CCM ARBITRATION AWARD

Commissioner: Adv C de Kock
Case no.: WECT13933-10
Date of Award: 17 December 2010

T HONONO & 12 OTHERS - Applicants

And

DEPARTMENT OF THE PREMIER: WESTERN CAPE PROVINCIAL GOVERNMENT - Respondent

DETAILS OF HEARING AND REPRESENTATION

[1] This matter was scheduled for and heard as an arbitration process on 22 and 23 November 2010 at the Cape Town offices of the CCMA. Mr. WD Field from Bernadt Vukic Potash & Getz Attorneys represented the applicants and Adv. RGL Stelzner SC (instructed by the State Attorney's offices) represented the respondent.

[2] This matter was initially referred to the Labour Court as an alleged unfair dismissal based on operational requirements. The parties however agreed, after some of the pleadings were filed in the Labour Court, to consent to arbitration under the auspices of the CCMA in terms of section 141 (1) of the Labour Relations Act 66 of 1995 (hereinafter referred to as "the LRA"). Written confirmation of the said agreement was provided to the CCMA and placed in the file. The matter was accordingly scheduled for arbitration on the days stated above.

(3] It is to be noted from the onset that although the applicants alleged that they were dismissed based on operational requirements, it is the respondent's case that the applicants were not dismissed and that their contracts of employments terminated automatically in terms of the provisions of their contracts of employment. I shall.revert back to this issue hereunder.

BACKGROUND TO THE DISPUTE

[4] The applicants (13 applicants in total) were all employed on fixed term contracts of employment commencing on 1 August 2008 and expiring on 30 June 2011. The applicants all held the positions of Deputy Director: Area Coordinator to the Social Transformation Programme (hereinafter referred to as "the STP") and earned a monthly salary of R 37 376.75 as at the date of their alleged dismissals on 31 March 2010.

ISSUE TO BE DECIDED

[5] I am required to determine firstly whether the applicants were dismissed as per the provisions of section 186(1) of the LRA and if so, whether their dismissals were fair both substantively and procedurally.

SURVEY AND ANALYSIS OF EVIDENCE AND SUBMISSIONS

[6] I will, for purposes of this brief award, address the survey and analysis of the evidence and submissions simultaneously. I shall firstly deal with the issue as to whether or not the applicants have discharged the onus to prove the existence of a dismissal, as per section 192(1) of the LRA,
Were the applicants dismissed?

[7] The respondent's case in essence is that the applicants were not dismissed but that their contracts of employment expired by operation of law. The termination of the applicants' contracts of employment, so it was argued, was brought about by the happening of an event such as the termination of the STP, which termination does not constitute a dismissal as per the provisions of section 186 of the LRA.

[8] It is important to note that it is not disputed that the applicants were all employed on fixed term contracts of employment, which would have automatically expired as at 30 June 2011. The termination date of 30 June 2011 is not however an issue that I need to make a finding on. It is the respondent's alleged premature termination of the applicants' employment effective 31 March 2010 that I need to determine and make a finding on.

[9] The respondent's argument in support of its contention that the applicants' contracts of employment terminated and or expired by operation of law on 31 March 2010 is premised on two specific provisions contained in the fixed term contracts of employment. The first clause relied upon by the respondent in submitting that the applicants were not dismissed is clause 5.1 of the said contracts of employment. Clause 5.1 states as follows:

"Irrespective of the date or dates of signing of this Agreement by the parties, it is agreed and recorded that the Agreement shall be deemed to be of force and effect from 1 August 2008 to 30 June 2011. This paragraph is to be read in conjunction with paragraph 9 in the event of the Social Transformation Programme (STP) being terminated prior to 30 June 2011 or the re-allocation of the work function,"

[10] The respondent further relied on clause 9.1 of the said contract, which states as follows:

"Notwithstanding anything to the contrary in clause 5.1 herein contained, either party to this Agreement may terminate it at any time during the currency thereof on giving one month's notice in writing to the other party. The EMPLOYER may, however, in its discretion accept a shorter period of notice.

