Constructive dismissal analysed: Salary reduced

Note: Footnotes omitted and emphasis added

Introduction

[1] In the middle of 2020, an employee resigned when her employer imposed a salary cut during the covid-19 pandemic lockdown. Was she constructively dismissed? And, if so, might the dismissal nevertheless have been fair, given the pandemic conditions?

[2] The CCMA commissioner held that the employer had made continued employment intolerable for the employee, to whom she awarded compensation of six month’s salary.

[3] The employer attacked the award on grounds of unreasonableness. It is well established, however, that the review test, in respect of a decision that a constructive dismissal was proved, is correctness. Reasonableness remains the review test when evaluating a decision on the fairness or otherwise of a constructive dismissal. I shall return to these tests later; first, it is convenient to set out the facts, which were not in dispute.

Facts

. . . .

The award

[22] The second respondent arbitrator, having noted that she had to decide whether TM was dismissed, and, if so, whether the dismissal was fair, first summarised the facts before turning to consider whether the salary cut was ‘intolerable’.

[23] The arbitrator referred to a number of authorities, and explored the fairness and reasonableness of both parties’ conduct. She recorded that:

• 23.1 The employer acted unilaterally in breaching TM’s contract, notifying TM of the salary cut the day before it was implemented. It did not engage in a bona fide s189 consultation, and ‘immutably clung’ to its position. The fact that TM was the only employee to object did not make the employer’s conduct fair. The offer of a loan to offset the reduction was not reasonable, as it would lead to more debt;
• 23.2 TM did everything reasonably possible to address her objection to the salary cut with the employer, which remained intransigent. TM was not obliged to shoulder the expense of litigation to enforce her contract;
• 23.3 The argument that the real reason TM resigned was to avoid disciplinary action was without merit: she was never charged and the allegations were only brought to the employer’s attention after TM had left.

[24] In her written reasons, the arbitrator does not separate out her analysis by dealing first with the existence, then with the fairness, of the alleged dismissal. Instead, having weighed up all the considerations relevant both to intolerability and of fairness, she held that Westcor ‘rendered the employment relationship intolerable and consequently dismissed [TM] through their conduct’ and immediately turned to consider remedy for ‘the unfair dismissal’. I shall return to this point later.

Legal principles

[25] In proceedings challenging any dismissal, it is the employee who bears the onus to prove that she was dismissed, and the employer who must prove that the dismissal was fair.

[26] A ‘constructive dismissal’ occurs when the employee resigns because her employer made her continued employment intolerable. Whilst it might seem that it is always unfair to make continued employment intolerable, our Courts have stressed that a constructive dismissal is not inherently unfair.

Arbitrators determining constructive dismissal disputes accordingly undertake the usual two-stage enquiry:

• firstly, did the employee’s resignation amount to a dismissal, and
• secondly, if so, was the dismissal fair?

Unlike in other unfair dismissal disputes, however, the full merits of the case are relevant to both stages of the enquiry, which are ‘intertwined’.

Test on review in constructive dismissal disputes

[27] It is firmly established (despite some criticism) that the review test on the first question – whether a resignation amounted to a constructive dismissal – is correctness, not reasonableness.

[28] If the Court is satisfied that the employee was dismissed, it must apply the usual Sidumo reasonableness test on review of the decision as to fairness.

This test focuses on the outcome:

is the arbitrator’s decision capable of reasonable justification on all the material that was before the arbitrator (including for reasons not considered by her)?

Proving the existence of a constructive dismissal

[29] In order to prove that a resignation amounted to a constructive dismissal, the employee must show that:

29.1 she terminated her employment;
29.2 her reason for so doing was that continued employment had become intolerable; and
29.3 it was the employer who caused continued employment to become intolerable.

Intolerability

[30] The test for intolerability is objective.

The Court assesses both

• the circumstances themselves, and
• the employee’s response thereto (but, as we shall see, the employer’s response thereto is relevant to fairness, not to objective intolerability).

