Amazwi Power Products (Pty) Ltd v Turnbull (JA 14/07) [2008] ZALAC 8; (2008) 29 ILJ 2554 (LAC); [2008] 9 BLLR 817 (LAC) (20 June 2008) per Davis JA (Leeuw JA and Tlaletsi AJA concurring)
The LAC confirmed that an executive director, such as the managing or financial director, holds not only the office of director but is also automatically an employee for the purposes of the definition of ‘employee’ in s 213 of the LRA. So if a director resigns from that office and the board, it does not mean that the person is also terminating the employment contract, whether on notice or otherwise. The employer in treating the resignation differently ‘dismissed’ the employee unfairly and had to pay 6 months’ compensation based on her total monthly salary.
Excerpts
The applicable law
[12] In general it, can be stated that a director stands in a fiduciary relationship to a company and is subject, essentially, to the same fiduciary duties and responsibilities as do other fiduciaries who are in a similar relationship of confidence and trust to one another. When a person accepts the office of a director and no contract had been expressly concluded, the contract between the director and the company will be implied, the effect being that the position is regulated by the company’s articles of association. A director is thus not an employee of a company, although he or she can be an employee in addition to holding the independent office as a director. See The Law of South Africa (First Reissue (1996)) Volume 4 Part 2 at para 52; Anderson v James Sutherland (Peterhead) Ltd 1941 SC 203 at 217.
[13] Applying these principles to the office of a managing director, Prof Blackman writes that the managing director constitutes a composite office. Not all of his actions in relation to company business are to be attributed to the powers as a director. As a manager, the managing director is a party to a contract of employment with the company. Accordingly, his or her position as a director must be distinguished from that of a manager. The Law of South Africa, volume 4. Part 2 at para 102. See also the instructive article by Professor Larkin “Distinctions and Differences: A Company Lawyers Look at Executive Dismissal” 1986 (7) ILJ 248.
[14] Notwithstanding the clear position of the managing director or, for that matter a financial director in terms of company law, Mr Mahon contended that labour law viewed the position differently. He referred to the decision of Friedman J in Oak Industries (SA) (Pty) Ltd v John NO and another 1987 (4) SA 702 (N) in which the court held that it did not follow that, because a managing director is a holder of an office, he cannot be nor was he capable of being an employee of a company. The determination of whether a managing director fell within a definition of employee had to be ascertained by reference to the definition of an employee in the Labour Relations Act (in that case the Labour Relations of 28 of 1956 and by analogy the current legislation, The Labour Relations Act 66 of 1995 (‘The Act’).
[15] I can find no fault in the approach adopted by Friedman J as to whether the Act affords protection to a managing director or a financial director dismissed by a company. But this case is not concerned with such a dismissal; it is concerned with whether the respondent terminated the employment relationship that existed between appellant and respondent, pursuant to her letter of resignation. Hence, this case must be determined on a different basis, that is whether a financial director is truly a composite of two posts or whether there are two separate posts.
[16] However, this case can be decided on a different, albeit related, basis. When the departure from an organization is at the initiative of the employee by way of a voluntary resignation which is accepted by the employer, the termination of the contract [it] then takes place by mutual and voluntary agreement between the parties. As Mr van der Merwe, who appeared on behalf of the respondent, correctly submitted, a termination of a contract, particularly a contract of employment has important consequences for the reciprocal rights and duties of the parties. To be legally effective, a notice of intention to resign from employment and therefore to terminate the contract must be clear and unequivocal. See Kragga Kamma Estates CC and Another v Flanagan (720/93) [1994] ZASCA 137; 1995 (2) SA 367 (AD) at 375C; [1995] 1 All SA 486 (A) (29 September 1994)
[Note: full case reference provided with quotation: “Thus in order to be effective a notice of intention to cancel (to use the terminology suggested by Kerr: The Principles of the Law of Contract, 4th ed, 464) must be clear and unequivocal (Ponisammy and Another vs Versailles Estates (Pty) Ltd 1973 (1) SA 372 (A) at 385G). So, too, must the notice of termination itself (Putco Ltd vs TV & Radio Guarantee Co (Pty) Ltd 1985 (4) SA 809 (A) at 830 E)”.
[17] It was clear from the testimony of respondent that she never intended to resign from her employment relationship with appellant. To the extent that she laboured under any legal misapprehension (regarding the conflation of the duties the financial director and employee) there was, as I have set out, an understandable basis for her adopting this approach. Her testimony is instructive:
“I honestly did not expect them to say take your things and go I ….. maybe they will come back and say ok you are still a valuable person to the company you can decide so you have the solidarity duty so whatever. I honestly did not expect them to say cheers.”
[18] To the question as to whether she approached the managing director regarding her letter she said:
“On the Monday I just went to Mike and I said to him is there no other solution. And he said to me it is a board decision.”
[19] Respondent was clear in her testimony that, upon her appointment to the board, very little had changed in so far as her employment obligations were concerned. To return to her evidence:
“Can you explain to us what was different in these duties for when after you were director to prior to being a director? I think the only difference was that I went to board meetings but other than that all the functions that I had done before.”
[20] In my view, it is clear that respondent tendered her resignation from the board without any intention of resigning from the employ of the company. The very least she expected was that appellant would honour its obligations as set out in its letter of 31 January 2005 and consult with her regarding her ongoing employment relationship with appellant. This was not done.