The Right to Fair Labour Practices – Employers are not Without Remedies

Employers often complain that our employment laws are skewed in favour of employees. In support of their contention, they often point to the fact that employees are able to behave unfairly – and even criminally – with little or no consequence. As a result, many employers believe that they are at the mercy of employees who have inflicted damages upon them, particularly after the employment relationship has terminated.

While some of this rings true, employers still have several options available to them, including:-

  • in terms of section 68 of the Labour Relations Act 66 of 1995, as amended (“the LRA”) employers may claim compensation from Unions and employees for a loss suffered as a result of an unprotected strike;
  • section 37D of the Pension Funds Act also permits an employer to attach the value in an employee’s pension or provident fund in order to satisfy a claim for damages arising from inter alia theft, fraud, dishonesty or misconduct on the part of an employee. This is however subject to certain requirements; and
  • the Basic Conditions of Employment Act 75 of 1997, as amended (“the BCEA”) also permits employers to institute claims for payment of certain amounts against employees. In Rand Water v Stoop & Another (2013) 23 ILJ 576 (LAC), the Labour Appeal Court held that such claims include delictual counterclaims against employees for damages, both liquid and illiquid.

The common law is often overlooked when searching for remedies. The duty of good faith forms part of the common law employment relationship and is part of our law. The duty of good faith is a fiduciary duty and requires, inter alia, that employees always act in the best interests of their employers. A failure to comply with this fiduciary duty constitutes a material breach of the employment relationship and may render the employee liable for any loss occasioned by their misconduct.

In the recent decision of Sime Darby Hudson and Knight (Pty) Ltd v Lerena (2018), 39 ILJ 2413 (WCC) the High Court upheld a claim for damages instituted by an employer against a former employee on the basis of the breach of the duty of good faith.

The employee, in this case, was the Key Accounts Manager of the employer and was responsible for, inter alia, the marketing and sale of sunflower oil (“Crispa Gold”). The employee breached both his contractual and fiduciary obligations to his employer by diverting sales opportunities away from his employer, and instead directing them to two companies that he owned and controlled.

In particular, the employee secured a reduced price of Crispa Gold for the benefit of his companies, which he then sold from his companies to customers of the employer. The employer was able to prove that, as a consequence of this misconduct, the employee had made secret profits in the amount of some R 33 291 599.24.

The employee furthermore, and without the knowledge or consent of the employer, sold Crispa Gold to two other companies at substantially lower prices in order to further his secret profiteering. In this instance, the employer was able to prove that the employee’s misconduct resulted in damages equivalent to some R 9 407 652.05.

In evaluating the evidence the High Court found inter alia that the employee breached his fiduciary duty to the employer in that he placed himself in a position where his personal interests conflicted with that of his employer. The Court emphasised that employees are not entitled to utilize their employment relationship, without the consent of their employer, in order to make a secret profit.

Employees should accordingly be cognizant of their respective duties to their employer, both implied and inferred, as the consequences of a breach could be far-reaching and costly. All damages suffered by an employer must, however, be actual and quantifiable in monetary terms.

In our view, employers should pursue legal proceedings against employees who have engaged in dishonest conduct which has resulted in a loss for the employer. In some instances, the misconduct may constitute criminal conduct and must be reported to the relevant authorities for further investigation and prosecution.

Written by Neil Coetzer & Tanya Mulligan
of Cowan-Harper-Madikizela Attorneys

A picture of Neil Coetzer of Cowan-Harper-Madikizela Attorneys
Tanya Mulligan of Cowan-Harper-Madikizela Attorneys