REPUBLIC OF SOUTH AFRICA
IN THE LABOUR COURT OF SOUTH AFRICA, CAPE TOWN
Case No JS 574/2011
In the matter between:
VICTORIO ANTONIO SURACI Applicant
MASTER BUSINESS ASSOCIATES
HOLDINGS (PTY) LTD Respondent
Heard: 10 April 2013
Delivered: 29 July 2013
Summary: Claim for an automatically unfair dismissal for a reason relating to a transfer in terms of section 197 of the LRA after dismissal in wake of refusal to sign a restraint of trade.
- The applicant referred a claim to this court alleging that the reason for his dismissal was automatically unfair in that it was affected to compel him to accept a demand in respect of a matter of mutual interest. In addition applicant claims his dismissal was automatically unfair in that it relates to a
transfer of employment contemplated in section 197 of the LRA. In the alternative, it is alleged that his dismissal was procedurally unfair.
- Much of the evidence pleaded was common cause and recorded in the amended pre-trial minute as such. Prior to November 2010, the applicant was employed by Samuel Marks Chartered Accountants (the old employer) and there was no restraint of trade agreement between him and the old employer. The business of the old employer was taken over by the respondent with effect from November 2010 as a going concern in terms of section 197(1) of the LRA. Applicant became the employee of the respondent in terms of section 197(2).
- The respondent conducted individual consultations with employees of the old employer. At a meeting held with applicant during November 2010, respondent’s director Mr. Maritz (Maritz) presented the applicant with a draft employment contract. He told the applicant that he was required to sign a restraint of trade agreement with the respondent. Applicant told him he was reluctant to do so.
- On 2 December 2010 Maritz wrote a letter to the applicant giving him an ultimatum to sign the contract presented to him by no later than 8 December 2010, failing which he wrote that “We will assume that you do not wish to accept our offer of employment.”
- On the 7 December applicant replied to the letter stating inter alia that:
“You should be aware that in terms of law my contract of employment with the company will automatically continue on the terms and conditions which I presently enjoy with Samuel Marks, unless agreed otherwise.
The proposed contract of employment deviates substantially from the terms of employment which presently apply to me. In this regard, the company seeks to now impose upon me a restraint of trade (both in the proposed contract of employment and in a separate restraint of trade agreement) and to require me
to subject myself to an “Option Agreement”. These matters never formed part of my prior employment and I do not want to be bound by such terms into the future and will therefore not agree to the restraint or the option terms…”
- No formal response was received to the letter but a meeting was held on the 17th January 2011 where Maritz presented the applicant with a revised contract of employment together with a separate restraint of trade agreement. The revised contract contained a restraint provision valid for three years in respect of respondent’s clients. The separate restraint of trade agreement that the applicant was also required to sign was valid for one year.
- The applicant was again faced with an ultimatum to sign the amended employment agreement and restraint agreement which he refused to do. On 17 January 2011, the respondent addressed applicant a letter referring to the said agreements and stated that: “We reiterate that this offer of employment is available for the next seven days. Should same not be accepted and signed by yourself on or before 24 January 2011, we will accept that you do not wish to continue your employment with MBA Holdings (Pty) Ltd.”
- In response, on the 21 January 2011, applicant again set out why he refused to sign the restraint stating inter alia: “From the above you will see that I propose nothing more than that to which I am entitled in law. I therefore believe that the company should carefully consider adjusting the proposed contract to exclude the restraint of trade and to reduce the period of notice from 3 calendar months to 1 calendar month. If this is done, I will sign the contract on its presentation to me. In the interim, I continue to tender my services to the company on the terms and subject to the rights and obligations which existed between myself and Samuel Marks”.
- On 15 January 2011, respondent wrote to applicant stating that:
“As discussed previously, the restraint of trade is company policy at MBA Holdings (Pty) Ltd, applicable to all staff members.
This policy is purely aimed at the protection of both our interests, as well as that of or client base, and as such is common practice in the
competitive and professional environment of the business world of today. As paragraph 15 of the said restraint provides for release or partial release from the restraint of trade, we are of the opinion that same does not impose any condition that are on the whole less favorable to you, than those under employment of Samuel Marks.
