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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 the consequences of the acting appointment. We also look at three new cases: the first looks at whether an employer can hold a second disciplinary hearing when the disciplinary procedure has not been followed. The second is a reminder of the importance of 'joinder', in how unfairly dismissed employees enforce their rights against a buyer of the business. The third looks at whether an employee in a franchised business enjoys s 197 rights when the identity of the franchisee changes.

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Holding a second disciplinary hearing

What happens when a mistake is made in the disciplinary process? Can the employer cancel what has happened and start again? Look at these facts:

An employee at Toyota was dismissed for "effecting an unauthorised repair to a company vehicle". In terms of the employer's disciplinary code, making an unauthorised repair to a vehicle warranted dismissal even for a first offence. According to the company, the rule was important because when a leased vehicle was resold to a third party the company had to provide a complete history of the vehicle, and obviously if it was unaware that an unauthorised repair had been done, it might prejudicially affect its reputation and compromise the safety of the vehicle.

The employee's line manager had issued him with a written warning for making unauthorised repairs to the vehicle. He took this course of action because he did not regard it as a serious case and the employee had not made any attempt to hide the damage. When this came to the attention of the industrial relations department, it advised the employee that the decision relating to the matter had been reviewed and set aside, and that a hearing would be convened with an independent presiding officer.

The employee objected to the enquiry proceeding, arguing that he was being subject to double jeopardy by being disciplined for something for which he previously been issued with a warning. His protest was to no avail and the chairperson proceeded with the enquiry. In dismissing the employee, the chairperson was clearly influenced by the notion that any deviation from the recommended sanction of dismissal would erode the severity attributed by the company to this kind of misconduct.

The employee appealed against the finding on the basis that the disciplinary process had been procedurally unfair and that he had been unfairly subjected to a second disciplinary process in respect of the same misconduct. The appeal was dismissed.

At the CCMA, the employer's justification for holding the fresh enquiry after the employee had already been issued with the warning, was twofold. Firstly, the line manager had not advised the IR department that he was intending to deviate from the guideline on the sanction of dismissal for the misconduct in question. Secondly, by failing to dismiss the employee, the line manager had not followed the recommended sanction of dismissal contained in the code. The arbitrator found that neither of these justifications were sufficient to warrant the fresh enquiry which led to the employee's dismissal, and ordered the company to retrospectively reinstate the employee to the date of his dismissal.

On review at the Labour Court in the case of Toyota S.A. Motors (Pty) Ltd v Commission for Conciliation Mediation and Arbitration and Others (D 317/10, D276/10) [2012] ZALCD 7 (6 June 2012) it was held that the holding of a fresh enquiry, in the circumstances, was not procedurally unfair and did not result in the employee's dismissal being substantively unfair for that reason.

This judgment is not, however, a blank cheque to employers to hold second enquiries every time the sanction is not to the liking of senior management. Rather this case is authority for a narrower principle: It will be fair for an employer to conduct a second enquiry where a line manager, without authorisation, deviates from the ordinary sanction and deprives the employer of the opportunity to act consistently.

Joining the new employer to the dispute against the old employer

This next case is one of a changing employer identity under s 197 of the LRA and of employees trying to enforce their rights against the new employer without ever having joined it as a party in the case. 'Joinder' is a legal term which refers to the compulsory joining of another party to the case, where the other party has a direct and substantial interest in the outcome of the case.

The sequence of events is important. During July and August 2005, a company (the old employer) embarked on a retrenchment process and in December 2005 dismissed certain employees for operational requirements. The employees referred a dispute to the Labour Court. During March 2006, the business of the old employer was sold as a going concern to another company. During August 2007, the Labour Court ordered that the employees be reinstated by the old employer. In September 2009, the LAC dismissed an appeal by the old employer against the reinstatement order. During May 2010, the employees brought an application in which they sought to substitute the new employer as the judgment debtor in the reinstatement order; hence the proceedings in the LAC which were finally decided in December 2012, seven years after the dismissals!

These facts raised this issue: Is the effect of s 197 of the LRA to automatically effect a joinder or substitution of the new employer as a judgment debtor in relief obtained against the old employer after the s 197 transfer? Not so, said the LAC in Ngema and Others v Screenex Wire Waring Manufactures (Pty) Ltd and Another (JA 1/2012) [2012] ZALAC 43 (12 December 2012). This judgment confirmed that it is a principle of our law that interested parties should be afforded an opportunity to be heard in matters in which they have a direct and substantial interest. The new employer had not been given this opportunity, and the LAC declined to subsequently substitute the new employer as the judgment debtor in the reinstatement order already granted.

