During 1996 the Employment and Industrial Relations Journal of the International Bar Association published an article written by Graham Giles just before the newly adopted Labour Relations Act, 1996 came into force in November 1996.  For the record the original article is repeated here.

Breach of trust and confidence: repudiation of contract and dismissal in South African law

South Africa’s readmission to the international community obliges practitioners to keep abreast of developments in other countries and update its employment and industrial relations law and practice. Although a founder member of the International Labour Organisation [ILO] South Africa wandered alone in the wilderness for more than 30 years with very little but its Roman Dutch law principles to sustain it. Considerable pressure is now being exerted on the country to ensure that its norms and standards are internationally acceptable. Serious consideration is being given to the adoption of various Conventions and  Recommendations of the ILO. Innovative and progressive legislation has been approved but not yet implemented. The common law has not been expressly replaced. This article draws attention to a recent case concerning unfair dismissal where a rule of English law was approved and applied by the highest court in the context of law and fairness.

New 1995 Labour Relations Act

The South African 1995 Labour Relations Act [the new LRA], described in detail by André van Niekerk in the last issue of our Journal [vol 6 No 1 p 12] has still not been fully implemented due to delays in amending the Act and establishing the Commission for Conciliation Mediation and Arbitration, the Labour Court and the Labour Appeal Court [LAC]. It is expected that the new LRA will finally come into effect towards the end of this year or possible even early next year.

The Appellate Division of the Supreme Court [AD] is the highest court in South Africa and until the new LRA comes into force it has the sole power to  finally resolve on appeal all disputes between employers and employees and

“make any … decision or order … according to the requirements of the law and fairness.”

When the new LRA eventually takes effect, all appeals will be finally dealt with by 3 judges in the new LAC instead of 5 judges in the AD.

CSIR v Fijen

Recently in Council for Scientific & Industrial Research [CSIR] v Fijen 1996 Industrial Law Journal [ILJ-SA] 18 (AD) the AD decided its second appeal concerning the alleged unfair termination of employment of an individual and the Court split 4 to 1.  All 5 Judges accepted that the common law had not been revoked by the 1979 statutory adoption of an “unfair labour practice” [ULP] concept. In the same year an industrial court was created with exclusive jurisdiction to determine alleged ULP disputes between employers and employees.

In time disputes concerning unfair dismissals were also dealt with under that jurisdiction.  Referring to English authority with approval the AD unanimously held that it was not necessary to toil with implied reciprocal duties of confidence and trust because such duties flowed from naturalia contractus. After applying not only the common law and fairness the majority decided that the employer had lawfully and fairly dismissed a senior employee found to have repudiated his employment contract by writing a letter requesting that the contract be terminated coupled with payment of “compensation”. The employee contended that there had been an irretrievable breakdown in the employment relationship.

Unfortunately, the Court did not consider the debate concerning the automatic or elective employment contract termination theory. See in this regard in England articles by MR Freedland & GH Collins “Affirming an Empty Contract: Repudiation and Acceptance in Employment Contracts” (1994) 23 ILJ 35 and John McMullen “Enforcing contracts of employment ‘Going back to basics’ in the resolution of employment rights disputes” (1995) 24 ILJ 353 and in Australia Anthony Forsyth “Automatic v Elective Termination Theory Revisited” (1994) 7 AJLL 246.

Facts

Here then the facts in CSIR v Fijen.  Mr. Fijen, a marine pollution engineer who had worked for the CSIR for more than 6 years, was accused at a disciplinary enquiry of having breached his conditions of service by accepting private work for remuneration. After being exonerated at the enquiry he contended that a normal working relationship with his superiors had been permanently damaged. He suggested termination of the working relationship by way of a voluntary “redundancy” together with a financial package. There were further communications which culminated in the CSIR informing Fijen that it accepted his repudiation of the employment contract and had terminated it.

Fijen unsuccessfully alleged an unfair dismissal in the industrial court but succeeded on appeal in the LAC. By a decision of 2 to 1 the LAC held that Fijen had not repudiated his contract, that he was entitled to propose the termination of his employment by agreement, and that this did not provide a fair reason for dismissal. The LAC further decided that in the absence of a hearing the dismissal was procedurally unfair and awarded compensation equal to about 3 months’ salary.

Repudiation in the wide sense

The CSIR’s appeal to the AD succeeded with one Judge of Appeal dissenting. The majority held that Fijen’s employment had been lawfully and fairly terminated. Before considering fairness, the AD applied common law principles.

“I agree that the respondent [Fijen] did not repudiate the contract of employment in the narrow sense set out by the courts below. That is not the end of the inquiry. The correct question to ask appears to me to be whether the respondent’s ‘attitude’ constituted a material breach of his contract (‘repudiation’ in the wide sense), a breach that entitled the appellant to cancel it. This issue was, in spite of the label of ‘repudiation’, properly raised by the appellant.”