[11] It is perhaps necessary for sake of completeness to also refer to the wording of clause 9.2, which states as follows:

"The EMPLOYER may terminate this Agreement summarily or after notice of less than one month, as it may deem expedient, in the event of a breach of the terms of this Agreement by the EMPLOYEE. The Agreement may otherwise be terminated only for reasons relating to misconduct, operational requirements or incapacity."

[12] The applicants' argument is that the termination of their employment constituted a dismissal as provided for in section 186(1)(a) of the LRA. Mr. Field submitted that the respondent has misinterpreted the applicable legal framework in submitting that the applicants were not dismissed. He argued that on a proper reading of the said clauses, what it amounts to is that the applicants were employed on a fixed term contract of employment for a definite period with an internal / premature termination clause. This, so it was argued, is no different to an employee who is employed on an indefinite basis, subject to the giving of a specified notice period.

[13] The question regarding whether clauses such as the ones relied upon by the respondent constitutes a dismissal or whether it amounts to the expiry of a contract by operation of law has not been answered consistently by the CCMA, bargaining councils or by the Labour Courts. The initial tendency appears to have been that such clauses would result in the expiry of contracts of employment by operation of law with a minimum number of decisions holding that termination based on such clauses would constitute a dismissal. There however appears to be a shift lately by the Labour Courts in that it is now more regularly found that such clauses do not amount to expiry of a contract of employment by operation of law. I shall return hereunder to the relevant case law in this regard.

[14] It is perhaps appropriate, in determining whether or not the applicants were dismissed, to first refer to some case law regarding what constitutes a "fixed term contract of employment". It was held in the matter of Nkopane & others v Independent Electoral Commission (2007) 28 lU 670 (LC) (with reference to Tiopaizi v Bulawayo Municipality 1923 AD 317) that if an employment contract is truly a fixed-term contract, it is legally incapable of valid premature cancellation for any reason other than material breach. This was also the finding of the Court in Buthelezi v Municipal Demarcation Board (2004) 25 lU 2317 (LAG) at page 2320, clause 9 where the Court stated as follows:

"The first question that arises in the present matter is whether the respondent was entitled to terminate the employment contract between it and the appellant when it cancelled it. There is no doubt that at common law a party to a fixed-term contract has no right to terminate such contract in the absence of a repudiation or a material breach of the contract by the other party. In other words there is no right to terminate such contract even on notice unless its terms provide for such termination (my highlighting).

[15] It is clear from the facts placed before me that the parties, in entering into the fixed term contract of employment for the period 1 August 2008 to 30 June 2011, specifically included the possibility that either party may terminate the fixed term contract of employment by giving the required notice, which is one month's notice. I am convinced that clause 9.1 has been specifically included into the contract to serve this very purpose. I am of the view that any "fixed-term contract of employment, which contains such a clause is not a true fixed-term contract but a maximum duration contract. The Labour Court in Mafihia v Govan Mbeki Municipality (2005) 26 lU 257 (LC) was faced with a contract with a fixed five-year term, which likewise contained a clause which entitles either party to terminate the contract at any time during the five-year period on giving one month's notice in writing to the other party. A contract of this nature, so the Court held, may more properly be described as a maximum duration or maximum term contract.

[16] The Labour Court in the Nkopane-case supra held that an agreement ‘that the employment will terminate at the latest on a specified date" would not constitute the classic form of fixed-term contracts, It would instead constitute a maximum term contract. If I apply this reasoning to the case before me, it is clear that the termination date of the "fixed-term contract of employment" is the latest date that the contract would end. The notice clause however allows either party to give to the other party one month's notice in writing before the termination date, hence resulting in the ‘fixed-term contract of employment" not being a true fixed-term contract of employment but a maximum duration or maximum term contract.

[17] The next issue to be determined is whether it can be said that the provision made in the contracts of employment in clause 5.1 read with clause 9.1 and as relied on by the respondent for either party to give one month's notice to the other party amounts to an expiry of the contracts by operation of law. I have considered the latest case law arising from the Labour Courts on similar issues and I am of the view that the respondent's version that the contracts of employment expired by operation of law and hence that there was no dismissal cannot be legally correct.

