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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 which looks at 'Weighing up mitigating and aggravating circumstances' in the light of a recent LAC judgment dealing with this issue. We also discuss three new cases: The first case asks when does a restraint of trade agreement become unreasonable? The second case deals with the potentially difficult issue of incapacity: poor work performance, and considers what fairness requires in setting an employee time to improve performance. The third case touches on the potential difficulties that may arise when an employer offers an employee alternative sanctions - dismissal or demotion.
This public newsletter is a free edited version of the subscriber newsletter.
When does a restraint of trade agreement become unreasonable?
Our law holds that a restraint of trade agreement is valid unless it is unreasonable. What was unreasonable was put to the test in the recent LAC case of Labournet (Pty) Ltd v Jankielsohn and Another (JA48/2016)  ZALAC 7 (10 January 2017). This case is useful in understanding how our courts decide whether or not a particular restraint is unreasonable and whether it should be enforced.
Lets consider the facts of this case: the employee was an industrial relations consultant in Labournet's Bloemfontein branch. On 26 January 2016, he gave written notice of resignation and notified his employer of his intention to take up employment elsewhere with SEESA. Before starting employment, the employee and Labournet had concluded a written contract of employment which included a confidentiality clause and a very extensive restraint of trade agreement. The areas to which the restraint applied were the whole of the Free State and Northern Cape Provinces and the restraint was for 3 years.
Labournet sought to apply the restraint and brought an urgent application to interdict and restrain both the employee and the prospective new employer SEESA. Labournet contended that the employee had been "exposed to sensitive and confidential information concerning the applicant's clients, pricing, modus operandi and marketing strategies, and [has] in fact built up a detailed and close relationship with such clients". There was, therefore, the risk that such information would be disclosed to and be utilised by its competitor. The employee on the other hand said that he occupied "the lowest possible" position in the scheme of Labournet's business. He only had one and a half day's training. He then completed the probationary period and passed an oral examination at the end of that period.
The Labour Court found that Labournet failed to put convincing evidence before it to show what strategies, documentation, modus operandi, specifications or services supplied by Labournet could be regarded as confidential and why these would be useful to SEESA. The Labour Court also found that there was no convincing evidence placed before it to show that the employee "had a special relationship with some clients". The LC then embarked on a balancing of the respective interests: it found that the weight favoured the employee's interests to be economically active and productive, as opposed to Labournet's interests. The LC accordingly dismissed Labournet's application with costs.
The LAC on appeal confirmed the following useful principles:
- the reasonableness and enforceability of a restraint depends on the nature of the activity sought to be restrained, the purpose for and duration of the restraint, the area of the restraint, as well as the parties' respective bargaining positions.
- A restraint is only reasonable and enforceable if it serves to protect an interest, which, in terms of the law, requires and deserves protection. The list of such interests is not closed, but confidential information (or trade secrets) and customer (or trade) connections are recognised as being such interests.
- To seek to enforce a restraint merely in order to prevent an employee from competing with an employer is not reasonable.
The LAC reaffirmed that-
- public policy requires that workers should be free to compete fairly in the market place, to sell their skills and know-how to their own best advantage; and
- the enforcement of a restraint which has no objective other than to stifle such free and fair competition is unreasonable and contrary to public policy.
What is a reasonable time to give an employee to get to the required standards before employment can be terminated for poor performance?
This depends on the facts of each situation but practice is guided by Item 9 of the Code of Good Practice: Dismissal, which requires that any person determining whether a dismissal for poor work performance is unfair should consider, if the employee did not meet a required performance standard, "whether or not the employee was given a fair opportunity to meet the required performance standard".
The case of Damelin (Pty) Ltd v Solidarity obo Parkinson and Others (JA48/15)  ZALAC 6 (10 January 2017) looks at whether a 'fair opportunity' to improve was given to the employee. The employee commenced employment as the general manager of Damelin's Boksburg campus on 3 January 2011. His contract of employment specified that: 'The attainment of performance goals determined by the employer, from time to time shall be periodically evaluated by the employee's supervisor, continued non-attainment of performance goals may result in the termination of employment.'
The general manager failed to reach required targets and as a result he was charged with poor work performance and called to attend a disciplinary inquiry. He was subsequently dismissed and referred a dispute to the CCMA. At arbitration, the commissioner considered the Dismissal Code on Good Practice and found that he had been given more than six months to improve his performance, that higher standards are expected of senior employees, and that the letters of warning given to him were sufficient, even if they were not formal warnings. For these reasons the commissioner found that dismissal was the appropriate sanction.
The general manager took the award on review to the Labour Court and it was set aside. The basis of the LC's decision was mainly procedural because Damelin had deviated from its own procedures, the 'warning' letter was ambiguous and was not regarded as a proper warning, and in terms of Damelin's own code dismissal could only be considered as a fourth step.
On appeal, the LAC regarded the revised targets set in management's letter dated 1 February as the 'final warning', giving the general manager less than 1 month to meet the deadline or be dismissed. The LAC also took note of the representations made by the general manger that the targets set were unrealistic and unachievable, submitting that management had over calculated the potential number of school leavers in the area, and given that a neighbouring campus had reopened with lower fees, increased competition, and that students were increasingly turning to technical subjects, whereas the Boksburg campus offered mainly management and academic programmes. He also submitted he had been given no counselling or performance improvement training, merely placed on terms to achieve unrealistic deadlines by specified dates.