[31] The circumstances must be demonstrated to be ‘insufferable and too great to bear’ and be such that no reasonable employee can be expected to put up with them.

The employee must show something more than bad treatment, or a difficult, unpleasant or stressful working environment.

[32] An employee faced with an unbearable circumstance should not opportunistically resign, but should make a reasonable effort to preserve the employment relationship.

This principle finds its roots in the definition itself:

if there is a ‘perfectly legitimate avenue open to alleviate his distress and solve his problem’ then continuing in employment cannot be said to be ‘intolerable’.

[33] The Constitutional Court in Strategic Liquor Services held, however, that an employee is not required to show that she had no choice but to resign, but only that continued employment was intolerable.

The Labour Court [per Anton Steenkamp J] in Asara Wine Estate & Hotel (Pty) Ltd v Van Rooyen & others considered whether this altered earlier case law, but concluded that the emphasis is on whether a reasonable alternative to resignation exists: the employee need not show that there was no alternative to resigning, but must show that there was no reasonable alternative.

Breach of contract and constructive dismissal

[34] Common-law principles governing breach of contract underpinned the development of the concept of what came to be known as ‘constructive dismissal’ under the 1956 LRA.

At common law, faced with a breach, the innocent party can elect to accept the breach and claim damages, or reject the breach and enforce the contract.

In a constructive dismissal, the employer’s breach of

• an express term (such as remuneration, or role) or
• an implied term (often, the employer’s duty to preserve the relationship of trust and confidence)

entitled the employee to cancel the contract (by resigning).

[35] The legal basis for constructive dismissal changed completely with the introduction of the section 186(1)(e) definition in the 1995 LRA.

The enquiry is no longer governed by common law contractual principles: as the LAC confirmed in Albany Bakeries Ltd v van Wyk & others:

Since the advent of the Act, the prime and only consideration is whether the employer made continued employment intolerable for the employee.

[36] This is important, given that dicta and comments from judgments given under the previous (common law) approach to constructive dismissal are still frequently cited and relied upon today.

These dicta should be read keeping in mind that they were made in the context of entirely different legal principles, which no longer apply.

[37] In W L Ochse Webb & Pretorius (Pty) Ltd v Vermeulen, an early decision [LAC per JC Froneman JA] under the 1995 LRA, the employer changed a tomato salesman’s contractually-agreed commission.

The LAC accepted that the employer breached the contract, that the salesman was entitled to accept the breach by resigning, and that because the resignation was caused by the employer’s repudiation, the salesman was dismissed.

The Court held that, although the dismissal was unlawful at common law, it might nevertheless be fair under the LRA

‘if there was a commercial rationale for [the change] and if the final decision was arrived at after due consultation with the [employee] involving him properly in the process leading to a fair decision.’

It ultimately held that the dismissal was fair because the employer had

‘intimately involved [the salesman] in the process of seeking a viable alternative’.

[38] In Van der Riet v Leisurenet t/a Health & Racket Club, decided shortly thereafter, the LAC [per F Kroon AJA]  held that the employee (who resigned because he was unilaterally demoted during restructuring) was unfairly constructively dismissed because the employer failed to consult adequately.

[39] In Riverview Manor (Pty) Ltd v Commission for Conciliation, Mediation & Arbitration & Others [LC per D Pillay J] the employer, whose business was running at a loss, cut the employee’s salary by 40%.

In finding that, objectively viewed, the company’s conduct was intolerable, the Court took into consideration that there was no s189 consultation – rather, the employer communicated its decision in ‘firm and conclusive’ terms, not as an offer, and did not justify why cutting salaries was the only reasonable option.

[40] In cases where some breach or unilateral change is objectively intolerable, the existence of a commercial rationale and/or adequate consultation and goes to fairness, not intolerability.

Where an employer causes or imposes some circumstance or employment condition that, objectively assessed, renders continued employment intolerable, such objective intolerability is not saved by virtue of the employer having consulted beforehand.

Commercial rationale and consultation accordingly do not negate the existence of the dismissal, but might render the dismissal fair.

