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Worklaw subscribers receive a monthly newsletter containing commentary on the latest labour law cases and trends. This newsletter contains an article on Managing Absenteeism in the Workplace. We also look at three new cases: the first looks at when it is appropriate to overturn an irregular appointment or promotion. The second looks at a new SCA decision which, (incorrectly in our view), takes our law back to the 'reasonable employer test'. The third looks at when a court should 'lift the corporate veil' to see who is the controlling mind behind different companies.
This public newsletter is a free edited version of the subscriber newsletter.
Once an employer has been found by an arbitrator or judge to have made a procedurally or substantively unfair appointment or promotion, the normal remedy is to set the appointment aside and require the employer to start the process afresh. But often the challenge to the appointment / promotion is delayed, with the appointed person (who has often done nothing wrong) already well established in the post. In these circumstances arbitrators have often left the appointee in the post but ordered compensation for the aggrieved person.
Compensation in these circumstances can be inadequate because how do you compensate for a lost opportunity for promotion which may not arise for years to come? The injustice of not overturning an irregular appointment is highlighted - in dramatic fashion - in a recent LAC decision - Khumalo & another v MEC for Education, KwaZulu-Natal (LAC DA 3/2011; Judgment 29 August 2012).
The first appellant (Khumalo) was promoted to the position of Chief Personnel Officer in April 2004. The second appellant (Ritchie) had also applied for the same post into which Khumalo was promoted. Ritchie was not shortlisted. He lodged a grievance before and after the start of the interviews against his non-shortlisting. When his grievance failed, he referred an unfair labour practice dispute to the General Public Servants Sectoral Bargaining Council contending that he should have been shortlisted and appointed because he met the requirements for the post.
After an attempt to conciliate the dispute between Ritchie and the department had failed, the matter was referred to arbitration. The department defended the matter. The MEC alleged that the documentation relating to Khumalo's interview and appointment had gone missing and by reason thereof the department could not formulate its defence. It then opted to settle the dispute by offering Ritchie a 'protected promotion' to the post in question. Ritchie accepted the offer and on 11 July 2005 a settlement agreement was concluded to that effect, which agreement was made an award. The effect of Ritchie's settlement was that Khumalo was allowed to retain the post to which he was promoted.
The MEC was not aware that Khumalo's promotion was fraught with irregularities until it was brought to her attention in a complaint lodged with her on 6 October 2005 by NUPSAW acting on behalf of 11 of its members. The gist of the complaint was that Khumalo did not meet all the minimum requirements for the post in that he did not have 2 or more years' supervisory experience at "Salary Level 6 or 7". He was on level 5. Secondly, they complained that Ritchie, who was granted protected promotion with effect from July 2005 after raising a grievance, was never short-listed for the post.
The Union together with the complainants met the MEC, and a task team was established to look into the complaints and submit a report to the MEC. The task team, in its report presented to the MEC on 26 January 2006, concluded that in the absence of supporting documentation it had been difficult for it to understand why Khumalo was promoted when he did not meet all the minimum requirements of the post concerned and why Ritchie had been promoted in the absence of a prior shortlisting. On the basis of the task team's findings the MEC approached the Labour Court on 17 October 2008 seeking the setting aside of Khumalo and Ritchie's promotions on the ground that they were unlawful, as they did not meet the requirements of just administrative action as set out in section 33 of the Constitution.
This LAC case was an appeal against the Labour Court's judgment which had declared unlawful, unreasonable and invalid the promotion of Khumalo and the decision to grant Ritchie protected promotion. The LC had set aside these decisions and further directed the Department to take necessary steps to fill the posts. In addition the LC granted certain structural remedies.
The LAC dismissed the appeal against the LC decision based on the following principle: Where the integrity of a selection process is compromised, setting aside the promotion even after several years, is desirable as a way of balancing the prejudice to the appointee and the prejudice to those who were aggrieved by the irregular appointment.
There was a time in our developing labour law when the courts, in assessing the fairness of a dismissal, asked this question: 'Was it reasonable for the employer to dismiss him? If no reasonable employer would have dismissed him, then the dismissal was unfair. But if a reasonable employer might have reasonably dismissed him, then the dismissal was fair.'
This test, which became known as the 'reasonable employer test', was rejected as not part of our law in Toyota SA Motors (Pty) Ltd v Radebe & others (2000) 21 ILJ 340 (LAC); the reasoning was that the LRA requires an arbitrator to decide whether a dismissal is fair - he or she is not required to determine if the sanction is one which a reasonable employer would have arrived at. In Sidumo the court confirmed that when arbitrating disputes concerning dismissals, commissioners must apply their own sense of fairness and that they may interfere if they disagree with the employer's decision.
So that's settled? Not quite it seems, in light of the recent curious SCA judgment in Myers v National Commissioner of the SAPS (425/2012)  ZASCA 185 (29 November 2012). The appellant in this case was a Superintendent and Commander of the Dog Unit in Maitland with 28 years unbroken service in the SAPS and was only six years away from becoming eligible for early retirement when he was dismissed on 12 July 2007. The background to his dismissal was that he sent an email to a newspaper to defend his role in an already public scandal about the under-nourishment of police dogs. The SAPS management did not take kindly to the article. He was charged with contravening regulation 20(f) of the regulations in that he had by issuing the media statement, prejudiced the administration, discipline and efficiency of the SAPS. At a disciplinary hearing, he was found guilty of misconduct, dismissed and ordered to pay a fine of R500.
