Automatic termination clauses - a focus on recent desertion and labour

broking cases.

Tamara Cohen

UKZN

Automatic termination

• s 186(1)(a) - dismissal means that ‘employer terminated contract of employment with or without notice’.

• overt act of employer.• scenarios exist where employment contracts

terminate by operation of law and dismissal provisions of LRA do not apply.

Automatic termination clauses in labour broking contracts

• s 198 - labour broker is employer.• employee has no contractual/employment

relationship with client of labour broker.• contractual provisions in employment contract

provides for automatic termination when employer’s service contract with client expires or client no longer requires employee’s services.

• relied upon by employer to circumvent dismissal provisions of LRA.

Sindane v Prestige Cleaning Services LC (2009)

• employee terminated due to client ‘scaling’ down contract with employer brokers.

• employment contract provided for automatic termination.

• court satisfied that termination of employment contract triggered by third party.

• as act of employer not ‘proximate cause’ of termination, not ‘dismissal’.

SA Post Office Ltd v Mampeule LC (2009)• employee appointed CEO and executive director of

employer. • articles of association stipulated that appointment as

director ‘inherent requirement’ of job and, if ceases to hold office, contract terminates automatically.

• employee advised of automatic termination after removal as director, following allegations of misconduct.

The court held:• act by employer that directly/ indirectly results in

termination of contract of employment constitutes ‘dismissal’.

• employer ‘terminated’ contract by removing him as director and termination constituted dismissal.

• Automatic termination provisions contrary to public policy as statutory rights conferred on employees for benefit of all employees and are incapable of consensual validation.

Post Office Ltd v Mampuele LAC (2010)• upheld finding of court a quo that Mampuele ‘dismissed’. • s 5 (2) - ‘no person may prevent an employee from exercising

any right conferred by this Act.’• s 5(4) ‘a provision in any contract… that directly or indirectly

contradicts or limits … this section, is invalid, unless the contractual provision is permitted by this Act.’

• onus on employer to establish that automatic termination clause prevailed over provisions of LRA.

• can’t contract out of LRA - in public interest and not only interest of individual concerned.

Nape v INTCS Corporate Solutions LC (2010)• employee of labour broker guilty of sending offensive email

using client’s computer .• client refused to allow employee to return to premises.• terms of contract of employment enabled broker to dismiss

employee ‘on grounds proven by the client to be reasonable and/or substantively and procedurally fair’.

• Employee retrenched and claimed unfair dismissal. Court held :

• relationship between broker and client lawful but not all terms of contract lawful.

• contractual provision contrary to public policy.

Court held: • Broker’s clients ‘not at liberty to structure their contractual

relationships in a way that would effectively treat employees as commodities to be passed on and traded at the whim and fancies of the client’.

• s 198 does not permit broker and client to limit rights of employees.

• court not bound by contractual limitations created by parties. • employee no right of recourse against client but brokers not

powerless when forced by clients to treat employees unfairly. • brokers may approach competent court to order client to

refrain from such conduct.

Mahlamu v CCMA & others LC (2011)• Employee employed by brokers as security guard at Gautrain

stations - contract ‘automatically terminated’ when no longer required by client.Court held:

• key consideration whether provisions permitted by LRA (s 5) and whether permissible to contract out of right not to be unfairly dismissed.

• test to determine legitimacy of waiver of statutory rights is whether subject of right is intended to be sole beneficiary. If others have interest in the right/right serves public interest then cannot be waived.

• termination constituted dismissal.

Summary:

• fixed and maximum-duration contract lawful.• terminated by occurrence of specified event.• need to identify ‘proximate cause’ of

termination.• contractual provision that has ‘effect’ of

limiting legislative protection invalid.• Automatic termination clauses in broker’s

contracts unenforceable.

Automatic termination due to impossibility of performance

• common law principle that contract terminates automatically when permanently impossible to perform, due to no fault on part of either party.

• supervening impossibility of performance - performance prevented by superior force that could not reasonably have been guarded against.

• impossibility must be absolute and not attributable to fault of either party.

• impossibility of performance results in automatic termination of employment contract and not ‘dismissal’.

Chillibush v Johnston & others LC (2010)

• court considered whether employee’s removal from board of directors led to automatic termination.

• not permissible for employer to contractually negotiate terms of dismissal.

• automatic termination provision in contract of employment (or articles of association) contravenes 5(2)(b) and 5(4) of LRA.

• board’s resolution of removing employee from post, although lawful, constituted dismissal.

