Directors of companies: Liability, Indemnification and Insurance

In terms of the previous Companies Act directors could generally only act with the consent or approval of shareholders in a number of cases. The Companies Act 71 of 2008 (“the Act”) grants more default powers to directors than the previous Company Act. The increased powers come at a cost to directors: they are more exposed to personal liability should the company suffer harm or loss due to the actions of a director.

One of the most important sections of the Act is Section 77 which sets out the liability of directors for various contraventions of certain sections of the Act. Three of the subsections imposing liability will be briefly highlighted below.

Section 77(2) provides that the director of a company may be held liable in accordance with the principles of the common law relating to breach of a fiduciary duty for any loss, damages or costs sustained by the company as a consequence of any breach by the director of the duty as envisaged in the Act.

A director can furthermore be held liable in terms of Section 77(2)(b) in accordance with the principles of a common law relating to delict for any loss, damages or costs sustained by the company as a consequence of any breach by the director of a duty of care, skill and diligence.

Section 77(3) also provides that a director of a company is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of a director having amongst others acquiesced in the carrying on of the company’s business, despite knowing that it was being conducted in a manner which could be reckless, grossly negligent or fraudulent. In the context of reckless trading it is important to bear in mind that the question is very relevant when the company incurs debts at a stage when it is insolvent.

To guard against the possibility of liability, a director may wish to be indemnified by the company for any damages caused by the director, or, alternatively, to be covered by insurance, paid for by the company, to hold the directors harmless against any claim by the company for damages caused by the director. The Act regulates the circumstances under which such indemnity and the purchase of insurance are possible.

Should you wish to obtain advice on any of the issues raised in this article, you may contact any of the following people:

Richard Stevens – richards@cluvermarkotter.law
Max Loubser – maxl@cluvermarkotter.law
Luzanne Brink – luzanneb@cluvermarkotter.law
Anton Melck – amelck@cluvermarkotter.law
Marieke Wild – mariekew@cluvermarkotter.law

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Employers Beware: Dismissal for Poor Performance Could Backfire

It is reasonable to want to dismiss an employee for not performing on the job, or failing to meet a specific target. However, Employers should ensure that the targets they set are actually achievable for the employee. If not, they could be found at fault for dismissing an employee who failed to achieve unreasonable targets.Damelin (Pty) Ltd vs Parkinson

In a recent judgement, delivered in January 2017, tertiary education company Damelin (Pty) Ltd, hired Parkinson as the general manager of the Boksburg campus. Parkinson’s employment contract stated that, ‟continued nonattainment of performance goals may result in the termination of employment.”

When Parkinson took up his position in January 2011, the campus had 352 enrolled students of which 168 were first-year students. His target for 2012, which was the national target, was to enrol 420 first year students by February 2012. Andrew Pienaar, the national sales director, estimated that there were 15 000 grade 12 learners in the catchment area of the Boksburg campus. Parkinson queried the target, saying that his team contacted all the schools in the area and there were only 12 735 grade 12 learners in his area. He claimed that unrealistic numbers give rise to unrealistic targets, and that it was like being set up to fail.

The actual enrolment of first-year students for the Boksburg campus for 2012 was 117 first year students. In 2011, the figure had been 168. Parkinson had not met the target. A disciplinary inquiry was convened. Parkinson was charged with poor work performance relating to his failure to reach sales targets and was dismissed.

Unhappy with his dismissal, Parkinson and his union went to the CCMA. The commissioner determined that the dismissal was the appropriate sanction. Still dissatisfied, Parkinson then went to court. The court determined that dismissal could only be considered as a fourth step in terms of Damelin’s disciplinary code. The court set aside the award and reinstated Parkinson saying that the informal letters written to Parkinson could not be considered warnings, and that he was not given an appropriate amount of time to reach his targets.

