Breach of the employment contract

André Claassen & Nicolene Erasmus

A breach of contract by either party entitles the other party to either accept the breach and sue for damages, or to reject it and sue for specific performance. A material breach of contract constitutes repudiation where it evinces an intention on the part of the guilty party not to continue with the contract. A breach of a material term constitutes repudiation, whether the term is express, tacit or incorporated. Repudiation by a party does not itself terminate the contract, it merely gives the innocent party the choice of accepting it and bringing the contract to an end; or rejecting it and seeking an order for specific performance, which effectively declares the contract of full force and effect^[1].

In Fijen v CSIR [1994] 8 BLLR 8 (LAC) the Labour Appeal Court dealt with the question of repudiation in a situation where the appellant, a senior employee, was found not guilty on charges of alleged misconduct after an enquiry chaired by one Swart at which the appellant’s immediate superior was the main witness. Following the enquiry, Swart held a discussion with the appellant, the contents of which led the appellant to conclude that Swart believed he was guilty. The appellant subsequently indicated in a letter that he considered the relationship between himself and the respondent to be permanently damaged and suggested that the relationship be terminated by way of a voluntary redundancy coupled with a suitable financial package.

The respondent replied contending that it did not consider the relationship permanently damaged and stating that redundancy would not be considered. In a further letter, the appellant reiterated that he had lost faith in Swart and his immediate superior and that he considered the working relationship permanently damaged.

The respondent then advised the appellant that it considered the tenor of his correspondence to constitute a repudiation of his contract of service which it accepted. Voluminous correspondence ensued although the respondent’s stance remained unaltered and the appellant’s services were terminated. The Industrial Court held that although the appellant had not repudiated his contract, the termination had been fair as it was based upon a fair reason and, in light of the voluminous correspondence between the parties, the audi alteram partem principle had been observed. In an appeal to the Labour Appeal Court, the court first considered whether in fact the respondent had dismissed the appellant.

In the court’s view, the appellant at no stage, either by words or conduct, evidenced a clear and unambiguous intention not to continue with his contract of employment and further did not act in such a way so as to lead a reasonable person to such a conclusion. Having found that the respondent dismissed the appellant, the court turned to consider whether that dismissal was substantively fair. The court had little difficulty finding that the respondent purported to terminate the appellant’s contract on the basis of an acceptance of his repudiation and consequently never purported to give him notice of dismissal or apply its mind to the question as to whether a fair and valid reason existed for the taking of such a step.

The court also expressed the view that as the respondent had failed to indicate categorically in its correspondence that there existed no mechanism in terms of which the appellant could obtain financial compensation, there existed no justification for holding, as the Industrial Court had, that the appellant would have continued in not taking no for an answer. In the court’s view, the evidence made it clear that the respondent had taken no real steps to reinstate a normal working relationship.

In concluding that the appellant’s dismissal was substantively unfair, the court found that the appellant was entitled to propose termination of his services by agreement, and that the manner in which he went about it did not constitute a repudiation of his contract and accordingly did not amount to a fair reason for dismissal.

Forms of breach

One needs to distinguish between serious (or fundamental) and less serious forms of breach. Theft and fraud have always constituted good grounds for dismissal as they frequently constitute a fundamental breach of the employment contract. The cases have in the past emphasised, with good reason, the breach of the relationship of trust that occurs where an employee is guilty of such a misdemeanour. (Toyota South Africa Motors (Pty) Ltd v Radebe & others [2000] 3 BLLR 243 (LAC))

Remedies of the employer

1. 1.Summary dismissal: Summary dismissal means the termination of the employee’s services without giving notice – the cancellation/termination of the contract. The employer is entitled to terminate/cancel the contract (dismiss the employee) when the employee has committed a material breach of contract.
2. 2.Specific performance: The courts are unlikely to order specific performance against an employee who has breached theThis is illustrated in Santos Professional Football Club (Pty) Ltd v Igesund & another [2002] 10 BLLR 1017 (C) where the employee (a professional football coach) wished to leave the services of the employer because he had secured a more favorable contract with another club. Since the relief sought by the applicant constituted an order of specific performance, the critical issue was whether such an order was appropriate in the circumstances. In Troskie en ’n Ander v Van der Walt 1994 (3) SA 545 (O). a full bench upheld the decision of the court a quo refusing an order of specific performance in respect of a contracted rugby player. Wright J at 552–553 commented as follows:

“Die aard van die dienste wat in die onderhawige saak gelewer moes word is die speel van rugby vir ’n besondere klub. Die lewering van die betrokke diens is nie alleen afhanklik van die persoonlike entoesiasme, bereidwilligheid, en deursettingsvermoë van die besondere speler nie, maar ook is daar aan die betrokke dienste ’n groot mate van kundigheid, bedrewenheid en vaardigheid van persoonlike aard verbonde en wat afhanklik sal wees van die besondere speler se spesifieke eienskappe en ook sy verhouding met die klub vir wie hy rugby speel. Dit is sterk te betwyfel of daar in die besondere omstandighede van hierdie saak ooit ’n bevel tot spesifieke nakoming gepas sou kon wees, heeltemal afgesien van die feit dat die amateurskode van die Internasionale Rugby/Voetbalraad ook nag van toepassing is.”

