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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 what is known as a “second generation” transfer – where an outsourced company does not continue to render services to the ‘old’ employer that transferred that portion of its business as a going concern, and where a new service provider takes over those services. We look at three cases in this newsletter: the first case deals with what lawyers call the ‘fiduciary’ duty of employees to protect the interests of the employer and not to make secret profits. The second case looks at the right to legal representation at the CCMA. The third case looks at the consequences of allowing an employee to work after a fixed-term contract has expired.
This public newsletter is a free edited version of the Worklaw subscriber newsletter.
Fiduciary duty, secret profits and protecting the employer’s interests
The recent SCA case Volvo v Yssel (2009) 30 ILJ 2333 (SCA) tells us much about what lawyers call the ‘fiduciary duty’ of employees (and others) to protect the employer’s interests and to refrain from making secret profits at the employer’s expense.
When it commenced operations in 2000, Volvo was looking for a manager in its information technology division. A personnel placement agent introduced Volvo to Mr Yssel and Volvo decided to appoint him to the position. Yssel did not want to enter into direct employment with Volvo. He preferred instead to be employed by Highveld, a labour broker, with which he was then associated and which would assign him to provide his services to Volvo. Volvo reluctantly accepted that arrangement and for the next five years or so Yssel worked for Volvo on that basis.
In making the necessary arrangements, Volvo had no direct contact with the labour broker. Volvo dealt with Yssel who in turn dealt with the boker. The relationship between Volvo and the broker was regulated by sequential written agreements. The effect of the agreements, essentially, was that upon receipt of monthly invoices Volvo would pay the broker a fee for Yssel’s services, and the broker would in turn be responsible for remunerating Yssel.
By 2004 there were six other personnel in the information technology division. They were similarly employed by labour brokers who assigned their services to Volvo. In about the middle of 2004 Yssel approached the Human Resources Manager of Volvo and told her that some of the personnel were unhappy with their labour brokers and that he could arrange for all the personnel to transfer to Highveld at no extra cost to Volvo. Yssel suggested the same to all the personnel concerned, pointing out that their remuneration could be more favourably structured if they were to transfer to Highveld. Volvo and the personnel were agreeable, and Yssel attended to making the necessary arrangements. Volvo had no direct contact with Highveld in making these arrangements and dealt at all times through Yssel who acted as what he called a ‘facilitator’ or ‘intermediary’ between Volvo and Highveld. Once the new arrangements were in place Highveld would send invoices to Yssel each month for the services of the various personnel and Yssel would submit them for payment to the relevant department of Volvo.
Unbeknown to Volvo and to the personnel concerned, a large part of each monthly payment that was being made by Volvo was ending up in the pocket of Yssel. What Yssel had not disclosed to Volvo, nor to the personnel concerned, was that he had agreed that he would be paid what he called a ‘commission’ if he arranged for the personnel to transfer to Highveld. He had also agreed that the commission should not be discussed with the personnel or with Volvo.
Investigations by an internal auditor of Volvo revealed that from August 2004 to January 2006 Volvo paid R1 967 900 to Highveld for the services of the personnel (excluding Yssel) of which they received R1 087 650. From the balance of R889 250 Highveld had deducted its own commissions of R114 143 and the balance of R775 107 had been paid to Yssel.
Volvo sued Yssel in the High Court at Johannesburg for payment of that amount, alleging that it had been earned in breach of a fiduciary duty that he owed to Volvo to act in its interests and not in his own. The court found that Yssel indeed owed fiduciary duties to Volvo, but only in relation to the exercise of the specific functions that were assigned to him. Because his functions did not extend to the recruitment, employment or acquisition of staff, so the court reasoned, he was under no duty to act in the interests of Volvo when he engaged in the activities that caused this dispute. The high court dismissed Volvo’s claim, and Volvo appealed against that order.
The SCA had no difficulty in establishing that a fiduciary responsibility arises from the position to which a person is appointed, rather than the nature of the contractual relationship in that appointment. The SCA had no doubt that Yssel was in a position of trust when he engaged himself in the matter, and was not entitled to allow his own interests to prevail over those of Volvo. He was obliged in those circumstances to disgorge his secret commissions and the appeal succeeded.
