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Worklaw subscribers receive a monthly newsletter containing commentary on the latest labour law cases and trends. We look at three new cases: the first deals with the test for deciding who the true employer is; the second deals with the consequences of not consulting prior to retrenchment, even in the strike context. The third case deals with when an employee acquires a “reasonable expectation” of renewal of a fixed term contract.

In our article we look at a strategic response to two court decisions about the conciliation stage at the CCMA. The first is that the CCMA or a bargaining council may not dismiss a matter if the applicant fails to turn up at the conciliation hearing. The second deals with whether a commissioner appointed to conciliate a dispute must decide at that stage whether the CCMA has jurisdiction to deal with the matter.

This public newsletter is a free edited version of the Worklaw subscriber newsletter.


Who is the employer?

Test yourself: who is the employer in this story?

An employee worked for the SANDF until he was retrenched and was given a severance package. In terms of the applicable laws and regulations he could not thereafter be lawfully employed by the SANDF. The State Information Technology Agency (SITA) then approached the employee to work for it but both of them knew that any employment relationship between them would not be lawful as SITA is deemed to be part of the SANDF. SITA could not be seen to employ the employee directly.

An arrangement was then made in terms of which Inventus Products CC would employ the employee. In terms of a contract entered into between Inventus and SITA, the employee would provide all necessary services to SITA. The purpose and nature of the contract was for the employee to supply a range of services exclusively to SITA. When SITA no longer required the employee’s services, it informed Inventus that the employee’s contract would end on a specific day and that it will not be renewed.  Inventus notified the employee accordingly.

So who was the employer: SITA or Inventus?

At arbitration it was found that SITA and Inventus were jointly and severally liable to pay compensation to the employee for unfair dismissal as both entities were found to be employers of the employee. On review the Labour Court ordered that only SITA was liable to pay the compensation. SITA appealed and the only issue on appeal was whether SITA or Inventus was the employer. In dismissing the appeal the LAC confirmed the finding of the Labour Court that only SITA was the employer. See State Information Technology Agency (SITA) Pty Ltd v CCMA & others (Case No JA 16/2008).

LAC's reasoning in deciding on the employer:

The LAC said that when a court determines whether there exists an employment relationship, it must work with three primary criteria: (1) An employer’s right to supervision and control; (2) Whether the employee forms an integral part of the organisation with the employer; and (3) The extent to which the employee was economically dependent upon the employer. Using these criteria, the court held that SITA was the only employer. The court followed the decision in Denel (Pty) Limited v Gerber, 2005 (26) ILJ 1256 (LAC) where the LAC adopted a “reality test” to a situation where a company or close corporation is interposed between an employer and an employee. The court was influenced by the idea that a genuinely self-employed person is not economically dependent on their employer because he or she retains the capacity to contract with others. Economic dependence therefore relates to the entrepreneurial position of the person in the market place. An important indicator that the person is not dependent economically is that he or she is entitled to offer skills or services to persons other than his employer. The fact that a person is required by contract to provide services for a single client is a very strong indicator of economic dependence. Likewise depending on an employer for the supply of work is a significant indicator of economic dependence.

For us the significance of this case is that labour courts will not hesitate to investigate the actual employer-employee relationship, regardless of how the parties try to depict that relationship.

The consequences of not consulting prior to retrenchment

In the case of NUMSA & others v Shakespear Shopfitters (Pty) Ltd (2008) 17 LC 5.2.1 employees had embarked on a lawful strike, which they eventually abandoned. However, their attempts to return to work were thwarted by the employer, who locked them out until they agreed to certain conditions. When that did not happen, the employees were retrenched, the employer alleging that the strike had caused it to suffer financial loss which necessitated the retrenchments.

The employees sought a declaration that the dismissals were procedurally unfair. The Labour Court held that the retrenchments were decided upon while the employees were on strike, which meant that no proper procedure was followed. The dismissals were held to be procedurally unfair. The court awarded each of the 44 applicants 10 months' remuneration as compensation, and due to the employer’s conduct, made a costs order against it.

On one issue – the fact that no consultation took place – the outcome of this case is clearly not a surprise. But the tone of the judgment seems to punish the employer because it retrenched in the strike context. The LRA, in s 67(5), anticipates that a strike can have so devastating an impact on a business that an employer can dismiss for operational reasons as a result of the financial distress. In these circumstances, retrenchments, even in the strike context, may be fair – as long as they are preceded by consultation.

We draw this case to your attention mainly because of the judge’s comment that “a complete failure to follow any procedures whatsoever in terms of the LRA constitutes a flagrant disregard for the law.” The direct consequence of this was a heavy compensation order plus an order to pay the costs of the case. This is a reminder that while it is possible to retrench as a result of a strike, it must be done only after meaningful consultation.

Reasonable expectation of renewal of a fixed term contract

One of the attractions to employers of a fixed term contract is that on the expiry of that contract the employment relationship ends automatically, without the need for any kind of hearing. In other words, at the end of the contract the employee is not dismissed, but the contract simply ends. Because the norm in our law is ‘permanent’ employment, fixed term contracts are meant to be used only to meet a specific or unusual need (eg a replacement for an employee on maternity leave; a contract to perform a specific, short-term project etc).

The abuse of the fixed term contract (to avoid disciplinary hearings, to save the costs of benefits etc) has been softened by the principle that an employee can acquire an expectation of renewal of the contract where this expectation is acquired “reasonably”. There have been many cases which try to assess whether the employee did acquire a reasonable expectation or whether it was just wishful thinking.

This debate again arose in the recent case of SACTWU & another v Cadema Industries (Pty) Ltd (2008) 17 LC 8.34.1. An employee had been employed on several fixed term contracts which had been continuously renewed for an unbroken period of four and a half years. When the personnel officer informed her that her contract would not be renewed again she pleaded with the officer to offer her another contract. She was redeployed to another section where she worked until the end of her contract, which was then extended for seven days. At the end of that period it was not renewed. She challenged the termination as an unfair dismissal in terms of section 186(1)(b) of the Labour Relations Act on the grounds that she had had a reasonable expectation that her contract would be renewed.

The court held that the concept of "reasonable expectation", which is not defined by the LRA, includes: (a) equity and fairness; (b) existence of a substantive expectation that the fixed-term contract would be renewed; (c) the employee, subjectively expecting the contract to be renewed or extended, although the expectation need not be shared with the employer; (d) objective factors that support the expectation. In addition to showing the subjective anticipation for the renewal of the contract, the employee has to adduce evidence that points to the objective creation of such anticipation. In other words, reasonable expectation cannot be established by a simple statement of perception or bald averment. The test entails an objective enquiry of determining whether a reasonable employee in the circumstance prevailing at the time would have expected the contract to be renewed on the same or similar terms.

For parties in a fixed term contract there needs to be an awareness of what gives rise to a reasonable expectation – mainly regular renewals of the contract, and indications from managers that there will be renewal. Employers need to prevent these circumstances from arising if the real intention is not to enter into a permanent relationship.


Worklaw is a comprehensive labour law advice and information service, developed by some of South Africa's most experienced labour arbitrators. Worklaw subscribers get free advice from experienced arbitrators via e-mail, can research the law and leading cases, are updated monthly on new cases, trends etc, and can use excellent training material, to name a few of these services. Subscribers are invited to an annual labour law workshop covering the key cases and trends from the past year.

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Bruce Robertson
June 2008
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