WL Ochse Webb & Pretorius (Pty) Ltd v Vermeulen

Unlawful but fair may seem strange but the concepts are explained clearly by justice Froneman who was a judge in the constitutional court and retired in 2020. The labour appeal court [former] decided that the employee had been constructively dismissed but the reason was not unfair even though it may have been unlawful ito the common law.

Essence

Unlawful but fair when commercial rationale for operational changes and employee was properly consulted about the changes and resigned

Decision

[1997] 2 BLLR 124 ; (1997) ILJ 361 (LAC) 24 / 02 / 1997. 

Allowed the employer’s appeal and decided the constructive dismissal was not for an unfair reason

Judges

Froneman J, sitting with A van Niekerk and T Bruinders, Assessors

Related books

Darcy du Toit et al

Reasons

Discussion by GilesFiles

“The unfair labour practice jurisdiction allows for a labour law dispensation that pays due regard to the needs and interests of both employer and employee. Neither employer nor employee benefits from a static employment concept where their respective rights and obligations are cast in stone at the commencement of the employment relationship. What the employer bargains for is the flexibility to make decisions in a dynamic work environment in order to meet the needs of the labour process. What the employee exacts in return is not only a wage, but a continuing obligation of fairness towards the employee on the part of the employer when he makes decisions affecting the employee in his work.

That fairness has a formal, procedural aspect to it, as well as a substantive one. The former manifests itself in the requirements of consultation and negotiation on decisions that affect employees in their working relationship, whilst the latter seeks to ensure that the formal process is not a sham and produces a fair result . The courts enforce procedural fairness requirements with little hesitation, but do not so easily enter the debate on whether the result of the process is fair.

The reason for this is obvious, viz, that such intrusiveness would impede the flexibility an employer needs to operate efficiently in the marketplace. Only where the results are so glaringly unfair that it can be inferred that there was no real attempt to act fairly, will interference normally be justified on substantive fairness grounds.”

Court summary

Headnote to BLLR report

“Constructive dismissal – What constitutes – Acceptance by employee of employer’s repudiation of material term of contract amounts to constructive dismissal – Employer altering employee’s remuneration constitutes material repudiation.

Contract of employment – Common law – Dichotomy between common law principles of employment contract and unfair labour practice unfortunate but real – Employee must choose between pursuing remedies for breach of contract and statutory relief.

Dismissal – Constructive – To obtain relief employee alleging constructive dismissal must prove that he did not intend to terminate the employment relationship, that he was “constructively dismissed” and that the dismissal was unfair – Employer altering remuneration structure to satisfy other employees acting fairly as it had adequate commercial rationale.”

Quotations from judgment

Note: Footnotes omitted and emphasis added

The respondent is a tomato salesman. He was employed by the appellant in that capacity on 1 September 1992. On 15 October 1994 he resigned in writing, but was nevertheless paid until the end of October 1994. He thereafter approached the industrial court for relief and was successful to the extent that the termination of his employment was found to be a constructive dismissal, and that the dismissal was found to be unfair. The appellant was ordered to pay him R57,762.70 as compensation.

The appellant now challenges the whole of the determination on appeal.

The roots of the dispute are to be found in a differentiated remuneration structure for the appellant’s salesmen at the Pretoria market. The appellant earns 7.5% commission on its sales of tomatoes on behalf of clients at the market and only 5% on its sales of potatoes and onions. In terms of a fairly complicated arrangement the appellant’s salesmen shared in the commission earned on the sale of the vegetables, in addition to their basic salaries. The problem was that, because the sale of tomatoes attracted a higher percentage of commission, the respondent generally earned more than his fellow salesmen who were involved in the sales of other vegetables. They perceived this as unfair. The differentiation in the commission was the consequence of the statutory regulation of commissions earned at the market. The regulation was repealed, but the differentiation persisted in the salesman’s conditions of employment.