We regret to advise that your failure to undersign the offer of employment constitutes non-acceptance of same, notice is hereby given of termination of your employment on 25 February 2011.”
Evidence before court
- There was very limited evidence before court given the narrow scope of facts in dispute. Applicant testified that he had been an accountant for over 20 years and had never signed a restraint of trade. The respondent had amended the new contract they wanted him to sign after meetings between himself and Maritz to an extent, but not in so far as a restraint was concerned.
- His last day of employment was the 25 of January 2011 but he had one meeting with Maritz after this, during his notice period. He told Maritz that if he signed the restraint he would not be able to find work if he should later resign or be retrenched. He was told again at this meeting that if he signed it he would be able to continue working for the respondent.
- After the termination of his employment with the respondent he did obtain work from clients of Samuel Marks who had contacted him – these were clients with whom he had a long term relationship. About 15 had come over to him of the about 200 clients that Samuel Marks had. For eleven and a half months he was without a salary.
- It was put to applicant under cross-examination that in fact the restraint had been attenuated to one year and the distance of the area covered by the restraint had been attenuated. He agreed that was the case. He further conceded that the restraint had a commercial rationale. He also agreed with the proposition that what had led to his dismissal was his refusal to sign the
restraint. It was put to applicant that Maritz would deny that the meeting in late February during his notice period took place. Applicant insisted that it did.
- Maritz testified that reason for applicant’s dismissal was the refusal to sign the restraint which reflected a lack of commitment to the respondent and that caused a breach of trust. He testified that he would not have re-employed him if he had changed his mind after the 25 January 2010. He denied ever attending the meeting during the notice period as alleged by applicant. Under cross-examination he stated that he dismissed applicant because he did not agree to sign the restraint and he couldn’t therefore give him extra clients. He stated that he believed that applicant’s intention could only be that he was considering breaking away from the company because based on the finances of the respondent it had to give him a larger work-load than merely clients of the former employer.
- Maritz confirmed that he would not have dismissed applicant if he had signed on the 17th January and if he had become more productive. When asked why he was trying to negotiate with applicant when by law respondent already employed him, Maritz stated that he wanted to put in place the essential and standard practice of a restraint.
- It was submitted on behalf of the applicant that there can be no clearer example of a dismissal aimed at compelling an employee to accept a demand in respect of a matter of mutual interest. The additional terms of employment which respondent was attempting to negotiate with applicant on respondent’s submission were of a material nature – a three year nationwide restraint (later watered down) amounted to a fundamental change to terms and conditions of employment. On applicant’s submission these conditions were clearly less favorable compared to the situation before the transfer.
- In order to fall within the remit of section 187(1)(c) of the LRA it was argued on behalf of applicant that the threat of dismissal in this case was used as a tool in collective bargaining- a matter that falls within the realm of mutual interest in that the parties were negotiating for the creation of new rights.
- On behalf of the respondent it was submitted (based on an amendment to the pleadings in March 2013) the reason for the dismissal was indeed applicant’s refusal to agree to a restraint provision, but that this constituted a legitimate operational reason. Respondent denies that the reason for the dismissal was to compel the applicant to agree to terms of employment including a restraint or that it was the transfer or a reason related to a transfer.
- Both counsel addressed me on the question as to whether the court should apply the law as enunciated in National Union of Metalworkers of SA and Others v Fry’s Metals (Pty) Ltd (2005) 26 ILJ 689 (SCA)1 to this matter. The LAC judgment was upheld in the Supreme Court of Appeal2 which summarized the LAC approach as follows:
“ In the LAC, Zondo JP implicitly – and in our view correctly – rejected the ‘migration’ approach. He considered that the construction of s 187(1)(c) should start with the meaning of ‘dismissal’ as it appears in s 186(1)(a) . Section 186(1) defines ‘dismissal’ as meaning, inter alia, that ‘(a) an employer has terminated a contract of employment with or without notice’.