His dismissal was confirmed at arbitration by the Safety and Security Sectoral Bargaining Council. He then referred the dispute to the Labour Court to review and set aside the decision. The Labour Court granted the application and made an order (a) reviewing and setting aside the appellant's dismissal; but (b) remitted the matter for a de novo hearing on an urgent basis before another commissioner. The employer appealed to the Labour Appeal Court against the LC's judgment. Thereafter the matter found its way to the SCA.
The SCA overturned the LAC judgment and found that the dismissal was substantively unfair, ordering Myer's reinstatement subject to a final warning. Its decision was based in part on the fact that there had been no evidence that the relationship between Myers and the SAPS had broken down to the extent that continued employment was out of the question.
What is startling about the SCA's decision is that it provided that the fairness of the employer's decision to dismiss must be tested against the review standard laid down by the Constitutional Court in Sidumo & another v Rustenburg Platinum Mines Ltd & others (Case CCT 85/06 decided on 05 October 2007). The test was formulated as follows: 'Is the decision one that a reasonable decision-maker could not reach?'"
Now the Sidumo test is one formulated for the Labour Court to assess CCMA / bargaining council arbitrator's awards. It has never been the test for an arbitrator to assess the fairness of an employer's decision to dismiss. So when the SCA sets the test that 'the decision to dismiss must be 'reasonable' and reasonableness must be tested in the light of the facts and circumstances of a given case', it can be argued that this is a return to the already rejected reasonable employer test.
This is a fundamental rule in company law: a company is a legal entity separate from its shareholders, and you cannot normally 'pierce the corporate veil' to get to those who control it.
However, in labour law there is a guiding principle of fairness and it was this that gave space to the old Industrial Court to 'pierce the corporate veil'. In the matter of Paper Printing Wood & Allied Workers Union v Lane NO (1993) 14 ILJ 1366 (IC) the court held that the liquidation of one company and the simultaneous creation of a second company was a deceptive sham created to avoid an obligation to pay retrenchment benefits. As a result the second company was held liable for the debts of the first company. More recently in Footwear Trading CC v Mdlalose (2005) 26 ILJ 443 (LAC) the LAC noted that:
'The abuse of juristic personality occurs too frequently for comfort and many epithets have been used to describe the abuse against which the courts have tried to protect third parties, namely puppets, shams, masks and alter ego. However, the general principle underlying this aspect of the law of lifting the veil is that, when the corporation is the mere alter ego or business conduit of a person, it may be disregarded. The lifting of the veil is normally reserved for instances where the shareholders or individuals hiding behind the corporate veil are sought to be responsible. I do not see why it should not also apply where companies and close corporations are juggled around like puppets to do the bidding of the puppet master....'The court concluded that although Fila and Fila Footwear were separate legal personalities, an expose of both entities which were controlled by the same individuals and were inextricably interlinked, confirmed that they were in effect joint and co-employers.
The LAC dealt with the issue again in the recent case of National Union of Metal Workers of South Africa v Lee Electronics (Pty) Ltd and Others (PA 05/11)  ZALAC 33 (8 November 2012). Two companies, Lee Electronics (Pty) Ltd ("Lee") and South Sound (Pty) Ltd ("South Sound") were registered during 1984 and 1989 respectively. They commenced operations in Dimbaza which, at the time, fell within the so-called Republic of Ciskei. Chen Hsung Lee was the sole shareholder of both companies. Lee was a manufacturer and distributor of radios, while South Sound manufactured and distributed television sets. These operations were conducted out of premises in Canal Road Dimbaza and the companies operated out of premises on opposite sides of that road.
During 1998, Numsa recruited employees who had been employed by Lee in a campaign which was strenuously resisted by Lee, which was openly hostile to this recruitment drive. Lee reduced the employees' toilet facilities and ceased rendering any medical assistance to employees who became ill. During the 1998 Christmas recess, Lee decreed that there would be a 2 - 3 month shutdown which coincided with the commencement of Numsa's recruitment drive. On 10 March 1999 a manager of Lee switched off the electricity of Lee's factory. During the next week negotiations took place between shop stewards representing the individual employees and representatives of Lee. It is clear from the evidence that Lee had resolved to close the factory and on 19 March 1999 various individual employees were handed their salaries for the week that they had worked, together with leave money. As a result of these dismissals, the dispute was conciliated under the auspices of CCMA but remained unresolved because Lee did not attend.
Certain individual applicants were re-employed - Numsa's case was that these individual applicants were selectively reemployed by Lee and/or South Sound and that Lee continued to operate 'in a clandestine manner' including operating at night and, at times trading as South Sound with the employees it had reemployed. There was confusion as South Sound continued to conduct the business that previously had been conducted by Lee prior to the dismissal of the employees. Numsa argued that by virtue of his controlling interest in Lee and South Sound, Chen Hsung Lee was, at all material times an employer as defined in the LRA of the individual employees. The Labour Court ruled (and it was not disputed on appeal) that Lee had dismissed the individual employees in both a procedurally and substantively unfair manner. But the Labour Court did not find that there was joint and several liablity.
This case was an appeal to the LAC against the decision that South Sound and Chen Hsung Lee were not jointly and severally liable together with Lee for relief afforded to the dismissed employees. The LAC held that in the absence of any further evidence as to how employees operated interchangeably between the corporate entities, there was no justification for invoking the principle of piercing the corporate veil, a principle which must be used sparingly.
The LAC's approach in this case can be contrasted to earlier cases where there was a greater willingness to pierce the corporate veil where corporate personality was being abused. But this case affirms the principle that in order for a court to 'pierce the corporate veil' to identify the true employer, there must at least be some misuse or abuse of the distinction between the corporate entity and those who control it, which results in an unfair advantage being afforded to the latter.
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December 2012 / January 2013