The Supreme Court of Appeal upheld the employer’s appeal and ordered the former air traffic controller to pay R427 843 plus interest thereon and costs based on the breach of the fixed-term contract.   Th damages included not only the amounts the controller had already received but the full value of the retention scheme.  After agreeing to receive more money to remain employed for a fixed-term he resigned prematurely and thereby breached the retention contract.

Air Traffic and Navigation Services Company v Esterhuizen (668/2013) [2014] ZASCA 138; [2014] JOL 32338 (SCA) (25 September 2014) per Theron JA [Lewis, Tshiqi, Wallis JJA and Fourie AJA concurring]

Excerpts without footnotes

[1]  At issue in this appeal is the liability of the respondent, Mr Christiaan David Esterhuizen, to the appellant, Air Traffic and Navigation Services Company, for breach of contract, following upon the premature termination of his employment with the latter.

[2]  The appellant is the sole provider of air traffic, navigation and associated services within South Africa.   The company’s operations include the training of licensed air traffic controllers and technical staff.   The company has, over a number of years, experienced a significant outflow of air traffic controllers to other air traffic navigation service providers (especially in the Gulf region), which do not train specialist technical staff, but instead attract trained staff from companies such as the appellant, by paying extremely competitive rates.   The appellant introduced a scheme, called the retention scheme, to retain key and critical skills.   The evidence was that the appellant had spent vast sums of money training its staff, and suffered significantly when staff, once trained, leave the company.   It suffered, both in terms of its capital investment in training staff and in the smooth operation of the company.

[3]  The retention scheme functioned by way of offering a substantial financial reward to eligible employees, for as long as they remained in the appellant’s employ for the agreed period, whilst at the same time acting as a deterrent to premature resignations.   The total benefit payable in terms of the scheme to each employee was calculated in advance, based on projected increases and paid to employees monthly.   Employees had a choice of whether or not to participate in the scheme.

[4]  The respondent had initially been employed by the appellant from 1994 until 1999.  In 2006 the respondent (once again) became employed by the appellant as a Principal Air Traffic Controller.  The employment contract concluded between the parties stipulated that after the expiry of the three months’ probationary period, either party could terminate the agreement on one month’s notice.

[5]  The respondent elected to participate in the retention scheme and to this end, on 10 April 2007, the parties entered into a written agreement recording the terms of the respondent’s participation in the scheme.  The material terms of the agreement were that:

(a) the respondent would receive monthly retention payments in addition to his normal remuneration as an incentive to remain in the employ of the appellant;

(b) the respondent agreed to remain in the appellant’s employ for a fixed term of four years from 1 April 2007 to 31 March 2011; and

(c) the respondent’s employment contract would be amended to reflect the terms of the agreement: more particularly, the notice period would be substituted with a clause preventing the termination of employment by either party during the fixed term.  The agreement also provided for the consequences that would follow upon a breach of its terms.

[6]  On 30 May 2008, the respondent tendered his resignation, effective from the end of June 2008.  By letter dated 30 May 2008, the appellant asserted that such resignation constituted a breach of the retention agreement and called upon the respondent to remedy the breach within seven days, failing which it might cancel the agreement and claim payment of all amounts already paid under the agreement, alternatively, the outstanding balance “in terms of the remainder of the agreement”.  The respondent did not withdraw his resignation and the appellant cancelled the agreement.  The benefit the respondent would have derived under the scheme over the four-year period amounted to R584 162.  As at the date of his resignation, he had been paid R156 319.

. . . . .

[14]  Clause 8 sets out a framework for the repayment of the retention moneys.  Clause 6 is on the face of it inconsistent with clause 10.  It appears to provide that, should the respondent’s services be terminated due to resignation, he would be obliged to repay only the retention moneys he had already received as at the date of his resignation.  The difficulty lies in understanding what is meant by the respondent’s services being terminated due to resignation.  The respondent contended that resignation meant a unilateral act on his part and that the provisions of clauses 6 and 10 were ambiguous and mutually destructive.  He argued that termination (by resignation), as provided for in clause 6, was not intended to constitute a breach.

[15]  The word “terminated” in clause 6.1 is ambiguous: it may refer to termination by virtue of a right to give notice under the agreement or a deliberate breach by one party amounting to a repudiation of the agreement.  In this respect the agreement is incoherent and confusing, but clarity emerges when one reads all four sub-clauses, from which it is apparent that the termination of the employee’s services to which it refers is a termination at the instance of the employer, ie the appellant.  If the word “resignation” in clause 6.1.1 is taken to encompass the situation where an employee has a bona fide reason to resign, and such resignation is accepted by the employer, then clauses 6 and 10 can be read together without any conflict.  Where the resignation of the employee is accepted by the employer, the repayment procedure set out in clause 8 would be triggered.  This is the only interpretation which makes the agreement coherent, particularly having regard to the primary purpose of the agreement, namely, to retain the service of specialist employees such as the respondent.

[16]  An interpretation to the effect that the word “resignation” in clause 6.1.1 refers to a unilateral act by an employee and not a breach of the contract, would lead to the absurdity that clause 10 of the agreement, which deals with any breach of the contract, would be superfluous and in fact have no practical meaning at all.  This could never have been the intention of the parties.  In the exercise of interpreting documents, courts are slow to impute superfluity to a document and an interpretation which has this effect should not readily be accepted.  The preferred approach is to give some effect rather than no effect to the words.  Wallis JA in BothmaBatho pointed out that

“[a] sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results or undermines the apparent purpose of the document”.

Having regard to the purpose of the agreement, it is clear that it must be the appellant’s prerogative whether or not to accept a resignation as termination as contemplated in clause 6.1 or consider it a breach under clause 10.  It is evident from the letter dated 30 May 2008 that the appellant regarded the respondent’s resignation as a breach of the retention agreement.

[17]  A contract of employment is generally entered into for a fixed period or for an indefinite period.  Where no date has been fixed upon which the contract will terminate, it will continue indefinitely until terminated or will be terminable by either party on the giving of notice.  In such a contract, resignation is a unilateral act permitted by the specific terms of the contract for bringing the contract to an end.  When the contract is for a fixed period, none of the parties has the right to terminate the contract prior to the expiry of the fixed period.  Cheadle AJ in Lottering v Stellenbosch Municipality endorsed this principle in the following terms:

“If the contract is for a fixed term, the contract may only be terminated on notice if there is a specific provision permitting termination on notice during the contractual period – it is not an inherent feature of this kind of contract and accordingly requires specific stipulation.”

And later:

“In a fixed term contract, a notice to bring the contract to an early end is a repudiation because it does not in itself constitute a contractually permissible act of termination.  Being a repudiation, the employer has an election to hold the employee to the contract or to accept the repudiation and cancel the contract.

This Court has held that a premature termination of a fixed-term contract of employment gives rise to a claim for damages for breach of contract.

[18]  Clause 5 of the agreement is of particular relevance.  In terms of this clause the parties agreed to delete the clause dealing with the notice period in the employment contract and replace it with a clause that the employment contract “is not terminable by either party prior to the expiry of the Fixed-Term Period”The effect of this was that the respondent waived his common-law right to terminate the contract on notice and was precluded from resigning prior to the expiry of the fixed term.  In exchange for so waiving his right, he received retention payments from the appellant.