As in the Troskie case (supra) – and I tried to point this out at the very beginning of argument in this matter in this instance also the performance of the service is dependent upon ability, efficiency and skill of a very personal nature. The courts have previously held that the reasons militating against an award for specific performance of a contract of employment were so compelling that they were generally regarded as a rule of law, that specific performance of such contracts would never be granted.

Though it is today not an inflexible rule of law, the compelling considerations why such an order should not be granted remain weighty (see National Union of Textile Workers v Stag Packings (Pty) Ltd & Another 1982 (4) SA 151 (T) at 158). Compelling reasons not to enforce specific performance on the part of an employee include a disapproval of forced labour, the fact that damages appears to be a sufficient remedy for an employer and simply a reluctance to interfere with an employee’s right to freely exercise his or her skills or profession (see in this regard the authors A Rycroft & B Jordaan A Guide to South African Labour Law 2ed at 102). As Rosenberg has correctly pointed out, these policy considerations find strong resonance and echoes in the constitutionally enshrined rights to freedom of movement, the right to choose a profession or occupation freely and the right to dignity. Ultimately, the Court has a discretion whether to grant specific performance. I must exercise this discretion judicially. There are in this instance practical considerations which deter me from granting the order. The nature of the services are of such a highly personal nature that it would be virtually impossible to determine whether the first respondent is functioning optimally. He no longer wishes to work for the applicant. Should I compel him to be their coach for a further 12 months? Would this not compromise his dignity? He has problems with regard to his family which may or may not be resolved if he moves on to another team. Furthermore, first respondent’s relationship with applicant’s management has deteriorated. There has been a great deal of publicity, perhaps fuelled to some extent by the applicant or its lawyers, which has undoubtedly exacerbated the ill-feeling between the parties. I do not believe that in these circumstances they will be able to restore a working relationship, let alone the intimate relationship of that of a coach and his team.

1. Damages: An employer is entitled to claim damages from an employee whose behaviour caused him damage.
2. Statutory remedies: See statutory remedies below.
3. Cancellation of the contract

Remedies of the employee

Material breach of contract by the employer allows the employee to resile from the contract. Examples include a reduction in status, the non-payment of remuneration etc. In Eagleton & others v You Asked Services (Pty) Ltd [2008] 11 BLLR 1040 (LC) the court pointed out that “where an employer breaches a material term of the contract, such as not paying an employee which is a material and fundamental term of the contract, the employee has an election. In Coetzee, supra, at 1332F, the Labour Court pointed out that the innocent party has a choice whether to cancel the contract or to uphold the contract and enforce it. If the employee does not elect to terminate the employment contract by resigning, he or she will not be entitled to claim a constructive dismissal as an essential element of a claim of constructive dismissal will not be present. In order to place an employer in a position to formulate a defense against a claim of constructive dismissal it is therefore, in my view, necessary to make a factual allegation in the statement of claim to the effect that it was the employee who had terminated the contract of employment by resigning.”

1. Specific performance

Due to the personal nature of a contract of employment, the courts will not order specific performance where a contract was breached. It was decided in National Union of Textile Workers and Others v Stag Packings (Pty) Ltd & Another 1082 4 SA 151 (T) that specific performance (reinstatement) was not excluded as a remedy for the employee. The fact that the relationship between the parties has broken irretrievably broken down is one of the factors which may be taken into consideration when the decision to reinstate or not is made.

1. Damages

An employee may claim damages suffered as a result of the breach of contract by the employer, irrespective of whether he elects to terminate the contract or to continue with the contract. In Wallace v Du Toit [2006] 8 BLLR 757 (LC) the employer employed the employee as an au pair to care for his two young children. After two years, the employee fell pregnant, and her employment was terminated. She sought compensation under the Labour Relations Act (“LRA”) for her automatically unfair dismissal and she further claimed damages under the Employment Equity Act. The Court awarded an amount of R25 000 damages for the impairment of her dignity and self-esteem flowing from the discrimination on the grounds of her pregnancy. Compensation equal to 12 months’ remuneration was added to this.

1. Refusal to work

Employees may refuse to work if their employer has committed a breach of contract.” Where an employer has committed a breach of contract, employees may refuse to work.