[18] The clauses relied upon by the respondent and as supplemented by legal arguments have the same or similar meaning and or effect as the clause that formed the subject of the decision of the Labour Court in the matter of SA Post Office Ltd V Mampeule (2009) 30 IL.J 664 (LC). The Court in that matter unequivocally stated that a contract cannot provide for the automatic termination of a contract of employment:

"[45] The effective cause of termination of the respondent's contract of employment was clearly the minister's removal of him from the applicant's board of directors. The automatic termination clause is impermissible and cannot rightly be invoked to stave off the clear and unambiguous effect of the minister's overt act.

[46] In the result, the automatic termination provisions of article 8.3, which
regulates the termination of the contract of employment and is thus incorporated by reference therein, are impermissible in their truncation of provisions of chapter 8 of the LRA and, possibly even, the concomitant constitutional right to fair labour practices (cf B lgbo v Johnson Matihey Chemicals Ltd [1986] IRLR 215 (CA)). Provisions of this sort, militating as they do against public policy by which statutory rights conferred on employees are for the benefit of all employees and not just an individual, are incapable of consensual validation between parties to a contract by way of waiver of the rights so conferred."
[19] The Labour Appeal Court confirmed the approach adopted by the Labour Court when the matter went on appeal (SA Post Office Limited v Mapuele [2010] JOL 25839 (LAC)).
[20] The Labour Court, in the matter of Chilli Bush Communications (Pty) Ltd v Commissioner Johnston & Others (Case No JR1234-08) (LC) held that there are persuasive policy reasons why it should not be accepted that parties may contractually provide for the automatic termination of an employment relationship upon the occurrence of a certain event such as for example, where a person is removed as a director from a company. The Court stated that, by allowing an employer to contractually negotiate the terms of a dismissal in advance is, in the Court's view, not permissible in the labour law context. The Court stated that, firstly, providing for an automatic termination in a contract of employment (or as in that case the articles of association) will be in contravention of the provisions of sections 5(2)(b) and 5(4) of the LRA, which prohibit an employer and an employee from agreeing to limit an employee's statutory rights. The Court held further that a shareholders' agreement can likewise not, in the Court's view, limit the statutory rights against unfair dismissal which an employee enjoys in terms of the LRA. The Court stated, secondly, that such a limitation of an employee's right against unfair dismissal is in conflict with applicable case law and more importantly, falls foul of the constitutional right of every employee to fair labour practices.

[21] I am in complete agreement with the legal principles emanating from the aforesaid decisions of the Labour Appeal Court and the Labour Court. I am of the further belief that these legal principles equally applies to situations where an employer attempts to circumvent the requirements of fairly dismissing employees by relying on an "automatic termination of employment-clause" in a contract of employment such as the ones placed in front of me. The respondent in the matter before me appears to have negotiated out of the requirements that all dismissals must be fair and for a reason as provided for in section 188 of the LRA. It could most certainly never have been the intention of the legislature to allow a situation where the contracts of employment of employees can be terminated (automatically so according to the respondent's argument) simply because there is a change in political leadership and because the new leadership no longer wants to honour the terms of contracts of employment entered into by the previous political leadership.

[22] The decision by the new political leadership not to honour the contracts of employment for the full duration of the fixed term contract of employment, i.e. until 30 June 2011 must surely be tested to be in compliance with both section 185 (the right not to be unfairly dismissed) and section 188 (that any dismissal, in order to be fair, must be based on incapacity, misconduct or operational requirements and in accordance with a fair procedure). It can most certainly not be left for a political .party or leader to make a political decision at the expense of the concept of fair labour practice, which is a constitutional right accorded to all employees.

[23] In both the SA Post Office and Chillibush-cases supra the employer effectively negotiated that, in the event of the employee being removed as a director, the employee's contract of employment will automatically expire. This, as stated above, was not acceptable to the Labour Court. In this case the respondent effectively negotiated, on their argument, that should the STP be cancelled for whatever reason, which is similar to the removal of an employee as a director for whatever reason, the applicants' contracts of employment would automatically expire. The quoted decisions of the Labour Court are very clear in this regard, i.e. that parties are not allowed to enter into contracts of employment where they effectively opt out of the protection afforded by the LRA.

