Employment law update – Ostensible authority: Implementation of ‘revised’ salary increases

July 1st, 2020
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In Eskom Holdings SOC Ltd v National Union of Mineworkers and Others [2020] 5 BLLR 514 (LAC), Eskom unilaterally decided to award ad hoc salary increases to a group of employees, which included a number of members of the National Union of Mineworkers (the employees). The ad hoc salary increases were designed to ensure that the employees’ salaries were market-related and were recorded in a letter addressed to each employee. Pursuant to the letters, however, the employees received their electronic payslips, which reflected that the increases were less than those indicated in the letters. On inquiry, the employees were informed that the salary increases had been ‘revised’ downwards because they had been wrongly calculated.

After lodging a grievance, the employees approached the Labour Court (LC) with a contractual claim for specific performance based on s 77(3) of the Basic Conditions of Employment Act (the BCEA). The LC found that Eskom was bound by the increases set out in the letters as the general manager who had signed the letters had the necessary authority to approve the salary increases. In addition, the LC rejected Eskom’s claim that the amounts reflected in the letters constituted a justifiable error and ordered Eskom to pay the increases initially promised to the employees.

On appeal, the question before the Labour Appeal Court (LAC) was whether Eskom lawfully awarded the ad hoc salary increases to the employees. The court noted that a comparative exercise guided the decision-making process in the determination of the salary increases, which were granted, the objective being to ensure the salaries were as close as possible to market-related salaries. The exercise comparison was reflected on a sheet titled ‘final proposed salary’ and was approved by Eskom’s executive manager. Thereafter, the sheet was sent to the Human Resources Department to generate the requisite letters to inform the employees of the salary increases. Instead of reflecting the approved salary increases, the Human Resources Department made a mistake and reflected the incorrect increases.

Eskom submitted that the increases reflected in the letters had not been duly authorised as the letters had not been signed by Eskom’s Divisional Managing Director, who was the office bearer possessed with the necessary authority to approve the salary increases. This submission was supported by the provisions of a collective bargaining agreement titled ‘Basic Salary for Bargaining Unit Employees’, which provided that all ad hoc salary increases must be approved by the relevant Divisional Managing Director. In the circumstances, the court found that no lawfully binding contract had come into existence between the parties in the absence of authorisation by the Divisional Managing Director.

Notwithstanding this, the employees sought to argue that Eskom was bound by the letters on the basis of the doctrine of ‘ostensible authority’. In this regard, the court found that there was no evidence to suggest that the employees were misled into believing that the initial salary increases had been approved by the Divisional Managing Director, nor that the provisions of the collective bargaining agreement could have been bypassed.

The appeal was upheld with costs.

Payment for accumulated annual leave – limited

In Bronner v Alpha Pharm (Pty) Ltd and Another [2020] 5 BLLR 518 (LC), the applicant retired as Chief Executive Officer of Natal Wholesale Chemicals (Holdings) Ltd trading as Alpha Pharm (the employer). Pursuant to his retirement, he instituted an action in terms of s 77(3) of the Basic Conditions of Employment Act 75 of 1997 (BCEA) in relation to several claims for money allegedly owing to him by the employer. The claims included –

  • payment of the difference between the surrender value and the paid-up value of an insurance policy;
  • payment for four additional days worked by the applicant;
  • payment of a full, rather than a pro-rated portion, of the applicant’s annual bonus; and
  • payment for accumulated annual leave.

The employer contended that all the applicant’s claims were fatally flawed.

As regards the first three claims instituted by the applicant, the Labour Court (LC) found that –

  • the applicant had agreed that he would be paid the surrender value of the insurance policy;
  • he had also agreed to and accepted the payment of a specified amount on termination by his employer, which amount he had received; and
  • the applicant had provided no proof that it was the employer’s ‘practice’ to pay employees who retired a full annual bonus. These three claims were, therefore, unsustainable.

Turning to the claim of payment for accumulated annual leave, the applicant alleged that he had accumulated 80 days’ annual leave and that he had been underpaid for leave not taken in his final leave cycle. The LC noted that the employer’s handbook provided that annual leave must be taken within six months of the anniversaries of appointment and that annual leave not taken would be forfeited. Having regard to a number of judgments on the subject of accrued annual leave, the court noted as follows:

  • Sections 20 (regulating annual leave) and 40 (regulating payments on termination of employment) of the BCEA have, on numerous occasions, been the subject of much interpretation and application by the LC.
  • For example, in Jardine v Tongaat-Hulett Sugar Ltd [2003] 7 BLLR 717 (LC), the LC held that the requirement imposed by the BCEA on employers to grant annual leave to an employee within six months after the end of a leave cycle was intended to protect an employee who would otherwise be denied such leave. Notwithstanding this, the court held that employees are under no obligation to, in fact, take the annual leave within six months after the end of the leave cycle and leave not taken within six months was not automatically forfeited. Thus, employees retain claims for unpaid annual leave not taken during earlier leave cycles, even if an employer has a policy regulating the forfeiture of such leave.
  • Conversely, in Ludick v Rural Maintenance (Pty) Ltd [2014] 2 BLLR 178 (LC), the LC held that the BCEA imposes an obligation on an employer to grant annual leave before the expiry of the six-month period following a leave cycle and the timing of such leave ought to be agreed to between the employer and the employee. In addition, the BCEA contemplated that claims for the value of accrued annual leave be limited to statutory annual leave accrued in the current and immediately preceding leave cycles. Therefore, employees may only claim for unpaid leave accrued to them during the former and current leave cycles and not during earlier leave cycles.

Having regard to the above, the court held that the decision in the Jardine case had not been consistently followed and the law as it now stands is that s 20 of the BCEA contemplates payments only in respect of annual leave not taken in the current leave cycle and the leave cycle immediately preceding the termination of employment. Applying this principle to the matter at hand, the court found that the applicant was indeed paid for the annual leave he accumulated during the current and final leave cycle immediately preceding his retirement. Accordingly, his claim for accumulated annual leave also failed.

The court held further that since the applicant had chosen to bring a civil claim, and in the absence of any special considerations, there was no reason why the costs should not follow the result.

The application was dismissed with costs.

Nadine Mather BA LLB (cum laude) (Rhodes) is a legal practitioner at Bowmans in Johannesburg.

This article was first published in De Rebus in 2020 (July) DR 40.