Understanding the distinction: Unfair dismissal v unlawful termination in employment contracts

December 1st, 2023
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At common law, the measure of damages to which an employee is entitled is limited to the amount of wages or salary he or she would have earned but for the employer’s premature termination of the contract. Suppose an employee is dismissed and is entitled to claim compensation in terms of the Labour Relations Act 66 of 1995 (LRA) and also believes that his employer committed a breach of contract in the way he was dismissed and the damages he could claim for this, are more than the compensation he could claim under the LRA. Should the employee be entitled to claim such damages in terms of the law of contract or compensation in terms of the LRA? This article revisits the approach the courts adopted to address the co-existence of common law and LRA remedies. This article also investigates how this dual system has created a fertile ground for forum shopping and delays the finalisation of labour law disputes.

The LRA remedies

Section 191 of the LRA sets out the procedure for the referral of a dispute to the Commission for Conciliation, Mediation and Arbitration (CCMA) or bargaining council where an employee claims unfair dismissal. The LRA provides for two different routes for unfair dismissal disputes. First, the matter may be referred to the CCMA or to the accredited council with jurisdiction. If conciliation is unsuccessful, the employee may refer the dispute, depending on its nature, to the CCMA for arbitration or adjudication by the Labour Court. Section 193 of the LRA provides for remedies available to an employee who has been unfairly dismissed. The question of remedies only arises once it is found that the dismissal of the employee has taken place and that such dismissal is either procedurally or substantively unfair. The Act endeavours to protect employees. Once a dismissal is found to be unfair, the employee must be reinstated in his employment position or must be re-employed (Equity Aviation Services (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (2011) 32 ILJ 590 (LC) at para 40). Reinstatement involves restoration of the original contract, and ‘it contains all the ingredients of the original [contract], including the possibility of termination for misconduct or on retrenchment’ (Steel Engineering and Allied Workers Union of SA and Others v Trident Steel (Pty) Ltd (1986) 7 ILJ 418 (IC) at 437F). Re-employment on the other hand, implies the termination of a previously existing employment relationship and the creation of a new employment relationship, possibly on different terms (National Union of Mineworkers v Haggie Rand Ltd (1991) 12 ILJ 1022 (LAC) at 1027 E-J). Reinstatement or re-employment must be ordered in all cases where an employee has been unfairly dismissed, except where s 193(2) applies, for instance, where the employee does not want to be reinstated or that continued employment relationship would be intolerable.

On the other hand, compensation is one of the remedies that a court or the arbitrator can award should it be found that the employee was unfairly dismissed or that the employer’s conduct amounted to an unfair labour practice. Section 194 of the LRA sets out a formula to be applied for compensation in circumstances where it is found that an employee was dismissed unfairly. For instance, the compensation awarded to an employee whose dismissal is found to be unfair either because the employer did not prove that the reason for the dismissal was a fair reason related to the employee’s conduct or that the employer did not follow a fair procedure, or both, may not be more than the equivalent of 12 months’ remuneration calculated at the employee’s rate of remuneration on the date of dismissal. While the compensation awarded to an employee whose dismissal is automatically unfair must be just and equitable in all the circumstances, but not more than the equivalent of 24 months’ remuneration calculated at the employee’s rate of remuneration on date of dismissal. Evidently, this section sets up a cap on compensation that may be awarded to a dismissed employee. A compensation award must comply with the formula set out in s 194. The LRA provides that compensation must be just and equitable in all circumstances. This implies that the compensation must be fair to the employer and to the unfairly dismissed employee.

Contractual remedies existing parallel to the LRA remedies

The remedies of an employee whose employment contract has been terminated by an employer can be found either in the concept of breach of contract under the common law or unfair dismissal concept under the LRA (Mangope v SA Football Association [2011] JOL 26612 (LC)). In Fedlife Assurance Ltd v Wolfaardt (2001) 22 ILJ 2407 (SCA), the Supreme Court of Appeal (SCA) held that the unfair labour practice concept, developed over the years by the South African specialist tribunals, was seen as supplementing and not replacing the common law remedies. The court noted that chapter VIII of the LRA is not exhaustive of the rights and remedies that accrue to an employee on the termination of a contract of employment, and that a contract of employment for a fixed term is enforceable in accordance with its terms and an employer is liable for common law damages if it is breached on ordinary principles of common law. The SCA has endorsed this approach in several subsequent cases (see Makhanya v University of Zululand 2010 (1) SA 62 (SCA); Lewarne v Fochem International (Pty) Ltd 2019 JDR 1750 (SCA); South African Maritime Safety Authority v McKenzie 2010 (3) SA 601 (SCA)). A discussion of all these cases, goes beyond the scope of this article.