[24] The respondent has referred me to the judgment of Sindane v Prestige Cleaning Services (2010) 31 lLJ 733 (LC) where Basson J held that the termination of a fixed term contract at the end of an agreed period or on the occurrence of an agreed event, even if the time the event will occur is unknown to the contracting parties, does not constitute a dismissal because the dismissal is not affected by the employer. I must agree with Mr. Field's submissions that this judgment is not in line with the latest case law emanating from the Labour Appeal Court (the SA Post Office-case supra), as well as with judgments emanating from the Labour Court (for example the Chillibush-case supra). I am as such not bound by the decision of the Court in the Sindane-matter,

[25] The judgment in the Sindane-matter is clearly at odds with the principles established in both the SA Post Office and Chillibush cases supra, as in allowing an employee's services to be terminated (automatically so without allowing that employee the right to challenge the fairness of such a decision) simply because the client indicated that they no longer require the employee's services would in my opinion amount to a serious infringement to an employee's constitutional right to fair labour practices. If one is to allow such clauses to be regarded as automatic termination-clauses, one must ask the question where one will draw the line. If an employee is alleged to have committed misconduct and a client requests that employee to be removed without there being any proof that the employee committed the alleged misconduct, can the termination of the employee's contract really be said to have been an automatic termination simply because the contract of employment provides that such a termination would be an automatic termination. This surely cannot be the case and should not be allowed in the interests of protecting the rights of employee's not to be unfairly dismissed.

[26] To go one step further. If a contract allows for the automatic termination of a contract of employment in the event that the employee's job becomes redundant, can such a termination be said not to constitute a dismissal? Surely that can never be the case. There is a limit to which an employee's contract of employment can be phrased as a fixed term contract or a contract for a specified purpose. The expiry of a contract in terms of a stated end-date is most certainly not a problem, as it is clear that the expiry date will not be dependent upon a decision taken by someone which could have been unfair in its very nature. A contract entered into for a specified purpose, such as the completion of a project, is not dependent on an act by someone which could be regarded as unfair. The employees will be employed for example for purposes of building a building. If the building is finished, there can be no doubts that the termination of the employees' contracts of employment would be fair. It must however be ascertained first whether or not the building has been finished and if so, a decision will no doubt be made that the dismissal was fair. To hold in such cases that there was no dismissal would not, in my opinion, be legally correct and or fair.

[27] I can perhaps also refer to the decision of the Labour Appeal Court in the matter Denel (Pty) Ltd v Gerber [2005] 9 BLLR 849 (LAC) where the Court held in the context of whether parties can effectively contract out of the LRA by styling an employee as an independent contractor as follows:

"[24] I am satisfied that the parties can resile from the position which they had deliberately and openly chosen to take up and that to reach any other conclusion would be, in effect, to permit the parties to contract out of the Act and to deprive, in particular, a person who works as an employee within the definition of the Act under a contract of service of the benefits which the statute confers upon him. If I consider the policy of the Act I can see the dangers, pointed out by Lord Justice Ackner in the course of the argument, of employers anxious to escape from their statutory liabilities under this legislation of the Factories Act offering this choice to persons to whom they intend to employ, as Mr West was employed, as employees within the definition of the Act and pressing them to take that employment - if may be even insisting upon their taking that employment - on the terms that it shall not be called that employment at all, but shall be called a contract for services with a self-employed person. I, therefore, reject Mr Clifford's submission in its extreme form. To accept it would, I think, be to prefer the minority view of Lord Justice Lawton in Ferguson's case to the view of the majority both in Ferguson's case and in Massey's case; and I do not find anything in Massey's case which clearly indicates that, where the agreement to treat a man as self-employed is made as openly as it was in this case, the person called self-employed is forced to accept that position, whatever the reality of the matter, when he comes to fry and persuade an Industrial Tribunal to hear a complaint of unfair dismissal That seems to me to presuppose some kind of estoppel against invoking the statute equivalent to, or closely analogous to, a power to contract out of the Act; and to give effect to it would, in my judgment be plainly wrong"

