court found that constructive dismissal had not been proved and held that it lacked jurisdiction; it additionally held that even if there had been such a dismissal it would not have constituted an unfair labour practice. The respondent appealed to the Labour Appeal Court, which upheld the appeal, found constructive dismissal and procedural unfairness, and awarded compensation. The company then appealed to the Supreme Court of Appeal under section 17C(1)(a) of the Act, with leave granted by the Labour Appeal Court.

The general subject-matter of the dispute concerned dismissal for poor work performance/incompatibility in the context of a senior managerial appointment, and the procedural steps required by fairness before terminating employment, as well as the proper approach to compensatory relief once an unfair labour practice is found.

Material Facts

The company operated a road transportation distribution business, and the respondent was appointed as branch manager of its Wadeville branch with effect from 1 October 1993. The respondent had no prior experience in the transport industry but had managerial skills and academic qualifications, and he was recommended by management consultants engaged by the company to identify suitable candidates. The employment contract allowed either party to terminate the contract by one month’s written notice.

It was common cause that the respondent underwent an initial period of induction and exposure to the business and to external consultants involved in an efficiency and restructuring study at the Wadeville branch. According to the court, it was only from the third week of employment that he began to perform the role in substance. Over the next six weeks, a series of incidents occurred which led senior management to conclude that the respondent was not capable of performing the function for which he had been appointed, and this culminated in the termination of the relationship on 30 November 1993.

The judgment treated several incidents as materially relevant to management’s dissatisfaction with the respondent’s performance and judgment. These included the respondent’s handling of budget questions at a management meeting late in October 1993, an incident during a customer visit to Wool and Textiles in Standerton where he made a proposal described as impractical and embarrassing for the company, a complaint by an employee (Chantelle) regarding inappropriate discussion of her pay slip and deductions, the respondent advancing an unauthorised and unworkable proposal in union negotiations about shift restructuring (which the union accepted and which later caused operational problems), and the respondent negotiating new rates with a customer (Silk and Textiles) without authority, resulting in alleged monthly revenue loss. There was also an incident shortly before a duty weekend in late November 1993 indicating inadequate arrangements for weekend overtime labour.

As regards engagement with the respondent about these issues, the Supreme Court of Appeal accepted as uncontested that before 30 November 1993 senior management (particularly the general manager, Van Staden) spoke to the respondent at length about his work and what was required of him, and that Van Staden spoke to him after each of the material incidents. The court accepted that, except in relation to the Chantelle incident, the respondent was described as unrepentant and unwilling to accept that he had erred, and that he maintained his actions were justified. The court also accepted that the respondent was given opportunities on several occasions to state his case when management expressed dissatisfaction.

The version of discussions between the respondent and Van Staden on 29 and 30 November 1993 was disputed, and the Labour Appeal Court had held that it was unnecessary to decide between the versions in order to conclude that constructive dismissal occurred. In the Supreme Court of Appeal, the company did not challenge the Labour Appeal Court’s finding that the respondent had been constructively dismissed. The Supreme Court of Appeal accordingly proceeded on the footing that the respondent’s termination amounted to constructive dismissal, while focusing on procedural fairness and compensation.

A further material fact for compensation was that the respondent’s annual total remuneration at dismissal was R179 428-00, and that the company paid him until the end of January 1994. It was also not in issue that by 31 January 1995, when Industrial Court proceedings concluded, the respondent had not found permanent employment and had earned R16 000-00 since dismissal. The Labour Appeal Court’s compensation calculation and the proper deductions from loss were central to the appeal.

Legal Issues

The principal legal question before the Supreme Court of Appeal was whether the Labour Appeal Court was correct in holding that the respondent’s (constructive) dismissal was procedurally unfair and therefore constituted an unfair labour practice under the Labour Relations Act 28 of 1956. This question required an evaluative determination: the court treated the finding of an unfair labour practice as involving a moral or value judgment about what fairness demanded in all the circumstances.

A second legal question concerned the proper amount of compensation once procedural unfairness was established. This issue entailed the application of an accepted remedial approach to the facts, together with an assessment of contingencies, including the likelihood that the respondent may have been dismissed in the short term even had a fair procedure been followed.

