There is a place for operational incapacity in our law

There is a place for operational incapacity in our law
September 8, 2017 Tersia Landsberg

Can you dismiss an employee if he does not possess a specific qualification, required in terms of Legislation, to do the work for which he was employed for?

To illustrate

Scenario: X is a driver of a heavy duty vehicle. In order to do his work, he must at all times be in possession of a valid driver’s license and a Public Driver’s Permit (PDP). At some point he loses both due to being convicted of drunken driving while off duty. He may therefore not be allowed to do the work as driver. The employer does not have any alternative work for him to do.

What procedure should be followed to terminate his employment – retrenchment or an incapacity procedure?

The Labour Court and CCMA Commissioners was, for a very time, of opinion that retrenchment was the appropriate procedure to follow. They had a problem with the “general Incapacity concept” arguing that it is not mentioned in Schedule 8 of the Labour Relations Act (LRA). Incapacity in terms of the Schedule only refers to “poor work performance or ill health”.

SEESA Labour was always of opinion that a general incapacity process can be followed in cases not related to poor work or ill health. Our point of view has now been confirmed by the Labour Court as being correct.

A real case

In First National Bank v CCMA & Another JR1476/2016 the facts were as follows:

In 2004 the Financial Advisory Intermediary Services Act (FAIS Act) came into effect, prohibiting any person from acting as a representative of a financial services provider (such as FNB) unless approved by the Registrar as a “fit and proper person”. Among the conditions for obtaining this status was passing a certain regulatory examination by 31 December 2011.

After 4 years and 15 attempts, the employee in this matter had still not passed the exam. The employer then tried to find him a non-representative position for which the qualification was not needed. However, despite identifying a number of possible positions the employee was unsuccessful in his application or found the positions unsuitable.

The employer then summoned the employee to an “incapacity hearing” which led to his dismissal on the ground of incapacity. The employee thereafter referred an unfair dismissal dispute which in due course led to arbitration.

The outcome: At the hearing, the employee argued that his dismissal was based not on incapacity but on the employer’s operational requirements. It was, he contended, due to “the restrictions placed on [FNB] to comply with the provisions of the FAIS Act” and, therefore, “had nothing to do with incapacity of the applicant”. The Commissioner agreed. The dismissal, he found, “was as a result of supervening impossibility to perform, this being outside the control of the applicant, and not due to ill health or injury, or any impairment of his physical or mental ability. It is thus not incapacity in terms of the Act…. He was thus not dismissed for incapacity in terms of the Act”.

Rather, the Commissioner ruled, the FAlS requirements had become an integral part of FNB’s operations. It should, therefore, have dealt with the employee’s failure to pass the regulatory examination as an issue of operational requirements. As a result, the employee’s dismissal based on incapacity was substantively unfair, and reinstatement was ordered.

Does this sound right? The Labour Court thought not. In fact, almost the only finding that Coetzee AJ agreed with was that, according to the employer, the dismissal had taken place on the ground of incapacity. But was this the “true reason”? Arbitrators and judges are, after all, entitled (if not duty bound) to satisfy themselves that an employer has not disguised one reason for dismissal as something else – for example, to avoid certain legal obligations.

This is particularly so, it may be noted, where operational requirements dismissals are concerned since employers are then required to pay severance pay based on length of service. The employee in the present matter had been in FNB’s service for 20 years, which would have entitled him to significant severance pay.

Employers with fewer resources than FNB might thus be tempted to present the dismissal of redundant employees as being based on their conduct or capacity instead.

But the court found that this was not what had happened in this case. First, it was found that the Commissioner had wrongly interpreted “incapacity” as relating to “ill health or injury, or … impairment of … physical or mental ability” only. In fact, incapacity is a broad concept which, apart from poor work performance, can justify dismissal in various circumstances ranging from incompatibility to “one that results from a legal prohibition on employment”. The latter, of course, was precisely what happened in the present case and while the Commissioner was entitled to inquire into the true reason for dismissal, he was not “at liberty to incorrectly interpret the law and thereby limit his investigation to one category of dismissals”. In the court’s view, the Commissioner’s error was compounded by the fact that he also misinterpreted the meaning of “operational requirements”. The Commissioner had found that the requirement to obtain the necessary qualification to perform the job in question could be seen as an operational requirement. The court, on the other hand, found that the definition of “operational requirements” is limited to situations “where the employer determines … the need to restructure its business and not where the employer cannot employ an employee because of a statutory provision prohibiting such employment”.

This interpretation may be too narrow. “Structural or similar needs” may include a variety of situations other than formal restructuring, and there is authority for the argument that an employer may dismiss employees on operational grounds where they are unable or unwilling to work in accordance with the needs of the business. The fact that a change is imposed by law leaves an employer with even less latitude in requiring employees to comply as a condition for continuing its business.

However, this point was secondary. The fact was that FNB had properly relied on incapacity as a ground for dismissal. Whether it could also have relied on operational requirements was academic. The proper approach in determining fairness in dismissal has been explained as follows:

“The notional line between the various circumstances that could give rise to a fair dismissal (misconduct, poor performance, incapacity and operational requirements) is not always easy to draw. Often the same conduct may give rise to more than one appropriate categorisation thereof. Employers may often, not unreasonably, err in their attempts to categorise the circumstances giving rise to a potential dismissal. The failure to correctly categorise should not, however, detract from the appropriate inquiry in each case, namely to assess first whether there was a substantively fair reason for dismissal and second whether an appropriate and fair procedure was followed by the employer.”.

Where the employer erred in identifying the reason for dismissal, dismissal may still be fair provided it was justified on what the Commissioner identifies as the true ground. In the present case, dismissal on the true ground of incapacity was found to be substantively fair and the Commissioner’s award of reinstatement was set aside.


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