TERMINATION OF Contract of Service and its Legal
Consequences
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Introduction
Just like any contractual agreement, a contract of
employment can come to an end in different forms
and for different reasons.
Basically, the common law principles applicable in
contractual relationship also extend in employment
relationship to that extent of filling the gap of where
the statutory provisions provide otherwise.
The terms and conditions of employment also may be
having the time frame for which the employment
relationship is going to subsist.
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The employer is empowered at common law and in
statutory law to take control of his own business and
ensure that the state of affairs is in good order at
workplace.
In so doing, the employer is empowered to take fair
disciplinary actions against his employees where there
is misconduct or breach of certain lawful instructions.
Fair disciplinary process involves an opportunity to the
employee to defend himself after having been shown
the nature of the allegations put against him.
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In ensuring that the process is fair to both, the
employer and employee, the law affords power to the
employer to suspend the employee pending the
determination of his case.
In the case of BENBROS MOTORS TANGANYIKA
LTD V. RAMANLAL HARIBHAI PATEL (1967)
H.C.D 435, Suspension was held to be a temporary
discharge of an employee from the employment,
pending some other event usually an investigation
into some act on the party of the employee after
which re-instatement might be had.
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Therefore, Suspension does not amount to punishment, it
is only an interim measure and will last till the application
for permission to punish the workman and is made by the
tribunal which passes an order thereon.
It is just an interim measure pending investigation and
proceedings.
In the case of HOTEL IMPERIAL V. HOTEL WORKERS
UNION (1959)2 LLJ 544 it was held inter alia that;
“The master can after holding proper inquiry temporarily
terminate the relationship of master and servant by
suspending his employee pending proceedings”.
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Nevertheless, suspension can be grouped into two;
Preventive suspension
This is where disciplinary charges are being investigated
against an employee and the employer wants to suspend the
employee pending the outcome of the disciplinary enquiry.
The reason for this is usually to remove the employee from
the workplace so that he does not interfere with the
investigation or intimidate witnesses.
Punitive suspension
Here, a suspension is imposed as a disciplinary measure short
of dismissal after the disciplinary hearing has been held and
the employee found guilty.
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Under rule 27 of the Code of Good Practice it is stated
that where there are serious allegations of misconduct
or incapacity, an employer may suspend an employee
on full remuneration whilst the allegations are
investigated and pending further action.
The employee suspended shall be given a written
letter of suspension setting out the reasons of
suspension and any terms of suspension.
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Under the Public Service Regulations suspension is
under regulation 39 of the Regulation; the Regulations
have distinguished between suspension and interdiction
which is provided for under regulation 38 of the Public
Service Regulations.
Interdiction is defined under Regulation 3 of the Public
Service Regulations 2003
The period for which an employee is suspended must be
reasonable by taking into consideration the period for
which investigation is conducted and any further action
that might be taken.
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Suspension does not amount to termination of contract.
It is merely a discharge of an employee from an employment
pending investigations and proceedings.
Therefore the contract of employment does not come to an
end by the suspension of an employee.
In the case of Rajasthan State Road Transport Corpn
v. Sohan Lal & ors (1996) LLR 930 (RAJAN HC) the
court held that;
A suspended employee continues to be in
employment and he will be entitled to benefit of
revised pay scales also.
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When the investigation and the proceedings are
completed and it is found out that the employee is
liable for misconduct or whatever he was accused of,
the employer will have a right to dismiss such an
employee from the employment, thus the contract of
employment will be said to come to an end.
Conversely, when the allegation are found out not to
be true, the employee will have the right to be
reinstated in the employment and be entitled to all
his benefits.