After referring to the English rule of law and a 1908 decision of the former Transvaal Supreme Court the court went on to say.

“It is well established that the relationship between employer and employee is in essence one of trust and confidence and that, at common law, conduct clearly inconsistent therewith entitles the ‘innocent party’ to cancel the agreement…. On that basis it appears to me that our law has to be the same as that of English law and also that a reciprocal duty as suggested by counsel rests upon the employee.”

Applying that common law principle, the Court found that Fijen’s letters amounted to such a breach of his contractual duty because he had destroyed his (employer’s faith in and goodwill towards him entitling the employer to dismiss him lawfully.

Fairness – value judgment

The Court proceeded to consider whether that lawful dismissal was also fair in the sense of not being an ULP. The Court rejected the argument that Fijen was merely proposing the termination of the agreement and that he had the right to motivate it. In the AD’s judgment the response of the CSIR was held to be fair and reasonable in the circumstances and expressed itself as follows.

“A value judgment must now be made, taking into account all the evidence and factors set out earlier. On balance I believe the dismissal was fair especially in the light of the seriousness of the respondent’s allegations against his employer. His fixed state of mind as expressed in his letters did not require of the appellant to act in any other manner. Had the nature of the employment been different and the employee an unsophisticated labourer, the conclusion may have been different.”

Procedural fairness

Dealing with procedural fairness the AD held that Fijen’s conduct did not amount to misconduct as defined in the CSIR’s disciplinary code and that no disciplinary enquiry was warranted. There had not been a hearing in the conventional sense of the word, but this did not mean that the audi alteram partem rule had been breached. Fijen had stated his case twice in his letters. CSIR did not have any factual version to put to him for a response. Fijen’s views were known and it was for the CSIR to consider their import and decide how to react.

Ultimatum or notice

The AD also disagreed with the finding of the majority in the LAC that the employee should have been given an ultimatum or notice of the CSIR’s contemplated action in terminating his employment. The AD found itself unable to subscribe to a general proposition that an ultimatum was required as a matter of course and failed to see what an ultimatum should have comprised or what its purpose would have been. The Court stated that it might have been different if Fijen’s breach were not accompanied by the expression of his fixed intention to leave his employment. The majority judgment upheld the CSIR’s appeal with costs and set aside the compensation order of the LAC.

Dissenting judgment

The sole dissenting Judge of Appeal stressed that Fijen had made it clear that he did not wish to resign because he did not consider the situation to be of his making. Fijen wanted a beneficial financial settlement and was negotiating with his employer to this end when he was effectively dismissed. The dissenting Judge agreed that Fijen did not evince a clear and unequivocal intention not to continue with his contract of employment and in that narrow sense he did not repudiate the contract.
However, in the Judge’s opinion the CSIR did not purport to rely on conduct by Fijen which constituted repudiation in a wider sense when cancelling the contract. From the CSIR’s letter it was clear that it relied only on repudiation in the narrow sense. There was no suggestion that its faith in and goodwill towards Fijen had been destroyed. Indeed, the contrary appeared to be the case.

“Notwithstanding concessions made by the respondent’s counsel it is in my view inappropriate to hold that the appellant was entitled to cancel the contract on a ground that was neither properly ‘pleaded’ nor fully canvassed, and was relied on for the first time in argument in this court. . .. In general, it also seems fair to say that in terms of the labour dispensation an employer should not be entitled to rely in later proceedings on reasons for dismissal not advanced or relied upon at the time of dismissal.”

The dissenting Judge accordingly agreed with the LAC that Fijen’s conduct did not go so far as to constitute a repudiation and that his dismissal was substantively unfair. Even if he had breached his contract of employment and was lawfully dismissed, the judge believed that the conduct of the CSIR was lacking in fairness.

“An appropriate response, one dictated by fairness, would have been to inform the respondent finally that he was not entitled to, nor would he be given, any form of financial recompense, and that it was for him to decide whether he wished to continue in employment (and by necessary implication, try and rebuild a working relationship) or resign. At the very least the respondent should have been warned or given an ultimatum that if he persisted in his attitude towards the appellant, he faced dismissal for breach of contract. This was not done.”

Common law duty of trust and confidence

Although the new 1995 LRA codifies certain aspects of the employment relationship, mainly those dealing with procedures, it has not dispensed with the common law principles of contract and they will continue to apply. Based on recent developments in other jurisdictions, notably England and New Zealand, it can be expected that employers in South Africa will have more onerous duties imposed on them to care for the needs of employees.

In this regard reference will no doubt be made to the recent article in England by Douglas Brodie “The Heart of the Matter: Mutual Trust and Confidence” (1996) 25 Industrial Law Journal 121, published for the Industrial Law Society by Oxford University Press. According to that article the duty as owed by the employer to the employee in England has been defined by the Court of Appeal in the following terms:

“[the employer shall] not without reasonable cause conduct itself in a manner likely to damage or destroy the relationship of confidence and trust between the parties as employer and employee.”

