The respondent, a labour broker, supplied approximately 400 employees to its only client, Unilever SA who, in 2013, insisted that the employees’ rate of pay be reduced. Unilever SA informed respondent that if it did not agree to the reduction Unilever SA would terminate the service contract with it. The respondent then reduced the salaries of the employees. This led to anger and the respondent then negotiated a salary increase of 7.5% with Unilever SA. The employees nevertheless demanded that they be reimbursed the equivalent of the reduced amounts of their salaries from 1 October 2013. On the following day, 18 October 2013, Unilever SA refused to permit the respondent’s employees to enter its premises and terminated its contract with the respondent.

The employees’ contracts of employment state:  “On cancellation of the Service Contract between Pecton Outsourcing Solutions and the client (Unilever), this employment contract shall automatically terminate. Such termination shall not be construed as a retrenchment, but shall be a completion of the contract…

It was the respondent’s case that it had not dismissed the applicants but that the contracts it had entered into with its employees were limited duration contracts of employment which expired automatically when Unilever SA terminated the service contract with the respondent.

According to the commissioner, the law in this respect is plain. Contracts of employment must be terminated in terms of the Labour Relations Act and an employer cannot contract out of its terms or the liability to give notice or pay retrenchment pay. Where the underlying contract of an outsource agent is terminated there is obviously an operational reason to terminate the employment contracts of those who were employed to service the underlying contract. The LRA is clear and sets out processes and procedures to be followed where a dismissal is effected for operational reasons. None of those procedures were followed in this case because the employer treated the matter simply as one of contract. The applicants were employees and were entitled to be treated fairly and in the circumstances, although the underlying reason for the termination of the employment may have been sound, the manner in which they were dismissed was procedurally unfair.

Written by Advocate Nicolene Erasmus

First published by SA Labour Guide