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In the Public service Disciplinary grounds are found under
the following provisions;
S.23 & 25 of the Act
Regulations 35-49, 60-64
Clause 46, 47 & 48 of Schemes
Before and disciplinary action is taken against any public
servant there must be;
preliminary investigation
The public servant must be given notice of the charge against
him
The public servant must be afforded an opportunity to be heard
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In the Public Service there are two types of disciplinary
proceedings-Regulation 41;
Formal proceedings-Regulation 42 (See also types of
offences for this kind of proceedings under Part A to the
First Schedule of the Regulations)
These proceedings may warrant dismissal, reduction in rank or
reduction in salary
Summary proceeding-Regulation 43 (See also types of
offences for this kind of proceedings under Part B to the
First Schedule of the Regulations)
These proceedings may not warrant dismissal, reduction in rank
or reduction in salary
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Termination of Employment
Generally there are several forms of termination of
employment contract like;
Breach of contract of employment
Dismissal
Mutual agreement
Operational requirements
Death of an employee/insolvency of an employer
Supervening impossibility of performance
Resignation
Retirement age
Expiry of time or the happening of a specified event, etc
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Under section 36 of the ELRA termination of
employment includes
A lawful termination of employment under a common
law
A termination by an employee because the employer
made the continued employment intolerable for the
employee;
A failure to renew a fixed term contract on the same or
similar terms if there was a reasonable expectation of
renewal
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A failure to allow an employee to resume work after
taking maternity leave granted under this Act or any
agreed maternity leave;
A failure to re-employ an employee if the employer has
terminated the employment of a number of employees
for the same or similar reasons and has offered to re-
employ one or more of them
In terms of the PSA and its Regulations, see s.24 of
PSA 2002, Regulation 29-34 of the Public Service
Regulations.
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Breach of Employment
Contract
The parties to any contract are expected to abide with their
terms of agreement.
Any failure to fulfill the obligations under the said contract
amount to a breach of contract.
In a contract of employment, both the employer and employee
are entitled to repudiate the contract in event the other party
has fundamentally breached the terms of the contract
The remedies available in each case will depend on who is the
victim of that breach.
The remedies are available at common law and under
statutory law.
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For an employment contract to be terminated on
ground of breach of the terms of the contract, such a
breach must be regarded as fundamental to that
contract.
It must be so serious in its consequences to the extent
of depriving the other party what he had contracted for.
A fundamental breach may be as a result of a series of
small breaches.
The intention of the guilty party has to be determined
in assessing whether such breach was deliberate or not.
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A fundamental breach must be one which goes to the
heart of the employment contract-See Rule 6(3)
That include;
Deliberate failure of the employer or refusal to
remunerate the employee
Refusal by the employee to render his or her service.
Verbal or physical abuse or sexual harassment
Unfair discrimination, etc see Rule 6(4)
The employee may terminate the contract and seek
for remedy and in case the employer is one who is
affected may terminate the contract summarily.
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Dismissal
In terms of the statutory requirements, a dismissal may
mean any of the following forms of the termination of
employment;
Termination of a contract of employment by the employer
with notice
The notice may be given of not less than
4 Days for employees who are employed on daily basis
7 Days for employees who are in their first month of employment
28 Days for employees employed on a monthly basis
S.41 of the ELRA, Rule 8(1)(b), Rule 8(2)(d)(i) of the ELRA Code
of good practice
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Employer and employee may enter into an agreement which
provide for a longer period of notice that apply equally to both.
A notice of termination must be in writing and must state the
reasons for termination and the date on which the notice is
given
Notice of termination cannot be issued during any period of
leave taken under the law-See Section 41(4) of ELRA
The employer may sometimes, instead of giving notice,
may pay the employee the remuneration that the
employee would have received if the employee had
worked during the notice period
This is what is termed as Payment in Lieu of Notice (PILON)
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PILON is a payment made to an employee when employment
is terminated without notice, instead of the employee
working through a notice period and receiving pay in the
normal way. It is different from 'gardening leave', in which
the employee is still in employment during the notice period
and is paid during that period, even though he or she is not
present at work.
Termination of a contract of employment by the
employer without notice/summary dismissal
S.41(7)(b) of the ELRA, Rule 8(2)(d)(ii) of the ELRA Code of
good practice.
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A summary dismissal is a dismissal without notice.
Under the terms of a contract of employment , an employer
must give a minimum amount of notice if the contract is to
be terminated.
However, under the ELRA and the Code of Good Practice
such notice does not need to be given if for instance the
employee is guilty of gross misconduct; in that case the
employer is entitled to apply a summary dismissal.
Other instances include;
Termination of a contract for specified time
Termination of a contract for specific task
Seasonal or casual employment.
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Refusal or failure by an employer to renew a fixed-term
contract
A fixed term of contract of employment expires automatically
when the time period agreed in the contract comes to an end
or when the specific project is completed.
However there are situations where, because of the nature of
conducts of the employer, the employee had a reasonable
expectation that such a contract would be renewed.
