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OCTOBER 2008 PUBLIC NEWSLETTER


Worklaw is a subscription based labour law service developed by leading South African labour lawyers and arbitrators. Worklaw gives you all you need to manage labour law at the workplace. Go to www.worklaw.co.za

Worklaw subscribers receive a monthly newsletter containing commentary on the latest labour law cases and trends. This newsletter contains an article on new employee and trade union rights in terms of the proposed new Companies Act which was approved by Parliament in late September 2008.

We also look at three new cases: the first dealing with that often difficult dividing line between an employee and independent contractor. The second deals with the time, in pre-retrenchment processes when the obligation to consult is triggered in a retrenchment situation. The third deals with compensation for unfair suspension.

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

LATEST CASES

Employee or independent contractor?

Consider these facts: An employee was employed by the SANDF until he was retrenched. In terms of the severance agreement and regulations then in force, the employee could not thereafter be lawfully employed by the SANDF or any of its service providers. SITA (State Intelligence) then approached the employee with a proposal that he should work for it. Since both were aware that an employment relationship would be unlawful, they devised a scheme in terms of which the employee would be employed by a closed corporation, and would render services to SITA through that entity.

When SITA lost certain contracts with the SANDF, it terminated its relationship with the closed corporation and with the employee. A CCMA commissioner ruled the employee had not been employed by SITA. On review, the Labour Court held that the employee was an employee, that he had been unfairly dismissed, and that he was entitled to compensation. The matter was then referred by SITA on appeal to the Labour Appeal Court.

In State Information Technology Agency (SITA) (Pty) Ltd v CCMA & others (2008) 17 LAC 1.11.23 the Labour Appeal Court noted that the major obstacle confronting SITA in challenging the existence of an employment relationship was the judgment in Denel (Pty) Ltd v Gerber [2005] 9 BLLR 849 (LAC), in which the Court had adopted a “reality test” when determining whether a person whose services were engaged through the medium of a CC was an employee. In the light of that judgment, there are three main criteria for the existence of an employment relationship:

1. the principal’s right to supervise and control;
2. the extent to which the person providing the service forms an integral part of the employer’s organisation;
3. the extent to which the service provider is economically dependent on the employer.

Applying those criteria, the Court held that the employee provided his services alone through the conduit of the CC, which exercised no control over him. The working relationship was therefore between SITA and the employee, who formed part of SITA’s organisation. The CC was nothing more than a device to facilitate the employee working for SITA and to circumvent legal problems that stood in the way of him being engaged as an employee. Furthermore, it was clear that the employee was economically dependent on SITA.
SITA`s appeal was accordingly dismissed with costs. What this case reinforces is that the courts do not hesitate to “lift the veil” to determine the true nature of the relationship between the parties. Despite how the parties to a working relationship attempt to describe it (eg as an independent contractor relationship), the courts will use the Denel v Gerber criteria to determine whether an employment relationship exists.

Triggering the obligation to consult in a retrenchment

Section 189(1) of the LRA provides that when an employer contemplates dismissing one or more employees for reasons based on the employers operational requirements, the employer must commence a process of consultation. But when can it be said that the employer “contemplates” dismissal as opposed to exploring other forms of restructuring which may not involve dismissal?

This issue arose in the recent case of Continental Tyre SA (Pty) Ltd v NUMSA (2008) 17 LAC 1.11.31. The employer made a proposal to transfer employees from one department to another and commenced negotiations with two trade unions with a view to altering shift hours. When the affected employees refused to accept transfer, the employer issued notices in terms of section 189 of the LRA that it was contemplating retrenchments in the two departments.

At the same time there was a dramatic drop in the international demand for tyres, which added impetus to the employer’s desire to change the shift system, and required possible retrenchment in other departments. The employer issued notices in terms of section 189A to consult on possible retrenchments elsewhere in the plant. This took the total number of possible retrenchments over 50, meaning that the employer was arguably obliged to follow the s 189A procedures in respect of the initial retrenchments contemplated as well. Remember also that it is possible to strike in the case of a s189A retrenchment. The trade union argued that, by splitting the retrenchment process into “segments” and keeping the numbers of employees in one segment below the threshold set by section 189A, the employer was seeking to subvert the workers’ rights – including the right to strike – under the latter provision.

The Labour Appeal Court noted that in terms of the current LRA, employers are entitled to consider the possible retrenchment of employees on their own, without consulting unions. The employer was still considering several alternatives to retrenching employees in the rest of the workforce when it issued the section 189A notices. It was argued that it could not be said that, when it issued the section 189A notices, the employer had yet reached the stage of ‘contemplating’ retrenchments, as that phrase is properly understood. On the other hand, the section 189 process had almost reached its conclusion when the section 189A notices were issued. This meant that, on the facts, the two processes had to be treated as distinct. The Court added, however, that an employer may not be entitled to pursue section 189 and section 189A processes in tandem where the former process has just commenced and the employer then contemplates retrenching a greater number of employees.

The principle that can be drawn from this case is this: The contemplation necessary to trigger section 189 and section 189A of the LRA does not occur when the employer initially considers alternatives to dismissal. Where retrenchments are not even upon the “contemplative agenda” there is no obligation to consult. It is only once the alternatives have been discounted and the employer considers a process of dismissal that there is an obligation to consult.

Compensation for unfair suspension

An employee was suspended and issued with a final warning by the employer for 'gross negligence / dishonesty' in that he had been the last person present in a server room when an outage occurred which caused the employer financial loss. The finding of the CCMA was that the final warning and suspension constituted an unfair labour practice. But even if the suspension was unfair, should an employee be compensated when the suspension was on full pay? Is an employee sufficiently ‘tainted’ by suspension to justify compensation?

In SA Post Office Ltd v Jansen van Vuuren NO & others (2008) 17 LC 1.11.36the Labour Court confirmed that the only rationale for suspension is the reasonable apprehension that the employee will interfere with investigation or repeat the misconduct. It follows that it is only in exceptional circumstances that an employee should be suspended pending a disciplinary enquiry. The court held that suspensions have a detrimental impact on the affected employee and may prejudice his or her reputation, advancement, job security and fulfilment. It is therefore necessary that suspensions are based on substantive reasons and fair procedures are followed prior to suspending an employee.

When it came to the matter of compensation, the court held that an arbitrator must weigh the unfair labour practice by the employer against the loss that the employee suffered as a result, including the extent to which the employee’s right to a fair labour practice was infringed. This entails looking also at the length of period of the suspension and the procedure that led to the issuance of the written warning against the employee.

In this case the employee suffered no actual financial loss as a result of the suspension. However, the court did hold that employers should refrain from hastily suspending employees when there are no valid reasons to do so. Where possible, the employer should offer an employee an opportunity to be heard before placing him or her on suspension. In all, the compensation must address the unfair practice and deter future violations. Fair compensation in this case was assessed at the equivalent of one month's salary.

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Bruce Robertson
October 2008
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