The dissatisfaction about the remuneration structure was discussed at a meeting of shareholders, management and staff on 10 August 1994. At that meeting a restructuring of the appellant’s shareholding was announced. The respondent was to become a 10% shareholder and director of the appellant. The eventual aim of the restructuring was to enable each of the four working directors ( of which the respondent was to be one ) to acquire a quarter of the shares in the appellant. In addition it was stated at the meeting that the remuneration structure already referred to was unclear and that a committee of three persons would investigate other systems and then present a proposal to the directors. The respondent was to be one of the three members of the committee.

The committee met on 15 August 1994. The minutes show that the working directors were instructed to formulate a remuneration structure. If they were unable to reach consensus on it, it was agreed that the new majority shareholder would be asked to formulate a remuneration structure which would have to be accepted by all concerned. Those who did not, would have the choice of leaving the appellant’s employment.

Although there is some dispute in the evidence about the actual workings of the committee and the four working directors, it is quite clear that agreement could not be reached on a remuneration structure acceptable to all. At this stage it must have been apparent that the respondent favoured a retention of the status quo and the others not. This was confirmed at a general meeting held on 9 September 1994 where the minutes record that the respondent stated that he should not lose commission, simply because he was dealing with a commodity earning a higher commission.

At this meeting representatives of the majority shareholders were asked to present a new remuneration structure at the next meeting which would attempt to reconcile the different commission percentages. The old system would continue in operation until then. At the next general meeting of 6 October 1994 a new remuneration system was proposed and accepted. It was recorded that a decision was taken to allow the respondent to examine the system and then to do one of three things:

  • (1) accept the system;
  • (2) present an alternative himself; or
  • (3) resign.

In evidence the respondent disputed that he was given the third option of tabling an alternative structure. On 18 October 1994, however, in a letter, signed by himself, reference was also made to this option. His explanation of how it got there is unconvincing and cannot be accepted.

The events between 6 and 15 October 1994 leading to his resignation are also disputed. Initially the respondent indicated that Mr Deon Van Zyl told him to resign, but he later conceded that he could not remember whether Mr Van Zyl asked him to withdraw his resignation. It was the appellant’s case that he was not asked or forced to resign and that, upon his resignation, he was asked to withdraw his resignation and to continue his employment and see whether the new system worked. If it did not, other systems would be examined instead. The appellant’s witnesses do not appear, from the record, to have been untruthful or unreliable and, compared to respondent’s sometimes confusing and contradictory account, there seems to be no proper reason for rejecting their evidence in this regard. What is common cause, however, is that during this period the respondent did not propose any new alternatives. In his own words, the only proposal he made was to retain the status quo.

On 15 October 1994 the respondent resigned. The letter of resignation was terse:

“Hiermee dien ek my bedanking in by hierdie firma. My laaste werksdag sal wees 31/10/94”.

A more detailed letter followed on 18 October 1994.

Six members of appellant’s staff who worked with respondent at the market resigned on the same day. Upon his resignation the respondent started working for another concern at the market as a tomato salesman. A great number of the farmers who supplied him while he worked for the appellant followed him there, as did the members of staff who resigned at the same time. Someone else acted as tomato salesman for the appellant until the end of October 1994 and all the commission earned during that period was subsequently paid out to the respondent.

In the court a quo it was found that respondent was constructively dismissed and that the dismissal was unfair because, procedurally, there had been a lack of proper consultation with the respondent about the new package, and, substantively, the new package was unfair in that it deprived him of the benefits that he was previously entitled to.

The case raises some interesting and problematical issues, such as the extent to which common law principles of the contract of employment may interact with principles developed under the unfair labour practice jurisdiction in terms of Labour Relations Act, No. 28 of 1956 ( “The Act”).

The respondent was confronted with a proposed new remuneration package which was in conflict with one of the material terms of his original contract of employment. Although he was given the opportunity to suggest another alternative, it was clear that any alternative would also necessarily have had to be one that was in conflict with what he was entitled to in terms of his original contract of employment.

The appellant’s conduct in confronting the respondent with this choice of alternatives showed “ a deliberate and unequivocal intention” not to be bound to respondent’s previous remuneration package.

