Can an employer rely on the termination clause in a contract of employment to dismiss an executive employee without holding a disciplinary hearing?

It has been almost a year since Old Mutual (OM) terminated the employment of its former CEO, Mr Peter Mthandazo Moyo (Moyo). After investigating an alleged conflict of interest that involved Moyo and another corporate entity, OM chose to terminate Moyo’s employment without holding a disciplinary hearing.

Instead of lodging an unfair dismissal dispute at the CCMA, Moyo elected to pursue a breach of contract claim against OM in the High Court. The claim involved two legs. In the first leg, Moyo applied to the High Court for an interim interdict where he sought specific performance (ie temporary reinstatement as CEO pending finalisation of the second leg). In the second leg, Moyo applied to the High Court for final relief also in the form of specific performance (ie permanent reinstatement as CEO). The second leg of Moyo’s claim is yet to be determined by the High Court.

Moyo’s interim interdict was granted in his favour by the High Court. However, on appeal, the High Court has recently held that OM was entitled to terminate Moyo’s contract without subjecting Moyo to a disciplinary hearing. Our focus herein is on the first leg of Moyo’s claim only.

The interim interdict

On 30 July 2019, the High Court granted an interim interdict in Moyo’s favour, the effect of which was to reinstate him as CEO and interdicting OM from taking any steps to appoint a new CEO. The interim interdict would stay in place until such time as the High Court had ruled on the second leg of Moyo’s claim.

The Court a quo found that Moyo had established a prima facie right to reinstatement as CEO on the basis that OM had repudiated the contract of employment. The High Court premised its ruling on an interpretation of clause 25.1 of Moyo’s contract of employment which it interpreted as requiring OM to subject Moyo to a disciplinary hearing or pre-dismissal arbitration, prior to the termination of his employment contract. It is common cause that OM did not do so and instead, terminated Moyo’s employment on notice (invoking clause 24.1.1 of that contract).

OM appealed against the interim interdict.

The appeal

On appeal, OM was successful in setting aside the interim interdict. The appeal court found that the relationship between OM and its CEO is a “special relationship of trust and confidence”. The appeal court found that Moyo failed to show that he had a prima facie right to specific performance (ie reinstatement). The basis of this finding is that even if it is found that an employment contract is unlawfully terminated, it does not automatically mean that reinstatement is the most appropriate remedy. In fact, where a special relationship of trust and confidence exists between the employer and employee, it is probably not appropriate to award a remedy of reinstatement. The appeal court stated that in this matter, the special relationship of trust and confidence objectively no longer existed between OM and Moyo.

The important parts of the appeal court’s reasoning are set out below.

Abandonment of LRA rights

It is important to note that Moyo, in his court papers, expressly abandoned his claim(s) under the Labour Relations Act (LRA) and he “made an election not to assert them in these proceedings”. The appeal court therefore approached this matter purely from a contractual law perspective. The appeal court did not consider if Moyo’s dismissal was fair in terms of employment law.

In light of Moyo abandoning his claim(s) under the LRA, the appeal court found that Moyo did not hold a right to fairness as “there is no self-standing common-law right to fairness in employment contracts. A right to be treated fairly when a contract is terminated only exists if it is expressly or impliedly incorporated in the contract”. In terms of Moyo’s contract of employment, there was no express or implied term which could lead to a conclusion that Moyo had a right to fairness. In addition, Moyo did not make such averment to fairness in his pleadings.

Interpretation of contract of employment

The present-day approach to interpretation of contracts entails a “unitary exercise, which starts with the text to be interpreted, and considers it within the contract as a whole, and in context”. Put differently, contracts must be interpreted with reference to its text, context and purpose.

The appeal court applied this approach when it interpreted Moyo’s contract of employment.

The appeal court paid specific attention to the termination clause in the contract, particularly clauses 24.1.1 and 25.1.1. Clause 24.1.1 dealt with the instance where either party could terminate the contract on notice. This clause granted “each party the right to terminate the employment contract by providing six months’ notice at any time during the duration of the employment contract”. The appeal court said that this clause constituted a “no-fault” ground of dismissal. Clause 25.1.1 had a different purpose which conferred on OM “the right to decide, in its sole discretion, whether an internal disciplinary enquiry or pre-dismissal arbitration should be held in circumstances where allegations of misconduct or incapacity have been raised”. These clauses were entirely separate from each other and neither of clauses referred to one another. The use of clause 24.1.1 by OM to terminate the contract did not trigger the application of clause 25.1.1.