A further, ancillary issue concerned the appropriate costs order on appeal, considered through the statutory lens of “the requirements of the law and fairness”.

Court’s Reasoning

The court approached the unfair labour practice inquiry by emphasising that such a finding entails a value judgment regarding fairness. It accepted that the Labour Appeal Court was entitled to consider the factual background events that led to the termination in order to assess fairness, and it noted the limits on what factual material an appellate court may consider, with reference to authority dealing with the nature of permissible factual review.

On procedural fairness, the Supreme Court of Appeal accepted the Labour Appeal Court’s key premise that management had legitimate reasons to be dissatisfied with the respondent’s performance. It nevertheless considered whether fairness required that the respondent be given a clearer procedural opportunity to avoid dismissal, specifically by being warned that dismissal was contemplated and by being afforded an explicit, reasonable chance to improve.

The court held that the Labour Appeal Court’s criticism that Van Staden and Burger gave no guidance or advice could not be sustained in respect of the period before 30 November 1993, because the evidence was uncontested that guidance and discussions did occur after each incident. However, the court identified the decisive procedural deficiency as the absence of a specific warning that the respondent’s continued inadequate performance could lead to dismissal, and the absence of a reasonable and explicit ultimatum.

In evaluating whether an ultimatum was required, the court relied on authority indicating that, in disciplinary dismissal contexts, employers should not act over-hastily and that a reasonable ultimatum is often appropriate, while also noting that an ultimatum is not an invariable legal prerequisite and depends on the facts. The court rejected the company’s submission that the respondent’s senior managerial status meant that he did not need to be warned or given an opportunity to improve. It held that fairness generally requires warning and opportunity even for senior employees, although the content and application of such guidelines may be more flexible in their case than for unionised workers.

The court also rejected the argument that the respondent’s personality, attitude, and performance rendered any warning or improvement opportunity futile. It reasoned that the respondent had been employed for only about two months, had been recruited from outside the transport industry, and the undisputed evidence was that he would have received further training during the following year had he remained employed. Against that context, the court held that it could not be said that his alleged lack of judgment and insight was so irredeemable by the end of November 1993 as to make an ultimatum pointless. The court therefore concluded that fairness and good sense required an explicit ultimatum and that the company acted with undue haste in effectively bringing the relationship to an end on 30 November 1993. On that basis, the Labour Appeal Court’s conclusion of procedural unfairness and hence unfair labour practice could not be disturbed.

On compensation, the Supreme Court of Appeal recorded that the Labour Appeal Court had followed an approach consistently adopted in the Industrial Court and Labour Appeal Court, aimed at compensating for financial loss, effectively using a year’s remuneration (with certain deductions) as a benchmark. The Supreme Court of Appeal expressly declined, in this case, to examine whether the approach—said to be derived from English law’s contractual damages framework—was necessarily correct for South African unfair labour practice compensation. Proceeding on the assumption (without endorsement) that the approach was permissible, the court nevertheless held that the Labour Appeal Court misdirected itself by failing to account for a significant contingency: given it was common cause that valid reasons existed by the end of November 1993 and that the company had formed a firm intention to terminate, there was a real likelihood that the respondent would have lost his employment early in 1994 even if a fair procedure had been followed.

The court considered that one could not be certain the respondent would not have improved, but, weighing Burger and Van Staden’s legitimate dissatisfaction and the probability of dismissal in the short term, it held that fairness and reasonableness supported allowing only an additional three months’ remuneration beyond the end of January 1994. That three-month amount was calculated as R44 856-00, from which the value of continued use of the company car (R3 710-00) was deducted. The court rejected further deduction submissions advanced by counsel for the company and held that the R16 000-00 earned by the respondent post-dismissal was most probably earned later during 1994 and should not be deducted in the calculation adopted. The result was that the respondent should have received compensation in round figures of R41 000-00.

On costs, the court took into account that the company failed on the unfair labour practice finding but succeeded substantially on the reduction of compensation. Applying the statutory standard of “the requirements of the law and fairness” and having regard to relevant authority on labour costs, the court concluded that no costs order should be made in respect of the appeal to the Supreme Court of Appeal. It also found no basis to interfere with the Labour Appeal Court’s costs order.