This constituted a breach of contract, in the form of repudiation, on its part (See Van Rooyen v Minister van Openbare Werke en Gemeenskapsbou 1978 (2) SA 835 (A) at 845A-B). The respondent elected to accept this repudiation and resigned. At common law he would have been entitled to claim damages flowing from the appellant’s breach of contract.

But the respondent did not choose this route. Instead, he approached the industrial court for compensation on the basis that he was unfairly dismissed. The industrial court does not have jurisdiction to grant damages for breach of contract. Its jurisdiction lies in determining whether certain conduct amounts to an unfair labour practice or not.

Just as a lawful dismissal may not necessarily be fair, similarly an unlawful dismissal under common law need not necessarily be unfair in terms of the Act.

The contrast between the common law of employment and the industrial court’s unfair labour practice jurisdiction is apparent in a case such as this, where a person’s employment has terminated as a result of a desire on the part of the employer to change the employee’s conditions of employment. The effect under the common law has already been alluded to.

The position under the Act is somewhat different.

Where a person has resigned from employment, but alleges that he was in reality dismissed by his employer, the labour appeal court has held that he must prove,

(1) that he did not intend to terminate the employment relationship under the Act;

(2) that he was “constructively” dismissed; and

(3) that the dismissal was unfair

( See Jooste v Transnet Ltd t/a SA Airways (1995) 16 ILJ 629 (LAC) at 636-639 ).

An example of a constructive dismissal is “the repudiation of the contract of employment by the employer who compels the employee to resign” (See Transnet’s case at 639A).

Where a dismissal follows a refusal by an employee to accept changed conditions of employment, the dismissal may nevertheless be fair if the employer shows that there was a commercial rationale for the change and the employee was properly consulted about the change 

(See Le Roux and Van Niekerk The South African Law of Unfair Dismissal at 280-282).

In such a case the dismissal might be unlawful under the common law, but still fair under the Act.

Such a dichotomy in approach is not helpful. Employers and employees should not be expected to arrange their affairs in a schizophrenic manner where one set of rules applies when the common law holds sway, whilst another does when the Act applies. Furthermore, in my respectful view, the divergence in approach is avoidable.

Criticism of the common law of employment is directed at its roots, namely that it is a remnant of a society which does not reflect present realities:

“Our common law entrenches notions of property dominant in an earlier era, particularly in the priority it accords to the rights of private land owners and asset holders. At the same time, the contract of employment represent a rather inflexible package when viewed against the demands of modern employment relations. Contemporary labour law challenges this established legal precepts by asserting broader public interest and economic considerations. Collective bargaining, for instance, is presented as a social good justifying incursions into private territory. The tension between nineteenth-century common law and twentieth-century statute law is reflected in the often contrasting judgments of ordinary courts and more specialized labour courts on employment matters. Unhappily, the lawgiver has accorded the ordinary courts and the labour courts overlapping jurisdictions in certain areas. Coherence in the labour jurisprudence has suffered as a result and further reform of the law in this regard keenly awaited.” See: Thompson and Benjamin, SA Labour Law, volume 1, at A1-3.

The awaited reform referred to in the quotation came in the form of the new Labour Relations Act, No.66 of 1995, but for matters still to be dealt with under the old Act the problems mentioned by the authors remain .

It is, however, not the function of this court to develop the common law: that lies within the the province of the High Court and the Supreme Court of Appeal.

Section 35(3) of the interim constitution provides that in the application and development of the common law a court “shall have regard to the spirit, purport and objects of this chapter”.

Section 27(1) of the interim constitution states that “every person shall have the right to fair labour practices”.

Indirect development of the common law through the use of section 35(3) may lead to a result not very different from what has been achieved under the Act in terms of the unfair labour practice jurisdiction. One may hope that this development will indeed take place.

The unfair labour practice jurisdiction allows for a labour law dispensation that pays due regard to the needs and interests of both employer and employee. Neither employer nor employee benefits from a static employment concept where their respective rights and obligations are cast in stone at the commencement of the employment relationship.

