"The Common Law is … not what it used to be"*: Revisiting Recognition of a Constitutionally-Inspired Implied Duty of Fair Dealing in the Common Law Contract of Employment (Part 2)
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Author : Andre M Louw
Affiliation : Stellenbosch University South Africa
Email : firstname.lastname@example.org
Date of submission : 9 October 2018
Date published : 12 December 2018
Editor Prof C Rautenbach
How to cite this article
Louw AM "'The Common Law is … not what it used to be'*: Revisiting Recognition of a Constitutionally-Inspired Implied Duty of Fair Dealing in the Common Law Contract of Employment (Part 2)" PER / PELJ 2018(21) - DOI http://dx.doi.org/10.17159/1727-3781/2018/v21i0a5661
This piece, which is in three parts, will revisit the importation of fairness into the employment contract (outside and independent of the fairness-based provisions of our labour legislation) by a line of Supreme Court of Appeal (SCA) judgments during the 2000s. This process culminated in the recognition of an "implied duty of fair dealing" in the common-law employment contract. This piece will discuss such developments, will argue that such an implied duty still forms part of our law (despite the apparent consensus in the literature that the SCA turned its back on such earlier judgments), will critically examine some of the arguments for and against the recognition of such a duty, and will then consider the issue within the broader context of the role of good faith and fairness in our general law of contract.
Common-law employment contract; labour legislation; good faith; fairness; implied duty of trust and confidence; implied duty of fair dealing; constitutional development of the common law; right to fair labour practices; breach of the employment contract.
Part 1 of this piece sketched the background to the debate regarding the importation of fairness into the common-law employment contract. It briefly considered the interaction between the common law and labour legislation within the "single system of law" of the Constitution of the Republic of South Africa (hereafter the Constitution) and then considered the development of the common law which occurred in a line of Supreme Court of Appeal (SCA) judgments, including Fedlife Assurance Ltd v Wolfaardt,1 Old Mutual Life Assurance Co. SA Ltd v Gumbi,2 Boxer Superstores Mthatha v Mbenya,3 and Murray v Minister of Defence.4 In this part I will ask whether that development of the common law, and particularly Murray's recognition of the implied duty of fair dealing, has survived the SCA judgment in SA Maritime Safety Authority v McKenzie5 in 2010, and where we are now, following that case.
* Van Staden and Smit 2010 TSAR 712.
** Andre M Louw. BA LLB LLM LLD (Stellenbosch). Associate Professor, Faculty of Law, Stellenbosch University, South Africa. E-mail: email@example.com. I wish to express my sincere thanks to my colleague, Christoph Garbers, for his very helpful comments on an earlier draft of this piece. Also see Louw 2018(21) PER / PELJ Parts 1 & 3.
