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Contracting out of the provisions of the Labour Relations Act?

“Automatic termination” of the employment contract

extract from the judgment of AC Basson, J in Chilliebush v Johnston and Others (JR1234/08) [2010] ZALCJHB 35 (26 January 2010)

[37] Before I turn to the question more specifically whether or not the respondent was “dismissed” by the applicant, I wish to make a few observations about the question whether an employer and an employee can contractually agree (either in a contract of employment or in the articles of association of a company of which the employee is also a director) that the employment relationship shall automatically terminate in the event of the termination of the employee’s directorship. It is necessary to consider this question in light of the letter dated 8 December 2006 to the respondent in which the applicant suggested that the respondent’s contract of employment was superseded by the shareholders’ agreement and that the respondent’s employment was simultaneously terminated on the termination of his directorship.

[38] Firstly, I am not persuaded by the submission that the shareholders’ agreement superseded the contract of employment. Firstly, the text of the relevant resolution of the board clearly supports the conclusion that there were two “acts of termination” (see paragraph [15] supra). The one is the respondent’s removal as a director and the other is his removal from his post as managing creative director. Secondly, there are persuasive policy reasons why it should not be accepted that parties may contractually provide for the automatic termination of an employment relationship upon the occurrence of a certain event such as for example, where a person is removed as a director from a company. By allowing an employer to contractually negotiate the terms of a dismissal in advance is, in my view, not permissible in the labour law context: Firstly, providing for an automatic termination in a contract of employment (or as in the present case the articles of association) will be in contravention of the provisions of sections 5(2)(b) and 5(4)[12] of the LRA which prohibit an employer and an employee from agreeing to limit an employee’s statutory rights.[13] A shareholders’ agreement can likewise not, in my view, limit the statutory rights against unfair dismissal which an employee enjoys in terms of the LRA. Secondly, such a limitation of an employee’s right against unfair dismissal is in conflict with applicable case law and more importantly, falls foul of the constitutional right of every employee to fair labour practices (see the next paragraph). See also Denel (Pty) Ltd v Gerber [2005] 9 BLLR 849 (LAC) where the Court held in the context of whether parties can effectively contract out of the LRA by styling an employee as an independent contractor as follows:  

“[24] I am satisfied that the parties can resile from the position which they had deliberately and openly chosen to take up and that to reach any other conclusion would be, in effect, to permit the parties to contract out of the Act and to deprive, in particular, a person who works as an employee within the definition of the Act under a contract of service of the benefits which the statute confers upon him. If I consider the policy of the Act I can see the dangers, pointed out by Lord Justice Ackner in the course of the argument, of employers anxious to escape from their statutory liabilities under this legislation of the Factories Act offering this choice to persons to whom they intend to employ, as Mr West was employed, as employees within the definition of the Act and pressing them to take that employment – it may be even insisting upon their taking that employment – on the terms that it shall not be called that employment at all, but shall be called a contract for services with a self-employed person. I, therefore, reject Mr Clifford’s submission in its extreme form. To accept it would, I think, be to prefer the minority view of Lord Justice Lawton in Ferguson’s case to the view of the majority both in Ferguson’s case and in Massey’s case; and I do not find anything in Massey’s case which clearly indicates that, where the agreement to treat a man as self-employed is made as openly as it was in this case, the person called self-employed is forced to accept that position, whatever the reality of the matter, when he comes to try and persuade an Industrial Tribunal to hear a complaint of unfair dismissal. That seems to me to presuppose some kind of estoppel against invoking the statute equivalent to, or closely analogous to, a power to contract out of the Act; and to give effect to it would, in my judgment be plainly wrong”           

See also SA Post Office Ltd V Mampeule (2009) 30 ILJ 664 (LC) where the Court unequivocally stated that a contract cannot provide for the automatic termination of a contract of employment:

“[45]    The effective cause of termination of the respondent's contract of employment was clearly the minister's removal of him from the applicant's board of directors. The automatic termination clause is impermissible and cannot rightly be invoked to stave off the clear and unambiguous effect of the minister's overt act. 

[46]      In the result, the automatic termination provisions of article 8.3, which regulates the termination of the contract of employment and is thus incorporated by reference therein, are impermissible in their truncation of provisions of chapter 8 of the LRA and, possibly even, the concomitant constitutional right to fair labour practices (cf  B  Igbo v Johnson Matthey Chemicals Ltd  [1986] IRLR 215 (CA)). Provisions of this sort, militating as they do against public policy by which statutory rights conferred on employees are for the benefit of all employees and not just an individual, are incapable of consensual validation between parties to a contract by way of waiver of the rights so conferred.”

[39] Section 23(1) of the Constitution entrenches the right of every employee to fair labour practices. The LRA in section 1(a) gives effect to this right by recognising the right not to be unfairly dismissed in section 185 of the LRA. In NEHAWU v University of Cape Town & others (2003) 24 ILJ 95 (CC), the Constitutional Court confirmed that section 185 is an extension of the constitutional right to fair labour practices:

“[42] Security of employment is a core value of the LRA and is dealt with in chapter VIII. The chapter is headed “Unfair Dismissals”. The opening section, s 185, provides that “[e]very employee has the right not to be unfairly dismissed”. This right is essential to the constitutional right to fair labour practices. As pointed out above, it seeks to ensure the continuation of the relationship between the worker and the employer on terms that are fair to both.  Section 185 is a foundation upon which the ensuing sections are erected.