Conclusion

Employers should remember that problems relating to an employee’s performance should, generally speaking, not be dealt with as misconduct but as incapacity which necessitates a different process than misconduct. Setting unrealistic expectations on employees could set them up for failure. In these circumstances, dismissal would not be appropriate. It is therefore important that employers ensure the standards they set for their employees are achievable within a reasonable amount of time. Employers should also first assist their employees where performance is not of the required standard before dismissal can be considered.

Reference: Case no: JA 48/15

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Can I still go to the CCMA after I settled?

If an employee has been demoted after a fair process and has accepted the demotion, could they still go to the CCMA for unfair labour practice. It’s important to first take into account the circumstances.

A case involving Builders Warehouse

The facts in Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others[1] can be summarised as follows: The employee worked as an Administrative Manager at Builders Warehouse (Pty) Ltd. She was informed by doctors that she was very ill and would most likely have to go to hospital frequently and take various types of medication. Over the next three years her absenteeism increased significantly and her employers became concerned as she was no longer able to do her job effectively, even when she was not absent, due to the side effects of her medication.

Builders Warehouse, after having discussions with the employee, suspended her pending an investigation into her capacity to undertake the functions of an administrative manager, taking into account her health and performance. Builders Warehouse held an incapacity hearing and the external chairperson ruled that, due to the employee’s excessive and increasing absenteeism, dismissal was the appropriate sanction. The chairperson, however, offered her a demotion instead of a dismissal. The employee accepted this demotion in writing.

After this agreement between Builders Warehouse and the employee was concluded, she obtained legal assistance and subsequently complained to the CCMA that Builders Warehouse had committed an unfair labour practice by demoting her.

The question here is whether the employee was entitled to refer an unfair labour practice dispute concerning the demotion to the CCMA.[2]

The arbitrator in the CCMA decided that because there was consent to the demotion, the CCMA did not have jurisdiction to hear the dispute. The employee then appealed to the Labour Court and once again to the Labour Appeal Court, of which the outcomes are set out below.

Outcomes of the case

The Labour Court and the Labour Appeal Court looked at Section 186(2)(a) of the Labour Relations Act[3] in this regard, which states:

“Unfair labour practice means any unfair act or omission that arises between an employer and an employee involving unfair conduct by the employer relating to the promotion, demotion, probation (excluding disputes about dismissals for a reason relating to probation) or training of an employee or relating to the provision of benefits.”

The Labour Appeal Court upheld the judgement in the Labour Court and found that although a binding contract comes into existence when employers and employees settle their differences by agreement, such an agreement does not mean that the CCMA does not have jurisdiction to hear the dispute. The fact that the parties have agreed that the employee accepted demotion is not a complete defence for the employer because the ambit of this unfair labour practice is wide enough to include the implementation of an agreement to accept demotion.[4] The Labour Appeal Court confirmed that the determination of whether a demotion took place, unlike the determination of dismissal, does not require an arbitrator to determine if there was consent or not.[5]

Conclusion

Although consent is a relevant issue in regard to the merits of a dispute regarding an unfair labour practice, it is not a jurisdictional prerequisite. This means that the CCMA does have the power to hear a matter relating to a demotion even though there was consent thereto.

References:

Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (PA 1/14) [2015] ZALAC

Labour Relations Act 66 of 1995

[1] (PA 1/14) [2015] ZALAC.

[2] (PA 1/14) [2015] ZALAC Par 12.

[3] Act 66 of 1995.

[4] Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (PA 1/14) [2015] ZALAC Par 14.

[5] Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (PA 1/14) [2015] ZALAC Par 13.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The rights of commissioning parents in a Surrogacy Agreement to maternity leave

Alex refers a dispute to the CCMA on the basis of unfair discrimination, because his company refused to grant his application for maternity leave due to the fact that he is not the biological mother of his child. They further argue that a commissioning parent party to a surrogacy agreement is not entitled, in terms of their company policy, to the full and due four months paid leave as females are under the same policy.

Alex and Ben are in love and decide to enter into a civil union on 31 October 2010 in terms of the Civil Union Act[1]. Everything is going great and a year later they decide as a couple to enter into a surrogacy agreement with a surrogate mother in terms of which they shall have a baby. The surrogacy agreement was in accordance with the Children’s Act[2] and was confirmed by Court Order.