1 Fedlife Assurance Ltd v Wolfaardt 2002 1 SA 49 (SCA) (hereafter the Fedlife case).
2 Old Mutual Life Assurance Co SA Ltd v Gumbi 2007 5 SA 552 (SCA) (hereafter the Gumbi case).
3 Boxer Superstores Mthatha v Mbenya 2007 5 SA 450 (SCA) (hereafter the Boxer Superstores case).
4 Murray v Minister of Defence 2009 3 SA 130 (SCA) para 5 (hereafter the Murray case).
5 SA Maritime Safety Authority v McKenzie 2010 3 SA 601 (SCA) (hereafter the McKenzie case).
2 What happened in McKenzie?
The above-mentioned line of cases (discussed in Part 1 of this piece), which came before the SCA and involved consideration of the continued role of the common law in employment disputes alongside the statutory rights and remedies generally, and the development of the common-law duty of mutual trust and confidence in order to recognise a generally-applicable implied duty of fair dealing more specifically, culminated in the judgment of the same court in McKenzie. It appears to be commonly accepted that Wallis AJA's judgment in this case brought an end to the SCA's dalliance with implied common-law terms regarding fairness in the employment contract in the earlier cases, and that the SCA here confirmed the supremacy of the statutory scheme of rights and remedies in unfair dismissal cases and expressly rejected the notion of an implied term against unfair dismissal in the common-law employment contract. I do not agree, and will argue as follows:
McKenzie involved a claim for damages for breach of contract by an employee who had earlier approached the Commission for Conciliation, Mediation and Arbitration (CCMA) with an unfair dismissal claim and had been awarded compensation. The respondent claimed that the appellant, by terminating his employment contract, had breached a term of the contract that it would not be terminated without just cause. Wallis AJA (writing for the majority)6 identified the claim before the court by observing that "[b]earing in mind that the breach of contract is said to lie in the 'unfair dismissal' of Mr McKenzie the allegation in the particulars of claim that the contract could not be terminated 'without just cause' must be taken to mean that it could not be terminated unfairly and this is the basis of the case advanced." After finding that the respondent could not prove the existence of such a term in the contract as either an express or a tacit term, the court considered whether the tacit existence of such a term in the contract should be implied. In respect of the source for such an implied term, the court held that such a term could either be said to flow from the provisions of section 185 of the Labour Relations Act 66 of 1995 (LRA) dealing with unfair dismissal or could lie in a development of the common law in accordance with section 39(2) of the Constitution. Wallis AJA held that the respondent's claim was based on the first of these propositions (the importation of the LRA's unfair dismissal provisions into the contract of employment).7 The court then continued to find that there was no merit in this claim, for a number of reasons. I will subsequently recount those reasons, along with my submissions of why they may not hold water.
6 Mpati P, Nugent and Mhlantla JJA and Leach AJA concurring.
7 McKenzie case para 13.
The first reason for rejecting the existence of the alleged implied term (not to be unfairly dismissed) was the court's finding that there was no indication in the express wording of the legislative scheme regarding unfair dismissal (as contained in Chapter VIII of the LRA) that the legislature intended the provisions of the scheme to be imported by implication into the employment
contract. Wallis AJA observed that a clear legislative indication of such an intention is required where a statute creates statutory rights which a claimant relies on to have provided additional (for example, common law) remedies outside of the relevant statutory remedies created to enforce the statutory right.8 After examining the provisions of Chapter VIII of the LRA, the court held that (unlike some other provisions of the labour legislation which expressly provide for the incorporation of terms into the employment contract, such as section 23(3) of the LRA and section 4 of the Basic Conditions of Employment Act 75 of 1997 (BCEA)) section 185 of the LRA "and the remaining sections that deal with unfair dismissals do not contain any such express provision incorporating them into contracts of employment."9 Accordingly, the respondent's argument would have to sink or swim not on the basis of the express legislative incorporation of such provisions into his contract, but rather on whether they were to be implied from the relevant provisions of the LRA as read with the Constitution.10
8 McKenzie case para 20.
9 McKenzie case para 25.
10 McKenzie case para 25.
11 McKenzie case paras 26-28.
12 Noting, of course, that Wallis AJA in the McKenzie case ultimately expressly opted not to follow the reasoning of Cameron JA in the Murray case. See the discussion in the text below.
Wallis AJA continued to find that this could not be the case, on the grounds that, firstly, the exact duplication of the legislative provisions (for example, the unfair dismissal provisions of the LRA) would be pointless and could thus not have been the intention of the legislature; and secondly, if what was claimed to have been imported into the contract was something more than the provisions of the legislation (for example, an unqualified right not to be subjected to unfair labour practices, as opposed to the more limited, codified definition of an unfair labour practice as contained in section 186(2) of the LRA) it would be "logically impermissible when we are dealing with incorporation by implication."11
By way of reply, I would suggest that the above reasoning, while seemingly cogent and convincing, may be of questionable relevance when one considers that the SCA in McKenzie was faced with the earlier authority of Murray.12 The first point to note is what constitutes the fundamental difference between Murray and McKenzie, namely the claimed source for the respective implied terms that featured in these two cases. In Murray, Cameron JA clearly held that the basis for the implied term of fair dealing was the constitutional development of the common law (the duty of trust and confidence) in the light
of the constitutional right to fair labour practices. The source of the term was the section 23 right. In McKenzie, Wallis AJA (as observed above) expressly indicated that the respondent's claim was based on the argument that the unfair dismissal provisions of the LRA were to be imported into his contract of employment, and this was the basis upon which the case was decided. The claimed source of the term was Chapter VIII of the LRA. This brings into question Wallis AJA's reliance on the intention of the legislature in respect of whether statutory provisions should be incorporated into employment contracts. While I would suggest that the above reasoning in this regard is convincing, it may have missed the point.
