Many retailers are exposed to severe shrinkage of stock in their stores.   Very often it is almost impossible to identify precisely which individuals should be held accountable and where necessary disciplined.   In the past concepts such as ‘collective misconduct’, ‘derivative misconduct’ and ‘team misconduct’ have been used to justify the termination of employment of those suspected of being involved.

More than 10 years ago Cameron JA, as he then was, in the Labour Appeal Court held that

“an employer who suffered continuously under industrial sabotage perpetrated by unidentified employees, was entitled to dismiss all the employees on the shop floor where the damages occurred, on the basis that the employees must have known who the perpetrators were and failed to come forward and identify them”.

(quoted from a footnote of Revelas AJA).

In a more recent decision in The Foschini Group v Maidi & 4 others [2010] ZALC 5 (25 March 2010) per Revelas AJA the LAC has unanimously decided that it is preferable to use the term ‘team misconduct’ first introduced by John Grogan in an arbitration award many years ago.

The present matter has an extraordinary history.   Foschini terminated the employment of 5 employees on 20 October 1999.  It seems that there were 4 separate attempts at arbitrating the dispute and eventually Foschini was found to have terminated their services for a valid and fair reason related to their collective misconduct.

However, during August 2006 the Labour Court reviewed and set aside that award and remitted the matter to the CCMA for a further arbitration.  Foschini’s application for leave to appeal was refused on 22 February 2008 (See The Foschini Group v Maidi [2008] JOL 21756 (LC) per Cele AJ) but the LAC granted such leave after being petitioned by Foschini.

The facts and events giving rise to the termination of employment started after Foschini conducted a bi-annual financial stock-take at one of its Pages Stores in  Mabopane on 11 August 1999 and an investigation revealed severe shrinkage, in excess of 28%, of the stock in the store representing a loss of R207,000.

There were only 5 employees in that store and relying on ‘collective misconduct’, each of the employees was suspended and then granted the right to a hearing during a disciplinary investigation before their services were  terminated without notice.

Revelas AJA in the LAC dealt with the only evidence presented in the arbitration, being that of the national operations administrative manager, and found that Cele AJ in the Labour Court had no reasonable or even rational basis for rejecting his testimony and that “the arbitrator came to a conclusion which is manifestly a decision any reasonable decision-maker could make” and should not have been reviewed and set aside [see para 30].

The LAC stressed that section 138(1) of the LRA allows the commissioner to ‘conduct the arbitration in a manner that the commissioner considers appropriate in order to determine the dispute fairly and quickly, but must deal with the substantial merits of the matter with the minimum of legal formalities’ (emphasis added).

After reviewing the law and practice concerning hearsay evidence in arbitration proceedings Revelas AJA concluded in para [37]:

“This practice is clearly acceptable because evidence of this nature is most conveniently and accurately presented by a person who understands the systems and has personal knowledge of how they integrate with the practical operation of the employer’s business”.

Reveals AJA then dealt with the next issue: whether the finding of ‘team misconduct’ on the part of the former employees and the termination of their services was a reasonable one (see para [41]).

After referring to a number of awards and court decisions Revelas AJA in para [47] referred to Cameron JA judgment in Chauke v Lee Service Centre CC t/a Leeson Motors (1998) 19 ILJ 1441 (LAC) and stated:

” . . . the Labour Appeal Court accepted that this type of matter presents a difficult problem for fair employment practices, and illustrated the problem by posing the following question:  “Where misconduct necessitating the disciplinary action is proved, but management is unable to pinpoint the perpetrator or perpetrators, in what circumstances will it be permissible to dismiss a group of workers which incontestably included them?   Cameron JA then postulated two lines of justification for a fair dismissal in such circumstances.   The first is where an employee, who is part of the group of perpetrators, is under a duty to assist the employer in bringing the guilty to book.   The second is where an employee ‘has or may reasonably be supposed to have information concerning the guilty, his or her failure to come forward with the information may itself amount to misconduct.   The relationship between employer and employee is in its essentials is one of trust and confidence, and, even at common law, conduct clearly inconsistent with that essential warranted termination of employment  (Council for Scientific and Industrial Research v Fijen).   Failure to assist an employer in bringing the guilty to book violates this duty and may itself justify dismissal’.   The learned judge of appeal further held that this derived justification is wide enough ‘to encompass those innocent of it, but who through their silence make themselves guilty of a derivative violation of trust and confidence'”. (Footnotes omitted).

Finally the LAC allowed Foschini’s appeal and set aside the order of Cele AJ in the Labour Court and in effect confirmed the CCMA’s arbitration award that the termination of employment of the 5 former employees by Foschini was not unfair.