[28] It is clear from the aforesaid that it is not open for the parties to agree on something in a contract of employment when such a provision would infringe an employee's rights in terms of the Constitution and in terms of the LRA. Insofar as including "automatic termination clauses" in contracts of employment, it is not only my duty as a commissioner but surely an obligation that I enquire into the nature of the said clauses in order to apply the rights of employees not to be unfairly dismissed. In the matter before me I must therefore hold that the applicants did in fact discharge the onus that they were dismissed, as the respondent terminated their contracts of employment with notice (as provided for in section 186(1)(a) of the LRA). I now turn to the second issue I am required to determine, which is whether or not the applicants' dismissals were fair both substantively and procedurally.

Were the dismissals fair?

[29] The respondent initially strongly denied that, in the event of it being held that the applicants were dismissed, the dismissals were based on operational requirements. It has always been the case of the applicants that their dismissals were based on operational requirements. I specifically addressed this issue with Adv. Stelzner during closing arguments and I allowed the respondent to provide me with some further additional legal argument insofar as what the reason for the dismissals was. I addressed this issue with Adv. Stelzner based on the fact that, in terms of section 188 of the LRA, a dismissal is unfair if the employer fails to prove that the reason for dismissal related to the employee's conduct or capacity or based on the operational requirements and that the dismissal was effected in accordance with a fair procedure. The respondent's initial position was that, if there was a dismissal, it would not have been based on any of the reasons stated in section 188 and based on the clear working of section 188, the dismissals, on the respondent's initial version, would have been held to be unfair.

[30] Adv. Stelzner, correctly so in my view, changed his initial line of argument in agreeing that, if it is held that the applicants were dismissed, such dismissal would have been based on operational requirements. I will as such accept for purposes of this award that the applicants' dismissals were based on operational requirements and I will therefore apply the law on dismissals based on operational requirements in determining whether or not the applicants' dismissals were fair. I will firstly address the requirement that the dismissal must have been substantively fair and thereafter deal with the procedural fairness.

Substantive Fairness of the Dismissals

[31] The respondent's argument in respect of the substantive fairness of the dismissals is that the Director General terminated the applicants' employment because with effect from the new financial year the applicants' positions would be redundant, the STP having been terminated by the Premier and the cabinet with effect from this date. There was as such, so it was argued, no work for the applicants as a result of the termination of the STP.

[32] I have great difficulties in agreeing with Adv. Stelzner's submissions that the applicants' dismissal were substantively fair simply on the basis that the termination came about as a result of the decision taken by the Premier and cabinet. No substantive evidence whatsoever was led as to why it was necessary for this decision to be taken prior to the expiry of the applicants' fixed term contracts of employment. Political decisions need to be taken keeping in mind the right of employees to fair labour practices and more specifically the right not to be unfairly dismissed. On the evidence placed before me I do not believe that, other than the decision being a political one, there was a substantively fair reason for the applicants' dismissals. I do acknowledge the right that an employer has to restructure its business, but the reasons for restructuring needs to be tested against the requirement of fairness.

[33] I do not intend to address the issue of substantive fairness in any further detail based on the fact that the respondent's main submissions in this regard have been rejected. The respondent as such failed to prove, as is required by section 192(2) of the LRA, that the dismissals of the applicants were substantively fair.

Procedural Fairness of the Dismissals

[34] I further also do not intend, based on my finding on the substantive unfairness of the dismissals, to analyse the evidence presented regarding the procedural fairness of the dismissals in any great detail, save to state that I am satisfied that the respondent did not fully comply with the procedural requirements relating to a dismissal based on operational requirements. The reason for this is abundantly clear. The respondent was of the opinion, at the time and even as at the date of the arbitration proceedings that the termination of the applicants' employment were due to operation of law and that the only requirement was to give one month's notice, There was as such no need, based on the respondent's incorrect interpretation of the law and or the contracts of employment, to initiate a section 189 consultation process.