Ben and Alex discussed the logistics pertaining to their new bundle of joy, as in terms of the Surrogacy Agreement they will be handed the child directly after birth, without the surrogate even catching sight of it. One or both of them will have to be available to care for the newborn from the moment of birth.

They decided that Alex would be the one to apply to his employer for paid maternity leave for a period of four months. This maternity application to his employer was in terms of the prescriptions of the Basic Conditions of Employment Act[3] (BCEA) and more specifically in terms of his company’s policy on maternity leave.

Alex received feedback from his Human Resources Department, informing him that his application for maternity leave was rejected in terms of the company’s policy and the BCEA, as neither provides for the issuing of maternity leave for surrogate parents. As a counter offer Alex was offered and subsequently accepted two months paid adoption leave and two months unpaid leave.

Alex was not at all satisfied with the treatment received by his company and he felt that he has been discriminated against, as the Children’s Act and the Civil Union Act both recognised his status and rights as a commissioning parent. There was therefore no excuse as to why his company and the BCEA should not recognise it as well.

Alex referred this dispute regarding unfair discrimination to the CCMA[4] for conciliation.[5]

The CCMA, upon hearing this matter, established that Alex’s company’s policies were similar but more stringent than the BCEA in that they provided separately for adoption leave as offered to Alex and Ben, and not at all for surrogacy rights to leave. Furthermore it came to light that due to recent legislative developments as mentioned above, there was no reason why Alex should not be entitled to maternity leave and that such maternity leave should be granted for the full and/or same period as any other mother is entitled to.

Upon hearing submissions from Alex, Ben and Alex’s employer the CCMA decided that by refusing Alex’s application for maternity leave Alex was unfairly discriminated against by the company in its implementation and structure of its archaic maternity leave policy.

The CCMA ordered that Alex be paid an amount equivalent to two months’ salary for the previously granted unpaid leave. In addition, Alex’s company must recognise the status of parties to a civil union and not discriminate against the rights of commissioning parents who have entered into a surrogacy agreement, in applying its maternity leave policy.

Lastly, the company was ordered to pay Alex’s costs of having to bring this application.

It is clear from the facts of this situation that legislative intervention is needed in this regard in order to adequately and undeniably address the rights of commissioning parents to maternity leave. This case pertained to company policies and was addressed as such, but Alex and Ben initially sought relief for themselves and other similarly placed applicants so as to prevent unfair discrimination against them in this regard.

[1] Act 17 of 2006

[2] Act 38 of 2005; Chapter 19

[3] Act 75 of 1997; Section 25 (hereinafter BCEA)

[4] The Commission for Conciliation, Mediation and Arbitration

[5] M I A v State Information Technology Agency (Pty) Ltd (D 312/2012) [2015] ZALCD 20 (26 March 2015)

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Can I still make a case of unfair labour practice if I have settled?

In this article we will discuss whether, in the face of an agreement between an employer and an employee in terms of which an employee accepts a demotion to a lower position, the employee is nevertheless entitled to refer an unfair labour practice dispute concerning this demotion to the CCMA.

The facts in Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others[1] can be summarised as follows: The employee worked as an Administrative Manager at Builders Warehouse (Pty) Ltd. She was informed by doctors that she was very ill and would most likely have to go to hospital frequently and take various types of medication. Over the next three years her absenteeism increased significantly and her employers became concerned as she was no longer able to do her job effectively, even when she was not absent, due to the side effects of her medication. Builders Warehouse (Pty) Ltd, after having discussions with the employee, suspended her pending an investigation into her capacity to undertake the functions of an Administrative Manager, taking into account her health and performance. Builders Warehouse (Pty) Ltd held an incapacity hearing and the external Chairperson ruled that, due to the employee’s excessive and increasing absenteeism, dismissal was the appropriate sanction. The Chairperson, however, offered her a demotion instead of a dismissal. The employee accepted this demotion in writing.