An employee therefore has a constitutional right not to be unfairly dismissed (as this right is an extension of the right to fair labour practices). This is also in line with the purpose of the LRA which is to give effect to the constitution and the rights entrenched therein.[14]

Citation

[12] Sub-sections (2)(b) and (4) thereof provide as follows:

‘(2)        … no person may do, or threaten to do, any of the following –

(b)        prevent an employee … from exercising any right conferred by this Act or from participating in any proceedings in terms of this Act;

(4)           A provision in any contract, whether entered into before or after the commencement of this Act, that directly or indirectly contradicts or limits any provision of … this section is invalid, unless the contractual provision is permitted by this Act.” (My emphasis.)

[13] Support for this notion is also to be found in Igbo v Johnson Matthey Chemicals Ltd [1986] IRLR 215 (CA) where a contract of service provided that should the employee fail to return to work after his holiday “your contract of employment will automatically terminate on that date”. The Court of Appeal concluded that this constitutes a dismissal. The Court held as follows with reference to section 140 of the Employment Protection (Consolidation) Act 1978, which provides that -     

“(1[e]Except as provided by the following provisions of this section, any provision in an agreement (whether a contract of employment or not) shall be void in so far as it purports –

(a)           to exclude or limit the operation of any provision of this Act; or

(b)           to preclude any person from presenting a complaint to, or bringing any proceedings under this Act before, an industrial tribunal.”

The Court concluded as follows:

……

“[19] … it is impossible to avoid the conclusion that the provision for automatic termination had the effect, if valid, of limiting the operation of the sections. It was therefore void by virtue of s 140. In our judgment Ashraf’s case was wrongly decided and must now be overruled. We add that, in substance, the effect of the automatic termination provision is the same as if it had said in terms “in the event of failure to return to work on 28 September, termination of the employee’s employment on that ground shall not constitute dismissal under s 55”, or “shall not give rise to any claim for unfair dismissal”. Any such provision would without doubt have been void as limiting the operation of the sections. We can see no ground for saying that a provision which has the like effect does not limit such operation”

…..

“[21] In the final analysis the question to be determined is whether a provision for automatic termination upon failure to report for work on one specified future date, introduced by way of variation of a subsisting contract of employment, has the effect of limiting the operation of ss 54 and 55. To hold that it does not is not in our judgment possible when the effect is to convert a right not to be unfairly dismissed into a conditional right not to be unfairly dismissed.”

[14] See: University of Cape Town (supra) at paragraph 41 where the Court held as follows: “The LRA must therefore be purposively construed in order to give effect to the Constitution”. 

 

South African Post Office Ltd v Mampuele (JA29/09) [2010] ZALAC 15; (2010) 31 ILJ 2051 (LAC) ; [2010] 10 BLLR 1052 (LAC) (4 June 2010)

extract from the judgment of Patel JA

[21] Against the factual matrix set out hereinbefore, 1 make the following general observations;

(a) a managing director holds two positions and acts in two different capacities in that, he is a director of a company and qua director he is governed by the Companies Act but he is also an employee of the company and qua employee the relationship must fall squarely within the ambit of the Act. Perhaps it was the latter consideration which led to the express provision in clause 9.1 which reads, " However, the Executive accepts that his services may be terminated on the grounds of incapacity as a result of poor work performance or ill health, misconduct or operational requirements. If the contract is terminated for such reasons, it will be done with due regard of fair labour practices and in conjunction with the stipulations of the Articles of Association". This latter stipulation was an express acknowledgment by SAPO that Mampeule enjoyed the full protection of the Act if his removal was premised on the stipulated grounds. Mampeule's suspension could not have happened in a vacuum but must fall within the stipulated grounds. This much must be inferred from the manner in which SAPO has pleaded its response to Mampeule's statement of case;

(b) Be that as it may, it is accepted in labour law jurisprudence that lawfulness cannot be equated with fairness. Accordingly it is not a defence to an unfair dismissal claim that the employee's dismissal was lawful (see Numsa v Vetsak Co­operative Ltd & others (1996) 17ILJ 455 (A) at 460; Fedlife Assurance Ltd v Wolfaardt [2001] 12 BLLR 1301 (SCA) para 32). Thus Mampeule, like any other employee, enjoyed the right not to be unfairly dismissed or more appropriately unfairly removed. This is more so since the Act was enacted to give effect to the right to fair labour practices guaranteed in s 23(1) of the Constitution of the Republic of South Africa Act 108 of 1996. The right not to be unfairly dismissed is not only essential to the enjoyment of this constitutional imperative but is one of the most important manifestation thereof and further forms the foundation upon which the relevant sections of the Act are erected and is consonant with the spirit and the letter of the Act (see Nehawu v University of Cape Town & others (2003) 24 ILJ 95 (CC) para 42; Sidumo & another v Rustenburg Platinum Mines Ltd & others [2007] ZACC 22; [2007] 12 BLLR 1097 (CC) paras 72 and 74). employee whether through the device of 'automatic termination' provisions or otherwise because the Act has been promulgated not only to cater for an individuals interest but the publics interest (see Brassey - Commentary on the Labour Relations Act at A2-9 and A211 ;SA Eagle Insurance Co Ltd v Bavuma 1985 (3) SA 42 (A) at 49G-H; Bafana Finance Mabopane v Makwakwa 2006 (4) SA 581 (SCA) para 10 and Denel (Pty) Ltd v Gerber [2005] 9 BLLR 849 (LAC) at 24), The court a quo was thus correct when it held at para 46 that:

'Provisions of this sort, militating as they do against public policy by which statutory rights conferred on employees are for the benefit of all employees and not just an individual, are incapable of consensual validation between parties to a contract by way of waiver of the rights so conferred.'

Last modified onThursday, 16 July 2015 22:06
Gary Watkins

Gary Watkins

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BA LLB

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