Where a company anticipates removing a director from their office as director and as an employee of the company, the procedure will be governed by both the Companies Act and the Labour Relations Act.
Section 213 of the Labour Relations Act (LRA) provides that an employee is anyone other than an independent contractor who works for another person or assists in conducting an employer’s business.
In Chilliebush v Commissioner Johnson & Others (2010), the Court had to consider the relationship between terminating board membership (i.e. directorship) and ending the employment relationship.
Miyeni resigned as a director of Chilliebush, stating that Chilliebush had repudiated the shareholders’ agreement in various respects. In addition, Miyeni purported to cancel the shareholders’ agreement, tendered the return of his 20% shareholding and showed that he did not regard the shareholders’ agreement as binding on him. He further indicated that he remained an employee of Chilliebush and accordingly tendered to perform his obligations as an employee.
The Labour Court had to determine whether Miyeni was an employee and, if so, whether he was dismissed or not.
The Labour Court referred to Section 213 of the Labour Relations Act and held that the definition of an ’employee’ would apply to most, if not all, directors. Where a director holds two positions, one as a director and one as an employee, their rights as an employee will be unaffected by the fact that they are also a director.
The Court found that the Companies Act will not limit an employees’ rights in terms of the Labour Relations Act. Insofar as may be argued that there is a conflict between company law and labour law, Section 210 of the Labour Relations Act is clear that labour law shall prevail.
The Court, however, held that: “the insertion of an automatic termination clause” into a company’s shareholders agreement is in direct contravention with the LRA.
The Labour Court confirmed that it was satisfied that Miyeni was an employee of Chilliebush and had also been dismissed. The Court referred the dispute about the fairness of the dismissal to the commission, and Chilliebush was ordered to pay the costs of the review application.
To conclude, it is clear from the above that a director can be an employee and can enjoy the rights that flow from labour legislation. The insertion of “automatic termination clauses” into an agreement does not override the protection of the Labour Relations Act.
Contact your SEESA Labour Legal Advisor to assist your business with any Labour related queries you might have. Alternatively, SMS the word “SEESA” to 45776 for an expert legal advisor to contact you.
About the Author:
Nicole Sauls started her career at SEESA in 2014 and is currently a legal advisor at SEESA’s Cape Town office. She has a BCom Law degree from the University of the Western Cape obtained in 2006, a LLB -degree from the University of South Africa which she obtained in 2015 and a LLM -degree from the University of South Africa obtained in 2021.
Resources:
Chilliebush v Commissioner Johnson & Others (2010) 5 BLLR 607 (LC)