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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 work-life balance. We also look at two new cases: the first dealing with what an employer can do faced with an unfair resignation, and the second with the circumstances in which a court can 'pierce the corporate veil' to see who the true employer is.
This public newsletter is a free edited version of the Worklaw subscriber newsletter.
Unfair resignations: what can an employer do?
Employers often voice their frustrations that while the law protects employees against unfair dismissals, there is no real protection for employers when an employee suddenly resigns and leaves without giving notice. If our memories serve us well, there used to be some assistance from the 'old' Basic Conditions of Employment Act which provided that an employee resigning without proper notice was liable for the equivalent of the required notice pay, but that is no more. The definition of an unfair labour practice also isn't helpful - s 186(2) of the LRA is clear: it is about unfair practices committed by the employer, not employee. This frustration arose in the recent case of National Entitled Workers Union v CCMA & others (2007) 28 ILJ 1223 (LAC).
The employer in this case was a trade union. A union official and president of a trade union resigned without giving notice. The union, as his employer, was aggrieved by this resignation and referred the matter to the CCMA on the basis that there had been a violation of the employer's right to fair labour practices. The CCMA ruled that it did not have jurisdiction because it did not amount to an unfair labour practice as defined by the LRA; this was confirmed on appeal to the Labour Court.
The employer was granted leave to appeal to the Labour Appeal Court on the basis that the failure of the LRA and the EEA to provide for the protection of employers against unfair labour practices by employees was unconstitutional. It argued that the employer had no remedy to enforce its rights.
The Labour Appeal Court agreed that the LRA and EEA did not provide an employer with a remedy, but this did not render the LRA unconstitutional. The court regarded the employer's position in the common law as very strong and that the notion of unfair labour practice had been introduced to provide employees with greater protection. The court said that an employer faced with a resignation responds by making a new appointment or could sue the employee for the unlawful resignation, and that there is no need for legislation conferring additional protection. The introduction of legislation giving employers protection against unfair resignations would weaken the already weak position of individual workers and would strengthen the position of the employer, creating a step back in labour relations in South Africa. The court dismissed the employer's case with costs.
What this case does is remind employers that if their operational efficiency will be threatened by the sudden resignation of a strategic employee, they might have no convenient solution. Restraint of trade agreements can stop unfair competition, but if the resigning employee changes the kind of work, they aren't much help. As part of strategic planning, employers should plan for unexpected sudden departures in key positions, whether through resignation or death. Internal succession planning would assist in addressing this problem.
Who is the real employer when a company is involved?
There is a very old legal principle that a company is separate from its shareholders – the law confers legal personality on the ‘shell’ we call a company or corporation. The law has therefore been very reluctant to lift the veil (it’s called ‘piercing the corporate veil’) to see who really is in control or liable.
Of course, the separation between the legal company and the shareholders can be abused. This was found in the recent case of Esterhuizen v Million-Air Services CC (in liquidation) & others (2007) 28 ILJ 1251 (LC). An employee had referred a constructive dismissal dispute to the CCMA in 2001. The employer failed to appear at both conciliation and arbitration hearings. The CCMA found in favour of the employee and awarded compensation. A warrant of execution was issued. When the deputy sheriff tried to execute the writ, he was informed by Mr I., the manager of Million-Air Services Carletonville (Pty) Ltd which had been incorporated in 2003, that the employer of the employee had been liquidated.
The employee applied to the Labour Court to declare that this company was the same business operation at her employer and that it was jointly and severally liable to pay the compensation. She applied also for Mr I, the manager of the company, to be declared her real employer.
The court considered when it was appropriate to pierce the corporate veil to discover who the employer really was. The court found that the liquidation of the employer was a stratagem of Mr I. in a deliberate attempt to thwart the employee’s right to compensation. This conduct was improper, if not fraudulent. The court found that there were policy considerations allowing the corporate veil be pierced to reveal who the true employer was. Mr I. had absolute control over both of the companies involved. He was the common denominator in the employee’s dismissal, the liquidation of the company, and the incorporation of the second company. The court therefore found that the employee’s claim was against Mr I.
This case is a reminder of the following principles:
- A registered company is a legal person distinct from the members who comprise it.
- A court is justified in certain circumstances in disregarding a company’s separate personality in order to fix liability elsewhere, for what is ostensibly an act of the company.
- The focus then shifts from the company to the natural person behind it or in control of its activities, as if there were no dichotomy between such person and the company.
- In this way personal liability is attributed to someone who misuses or abuses the principle of corporate personality.
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