While reinstatement may be the default position, s 193 (2) of the Act provides for circumstances where the Labour Court may refuse to reinstate or re employ the employees in question. This means that the new employer, at the least, was entitled to be heard on the specific question of relief. The appellants' proper course of action should therefore have been to ensure that the new employer was joined to the proceedings so that it could be heard on a matter in which it had a direct or substantial interest, namely the appropriate relief.

This case is a reminder that employees cannot assume under s 197 that a court order granted against the old employer after the s 197 transfer, will be automatically enforceable against the new employer without ever having instituted proceedings against the new employer. They need to proceed against the new employer in order to enforce their claim, by joining the new employer to these proceedings as a result of it having a direct and substantial interest in the case.

Do franchise agreements fall outside the scope of s 197 of the LRA?

The crisp question in the LAC case of PE Pack 4100 CC v Sanders and Others (PA 08/10) [2013] ZALAC 1 (22 January 2013) was whether s 197 of the LRA - dealing with the transfer of businesses - applies in a case of franchise agreements. (To keep track of the many parties, we have in this case retained the terms respondent and appellant).

The second respondent (Cel C) is a cell phone service provider which sells airtime contracts, accessories, pre-paid starter packs, handsets and renewals to members of the public. It has a business model in terms of which it develops its business on a franchise basis. The third and fourth respondents were franchise operations of the second respondent. Cel C cancelled the franchise agreements with the third and fourth respondents with effect from 30 April 2010, and concluded a franchise agreement with the appellant which was effective from 1 May 2010.

Cel C remained the lessee of the business premises in which the appellant conducted its business. The furniture and fittings on the business premises also remained Cel C's property. The stock on the business premises, which remained the property of the third and fourth respondents, was not transferred by them to the second respondent but was removed from the business premises upon the cancellation of the franchise agreements.

After the cancellation of the franchise contracts, an employee (the first respondent, Adam Sanders) of the third respondent was advised by the managing director of third and fourth respondents, to enter into consultations with him regarding retrenchment. Mr Sanders then consulted his attorney, who approached Cel C, demanding an acknowledgement that it accepted that s 197 of the LRA applied and that his employment contract would automatically be transferred to the new franchisee. Cel C submitted that it was not buying back the franchise operations from Mr Sanders' employers. In its view, it had merely terminated the franchise as it was entitled to do in law; hence s 197 was inapplicable.

Mr Sanders on the other hand argued that the new franchise holder was bound by the provisions of s 197 and that there had been a transfer of the business from the third and/or fourth respondents to the new franchise holder (the appellant). Accordingly s 197 of the LRA afforded him protection.

The Labour Court agreed with Mr Sanders and ordered that the takeover of the businesses was declared to constitute the transfer of businesses as going concerns under s 197 of the LRA. As a consequence, Cel C was declared to have automatically taken Mr Sanders into its employ with effect from 1 May 2010 on the same terms and conditions as those which previously applied to his employment with the third and fourth respondents.

It was against this decision that the appellant approached the Labour Appeal Court. The LAC in a majority judgment (2/1) set aside the LC judgment and held that upon the termination of a franchise agreement, the joint venture between franchisor and franchisee dissolves, with the franchisor retaining the assets. The franchisee's right to carry on the franchise business comes to an end. The granting of a fresh franchise to another party is not a transfer in terms of s 197 of the LRA but a new joint venture business between the franchisor and the new franchisee.

The LAC pointed out that in this case, no transfer of infrastructure took place. The franchisor continued to control the process. The franchisee operated at the behest of the franchisor and accordingly, when the franchise agreement was terminated and a new agreement was entered, no transfer of a business as a going concern had taken place. This is in contrast to the facts in the case of Aviation Union of SA & another v SAA (Pty) Ltd & others CCT 08/11 [2011] ZACC31.

The lesson of this case is that employees of franchisees are exposed to much greater vulnerability than employees in conventional businesses. The LAC warned that great care must be taken before applying the 'outsourcing' jurisprudence to a franchise operation. The reason lies in the peculiar nature of a franchise agreement.


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Bruce Robertson
February 2013
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