Wallis AJA referred to statutory provisions which take the form of a mandatory injunction or of prohibiting or regulating otherwise permissible conduct as examples of legislative limitations on the parties' freedom of contract which are of a protective nature.13 He continued:
13 McKenzie case para 14.
14 McKenzie case paras 15-16.
15 McKenzie case para 16.
16 Tsika v Buffalo City Municipality 2009 2 SA 628 (ECD).
A relevant feature of some legislation of this type is that it not only confers rights but also provides a mechanism for the enforcement of those rights. Where that happens the question arises whether those means are exclusive and provide the sole means of enforcement or whether it is open to the beneficiary of the right to use the ordinary processes of the courts in order to enforce them. Another question that arises is whether the beneficiary of the right enjoys not only the benefit of the right itself but also a right to claim damages if the right is infringed ... If on a proper interpretation of the statute in question the legislature has confined a person harmed by a breach of the right conferred therein to the statutory remedy then resort to other means of enforcement is excluded. Accordingly both the scope of the right itself and the means of enforcing that right are determined by the intention of the legislature as ascertained on a proper interpretation of the legislation.14
He continued, then, to hold that "[i]t follows from the authorities mentioned in paragraph 7 of this judgment that it is now clearly established that in order to enforce the statutory right not to be unfairly dismissed as embodied in section 185 of the LRA an injured party must have resort to the tribunals established under the LRA, being either the CCMA or in some instances the Labour Court."15 The problem I have with this is that the authorities referred to in that paragraph of the judgment – Fedlife and Tsika v Buffalo City Municipality16 – were referred to as confirming that the civil courts retain their jurisdiction to hear claims arising from alleged breach of the contract of employment. These cases did not hold expressly that a dispute regarding dismissal cannot go to the civil courts (the majority in Fedlife held that the obverse is true), and it
appears Wallis AJA was simply confirming the judgment in Makhanya v University of Zululand17 to the effect that dismissal may give rise to more than one cause of action (depending on whether its fairness or its lawfulness is challenged).
17 Makhanya v University of Zululand 2009 30 ILJ 1539 (SCA) (hereafter the Makhanya case).
18 Makhanya case paras 29-33.
What I find problematic is that this whole line of reasoning proceeds from the point of departure that the alleged source for an alleged additional cause of action (in the form of a breach of contract or of an implied contractual term) is the relevant legislative provision. The question Wallis AJA dealt with was whether the introduction of a legislative cause of action (for example, the right not to be unfairly dismissed) could be construed to provide an additional, extra-statutory cause of action (on the basis of an implied term). While this reasoning is, of course, in line with the respondent's claim in McKenzie as construed by Wallis AJA, it ignores the fact that, apart from the relevant legislative cause of action (for example, section 185 of the LRA), there may be another already existing cause of action – namely Murray's implied duty of fair dealing. The existence of this latter cause of action is not dependent on the intention of the legislature. In this sense, this first reason for rejecting the implication of an implied term not to be unfairly dismissed – as a species of unfair conduct which may offend against a duty of fair dealing – can relate only to the claimed implied term deriving from legislative provisions. It does not address the authority of Murray for recognising an existing implied term independent of legislation. This is one of the problems with Wallis AJA's judgment: in considering whether the employment contract contained an implied term of fairness upon dismissal, the learned judge never refers to Murray until at the very end of the judgment, where, as will be explained below, he then dismisses Murray as authority for such a term in a rather simplistic and terse manner.