See Bliss v SF Thames RHA [1987] ICR 700 at 714. The English Court of Appeal in Malik v Bank of Credit and Commerce [1995] IRLR 375 at 377 accepted that the term of the employment relationship

“… may be broken not only by an act directed at a particular employee but also by conduct which, when viewed objectively, is likely to seriously damage the relationship of employer and employee.”

Earlier it had been held in England in Lewis v MotorWorld Garages [1986] ICR 157 that it was permissible to

” … accumulate the breaches to found the submission that the totality of the wrongful course of conduct entitled the employee to claim that the employer had evinced an intention no longer to be bound by the contract of employment.”

Degradation of Status

It may be of some interest to draw attention to the facts of a South African case decided in the 1970’s – see Stewart Wrightson (Pty) Ltd v Thorpe 1974 4 SA 67 (D) approved on appeal 1977 2 SA 943 (AD). The company terminated the managing director’s employment by giving him the agreed period of 6 months’ notice but instructed him not to work and to “go fishing”. The employee treated the employer’s conduct as a repudiation and cancelled the contract summarily. The South African Supreme Court accepted the argument that at common law the employer had degraded the managing director’s status and that such conduct constituted a material breach of the employment contract entitling the managing director to cancel the contract summarily. It could with some justification also be argued that the employer had in effect breached the essential duty of confidence and trust.

Dignity and Worth of Individual

The South African common law and English law have developed over the years and recognised the dignity and worth of the individual and required employers to treat all employees with respect. The article suggests that

” … it may not be fanciful to suggest that the obligation [of confidence and trust] will come to be seen as the core common law duty which dictates how employees should be treated during the course of the employment relationship …. “

It is also suggested in the article that the

“… open-textured nature of the term makes it an ideal conduit through which the courts can channel their views as to how the employment relationship should operate.”

Specific Performance

As already mentioned, the South African Courts endeavour to blend developments in the common law with those of the law concerning unfair dismissals. Unlike England our Courts have not hesitated to order specific performance or reinstatement when necessary to achieve a just result. Recently the LAC in the as yet unreported case of Unilever SA (Pty) Ltd v Salence reinstated a senior manager with 20 years’ service some 28 months after the termination of his services, purportedly based on the operational requirements of the business. That order obliged the employer to treat the manager as if his services had never been terminated. The conduct of Unilever was found to be unfair, mainly because it had not consulted with the manager over alternative employment, including the possibility of ‘bumping’ employees out of jobs at a slightly lower grade. Although no mention is made in that judgment of a breach of the employer’s duty of confidence and trust it is suggested that the decision could also have been based on a breach of that duty.

Extended Compensation

Douglas Brodie, the author of the English article under discussion, also mentions the absence of suitable remedies in England if no loss is sustained despite stress, feelings being injured and the employee being unable to find fresh employment for some time. The author points out that the employer may also breach the duty of confidence and trust in a number of ways, such as false accusations of theft prompted by an inadequate investigation, failing to support or undermining the authority of an individual employed in a managerial capacity and unwarranted criticism.

Once again In South Africa the LAC has already accepted that an employee may claim and be awarded compensation in a reasonable amount from the former employer to redress a wrong done to the personality and feelings of the employee. See Harmony Furnishers (Pty)Ltd v Prinsloo (1993) ILJ 1466 (LAC).

Finally, Douglas Brodie quotes a passage from the decision in the House of Lords in Spring v Guardian Assurance [1994] 3 All ER 129 where cognizance was taken of

” … the changes which have taken place in the employer/employee relationship, with far greater duties imposed on the employer than in the past, whether by statute or by judicial decision, to care for the physical, financial and even psychological welfare of the employee. “

Given the need for the South African Labour Courts to harmonize law and fairness and the acceptance of the reciprocal duty of trust and confidence it can be expected that greater duties of the nature mentioned in that quote will be imposed on employers.

New Zealand Law

It appears that developments similar to those in England have occurred in New Zealand. According to a recent article by Martin Vranken “Redundancy compensation and implied contract terms: recent developments in New Zealand Case Law” (1996) 9 Australian Journal of Labour Law [AJLL] 74 the Court of Appeal in New Zealand relied on an employer’s duty of confidence and trust at common law in the context of termination of employment for operational reasons. The Court decided that if such a dismissal is carried out in an inconsiderate manner, more particularly by denying the employee a reasonable severance benefit, it can amount to a repudiatory breach of the relationship of confidence and trust entitling the court to make an appropriate award of compensation. The cases of Brighouse Ltd v Bilderbeck (1995) 1 NZLR 158 (CA) and Jones Schindler Lifts Ltd v Johnston (1995) 1 NZLR 190 (CA) are referred to in that article.