Outcome and Relief

The Supreme Court of Appeal upheld the appeal in part. It left undisturbed the Labour Appeal Court’s determination that the company committed an unfair labour practice by terminating the respondent’s employment on 30 November 1993 on a procedurally unfair basis, but it set aside the compensation amount awarded by the Labour Appeal Court.

The compensation order was substituted with an order that the company pay the respondent R41 000-00 as compensation. No order was made as to the costs of appeal in the Supreme Court of Appeal, and the Labour Appeal Court’s costs order remained intact.

Cases Cited

National Union of Metalworkers of South Africa v Vetsak Co-operative Ltd and Others 1996 (4) SA 577 (A).

Performing Arts Council of the Transvaal v Paper Printing Wood and Allied Workers Union and Others [1993] ZASCA 201; 1994 (2) SA 204 (A).

Council for Scientific and Industrial Research v Fijen 1996 (2) SA 1 (A).

Ferodo (Pty) Ltd v De Ruiter (1993) 14 ILJ 974 (Labour Appeal Court).

Jones v KPMG Aitken and Peat Management Services (Pty) Ltd (1996) 17 ILJ 693 (Labour Appeal Court).

Alert Employment Personnel (Pty) Ltd v Leech (1993) 14 ILJ 655 (Labour Appeal Court).

James v Waltham Holy Cross Urban District Council [1973] ICR 398.

National Union of Mineworkers v East Rand Gold and Uranium Co Ltd [1991] ZASCA 168; 1992 (1) SA 700 (A).

Legislation Cited

Labour Relations Act 28 of 1956, including section 46(9), section 17(21A)(a), section 17C(1)(a), and section 17C(2).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The Supreme Court of Appeal held that, although the employer had valid grounds to be dissatisfied with the respondent’s performance and the Labour Appeal Court’s finding of constructive dismissal was not challenged, the termination of employment was procedurally unfair because fairness required that the respondent be given a reasonable and explicit ultimatum and a clear warning that dismissal could follow if performance did not improve. The failure to provide such an ultimatum, coupled with the haste in ending the relationship, justified the conclusion that the termination constituted an unfair labour practice.

The court further held that the Labour Appeal Court’s compensation award was excessive because it failed to allow for the contingency that the respondent would likely have been dismissed in the short term even if a fair procedure had been followed. Compensation was reduced to a figure reflecting three months’ additional remuneration (less the value of a company car benefit), resulting in R41 000-00.

Finally, applying the statutory standard of law and fairness, the court held that no costs order should be made in the Supreme Court of Appeal.

LEGAL PRINCIPLES

A finding of an unfair labour practice involves an evaluative determination, described in the judgment as a moral or value judgment about what fairness requires in the circumstances.

In dismissals related to inadequate performance or incapacity, fairness generally requires that an employee be informed of shortcomings, be warned of the possibility of dismissal, and be given an opportunity to improve. While an ultimatum is not described as an invariable legal requirement, whether it is required depends on the facts of the case, and an employer should not act over-hastily.

The fact that an employee occupies a senior managerial position does not, as a general proposition, eliminate the need for warning and an opportunity to improve. However, the practical application of procedural guidelines may be more flexible as to the degree and content of warning required, depending on the nature of the post and circumstances.

In quantifying compensation for procedurally unfair dismissal (on the approach assumed without endorsement in this judgment), the tribunal must account for realistic contingencies, including the likelihood that employment might have ended lawfully after a fair process. Compensation should reflect what is fair and reasonable on the proven facts, and should not ignore the probability of termination in the short term where valid reasons existed and the employer had formed a firm intention to end the relationship.

Costs in labour appeals are to be determined with reference to “the requirements of the law and fairness”, and partial success on discrete issues (liability versus quantum) may justify making no costs order in an appellate forum.

Unilong Freight Distributors (Pty) Ltd v Muller (41/96) [1997] ZASCA 87; 1998 (1) SA 581 (SCA); [1998] 1 All SA 61 (A); [1997] 11 BLLR 1497 (A) (29 September 1997)