Employee’s liability for recruitment costs: Premature termination of a fixed term contract

November 1st, 2017
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Metal Industries Benefit Funds Administrator v Myburgh (LC) (unreported case no JS854/13, 29-8-2017) (Lagrange J)

By Yashin Bridgemohan

In the case Air Traffic and Navigation Services Company v Esterhuizen (SCA) (unreported case no 668/2013, 25-9-2014) (Theron JA) at para 17, the court held:

‘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 the case of Lottering and Others v Stellenbosch Municipality [2010] 12 BLLR 1306 (LC) at paras 14 and 20, the court held:

‘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.

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.’

In the case of Fedlife Assurance Ltd v Wolfaardt 2002 (1) SA 49 (SCA) at para 18 the court held a premature termination of a fixed term contract of employment results in a claim for damages for breach of contract.

Facts

The respondent was employed by way of a contract dated 1 March 2013 as a fixed term employee, to assist the applicant with distributing the pension and provident fund surplus in terms of the Pension Funds Act 24 of 1956. The term of the contract was to be determined by the occurrence of an event as opposed to a set date. The contract provided that once the surplus had been distributed (the event) the employment contract with the applicant would automatically terminate.

Prior to the work provided for in the contract of employment been finished and, as such before the event, which would have ended the contract occurring, the respondent resigned on 1 July 2013 in a letter dated 26 June 2013, which was only handed to the applicant on 28 June 2013.

The respondent had been recruited by the applicant through a recruitment agency, which charged the applicant an agency fee of R 15 916,57. After the abrupt resignation of the respondent, the applicant then employed a replacement utilising the services of the same recruitment agency on or about 17 July 2013 and again paid a fee for their services in the sum of R 15 914,40.

The applicant accepted the respondent’s breach of  contract and required payment for damages it suffered due to the respondent’s failure to fulfil his obligation to continue working until the fund surplus had been distributed. The applicant identified these damages to be the original agency fee incurred in recruiting the respondent and the additional fee incurred in obtaining a replacement when he resigned on short notice. Initially the applicant appeared to concede that the initial recruitment fee was incurred before the breach and only the second recruitment fee was incurred as an additional cost. However, in the applicant’s later heads of arguments, the contention that the respondent was also liable to it for the original recruitment costs was continued.

Issue

The main issue before the Labour Court (LC) was whether the respondent was liable for the initial recruitment fee, as well as the second recruitment fee incurred by the applicant.

LC’s judgment

The court noted that where no provisions were made for notice of termination, the respondent’s resignation before the happening of the resolutive event that would have ended the contract amounted to a breach. Under a fixed term contract, an employee could be held liable for the value of the outstanding services he failed to perform, subject to the employer’s duty to mitigate the damage caused by employing somebody else, as the applicant had done. As the only damages the applicant claimed was recruitment fees, it was not required to consider if the respondent was responsible for other damages.

The court noted further there was a direct link between the respondent terminating his employment and the applicant having to replace him. It would have been reasonably within the thought of both parties that the applicant would have sought his replacement in the same way he was hired and this would have required an additional recruitment fee. As such, this was a cost the respondent ought to have realised the applicant would bear in replacing him.

The court held the original fee was one, which the applicant had already suffered as an expense on the premise that it would secure an employee for the term of contract. It was not a liability which it sought to claim from the respondent, or which the respondent agreed to reimburse the applicant if he breached the contract. Even if the respondent had agreed to repay it if he prematurely terminated his employment, it would have been difficult for the applicant to convince a court that it suffered a loss when it had to spend the amount refunded, in recruiting a replacement. The amount which the respondent would have been undertaken to reimburse would have placed the applicant in the same position it would have been had the respondent not prematurely terminated his employment, leaving aside the issue of other damages it may have suffered by work interruption due to his termination.

The court accordingly concluded it was solely the second recruitment fee, which was an expense that could reasonably be attributed to the respondent’s breach.

Conclusion

This judgment is important as it highlights that where an employee who is recruited via an agency terminates a fixed term contract of employment prematurely, said employee is liable for damages in terms of outstanding services, which he or she failed to perform, as well as the recruitment fee incurred by the employer in finding a suitable replacement.

Yashin Bridgemohan LLB (UKZN) PG DIP Labour Law (NWU) is an attorney at Yashin Bridgemohan Attorney in Pietermaritzburg.

This article was first published in De Rebus in 2017 (Nov) DR 34.

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