The learned Judge President concluded that there was a difference between a dismissal as defined in s 186(1) and a dismissal as contemplated by s 187(1)(c) . The two categories do not overlap. A s 187(1)(c) dismissal must be effected ‘for the specific purpose given in s 187(1)(c) and that purpose is absent in an ordinary dismissal such as is defined in s 186(1)(a) ‘. Zondo JP expanded (para 31):
‘[T]here is a distinction between a dismissal for a reason based on operational requirements and a dismissal the purpose of which is to compel an employee or employees to accept a demand in respect of a matter of mutual interest between employer and employee. The distinction relates to whether the dismissal is effected in order to compel the employees to agree to the employer’s demand which would result in the dismissal being withdrawn and the employees being
1 2003(24 ILJ 133 (LAC)
2 (2005)26ILJ 689 (SCA)
retained if they accept the demand or whether it is effected finally so that, in a case such as this one, the employer may replace the employees permanently with employees who are prepared to work under the terms and conditions to meet the employer’s requirements.’
“The LAC’s solution to the conundrum of the statutory concepts was thus to assign a distinctive meaning to ‘dismissal’ in s 187(1)(c), and then to restrict this category of automatically unfair dismissals to those effected for the purpose of inducing employees to change their minds regarding the employer’s demand. On this approach, only conditional dismissals can fall under s 187(1)(c), and it is this that distinguishes them from the broader category of dismissals where the employer – irreversibly – ‘has terminated’ the employment contract. Dismissals intended to be and operating as final – not, in other words, reversible on acceptance of the demand – can thus never have as their reason ‘to compel the employee to accept’ that demand. They will therefore not be automatically unfair. In such cases, the only factual enquiry confronting a court is the employer’s reason for effecting the dismissal: once compulsion to accept the disputed demand (with ensuing reversal of the dismissal) is excluded, no further enquiry into the nature or categorization of the demand is required.”3
- It was argued by Mr. Fourie on behalf of the applicant that the general statement of the law espoused above was not intended to cover the situation where an employer issues a series of ultimatums before summarily dismissing an employee, and only invokes its operational requirements as a reason for dismissal, some two years after the fact. I cannot agree. In my judgment the dismissal in this matter was not provisional. The applicant conceded that after the 25 February when his notice period came to an end, it was not open to him to have agreed to his restraint and claimed his job back.
- It is not necessary for the court to decide on the credibility of the conflicting evidence given by applicant and Maritz as to the alleged meeting after the notice of dismissal and the dismissal itself. The notice of dismissal was
3 At paragraphs 55 and 56
certainly not conditional. Further, the issue of the alleged meeting during the notice period, a material allegation in respect of section 187(1) (c) claim was not pleaded by the applicant. I therefore find that the dismissal was not one contemplated in that section.
- Was the reason for the dismissal “a transfer or a reason related to a transfer, contemplated in section 197…”? The questions the court should ask are firstly whether the applicant advanced sufficient evidence to show that there has been a dismissal; secondly whether there has there has been a transfer of a business as a going concern in terms of section 197 and finally, whether evidence was presented that points to a causal connection between the dismissal and the transfer.4 It was conceded on behalf of the respondent that the applicant has cleared the factual causation hurdle. That this was a section 197 transfer was common cause. The issue of legal causation requires to be determined.
- It was argued on behalf of the respondent that the most likely cause of the dismissal was the obdurate refusal of the applicant to agree to a restraint provision which was a legitimate commercial concern to the respondent. For applicant it was submitted that the election of applicant to refuse to sign the restraint in order to retain his rights as provided for in section 197(2) led to his dismissal. Applying the ‘but for test’ therefore, the conclusion to be drawn in applicant’s submission is that the transfer was at the very least the proximate cause of the dismissal.