[41] This means that the employee’s conduct in response to the allegedly unbearable circumstance is assessed in the first stage, because it is relevant to intolerability.

The employer’s conduct in addressing the allegedly unbearable circumstance is assessed in the second stage, because it is relevant to fairness.

That the conduct of employer and employee are assessed separately and are relevant to different stages of the enquiry is consistent with a fundamental premise of employment law: that the interests of employers and employees are structurally opposed.

Causation

[42] The section 186(1)(e) definition also requires the employee to show that it was the employer who ‘made’ continued employment intolerable: the employer must be the cause of the intolerable circumstance rather than some extraneous circumstance.

Fairness of a constructive dismissal

[43] Constructive dismissal is not inherently unfair.

In Bakker v Commission for Conciliation, Mediation & Arbitration & Others Whitcher J summarised the law as follows:

Once it has been proven that a constructive dismissal has occurred, the onus shifts to the employer to prove that it did not act unfairly.

A two-stage approach is thus envisaged. The central question is then whether the conduct of the employer that prompted the employee to resign was fair or unfair. A court will consider the circumstances with a view to establishing whether the employer’s conduct was justified.

The focus will be on the substantive fairness of the dismissal as procedural fairness plays little or no role in most constructive dismissal cases.

[44] Thus in Bakker, like in W L Osche, the employer was held to have acted fairly, despite having made continued employment intolerable.

[45] Awards have been set aside where arbitrators have awarded compensation to constructively dismissed employees without having determined whether their dismissals were fair.

In Eagleton & others v You Asked Services (Pty) Ltd Basson J noted that relief cannot be granted merely upon proof that a constructive dismissal exists:

compensation is, rather, for unfairness, and it is open to the employer to prove that there was a fair reason for the dismissal.

And, in Value Logistics v Basson, Steenkamp J set aside an award on a number of grounds including that the arbitrator had exceeded her powers in awarding compensation for a constructive dismissal without having determined whether it was unfair.

[46] That the two stages are sometimes conflated is perhaps unsurprising – as the Court [per A Landman J] noted in Sappi Kraft (1998) ILJ 1240 (LC):

The two stages that I have set out above are however not independent stages. They are two stages in the same journey and the facts which are relevant in regard to the first stage may also be relevant in regard to the second stage. Moreover there may well be cases where the facts relating to the first stage are determinative of the outcome of the second stage. Whether or not this is so is however a matter of fact and no general principle can or should be laid down.

Analysis

[47] The questions for this Court are:

• 47.1 First: was the finding that TM’s resignation amounted to a constructive dismissal right or wrong?
• 47.2 Second: if TM was dismissed, was the outcome one that a reasonable decision-maker would reach, on all the evidence before her?

Was TM constructively dismissed?

[48] Westcor attacked the arbitrator’s decision on this question on grounds of unreasonableness, whereas the test is in fact correctness.

Generally, a reviewing court is limited to deciding issues raised on the papers: an applicant may not advance a review ground which was not pleaded.

This principle yields, however, to the principle of legality: this Court is entitled (and even obliged mero motu) to raise the issue of jurisdiction where the parties have proceeded on a wrong perception of the law.

[49] This Court must accordingly determine de novo whether TM’s resignation meets the test for constructive dismissal, along the lines set out [LAC per Jafta AJA] in Solid Doors:

• Did she terminate her employment?
• Was the reason for her resignation that continued employment was intolerable?
• Was the employer the cause of the intolerability?

[50] The first question is easily disposed of: it was not in dispute that TM terminated the contract of employment.

[51] Turning to the second question, there is no doubt that TM resigned because Westcor cut her salary by 25%.

That the unilateral salary cut amounted to a breach of contract is not enough:

the question is whether it made TM’s continued employment intolerable.

[52] For the reasons that follow, I conclude that it did:

in all the circumstances, TM cannot reasonably have been expected to tolerate Westcor’s decision to cut her salary by 25%.