[35] There was however some attempt made by the respondent to advise the applicants of their termination of employment and to find alternative employment (very limited attempts were made), but these attempts can never be said to have been sufficient for the purposes of section 189 consultations. I believe that, had there been proper section 189 consultations and had there been an understanding that the terminations were based on operational requirements, much more would have been done in order to preserve the applicants' employment rather than simply terminating the contracts of employment by giving three months' notice. The giving of notice in excess of what was required does not in itself make the dismissals fair. I accordingly find that the applicants' dismissals were also procedurally unfair.

AWARD

[36] The dismissals of the applicants were unfair both substantively and procedurally. I am required therefore to determine the appropriate relief to be awarded to the applicants. It is common cause that the STP has been cancelled and that it no longer exists. The reinstatement of the applicants were not part of the relief sought by the applicants, as the applicants obviously realised and understands that it would be nonsensical for them to be reinstated in positions that no longer exists.

[37] I am accordingly asked for an order wherein the applicants are compensated to the maximum allowable compensation arising from their unfair dismissals. The maximum compensation that can be awarded to the applicants, in terms of section 194 of the LRA, is 12 months' compensation. The applicants would have enjoyed employment until 30 June 2011 was it not for their unfair dismissals. That means that they would have been entitled to a salary of a further 15 months had they not been unfairly dismissed.

[38] The applicants, barring Mr. D Thomas, were all still unemployed as at the date of the arbitration proceedings and they have all suffered severe financial losses and or predicaments since their dismissals. I am unable to find as to how long it would take for the applicants to find alternative employment and I have deemed it both proper and fair to award to all applicants, barring Mr. Thomas, compensation equal to the salary that they would have earned up to 31 January 2011, i.e. 10 months compensation. Insofar as Mr. Thomas is concerned, I have decided to limit his compensation to 3 months' compensation based on the fact that he obtained alternative employment on 15 June 2010.

[39] Insofar as the applicants have asked for payment of the applicants for the full duration of their contracts of employment, I will refrain from making such an order as the issue of outstanding remuneration in terms of the Basic Conditions of Employment Act was never referred for conciliation.

[40] In respect of the applicants' request that they each be awarded one weeks' severance pay, I can see no reason why such an order should not be made. This matter was supposed to have been heard by the Labour Court was it not for the agreement that the CCMA must arbitrate the dispute. In my understanding I have the same powers than those that the Labour Court would have had in adjudicating the dispute. The Labour Court would have had jurisdiction to award severance pay in a dispute based on section 189, hence my finding that the applicants are entitled to severance pay of one week (all applicants had completed one year's of employment).

[41] The last issue that I am required to determine is whether the respondent should be ordered to pay the applicants' legal costs in this matter. I am of the view that the Labour Court would in all probabilities have awarded costs against the respondent based on the fact that the dismissals of the applicants were unfair both substantively and procedurally. The awarding of costs is based on law and fairness and I must agree with Mr. Field that it will indeed be in the interests of law and fairness that the respondent must pay the applicants' legal costs on the Magistrates' Court scale. The applicants are all at financial ruin after their unfair dismissals and they had to dig deep to be able to get legal representation in challenging their dismissals. I am of the view that an order that the respondent must pay their legal costs is an appropriate and fair order under the circumstances.

[42] I therefore make the following order:

[42.1] The respondent is ordered to pay to all applicants, barring Mr Thomas, 10 months' ‘compensation (R 373 767.50 per applicant). The respondent is ordered to pay to Mr Thomas 3 months' compensation (R 112 130.25). The total compensation due to the applicants therefore is an amount of R 4 597 340.25.

[42.2] The respondent is further ordered to pay to each applicant one week's severance pay, i.e. an amount of R 8 632.04. The total severance payable due to the applicants therefore is an amount of R112 216.52.

[42.3] The respondent is also ordered to pay the applicants' legal costs on the Magistrates' Court scale.

[42.4] The amounts due in terms of clause 41.1 and 41.2 above, i.e. the total amount of R4 709 556.77 must be paid into the applicants' attorney's trust account on or before 17 January 2011 and the legal costs must be paid immediately after the costs have been taxed by the CCMA.

CCMA Commissioner: Adv C de Kock

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