It is for the employee to prove the objective presence of such
expectation
See S.36(a)(iii) of ELRA, Rule 3(1)(c), Rule 4(4)-(5) of the
ELRA Code of good practice
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In the case of Bronn v University of Cape Town [1999] 20 ILJ 951
(CCMA) it was held that;
…the existence or otherwise of such a reasonable expectation had to be
determined in light of the specific contractual provisions of each fixed
contract, as well as the context in which the contracts had been entered
into.
An impression of expectation may be created by the employer or
the employer’s representative on the following circumstances;
Where there are previous renewals which were made for instance without
notice
Where the employer made a representation to the employee that the
contract will be renewed
Where the employer has assured the employee that the contract will be
renewed.
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Refusal to allow an employee to resume work after leave
S.36(a)(v) of ELRA, Rule 3(1)(e) of the ELRA Code of good
practice
Selective dismissal
This is sometimes referred to as selective re-employment.
It occurs where the employer after terminating a group of
employees for reasons related to retrenchment or following
unlawful industrial action, he decides to take some of them
back to employment.
This constitute unfair labour practice to those left behind
S.36(a)(v) of ELRA, Rule 3(1)(c) of the ELRA Code of Good
Practice
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For selective dismissal to occur there are must be the
following conditions;
There must be previous termination
Employees must have been terminated for the same or
similar reasons
The employer must have offered to re-employ one or more of
the previously terminated employees;
The employer must have refused to re-employ one or more of
the previously terminated employees
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Constructive dismissal
S.36(a)(ii) of ELRA, Rule 3(1)(b) and Rule 7 of the ELRA Code
of Good Practice
This happens when the employee terminates the
employment contract (by giving notice or summarily) but his
resignation is not entirely voluntary rather it was caused by
the actions or omissions of the employer which made the
employment on the part of the employee intolerable.
In the case of Pretoria Society for the Care of the
Retarded v Loots (1997) 18 ILJ 981 (LAC) at 985 the
court in describing the circumstances for constructive
dismissal held that;
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The enquiry is whether the employer without reasonable and
proper cause conducted itself in a manner calculated or likely to
destroy or seriously damage the relationship of confidence and
trust between employer and employee. It is not necessary to show
that the employer intended any repudiation of the contract; the
court’s function is to look at the employer’s conduct as a whole
and determine whether…its effect, judged reasonably and sensibly
is such that the employee cannot be expected to put up with
it.
Therefore resignation of an employee in these circumstances must
be on of a last resort. An employee must show some degree of
coercion, duress or undue influence exalted to him by the
employer. Those acts or omissions must be one which any
reasonable person cannot be expected to tolerate.
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In the case of Mafomane v Rustenburg Platinum
Mines Ltd [2003] 10 BLLR 999, the court set the
following tests which the employee need to prove to
establish constructive dismissal;
That the employee terminated the contract;
That the continued employment was intolerable;
That the intolerability was of the employer’s making;
and
The employee resigned as a result of the intolerable
behaviour of the employer
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Those tests are reflected in terms of Rule 7 of the ELRA
Code of Good Practice.
The test is objective one, that is, any reasonable
employee in the circumstances would have found the
circumstances to be intolerable.
It is to the employee’s own risk if he decide to resign
without exhausting the available mechanisms for
remedy.
However it is not necessary to exhaust such available
mechanisms if there is good cause for not doing so-Rule
7(2)(b) of the ELRA Code of Good Practice.
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Termination due to transfer of undertaking
Rule 5(1) of the Code of Good Practice provides that the contract
of employment may automatically come to an end following
death or loss of profession of the business.
That is what is termed as sequestration of the employer
However, where the business is taken over by another employer
in such circumstances then he need first to consider the
employment of the employees whose employment have been
terminated before hiring other employees.
See Rule 5(2) of ELRA Code of Good Practice
A transfer of undertaking may also result into termination of
employment in a form of retrenchment-see Rule 23(2)(c) of the
Code of Good Practice.
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Redundancy/Retrenchment
This is what is termed as “termination for operational
requirements
It is provided for under s.38 of the ELRA
The term operational requirements has been defined under
Section 4 of Act no.6 of 2004 to mean requirements based on
the economic, technological, structural or similar needs of
the employer.
See also Rule 23(1) of a Code of Good Practice.