[53] By July 2020 TM’s family was in financial difficulty:

• her husband had lost his income and they were in debt (which was increasing, considering the medical aid ‘payment holiday’);
• she had been working reduced hours, her cash component had decreased dramatically,
• her leave had been utilised and her provident fund contributions were on hold.

These arrangements were indefinite and Westcor made no undertaking to make good her losses in future.

At the same time, Westcor’s business was busy enough to warrant a return to full working hours in July 2020, and it had access to funds enabling it to offer TM a loan.

[54] TM acted reasonably in attempting to preserve the employment relationship:

• immediately upon learning of the decision she engaged the employer,
• disclosed her personal difficulties, and
• suggested an alternative addressing Westcor’s stated financial reason (she would accept the cut but wanted to use 25% of her hours to generate income elsewhere).

TM in writing set out substantive facts supporting her reasonable belief that Westcor, having performed well in the previous financial year, probably had sufficient reserves to tide it over the lockdown.

She nevertheless invited Westcor to disclose its position including other measures taken in order to survive any demonstrable pandemic-related distress.

When Westcor remained intransigent in the fact of constant engagements throughout the month of July 2020, TM resigned.

[55] Westcor argued that the situation cannot have been intolerable, because it was temporary. I do not agree.

The salary cut was indefinite. It could have worsened. Meanwhile, TM’s financial distress was increasing.

[56] Westcor also submitted that TM had options other than resignation:

• she could have waited until August to see whether things would improve, or
• filed a formal grievance, or
• launched urgent proceedings in this Court.

As to the first suggestion, TM waited long enough, resigning at close of business on 27 July (by which date Westcor can be expected to have informed if matters were about to improve in August).

As to the second, given that TM engaged extensively with the employer throughout the month of July 2020, I am not persuaded that filing a formal grievance was called for.

Lastly, as it was precisely her financial distress which was driving these events, the expense of enforcing her contract through formal court proceedings was not a reasonable alternative solution.

[57] As to the third question, in an argument resembling that advanced by business insurers in relation to the pandemic, Westcor submitted that it was covid-19 and the lockdown which was the cause of the 25% salary cut. I do not agree.

Westcor chose, from amongst a range of possible responses to the pandemic and the lockdown, to cut salaries by 25%. Westcor was accordingly the author of the circumstance which TM alleged made continued employment intolerable.

[58] Objectively assessed, Westcor’s action in cutting TM’s salary by 25% made her continued employment intolerable. The arbitrator’s conclusion was correct: TM was constructively dismissed.

Was the decision reached by the arbitrator one that a reasonable decision-maker would reach?

[59] The arbitrator awarded six months compensation to TM for the unfair dismissal. This is, in my view, a reasonable outcome on all the evidence before the arbitrator.

[60] I say so because a fair employer would have worked with TM to find a suitable compromise, and would, in light of the weighty arguments supporting her viewpoint that the company could continue to afford full salaries, have shared relevant financial information with her – if it existed.

TM’s arguments regarding Westcor’s good financial performance the previous year, as well as the company’s ability to offer employees loans, warranted an explanation.

[61] Just as employees may not opportunistically resign, so may it be expected of employers that they refrain from opportunistically taking advantage of their employees’ insecurities in the midst of the significant uncertainties characterising the covid-19 pandemic.

Whilst it is conceivable that an employer may well have experienced financial distress during the pandemic lockdown in response to which a salary cut may have been fair and justifiable, a reasonable factual foundation for such a finding must exist.

[62] Westcor’s intransigence in insisting that TM must accept the salary cut because other employees accepted it, its refusal to permit her to utilise some of her hours to supplement her income, and its failure substantively to justify why cutting salaries was a fair and reasonable measure, mean that TM’s dismissal was not effected for a fair reason.

[63] Mr Bosch, for Westcor, argued however that the arbitrator’s exclusion of the evidence relating to possible misconduct charges was reviewable.

This evidence, according to him, related to the ‘real reason’ for TM’s resignation and was relevant to assessing the fairness of the dismissal.

Secondly, in a line of argument nowhere foreshadowed in the papers, he pressed the Court to remit the matter if it were to hold that TM was dismissed.