The LAC noted that the onus rested upon Damelin to prove that the dismissal was procedurally and substantively fair, and concluded that it had not done so. It found that there was insufficient evidence linking the failure to meet the specified targets as being the poor performance of the general manager. The LAC concluded that the 27 days within which to achieve the reset final target by end February 2012 was inadequate and showed that "either the period was too short or that the target was incapable of being achieved". The LAC confirmed that although a senior employee is expected to be able to assess whether he is performing according to standard and accordingly does not need the degree of regulation or training that lower skilled employees require in order to perform their functions, an employer is not absolved from providing such an employee with resources that are essential for the achievement of the required standard or set targets.
For the above reasons, the LAC rejected management's appeal. This judgment alerts us to the need to be realistic about the time within which an employee must improve her/his performance, before it may be fair to dismiss for not having done so. It is also not good enough just to place the employee on terms to achieve by a certain date, without providing the employee with the resources necessary to reach the required standards. And finally it is necessary to provide evidence that the failure to meet the required targets is due to that person's poor work performance.
Offering an alternative sanction - dismissal or demotion
Sometimes the chairperson of a disciplinary hearing has some doubt about whether a work related offence is serious enough to justify dismissal and yet feels that person cannot continue in his/her current position, and so gives the employee a choice: dismissal or demotion. For the employee the cost of retaining employment is a lower position. This either/or approach can create difficulty down the line, when the CCMA or Labour Court has to assess the fairness of the sanction imposed.
Section 193(2) of the LRA says the following:
The Labour Court or the arbitrator must require the employer to re-instate or re-employ the employee unless-As it stands, reinstatement is the default remedy unless one of the 4 circumstances above applies. Last year we reported on the case of South African Revenue Service v Commission for Conciliation, Mediation and Arbitration and Others  ZACC 38. In that SAR's case, the chairperson of the disciplinary enquiry imposed a sanction, including a final warning, on the employee for acts of extreme racism, and SARS subsequently changed the sanction to dismissal. This change was found to be unfair at arbitration and the arbitrator ordered the employee's reinstatement. While the case is significant in dealing with workplace racism, the Constitutional Court held that the commissioner had failed to apply section 193(2) and had failed to take into account evidence that the reinstatement or re-employment of the employee would have been intolerable. The ConCourt in that case substituted the arbitrator's reinstatement order with an order for compensation.
- the employee does not wish to be re-instated or re-employed;
- the circumstances surrounding the dismissal are such that a continued employment relationship would be intolerable;
- it is not reasonably practicable for the employer to re-instate or re-employ the employee; or
- the dismissal is unfair only because the employer did not follow a fair procedure.
In a recent case these were the facts: In 2007 the Department of National Treasury employed a Director: Facilities Management, whose duties included the procurement of goods and/or services. On 19 April 2011, the Department charged the director with 11 counts of misconduct relating mainly to non-compliance with procurement procedures and the failure to disclose her interests relating to certain transactions and the receipt of a gift.
The disciplinary hearing was chaired by an independent advocate, who was engaged by the Department. The director was legally represented throughout the process. The chairperson found her guilty of nine of the 11 charges. The chairperson imposed a sanction in respect of each charge - and then imposed an overall sanction in respect of all the charges, which was "dismissal with an alternative of demotion".
The director accepted the lesser sanction of demotion. Despite this, the Director-General of the Department informed her that she was "discharged from the Public Service, in terms of section 16B(1) of the Public Service Act, 1994 (as amended), on account of misconduct", having been found guilty of the charges.
The director declared a dispute of unfair dismissal and the matter, which had been referred to the GPSSBC, ultimately went to arbitration. The crux of her complaint was that the Department could not substitute the chairperson's lesser sanction of demotion with a dismissal and that such a substitution was inherently unfair. She sought reinstatement. The arbitrator held that the sanction of demotion in accordance with the chairperson's ruling should stand, concluding that the unilateral decision of the employer to change the chairperson's decision after the director elected to be demoted, rendered her dismissal unfair. The arbitrator reinstated the director subject to the demotion ordered by the chairperson.
The Department brought an application in the Labour Court to review and set aside the arbitrator's award. The LC found that the arbitrator's award did not fall within the "band of reasonableness" as it focussed on the correct sanction to be applied, as opposed to determining whether the dismissal was fair. The LC remitted the matter back to the GPSSBC for a re-hearing.
The director appealed the Labour Court's judgment. The LAC in Moodley v Department of National Treasury and Others (JA13/2016)  ZALAC 5 (10 January 2017) confirmed the LC decision. The LAC concluded that the arbitrator failed to have regard to s193 of the LRA before making the order of reinstatement, which was a reviewable irregularity that constituted a failure to apply her mind to the issues. The director's appeal was accordingly dismissed.
This case - and others before it - do not prohibit an either/or sanction in appropriate circumstances. This case deals with the situation where an employer decides on dismissal even though another option was initially given to the employee, and considers how an arbitrator may rectify the matter after deciding that an employer had acted unfairly. The law is now clear: An arbitrator, having decided that a sanction of demotion is an appropriate alternative to dismissal, must take into account the factors set out in s 193 of the LRA before granting re-instatement. If there is credible evidence that a continued employment relationship would be intolerable, an arbitrator may not overlook that evidence.
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