The second reason provided by Wallis AJA for rejecting the importation of an implied term into the employment contract, which mirrors the statutory unfair dismissal provisions, related to the policy considerations behind the legislative formulation of the statutory unfair dismissal scheme. After referring to the Australian and United Kingdom (UK) case law which relied on the legislative intention behind a statutory unfair dismissal scheme to reject the application of the duty of trust and confidence to dismissal cases,18 Wallis AJA held that there was a further obstacle in the South African context for the recognition of an implied term not to be unfairly dismissed. The learned judge
was of the opinion that, in the light of the statutory scheme, the development of the common law to provide protection to employees covered by the LRA is unnecessary:
[W]here, as here, the employees are protected by the LRA, section 8(3) of the Constitution does not warrant or require an importation from the realm of constitutionally protected labour rights into individual contracts of employment by way of an implied term. The LRA specifically gives effect to the constitutional right to fair labour practices and the consequent right not to be unfairly dismissed. Accordingly the constitutional basis for developing the common law of employment and thereby altering the contractual relationships is absent.19
19 Makhanya case para 37.
20 See discussion in section 2.1 in Part 3.
In reply, I would suggest that there are two issues here with the reasoning in McKenzie. The first is the reliance on the legislative intention behind the establishment of a statutory unfair dismissal scheme being deemed to exclude reliance on a common-law duty of fair dealing which might provide a separate cause of action in cases of dismissal. I believe that Wallis AJA dealt with this rather superficially in two respects. Firstly, the reliance on dicta from foreign judgments seems to ignore the specific (and unique) South African context of the constitutional entrenchment of the right to fair labour practices. While Wallis AJA relied on the role of this right to bolster his argument that an extra-statutory cause of action in this context is not necessary, he ignored the fact that the Constitution calls on development of the common law where needed. One could question whether this reasoning regarding the supremacy of the statutory scheme seeks to raise the legislative intention above the Constitution and the single system of law principle. Secondly, even though the argument based on the wording of section 8(3) seems convincing, its application is predicated upon an assumption that the legislative rights and scheme do in fact give sufficient effect to a claimant's right to fair labour practices in a given case. As I will argue below, there are instances where employees may fall through the cracks of the labour legislation and may not be sufficiently protected, which may call for either the constitutional development of the common law (as in Murray) or for a constitutional challenge to the relevant legislative provisions.20 Also, I believe that Wallis AJA did not sufficiently interrogate the legislative intention behind Chapter VIII of the LRA, being apparently happy to accept that the legislature opted to establish a legislative unfair dismissal scheme without asking why, exactly, this scheme was established. This seems to smack of a measure of judicial deference to the legislature, and will be examined in more detail in section 2.3 in Part 3.
The third and final reason for Wallis AJA's rejection of the recognition of an implied term not to be unfairly dismissed rested on the consideration of the earlier authority of cases (mainly from the SCA21) which dealt with the importation of fairness into the employment contract. Here, at last, Wallis AJA also purported to deal with Murray.