This was because, as I understood his argument, the arbitrator made no finding on the fairness of the dismissal.

[64] On the first issue, and having carefully studied the transcript, I agree with the arbitrator that the excluded line of cross-examination was irrelevant: Westcor’s representative had sought to cross-examine TM on allegations of misconduct which Westcor’s witness would allege were reported to it after TM’s resignation.

The arbitrator established that there were no pending charges against TM while she was employed and that she was unaware of any allegations of misconduct.

There was, moreover, no reason to seek a hidden ulterior motive for TM’s resignation in circumstances in which the correspondence and other evidence demonstrates that her resignation was the culmination of a four-week long engagement about the salary cut.

As the evidence was irrelevant, there was no misdirection in disallowing it.

[65] I am also unable to agree that the arbitrator failed to make a finding on the fairness of the dismissal. Her finding on this issue is at least implicit.

The arbitrator recorded at the outset that she had to decide both

‘if the applicant was dismissed and if the dismissal was fair’.

She recorded evidence and engaged in analysis relevant to objective intolerability as well as to the fairness of the employer’s conduct.

She concluded that there was a dismissal, and said that it was unfair when she awarded compensation for ‘the unfair dismissal.’

[66] It is so that the arbitrator does not, in her award, include a paragraph in which she separately sets out her reasons for finding that the dismissal was unfair.

Does this mean that the award suffers from the same reviewable defect as in Eagleton and Value Logistics?

I think not: in those cases the arbitrators awarded compensation without having found that the dismissal was unfair, thereby exceeding their powers.

In this case however the arbitrator awarded compensation for the unfair dismissal.

[67] It is in any event well-established that the focus in a review of an arbitration award is not on individual lapses, errors or misdirections by the arbitrator, but on the ultimate outcome.

The reviewing court examines the merits of the case ‘in the round’ in order to determine whether the eventual decision is one that a reasonable arbitrator could reach on all the material before the arbitrator.

If the award is capable of reasonable justification, including on the basis of good reasons not considered or identified by the arbitrator, it will not be set aside: fragmented, piecemeal analyses blur the review/appeal line.

As Murphy AJA put it in Head of Department of Education v Mofokeng and others:

Lapses in lawfulness, latent or patent irregularities and instances of dialectical unreasonableness should be of such an order … as to result in a misconceived inquiry or a decision which no reasonable decision-maker could reach on all the material that was before him or her.

[68] The LAC in Mofokeng thus set out what Myburgh and Bosch, in their seminal book Reviews in the Labour Courts, describe as a ‘useful formula’: the Court is:-

“required to identify what went wrong, whether the result would have been different but for this; and, if so, whether the objectively wrong decision is capable of reasonable justification”.

[69] Adopting this helpful formulation yields the following result: on Mr Bosch’s argument what went wrong is that the arbitrator failed to set out in her award, separately from her determination as to whether TM was dismissed, her reasoning supporting her decision that the dismissal was unfair.

Nevertheless, the result would not have been different had she done so. The award of compensation for an unfair constructive dismissal is capable of reasonable justification on all the material properly before the decision-maker.

[70] Even if I am wrong, and the correct position is instead that the arbitrator committed a gross irregularity and exceeded her powers by awarding compensation without having applied her mind to the fairness of the dismissal, in the view I take of this matter the review application does not succeed in any event.

That is because, in that case, this Court may set aside the decision and substitute it:

• both parties were legally represented at arbitration and there is a full record, placing this Court in as good a position as was the arbitrator to take the decision which was overlooked;
• substitution is moreover the proper approach because remittal will cause undue delay.

On all the evidence which was before the arbitrator, this Court is persuaded that TM’s dismissal was, indeed, unfair.

Conclusion

[71] The arbitrator was correct in concluding that TM was constructively dismissed.

[72] The ultimate outcome was one that a reasonable arbitrator would reach on all the evidence and material properly before the CCMA in this matter.

Order

1. The review application is dismissed.
2. There is no order as to costs.

Summary