What we learn from this case is that the fiduciary duty flows not only from an employment relationship but extends to that of the ‘independent contractor’ or outsourced worker, covering not only the functions in the person’s job description but also everything covered by the person’s position of trust.
The right to legal representation at the CCMA
An employer sought an order from the Labour Court restraining the CCMA from continuing arbitration proceedings pending the outcome of an application to review the commissioner’s decision not to allow legal representation. The reasoning was simple: if the commissioner has made an unreasonable decision in not allowing legal representation, there will be prejudice if the arbitration continues without legal representation. The Labour Court must, so the reasoning goes, decide first on the legal representation issue.
These were the facts in The Trustees for the time being of the National Bioinfomatics Network Trust v Jacobson & others (2009) 30 ILJ 2513 (LC). The Labour Court confirmed the basic position: The limitation on the right to legal representation is an integral element of a system of expeditious and informal dispute resolution. The default position established by rule 25 of the CCMA rules is that in cases of dismissal for misconduct and incapacity, a party to arbitration proceedings is not entitled to be represented by a legal practitioner unless the commissioner and the parties consent, or the commissioner concludes, after considering specified factors, that it is unreasonable to expect a party to deal with the dispute without legal representation.
Responding to the argument that the CCMA’s decision would cause prejudice, the Labour Court said this overlooked the fact that any disadvantage caused by a lack of legal representation is equally borne by both parties. The commissioner’s primary obligation is to conduct the proceedings with the minimum of legal formality, providing guidance on the conduct of the proceedings to the parties and their representatives where this is appropriate.
In so far as the factual and legal complexity of the dispute is concerned, the court could find nothing in the papers to sustain the argument that the matter was so complex that a failure to intervene at this point by interdicting the proceedings would result in a grave injustice.
The court pointed out that the employer chose to ignore the informal workplace procedures prescribed by the Code of Good Practice and rather conducted a disciplinary enquiry in a form “that would make any criminal court proud”. The judge noted “the profitable cottage industry that has developed from the application of unnecessarily complex workplace disciplinary procedures, and how inimical the actions of some practitioners, consultants, so-called trade unions and employer organisations and the various other carpetbaggers who populate this industry are, in relation to the objectives underlying the LRA”. The Labour Court dismissed this application.
This case illustrates the continuing trend of the Labour Court to move away from a legalistic, overly formal approach to disciplinary hearings and then, at the CCMA, to support effective and timeous proceedings with a minimum of legal formalities. Legal representation at the CCMA cannot be taken for granted. It is not a right and the mood of the Labour Court seems to support CCMA commissioners who refuse to allow it.
When the employer forgets to renew the ‘fixed term’ contract
Three doctors were employed at different times, and collectively they provided over 65 years of service to the Greytown Hospital. There was no dispute that the relationship between them and the Department was an employment relationship. They were described as ‘part-time’ employees required to work a specified number of hours per month for the Department. This they did on an uninterrupted basis for the whole period of their employment. The number of sessions worked over the years varied from approximately 15 to 20 per week, depending on the demand for their services. They were remunerated at the end of each month for the sessions worked. The number of sessions worked by the applicants, to some extent at least, was determined by the number of full-time doctors in the hospital’s employ. The Department issued termination letters to the three doctors. In court the Department contended that the applicants were employed in terms of a fixed term contract and that the contract terminated by the effluxion of time on 31 January 2006. The Department argued that because there was no reasonable expectation of renewal of the contract, there was no dismissal. These were the facts in Owen & others v Department of Health, KwaZulu Natal (2009) 30 ILJ 2461 (LC).
One of the main issues in this case was that, despite the fact that a letter terminating their service had been issued, the three doctors continued to work and were allocated work. What is the legal position in this situation? The Labour Court held that where a fixed-term employment contract is not expressly renewed but the employee is allowed to continue working, there is a tacit renewal of the contract on the same terms but for an indefinite duration. The court called this principle ‘commendable’ but said that each case is fact and context specific, and the application of the principle must account for this. Where there is an alleged implied contract, this is a factual inquiry to be determined on the evidence before the Court.
The lesson of this case is that employers need to be vigilant about enforcing the termination of a fixed-term contract, failing which they will find that the employees will legally continue on an indefinite basis.
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