Distinguishing Moyo’s case from previous cases which dealt with the dismissal of senior executive employees.

In Somi**, the contract of employment could be terminated by either party providing one month’s notice or by the employer for certain defined reasons. The contract incorporated the code of conduct. The employer commenced a performance enquiry and terminated the contract prior to the finalisation of the enquiry without notice. The Labour Court found that the employer had repudiated the contract as it had not afforded the employee a full hearing before termination, which she was entitled to on an interpretation of the contract read with the employer’s policy.

In Motale**, the employer terminated the contract of employment based on an irretrievable breakdown of the employment relationship. The employer did not hold a disciplinary hearing despite the fact that the terms of the contract (read with the disciplinary code which was expressly incorporated into the contract) required the employer to do so. The Labour Court held that this was unlawful in that the employer concluded the employee was guilty of misconduct which led to the conclusion that the trust relationship had irretrievably broken down without giving the employee a hearing.

​The appeal court found that the Gama judgment*** was more relevant to this matter. In the Gama matter, the employer elected to terminate the contract of employment of its CEO on notice due to a breakdown of trust and confidence. The employee applied to court for an interim interdict reinstating him into his position as CEO pending the outcome of a disciplinary hearing. The employee argued that the disciplinary code of the employer was incorporated into his contract of employment and he was therefore entitled to a disciplinary hearing. The court ultimately found that the disciplinary code regulated dismissal for misconduct and not termination on notice due to a breakdown of trust and confidence in the employee in his capacity as CEO. Termination on notice was permitted in terms of the contract and therefore, the termination was not shown to be unlawful.

Appealing interim interdicts

The appeal court also stated that interim interdicts are generally not appealable. However, the appeal court felt that the interests of justice demanded that Moyo’s interim interdict to be appealable; because the interim relief granted had the potential to cause irreparable harm to OM.

Forum shopping on remedies

From an employment perspective, this judgment raises the issue of forum shopping and the options available to an employee once he or she has been dismissed. Towards the end of 2019, the Labour Appeal Court in Archer**** confirmed that an employee is entitled to refer a breach of contract claim after an unsuccessful unfair dismissal claim. In Archer, the LAC said that the principle of res judicata does not apply in this instance as the two claims are not the same.

Conclusion

The High Court will still be hearing the second leg of Moyo’s claim wherein he inter alia seeks specific performance in terms of his employment contract (ie permanent reinstatement).

​It still remains to be seen whether, if unsuccessful at the High Court, Moyo will then claim unfair dismissal at the CCMA. If he elects to do so, he will need to apply for condonation as his unfair dismissal dispute referral will be out of time.

So ​for the time being, the jury is still out regarding whether an employer can rely solely on a termination clause to dismiss an employee without holding a disciplinary hearing. Following this judgment, employers should not assume that a contract of employment can now be terminated on notice. Employers are still under an obligation, under the LRA, to ensure that the dismissal is both substantively and procedurally fair. In other words, while it may be possible to terminate a contract of employment lawfully on notice, it does not automatically follow that such method of termination will be fair under the rubric of employment law principles. This however seems to be the way the wind is blowing as regards senior employees.

​* Old Mutual Limited and Others v Moyo and Another (A5041/19) [2020] ZAGPJHC 1 (14 January 2020)
**Somi v Old Mutual Africa Holdings (Pty) Ltd (2015) 36 ILJ 2370 (LC) (Somi); Motale v The Citizen 1978 (Pty) Ltd and Others [2017] 5 BLLR 511 (LC) (Motale)
*** Gama v Transnet SOC Limited and Others (J3701/18) Labour Court, Johannesburg (22 November 2018) (Gama)
**** Archer v Pinelands High School and Others (CA12/18) [2019] ZALAC 70 (25 November 2019)

Eugene Phajane is a Partner, Kenneth Coster is a Partner, Mehnaaz Bux is a Senior Associate, Shane Johnson is a Professional Support Lawyer at Webber Wentzel.

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