However, in Fedlife, the appellant employer and the respondent employee entered into a contract of employment, which was for a fixed term of five years commencing on 1 December 1996. The employer repudiated the contract by purporting to terminate it with effect from 31 December 1998, on the grounds that the employee’s position had become redundant. The employee alleged that he had elected to accept the repudiation with the result that the contract came to an end. He then instituted an action in the Witwatersrand Local Division of the High Court, where he claimed damages for breach of contract. The employer filed a special plea that, in terms of s 157(1) of the LRA, the Labour Court had exclusive jurisdiction to adjudicate dismissals occasioned by occupational requirements in terms of s 191(5) and s 189 of the LRA. The employee excepted to the special plea on the grounds that it failed to disclose a defence. The exception was upheld and the special plea was set aside. On appeal, the SCA dealt in depth with the interplay of the common law, the LRA, and the Constitution. The court held that the LRA does not expressly, nor by necessary implications, abrogate an employee’s common law entitlement to enforce contractual rights. The court noted that the common law right to enforce a term of an employment contract remained intact and that it was thus not necessary to declare a premature termination to be an unfair dismissal.

In effect, what the court said was that an employee whose contract of employment is prematurely terminated by an employer is entitled to sue the employer and claim damages for breach of contract under the common law. As a result, the employee’s compensation for breach of a fixed-term contract was not limited to the provisions of s 193 read with  s 194(1) of the LRA. The judgment also entails that the remedies envisaged in the LRA are not exhaustive of the rights and remedies that accrue to an employee on termination of a contract of employment. It, therefore, suggests that s 157 of the LRA does not confer a general jurisdiction on the Labour Court in labour matters, but rather an exclusive jurisdiction in matters which, in terms of the LRA or another law, must be referred to the Labour Court for adjudication.

The co-existence of the LRA remedies parallel to the common law remedies was recently confirmed by the Constitutional Court (CC) in Baloyi v Public Protector and Others 2022 (3) SA 321 (CC) at paras 40 and 46, where the court found that contractual rights of dismissed employees exist independently of the LRA. The court noted that the termination of a contract of employment has the potential to find a claim for relief for infringement of the LRA, and a claim for enforcement of a right that does not emanate from the LRA, for example, a contractual right. It is submitted that these judgments have far-reaching consequences. In Fedlife, the employee was allowed to rely on common law principles despite a remedy being available for unfair dismissal in terms of the LRA. The court endorsed the principle that a claim for dismissal in terms of the LRA could still be dealt with in terms of the common law as an unlawful dismissal and apply the general principles of the common law. While it is noted that the Labour Court and the High Court enjoy concurrent jurisdiction in matters involving breach of an employment contract, this case makes it clear that a claim for damages for breach of contract falls within the ordinary jurisdiction of the High Court, notwithstanding that the contract is one for employment. I submit that when the LRA was enacted this was not intended. The co-existence of common law remedies parallel to statutory remedies was rejected by the House of Lords in Johnson v Unisys Ltd [2001] 2 All ER 801, in which the court found that a common law right cannot satisfactorily co-exist with a statutory right not to be unfairly dismissed. Lest this would fly in the face of the limits Parliament has prescribed in statute. Importantly, s 210 of the LRA provides that if any conflict relating to matters dealt with in the LRA arises between the LRA and ‘the provisions of any other law’, the LRA will prevail. In Fedlife, the employee was allowed to claim damages for the unexpired period of his employment contract. It is submitted that it was possible for the employee to claim compensation in terms of the LRA for any procedural unfairness he might have suffered. As a result, the employee’s claim was not limited to the provisions of s 194 of the LRA.

This anomaly is compounded by the fact that a claim in terms of the common law must be instituted within three years from the date on which the cause of action (dismissal) occurred (see s 10(1) of the Prescription Act 68 of 1969). The LRA provides for the speedy resolution of disputes, such that an employee has a period of 30 days within which to lodge a claim with the CCMA from the date of dismissal. In the case of fixed-term contracts, employees who can afford legal costs have an option to approach the High Court and claim enough damages, as opposed to the limited compensation entrenched in s 194 of the LRA. Employees who cannot afford the litigation costs are bound to follow the procedure laid down by the LRA.

Conclusion

The current system endorsed by the CC has the potential of creating a labour law system for the rich and the poor. Those who can afford costs of litigation would approach the High Court and claim more damages and the poor are bound to go to the CCMA. Significantly, the upshot of these decisions is that employees who fail to refer their claims in terms of s 191 of the LRA, have a period of three years within which to issue summons and claim for breach of contract. The employee’s claim in terms of contract is not capped. In case of a termination of a fixed-term contract before its expiration, the damages may be extensive, especially where the unexpired term involves a long period, as was the case in Fedlife. From a careful reading of the LRA and its objectives, this was not intended. I submit that our labour law system should be developed to recognise that a remedy for dismissal in terms of the LRA should be the exclusive remedy of employees in such cases.

Judge James D Lekhuleni BProc LLB (UL) LLM LLM (UP) LLM LLD (UWC) is a judge at the Western Cape High Court.

This article was first published in De Rebus in 2023 (Dec) DR 26.

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