- In SA Chemical Workers Union & others v Afrox Ltd5, Froneman DPJ formulated the approach to be adopted in dealing with an automatically unfair dismissal in terms of s187 (1) (a) of the LRA as follows:
“The enquiry into the reason for the dismissal is an objective one, where the employer’s motive for the dismissal will merely be one of a number of factors to be considered. The issue (the reason for dismissal) is essentially one of causation and I can see no reason why the usual two-fold approach to causation, applied in other fields of law should also not be utilized here I (
4 Viney v Barnard Jacobs Mellet Securities (Pty) Ltd (2008) 29 ILJ 1564 (LC)
5 (1999) 20 ILJ 1718 (LAC) at para 32
compare S v Mokgethi & others 1190 (1) SA 32 (A) at 39D-41A; Minister of Police v Skosana 1977 (1) SA 31 (A) at para 34). The first step is to determine factual causation: was participation or support, or intended participation or support, of the protected strike a sine qua non (or prerequisite) for the dismissal have occurred if there was no participation or support of the strike? If the answer is yes, then the dismissal was not automatically unfair. If the answer is no, that does not immediately render the dismissal automatically unfair; the next issue is one of the legal causation, namely whether such participation or conduct was the “main” or “dominant”, or “proximate”, or “most likely” cause of the dismissal. There are no hard and fast rules to determine the question of legal causation ( compare S v Mokgethi at 40). I would respectfully venture to suggest that the most practical way of approaching the issue would be to determine what the most probable inference is that may be drawn from the established facts as a cause of the dismissal, in much the same way as the most probable or plausible inference is drawn from circumstantial evidence in civil cases. It is important to remember that at this stage the fairness of the dismissal is not yet an issue. . . . Only if this test of legal causation also shows that the most probable cause for the dismissal was only participation or support of the protected strike, can it be A said that the dismissal was automatically unfair in terms of s 187(1)(a) . If that probable inference cannot be drawn at this stage, the enquiry proceeds a step further.”6
- The test for legal causation derives from our law of delict and has been described in the following terms in that context: “Broadly stated, the enquiry at this stage is whether, as a matter of public and legal policy, it is reasonable, fair and just to impose legal responsibility for the consequences that resulted from the wrongful conduct.” 7
- The respondent has, by amendment to its statement of claim, pleaded that the reason for the dismissal was for a commercial rational vital to the operations
6 At paragraph 32
7 Bester NO & Others v Schmidt Bou Ontwikkelings CC 2013 (1) SA 125 (SCA) at paragraph 21
of the company i.e. that all of its employees sign a restraint of trade. This was because:
“Respondent conducts the business of a chartered accountant and its directors and employees conduct audits of the books of account of its clients, invariably at the premises of those clients;
As a result of the above circumstances employees and directors of Respondent establish close personal ties with clients who are easily lured away from Respondent should the director or employee in question break ties with Respondent and establish his/her own business or become employed by a different entity doing the same business as Respondent;”
- It is well established that:
“…the proprietary interests that can be protected by a restraint agreement are essentially of two kinds, namely:
The first kind consists of the relationships with customers, potential customers, suppliers and others that go to make up what is compendiously referred to as the ‘trade connections’ of the business, being an important aspect of its incorporeal property known as goodwill.
The second kind consists of all confidential matter which is useful for the carrying on of the business and which could therefore be used by a competitor, if disclosed to him, to gain a relative competitive advantage. Such confidential material is sometimes compendiously referred to as ‘trade secrets’. 8
- In terms of section 213 of the LRA “operational requirements means requirements based on the economic, technological, structural or similar needs of an employer.” In my judgment the proprietary interests protected by
8 Sibex Engineering Services (Pty) Ltd v Van Wyk and Another1991 (2) SA 482 (T) at 502D-F
restraint of trade agreements (which meet with constitutional imperatives) must fall within the scope of this definition.
- Looking at the facts of this case, I note that on applicant’s own evidence he was worried that he would not be comfortable in the new corporate environment of respondent having been with the old employer for more than 20 years. He was concerned about the consequences of signing a restraint should he later resign or be retrenched. He had built up very close relationships with the clients of Samuel Marks some of whom went with him after his dismissal. He conceded that there was a commercial reason for the restraint the respondents wanted to be put in place.
- I therefore find that the most plausible inference to be drawn from the evidence is that it was the operational requirement of a restraint of trade agreement which was the most probable cause of the dismissal. The same conclusion would result were I to take account of issues of reasonableness and fairness regarding the possible liability of the respondent for an automatically unfair dismissal in this matter, and on these facts.
- The respondent did not bother with the niceties of the law in regard to the procedural fairness of the dismissal of applicant. In all these circumstances, I make the following order:
- The dismissal of the applicant was procedurally unfair
- The applicant is to be paid an amount equal to 12 months of his salary at the time of his dismissal as compensation;
- Respondent to pay the costs.
Judge of the Labour Court
Applicant: GA Fourie instructed by M. Haripal-Pertersen, Hertog Respondent: R.G. Beaton SC instructed by Carrim, Attorneys Pretoria