21 Gumbi and Boxer Superstores cases.
22 Gumbi case paras 39-51.
23 Also, I am not convinced that the relevant statement in Gumbi was, in fact, obiter dictum. The court considered whether the claimant in that matter had a right to a fair pre-dismissal hearing. In the process of recognising that the claimant indeed possessed such a right, Jafta JA stated that this right is recognised under the constitutionally-developed common law (Gumbi case paras 4-8, and specifically in para 5). In the McKenzie case Wallis JA views this as stated in passing, for the reason that the employment contract in the Gumbi case contained an actual express term to that effect. Jafta JA stated the following in the Gumbi case para 4: "An employee's entitlement to a pre-dismissal hearing is well recognised in our law. Such right may have, as its source, the common law or a statute which applies to the employment relationship between the parties … In cases such as the present, the parties may opt for certainty and incorporate the right in the employment agreement." To my mind, the fact that there was an express term to that effect in the contract at issue does not make the court's statements regarding the implied common law term obiter dicta. The court was considering the central question of whether the claimant could rely on such a term, and the fact that the parties had opted for certainty in confirming the right by including an express term to that effect does not mean that the court's confirmation of the right (even in the presence of an express term confirming its application) means that these statements were simply made in passing.
In essence, Wallis AJA considered the preceding case law and held that the recognition of an implied right to a pre-dismissal hearing in the employment contract in Gumbi was obiter, and that subsequent judgments which relied on this did nothing to strengthen the weight of that finding and to make it law.22 I will not deal in detail with the analysis of these cases, mainly because the court in Murray did not rely on those judgments in formulating its view on the existence of the implied duty of fair dealing, and also because it has little bearing on Wallis AJA's subsequent dismissal of the authority of Murray in respect of the recognition of the implied duty of fair dealing.23
In dealing with Murray, Wallis AJA observed that he was not convinced that the common law required development in order to reach the conclusion in that case, and then proceeded to dismiss Murray by distinguishing the case as dealing with an employee claimant who was excluded from the protection of the labour legislation:
The constitutional rights that were drawn upon in [Murray] for importing into the contract a term protecting the employee against constructive dismissal are given full effect in relation to employees falling under the LRA by the definition of 'dismissal' in s 186(1). Murray seems to me to be authority for no more than the proposition that an employee who is not subject to the LRA enjoys the same
right as other employees not to be constructively dismissed, whatever else might have been said en passant.24
24 Gumbi case para 54
25 I would suggest that the wording of Cameron JA is unequivocal (Murray case paras 5-6): "This contract has always imposed mutual obligations of confidence and trust between employer and employee ... the common law of employment must be held to impose on all employers a duty of fair dealing at all times with their employees – even those the LRA does not cover."
26 I share Cohen's concerns in this regard: "[I]t is of concern that a plethora of preceding decisions were singularly swept aside by the court [in McKenzie] with little justification. Aside from dismissing the dictum of the court in Gumbi as obiter and incorrect, the judgment failed to address the many judicial decisions that subsequently canvassed this issue. Instead Wallis JA disposed of these cases with the sweeping generalization that in most of these decisions the proper issues have been obscured by erroneously characterizing the issue as one of jurisdiction when in truth it has been something else entirely." Cohen 2010 SA Merc LJ 428.
27 The authors remark as follows: "[Wallis AJA in McKenzie] concluded further that the Murray case was 'authority for no more than the proposition that an employee who is not subject to the LRA enjoys the same rights as other employees not to be
In reply to Wallis AJA's reasoning in this regard, I would suggest that this is dismissive of the clear authority of Murray regarding the existence of the duty of fair dealing and of the clear wording of Cameron JA.25 By observing that "the common law of employment must be held to impose on all employers a duty of fair dealing at all times with their employees – even those the LRA does not cover", Cameron JA was clearly not reserving recognition of the implied duty of fair dealing only to those employer/employee relationships which are excluded from the application of the LRA. His intention was clearly not to exclude, but rather to be inclusive in respect of the protection provided by this implied duty, in order to protect also those who find themselves outside the tent when it comes to the application of the labour legislation. I would suggest, in distinguishing Murray and McKenzie, that the claimant's SANDF-based exclusion from the application of the LRA was important only in providing a clear opportunity for Cameron JA to rely on his constitutionally-mandated duty to develop the common law where legislation does not provide protection for an affected claimant. Construing, as Wallis AJA did, the importance and application of Murray as being specific only to the extension of protection to those not covered by the LRA, and this only in respect of constructive dismissals, is to my mind a rather simplistic and dismissive26 manner of dealing with the clear authority of Murray in respect of the recognition of a significant development of the common-law contract to include a far-reaching implied duty regulating the conduct of the parties. The view expressed by Grant and Whitear-Nel, that Cameron J's statement in Murray on the existence of the common-law duty of fair dealing was obiter cannot be supported.27
constructively dismissed' (McKenzie para 54). This is correct, because Cameron JA was only deciding the claim of the appellant who was a naval officer who was excluded from the ambit of the Labour Relations Act, and therefore his comments about the effect of the Constitution on ordinary contracts of employment were obiter." Grant and Whitear-Nel 2013 SALJ 315. I cannot agree with this opinion. The ratio for Cameron JA's judgment was that all employment contracts contain the implied duty of fair dealing, including those contracts of employees not covered by the LRA, and he then proceeded to examine the facts of the case and to find that the employer had breached that implied duty through its conduct. It is unclear how the judge's recognition and application of the duty can be considered to have been obiter just because the case involved an employee not covered by the legislation.