After this agreement between Builders Warehouse (Pty) Ltd and the employee was concluded, she obtained legal assistance and subsequently complained to the CCMA that Builders Warehouse (Pty) Ltd had committed an unfair labour practice by demoting her.

The question here is whether, in the face of an agreement between Builders Warehouse (Pty) Ltd in terms of which the employee accepted demotion to a lower position, she was nevertheless entitled to refer an unfair labour practice dispute concerning this demotion to the CCMA.[2]

The arbitrator in the CCMA decided that because there was consent to the demotion, the CCMA did not have jurisdiction to hear the dispute. The employee then appealed to the Labour Court and once again to the Labour Appeal Court, of which the outcomes are set out below.

The Labour Court and the Labour Appeal Court looked at Section 186(2)(a) of the Labour Relations Act[3] in this regard, which states the following:

“Unfair labour practice means any unfair act or omission that arises between an employer and an employee involving –

unfair conduct by the employer relating to the promotion, demotion, probation (excluding disputes about dismissals for a reason relating to probation) or training of an employee or relating to the provision of benefits.”

The Labour Appeal Court upheld the judgement in the Labour Court and found that although a binding contract comes into existence when employers and employees settle their differences by agreement, such an agreement does not mean that the CCMA does not have jurisdiction to hear the dispute. The fact that the parties have agreed that the employee accepts demotion is not a complete defence for the employer because the ambit of this unfair labour practice is wide enough to include the implementation of an agreement to accept demotion.[4] The Labour Appeal Court confirmed that the determination of whether a demotion took place, unlike the determination of dismissal, does not require an arbitrator to determine if there was consent or not.[5]

In conclusion, it is clear from the Builders Warehouse case that, although consent is a relevant issue in regard to the merits of a dispute regarding an unfair labour practice, it is not a jurisdictional prerequisite. This means that the CCMA does have the power to hear a matter relating to a demotion even though there was consent thereto.

Bibliography

  • Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (PA 1/14) [2015] ZALAC
  • Labour Relations Act 66 of 1995

[1] (PA 1/14) [2015] ZALAC.

[2] (PA 1/14) [2015] ZALAC Par 12.

[3] Act 66 of 1995.

[4] Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (PA 1/14) [2015] ZALAC Par 14.

[5] Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (PA 1/14) [2015] ZALAC Par 13.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Right of a domestic worker to a Christmas bonus

Doris, a domestic worker, demands a Christmas bonus from her employer in the amount of R1 000. She has not yet been employed for longer than a year and as a result no prior agreements or expectations have been created in this regard. When Christi, her employer, informs Doris that she will not pay her a Christmas bonus … to the CCMA for unfair labour practices …

Doris is a domestic worker who has been working at a private residence in Durbanville for just under a year now. On 15 December 2015 Doris approaches her employer to demand a R1 000 Christmas bonus. Christi, Doris’s employer, is not in a financial position to offer Doris a Christmas bonus, let alone a bonus to the amount requested by Doris. Christi explains to Doris that she cannot pay her a bonus due to economic constraints but that next year they could revisit this conversation and see if things have improved. It would also be based on Doris’s performance during the year.

Doris gets very upset by this response and starts shouting at Christi, threatening to take her to the CCMA for unfair labour practices. Christi feels apprehensive and is uncertain as to her stance in law on this point, so she consults an attorney to advise her.

Upon obtaining legal advice Christi learns that labour law legislation provides no guidance on the question of bonuses. In the absence of a contractual term regulating bonuses, a previous arrangement or previous payments of a bonus Christi learns that it is up to her to decide whether she wants to pay Doris a bonus or not.

Due to a Christmas bonus being considered as gratuitous payment by an employer to an employee, it is a natural corollary that the employee is granted same in exchange for a job well done, or for exceptional service which reaches beyond the call of duty in the year that has passed. This warrants a reward or tip over and above the normal agreed upon wage for services rendered.