In Nkutha & others v Fuel Gas Installations (Pty) Ltd [2000] 2 BLLR 178 (LC) the court noted that the employment contract is a contract with reciprocal rights and obligation. …the refusal of employees to work in response to a failure on the part of the employer to perform its obligations, such as paying the employees for services rendered, is a lawful refusal in that it does not amount to a breach of contract under common law. In other words, the employees are legally entitled to refuse to carry out their side of the employment contract. In fact, it is the employer who is breaching the employment contract by unlawfully failing to perform its reciprocal obligation(s). Having regard to these legal principles, such lawful entitlement of employees to refuse to work must, in my judgment, be distinguished from a strike where the concerted refusal to work by employees amounts to an unlawful breach of contract under common law. In other words, such lawful entitlement of employees to (collectively) refuse to work does not constitute a strike as defined in terms of section 213 of the Act (quoted above at paragraph [67] – see also Cheadle H in Current Labour Law Juta 1999 at 70–71). In fact, a strike which amounts to unlawful breach of contract (under common law) can be branded as misconduct for the purposes of the dismissal of the strikers concerned.

This is explicitly provided for in terms of the present Labour Relations Act (item 6 of Schedule 8, also discussed below) with the ever important proviso, of course, that a strike that can be defined as a protected strike in terms of the provisions of Chapter IV of the Act is not a legitimate ground for dismissal. In fact, the fundamental right to strike is entrenched and protected in terms of these provisions of the Act. In view of the foregoing, care should, in my judgment, be taken to ascertain the circumstances or facts which present themselves in every case under investigation. The question must be answered: Is the collective refusal to work in response to the failure of the employer to perform its reciprocal obligations under the employment contract or is the purpose of the collective refusal to work to place pressure on the employer to remedy a grievance or to resolve a dispute? Only in the last-mentioned instance would such concerted refusal constitute a strike in terms of section 213 of the Act.

It may be difficult to answer the said question where the employer is in breach of contract because of a unilateral change to the terms and conditions of employment by the employer. the employees will namely then be able to make an election. On the one hand, the employees can elect to pursue their contractual remedies (referred to also in the above judgment) including the lawful entitlement to refuse to perform their contractual obligations until the employer remedies the breach of its reciprocal obligation. On the other hand, the employees will also be entitled to embark on protected strike action under these circumstances. Section 64(4) of the Act makes it clear that a dispute about a unilateral change to terms and conditions of employment can give rise to an employee’s right to strike in terms of section 64(1)(a) of the Act. Section 64(4) and (5) even provides for a restoration of the unilateral change pending conciliation of the dispute, thereby putting pressure on the employer to bargain with the employees on this dispute. See in this regard also the judgment in Monyela & others v Bruce Jacobs t/a LV Construction (1998) 19 ILJ 75 (LC). Zondo J (as he then was) stated the following at 82J–83A:

“First of all it is clear that employees are given the right to strike over a dispute about a unilateral change of their terms and conditions of employment despite it being a rights dispute. This is to be gathered from a reading of s 64(1) read with s 64(1)(a)(i) and (ii) as well as s 64(4) and (5). So pending the happening of any one of the events referred to in s 64(1)(a)(i) or (ii), the employees or the union is entitled to prevent the employer from effecting a change to the terms and conditions of employment by requiring the employer in the referral not to effect such a change and, if such change has already been effected, by requiring the employer to restore the status quo. Once the event referred to in s 64(1)(a)(i) has occurred, or the period referred to in s 64(1)(a)(ii) has expired, and the employer is no longer obliged to comply with the union’s s 64(4) requirement, the employees may go on strike and such strike will be a protected strike” (emphasis supplied).

The judgment also underlined the principle referred to above that, in addition to this remedy of a protected strike, the employees can elect to rather or also exercise their contractual remedies (at 82E–G):

“If the employer changes the terms and conditions of employment of the workers without their consent, its conduct may constitute a repudiation of the workers’ contracts of employment. In that event the workers will have an election whether to accept the repudiation and claim whatever damages they may suffer as a result of such repudiation or they may reject the repudiation and hold their employer to their contracts of employment.”

1. Statutory remedies

The Labour Relations Act provides dispute resolution methods in cases of unfair dismissals, unfair labour practices etc. Labour disputes could be referred to Bargaining Councils or the CCMA. If conciliation fails, the dispute is arbitrated by the council or CCMA or adjudicated by the Labour Court, depending on the nature of the dispute. The BCEA puts mechanisms in place for the recovery of outstanding payments and the Employment Equity Act provides for the resolution of unfair discrimination disputes^[2].

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[1] Grogan J, 2010. Employment Rights, 69

[2] Du Plessis & Fouche, 2006. A Practical Guide to Labour Law, 18