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As per Rule 23(2) of the Code, the basis of retrenchment for
operational requirements might be;
Economic needs related to financial management
Technological needs that affect work relationships
Structural needs that arise fro restructuring of the business
Before any process of Retrenchment, the employer
shall;
Give notice of any intention to retrench
Disclose all relevant information on the intended
retrenchment
Make proper consultation prior to retrenchment
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The employer is required to make proper consultation
on;
The reasons for intended retrenchment
Any measure to avoid or minimise the intended
retrenchment;
The method of selection of the employees to be
retrenched;
The timing of the retrenchment; and
Severance pay in respect of the retrenchment
Steps to avoid the adverse effects of the termination
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During the process of Consultation, the trade union
must be allowed to;
Meet and report to employees
Meet with the employer; and
Request, receive and consider all the relevant information
related to retrenchment process.
If there is no agreement during consultation, the
matter shall be referred to CMA for mediation.
If after the expiry of 30 days, no agreement is reached,
the employer may proceed unilaterally.
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Retirement
Employment contract may come to an end due to
employee reaching retirement age
This is one of the automatic termination forms
recognized under the Code of Good Practice-see Rule
5(4).
Also see Regulation 32 of the Public Service Regulations
2003
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The Concept of Affirmative
Action
Affirmative action is a substantive approach to equality at
workplace.
It constitutes measures that are taken to protect or advance
persons or categories of persons disadvantaged by unfair
discrimination.
In the case of Minister of Finance & Another v Van Heerden
2004 (6) SA 121 it was held that affirmative action has three
major requirements;
It must target people or categories of people who had been
disadvantaged by unfair discrimination;
The measure must have been designed to protect or advance such people
That the measure must promote the achievement of equality
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Unfair termination
Section 37 of the ELRA provides for circumstances that
may constitute unfair termination of employment.
It is unlawful for any employer to terminate the
employment of an employee unfairly
A termination is unfair if the employer fails to prove
That the reason for the termination is valid
That the reason is fair
That termination followed fair procedure
A fair reason could be a reason related to
the employee’s conduct, capacity or compatibility; or
Based on operational requirements of the employer
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A reason which is not fair include any of the reasons
stated under s.37(3) of ELRA
It is also unfair if an employee is terminated for
reason;
Related to pregnancy;
Related to disability; and
That constitute discrimination
Rule 9 read together with Rule 13 provides for a need
to abide with fair procedures in termination of
employment Contract.
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Termination for grounds related to misconduct is
covered under the Code of Good Practice under Rule
11-14.
Termination for reasons related to incapacity is
covered under Rule 15-16, 19-21
Termination for grounds related to poor performance
or incompatibility is covered under Rule 17 & 22.
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Remedies
Apart from the common law remedies, section 40 of the
ELRA provides for remedies available for unfair
termination.
Such remedies include;
Reinstatement
Re-engagement
Compensation
Re-instatement is an order that the employer shall treat the
employee in all respect as if he had not bee dismissed.
The employee is returned to his former job as if he had never
been away.
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The employee will be re-instated from the date he was
terminated without loss of remuneration during the period
for which he was absent.
The employee will resume employment on the terms and
conditions that prevailed at the time of termination.
Re-engagement (re-employment) resembles re-
instatement in its effect except that the employee does
not necessarily return to the same post.
The order implies a new relationship which may be different
from the old one.
The employee may be given another job which differs from
the old one.
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He may be given the old job but without such seniority rights as
existed at the time of his termination.
The employee begins the work afresh with the employer, and
any benefits arising from his past employment are not extended
to the new employment relationship
The Court or the Arbitrator may not order re-
instatement or re-engagement if;
It will promote further serious industrial relations strife
between the employer and employee or the circumstances
surrounding employment relationship are intolerable-see
the case of Coleman v Magnet Joinery Ltd [1975] ICR 46
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It is impracticable for the employer to comply with
such an order. For instance if the employee was
retrenched due to mechanization
If the employee does not wish to be re-instated or re-
engaged.
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The fact that it is impracticable for the employer to re-
instate the employee can be drawn from circumstances
of the business.
In the case of Enessy Co. SA t/a The Tulchan Estate v
Minoprio [1976] IRLR 489 Lord McDonald stated;
In our view it was not realistic to make an order of this
nature in a case where the parties involved were in close
personal relationships with each other such as they were in
the present situation. It is one thing to make an order for re-
instatement where the employee concerned works in a
factory or other substantial organization. It is another to do
so in the case of a small employer with few staff.
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Compensation is a remedy available to an employee for
unfair termination of employment.
The assessment of compensation should be on the basis
of what is fair and reasonable and not to punish the
employer or to victimize the employee.
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