Things Christi was advised to consider when making such a decision were inter alia Doris’s performance in the past year and Christi’s own financial position. She should also keep in mind that, should she decide to pay what Doris has demanded, a reasonable expectation may be created in the years to come for Christi to continue to pay such a bonus.

Doris does not have an all-encompassing right to receive a Christmas bonus. Further, due to the fact that no reasonable expectation has yet been created, Christi’s reasons for and decision not to pay Doris a bonus cannot be seen as an unfair labour practice. Thus providing Doris, in this particular case, no grounds on which to approach the CCMA to claim performance from Christi.

Bibliography:

1. http://www.labourguide.co.za/conditions-of-employment/149-the-payment-of-bonuses-re-visited (Accessed: 10/12/2015)

2. www.labour.gov.za/DOL/downloads/…of…/domesticworker2012.pdf (Accessed: 10/12/2015)

3. http://www.mywage.co.za/main/news/mywage-south_african-news/christmas-bonus-time-december-2010 (Accessed: 10/12/2015)

4. Basic Conditions of Employment Act and Amendments

5. Labour Relations Act

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Discrimination against pregnant women in the workplace

Employees are often faced with a difficult situation in the workplace when falling pregnant. Many establishments react unfavourably towards female employees that fall pregnant. These employees are often discriminated against in various direct and indirect manners. There are, however, clear provisions that protect employees in these situations which employees should familiarise themselves with.

There are different ways in which employees can be discriminated against in the workplace due to the fact that the employee has fallen pregnant. These forms of discrimination have different degrees of disadvantage towards the employee. It can range from having her contract terminated, being treated badly, being verbally abused or being ridiculed because she has fallen pregnant.

As a point of departure, it is stated in Section 9(3) of the Constitution of the Republic of South Africa[1], that nobody may be discriminated against based on the fact that they are pregnant. It is therefore a constitutional right for an employee not to be discriminated against in any form or manner because of her pregnancy. This right is further confirmed by Paragraph 4.2 of the Code of Good Practice on the Protection of Employees during Pregnancy[2].

The most severe form of discrimination against an employee is the dismissal of an employee due to the fact that she has fallen pregnant. The Labour Relations Act [3] specifically mentions that an employer is not entitled to dismiss an employee due to her pregnancy. However, there are various other ways of discriminating against a pregnant employee that should be noted.

Employees should be mindful of more subtle forms of discrimination, such as contracts not being renewed when it was earlier apparent that it would have been, or where a promotion is not granted to an employee purely because she has fallen pregnant at a certain time. Whenever an employee can prove that there was a direct link between any disadvantage and her pregnancy, she will most likely be entitled to the appropriate remedy. Employees are further entitled to a certain amount of unpaid maternity leave and will be entitled to insist on it.

In the event of an employee being dismissed due to her pregnancy, or where it is clear that an employee was discriminated against in any way for this reason, there are various remedies for the employee to choose from. It is always a good idea to resolve the issue without taking legal action, as this will be an expensive exercise and will most likely cause a relatively uncomfortable atmosphere between an employee and an employer. An informal arrangement between the employer and employee is therefore recommended, yet it is not always a practical solution. However, if no other option is available to the employee, she will always have the option to approach the CCMA as well as Labour Courts to prove that she was discriminated against due to her pregnancy. She will then be in a position to request the appropriate remedy.

In conclusion, female employees should be mindful of possible forms of discrimination against them as it is clearly prohibited. Direct and indirect forms of discrimination exist but aren’t always easy to identify. However, if identified and proven, such discrimination will not be allowed and must subsequently be corrected.

Bibliography

Acts:
Constitution of the Republic of South Africa, 1996
Code of Good Practice on the Protection of Employees during Pregnancy
Labour Relations Act 66 of 1995

[1] Constitution of the Republic of South Africa, 1996
[2] Code of Good Practice on the Protection of Employees during Pregnancy
[3] Labour Relations Act 66 of 1995

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)