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Newsflash

LAC rules on 'discipline after resignation'

The Labour Court has in the past differed in its approach to the consequences of an employee resigning 'with immediate effect' despite a notice requirement in the employment contract, and whether the employer could proceed with disciplinary action during the remaining notice period. Worklaw subscribers will be pleased to hear that the Labour Appeal Court in Standard Bank of South Africa Ltd v Nombulelo Chiloane (JA85/18) [2020] ZALAC 43 (10 December 2020) has now given its views on the matter, and has corrected what we had previously argued was an incorrect and impractical approach adopted by the Labour Court.

The history

The LC in 2016 in Kalipa Mtati v KPMG Services (Pty) Ltd J2277/16; 18 October 2016 found that when an employee resigns 'with immediate effect' despite a notice requirement in the employment contract, the employer loses the right to discipline that employee also with immediate effect. At the time, we thought the judgment was wrong and said so - see Worklaw's November 2016 subscriber newsletter.

We thought the approach in Kalipa Mtati had been corrected in the subsequent LC judgment in Coetzee v Zeitz Mocaa Foundation Trust and Another (C517/2018) [2018] ZALCCT 20; (2018) 39 ILJ 2529 (LC) (14 June 2018) discussed in Worklaw's April 2019 subscriber newsflash. The judgment confirmed that an employee's contract of employment only comes to an end by way of resignation, at the end of the notice period. The employer is entitled to exercise its contractual rights during the notice period if it wishes to, including conducting disciplinary proceedings during this period.

We thought that was the end of the matter - and then along came the LC's judgment in Naidoo and Another v Standard Bank SA Ltd and Another (J1177/19) [2019] ZALCJHB 168 (24 May 2019). The LC disagreed with the view expressed in Coetzee v Zeitz Mocaa Trust and said the employer may only proceed with the disciplinary hearing after approaching court for an order of specific performance in relation to the employee serving out the required notice period. As Standard Bank had not sought such an order, the LC found that the employee's contracts of employment had terminated at the time they resigned with immediate effect, despite this being in breach of their contracts. From that time the Bank no longer had jurisdiction over the employees, and the LC interdicted the Bank from proceeding with the disciplinary hearings against the employees.

We criticised this judgment in Worklaw's August 2019 subscriber newsflash, suggesting that is was completely impractical. Very few employers will go to the trouble and be prepared to risk the cost of an urgent court application for specific performance, with the LC having acknowledged in that judgment that an order for the specific performance of a contract of employment would not normally be granted.

Thankfully the LAC's judgment in another matter involving Standard Bank - Standard Bank of South Africa Ltd v Nombulelo Chiloane (JA85/18) [2020] ZALAC 43 (10 December 2020) - has now overturned the previous incorrect approach adopted by the LC. Before analysing the LAC's reasoning, let's look briefly at the facts of this case.

Facts of the case

The employee was given notice to attend a disciplinary hearing, having allegedly cashed a cheque without following proper procedures. The cashed cheque was fraudulent, which caused the employer a loss of just under R30 000.00.

The employee resigned "with immediate effect" on the day she received the notice to attend the disciplinary hearing. She was told she was required to serve a four week notice period as provided in her contract of employment, that she was suspended, and that the hearing was set to continue during her notice period.

The employee took the view that her letter of "resignation with immediate effect" ended the employment relationship and as such, the employer was not entitled to proceed with the hearing. The chairperson rejected the argument and decided to proceed. At this point, the employee and her attorney left the hearing and it continued in her absence. The employee was found to have committed misconduct and was summarily dismissed.

The employee brought an urgent application in the Labour Court seeking an order declaring her dismissal "null and void" and interdicting the employer from listing her name on the Banking Association of South Africa's central database "the Register for Employees Dishonesty System" (REDS).

The LC held that once an employee resigns with immediate effect, the employment relationship comes to an immediate end and the employer has no right to insist that the employee serves the notice period. The LC declared her dismissal to be "null and void".

This decision was taken on appeal to the LAC.

LAC's views

The LAC emphasised that employment relationships are governed by contract and statute (the BCEA requires a notice period even if this has not been agreed between the parties). An agreement between the parties (as in this case) that notice is required to terminate their relationship, has meaning. It must be complied with, unless the party receiving the notice of termination does not seek to enforce that term of the agreement. The LAC stated clearly that the argument that an employee who resigns with immediate effect cannot be compelled to continue working the notice period, because resignation is a valid unilateral act, is "misconceived".

The LAC confirmed that where termination of employment is in breach of a contractual term, the terms of the contract remain valid and binding unless the receiving party (the employer in this case) elects not to act on it. Resignation that is not in compliance with contractual notice requirements does not validly terminate the contract of employment unilaterally: it is only a resignation that complies with notice requirements that serves unilaterally to terminate the contract.

The contract and the reciprocal obligations contained in it only terminate or take effect when the specified notice period runs out. Alternatively, absent a contractual term, the parties are bound to the notice periods provided in the BCEA.

On this basis the LAC concluded that the employee's resignation with "immediate effect" was of no consequence, because it did not comply with the contract which governed her relationship with her employer. The employer was thus correct to read into the resignation a four week notice period, within which period it was free to proceed with the disciplinary hearing.

Our comment

Whilst this judgment may have limited impact - most employers are only too happy when an employee resigns facing disciplinary charges, thereby eliminating the possibility of a potentially drawn out and costly dismissal dispute - we are pleased that the contentious issue of the consequence of an employee resigning "with immediate effect" in breach of a contractual notice requirement, has now been put to bed.

This judgment will assist those employers who do have good reason to pursue disciplinary action during a notice period, despite an employee having resigned. For example, banks may wish to do so in respect of an employee committing dishonest misconduct, with the intention of then listing the employee's name on REDS (the SA Banking Association's "Register for Employees Dishonesty System").

Bruce Robertson
January 2021
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