What the employer bargains for is the flexibility to make decisions in a dynamic work environment in order to meet the needs of the labour process. What the employee exacts in return is not only a wage, but a continuing obligation of fairness towards the employee on the part of the employer when he makes decisions affecting the employee in his work.

That fairness has a formal, procedural aspect to it, as well as a substantive one. The former manifests itself in the requirements of consultation and negotiation on decisions that affect employees in their working relationship, whilst the latter seeks to ensure that the formal process is not a sham and produces a fair result .

The courts enforce procedural fairness requirements with little hesitation, but do not so easily enter the debate on whether the result of the process is fair.

The reason for this is obvious, viz, that such intrusiveness would impede the flexibility an employer needs to operate efficiently in the marketplace. Only where the results are so glaringly unfair that it can be inferred that there was no real attempt to act fairly, will interference normally be justified on substantive fairness grounds.

What this means in the present case is that the appellant was entitled to change the respondent’s remuneration package if there was a commercial rationale for it, and if the final decision was arrived at after due consultation with the respondent, involving him properly in the process leading to a fair decision.

Any successful business needs contented employees. Unhappiness can lead to problems such as labour unrest, a drop in productivity, and the like. The appellant sought to address the unhappiness of the majority of its employees with the old remuneration structure, by seeking ways to change it. That remuneration structure, (viz, differentiated commissions) was a remnant of previous statutory determination and not only of an agreement between the employees and the employer.

If the problem was not addressed the possibility of further problems arising, such as those mentioned earlier, would have increased.The evidence on record does not establish an ulterior motive on the part of the appellant for attempting to find a new remuneration package. A commercial rationale for the changes was thus established.

The respondent was intimately involved in the process of seeking a viable alternative. He was part of the original committee charged with finding a solution. He attended all the general meetings where the matter was discussed . He had earlier agreed to an arrangement whereby employees would either accept the recommendations of the majority shareholders, or resign. At the general meeting in early October this agreement was extended to give him another option, namely to come up with an alternative of his own. He chose not to do so.

When he resigned he was asked to reconsider and to continue working to see whether the new system would work: if not, further changes were not excluded. He declined, having already made arrangements for work at the market in the employ of another.

In short,the respondent refused to recognize the appellant’s entitlement to consider a change in the remuneration structure and did not materially assist in the process of change, despite having the opportunity to do so.

A final impasse had not even ocurred: the meeting in October gave him another chance to present an alternative and when he resigned it was stated that the new system was open to change. Nothing prevented him from remaining in employment and pursuing his remedies internally, or even approaching the industrial court for relief whilst remaining in employment.

In the circumstances the appellant’s conduct in exploring ways to implement a change to the remuneration structure was not procedurally unfair. At the time the respondent left it was too early to determine whether the changes would be substantively unfair to the respondent.

On the face of it though, there is nothing on record to suggest that the changes were commercially unreasonable or of such a nature to suggest bad faith or improper motive on the part of the appellant. There are no specific features to this case which call for second-guessing by this court of a rational business decision.

If one deals with the case in the more conventional manner outlined in the Transnet case, the following would result:

The respondent’s resignation was, in common law contractual terms, an acceptance of the appellant’s repudiation of a material term of the common law contract of employment. The resignation itself was consistent with an intention on the part of the respondent to pursue his remedy, as he saw it, of compensation due to him as an employee in terms of the Act (See National Automobile and Allied Workers Union (now known as National Union of Metal Workers of SA v Borg-Warner SA (Pty) Ltd (1994) 15 ILJ 509 (A) 518).

The matter was thus justiciable under the Act. The appellant’s repudiation caused the respondent’s dismissal. His dismissal was therefore, in a practical sense, at the behest of his employer. It thus qualifies as a “constructive dismissal”. Lastly, however, and for the reasons already mentioned, the dismissal was fair.

The appeal must accordingly succeed. The determination in the industrial court is set aside and replaced with the following order:

“The application is dismissed.”