NUM and another v CCMA LC (2009)• employee convicted of culpable homicide and sentenced to 5

years’ imprisonment (reduced to 10 months).• employer argued that imprisonment made it impossible to

perform contractual obligations, employee repudiated contract by his actions and terminated contract by operation of law.

• Commissioner held that if impossibility is temporary, contract is suspended for period of incapacity but if permanent or lengthy period contract terminated automatically.

• court held, on the facts, that employer’s decision constituted dismissal as no evidence of permanency.

Samancor Tubatse Ferrochrome v MEIBC LAC (2010) • employee in police custody on suspicion of armed robbery. • after 150 days in prison employee advised (by letter) of

dismissal for ‘operational incapacity due to inability to tender services’.

• dismissal confirmed in post-dismissal hearing after release.Court held:

• dismissal for ‘incapacity’ not to be confined to incapacity due to ill-health or poor performance.

• dismissal for ‘operational incapacity’ appropriate in light of commercial need to fill position and uncertain period of imprisonment.

Desertion in the private sector • desertion occurs when employee absconds from workplace,

with no intention of returning.• constitutes breach of fundamental term of employment

contract and employee regarded as having repudiated contract.

• at common law an employer faced with employee’s repudiation has election of accepting repudiation or holding employee to terms of contract.

• question whether deserting employee terminates contract or employer terminates relationship by acting upon desertion.

SABC v CCMA LC (2001)• court considered whether employee’s failure to

return to work by specified date constituted termination as opposed to dismissal.

• court held that resignation clearly distinguishable from repudiation.

• act of desertion does not terminate contract but act of employer who elects to exercise right to terminate.

• must comply with requirements of LRA.

Court held:• futile to hold hearing for deserting employee that

has indicated unequivocal intention not to return to work or whose whereabouts unknown.

• where employee’s absence unexplained needs to be treated as misconduct.

• question of fact and depends upon length of absence and operational requirements of employer.

• whether to hold disciplinary enquiry dependent on relevant circumstances and practicalities.

Jammin Retail (Pty) Ltd v Mokwane LC (2010)• contractual provision that employment contract

automatically terminates if employee absent without authorisation for more than five consecutive days.Court held:

• statutory ‘deemed dismissal’ provisions in public sector do not apply to private sector employees.

• private sector employers to give deserting employees hearing before dismissal.

• employer knew employee’s address yet made no attempt to contact her - dismissal unfair.

SATAWU obo Langa v Zebediela Bricks LC (2011)

• employees dismissed following illegal work stoppage and subsequently reinstated.

• failed to report for work - despite High Court interdict and repeated requests by employer to do so.Court held:

• majority of employees had no intention of returning to work and had deserted.

• desertion ‘automatically terminates’ contract of employment and employees not ‘dismissed’ and not entitled to hearing prior to termination.

Automatic termination in public sector• statutory provision for automatic termination if absent

without authorisation for specified period.• s 17(5)(a) of the Public Service Act and s 14 of Employment of

Educators Act.• termination by operation of law and not a result of employer’s

decision. • not dismissal and employee not entitled to hearing. • may be re-instated by employer on ‘good cause’ shown but

decision not to reinstate not dismissal, as contract remains terminated by law.

De Villiers v HOD: Education, Western Cape (2009) • question whether decision not to reinstate reviewable

administrative action.• court considered source, nature and subject matter of power

exercised, whether involves exercise of public duty, and how closely it relates to public policy matters that are not administrative or to implementation of legislation that is.

• employer’s actions involved ‘straight-forward exercise of statutory power’ once employment contract terminated.

• court held that, in light of inequality of parties and lack of alternative recourse for employee, employer’s conduct constituted reviewable administrative action.

Review on ground of legality• s 158(1)(h) - Labour Court may review any conduct

by State in its capacity as employer on any grounds permissible in law.

• public officials must be accountable and not make arbitrary or irrational decisions.

• employer determining whether ‘good cause’ for reinstatement to bear in mind principles relating to fair dismissal for misconduct.

• employer must approve reinstatement unless satisfied that employment relationship intolerable.

Grootboom v NPA LC (2010)• duty on employee to provide employer with

satisfactory explanation for absence without authorisation.

• employer does not have unfettered discretion in determining whether or not to reinstate employee and must be influenced by fairness and justice.Mahlangu v Min of Sport and Recreation LC (2010)

• must consider whether absence wilful and whether employment relationship broken down.

Conclusion • employment relationship regulated by both

legislation and common law of contract.• common law must be compatible with both

legislative and public policy.• purposive interpretation of LRA - to protect

vulnerable employees.• automatic termination clauses contrary to both

legislative and public policy and incapable of consensual validation.