28 McKenzie case para 54.
29 Conradie 2016 Fundamina 179 declares that the McKenzie case overturned the position regarding the implication of fairness in the Murray case. Grogan declares, with reference to the Murray case, that "every employer now has a general implied duty to treat its employees fairly during the existence of the employment relationship. However, the SCA has since backtracked on this approach [in McKenzie]." Grogan Workplace Law 5. The McKenzie case has also been described as constituting "what appears to be an about-turn in the Supreme Court of Appeal's previous stance" in respect of the implication of fairness into the common-law contract (with specific reference to an implied term that gives an employee the right to a disciplinary enquiry
Furthermore, it should be noted that in dismissing the authority of Murray as he did, Wallis AJA did not unequivocally reject the existence of an implied duty of fair dealing. In the very same paragraph in which he dismisses Murray, as quoted above, and observes that the common law may not have required development in that case, he also said the following (which related to the dictum quoted in the text to note 24 above):
What is important to bear in mind is that the effect of any extended duty of fair dealing must be worked out in individual cases in the light of the statutory provisions giving effect to the constitutional guarantee of fair labour practices ... It is possible that there is some need to develop the common law by importing into the contract of [employees not covered by the labour legislation] terms that give effect to their right to fair labour practices but that is not a matter that need now concern us.28
At best, McKenzie can stand as authority only for the denial of the recognition of an implied term not to be unfairly dismissed (which term derives from a reading the LRA's dismissal provisions into the employment contract). It does not purport to deny the existence of an implied duty of fair dealing, generally, in the employment contract. And, as I will argue below, even that more limited consequence of McKenzie is problematic.
3 Where are we now, after McKenzie?
The consensus of academic writers seems to be that McKenzie has overturned Murray in respect of the recognition of an implied duty of fair dealing in the employment contract.29 This is also the view expressed in a
prior to termination of the contract) – Van Niekerk and Smit Law@Work 98. Also see Currie and De Waal Bill of Rights Handbook 481.
30 Subsequent case law has construed the McKenzie case to have rejected the notion of an implied duty of fairness in the common-law contract of employment. See Moloto v City of Cape Town 2011 32 ILJ 1153 (LC); Goussard v Impala Platinum Ltd 2012 33 ILJ 2898 (LC) (hereafter the Goussard case); Gxolo v Harmony Gold Mine (Pty) Ltd (LC) unreported case number J1124/2017 of 27 October 2017 (hereafter the Gxolo case).
31 Manamela v Department of Cooperative Governance, Human Settlement and Traditional Affairs, Limpopo Province (CJHB) unreported case number 1886/2013 of 5 September 2013 (hereafter the Manamela case).
32 Manamela case paras 35-36.
33 McKenzie case para 54.
number of judgments.30 In Manamela v Department of Cooperative Governance, Human Settlement and Traditional Affairs, Limpopo Province,31 the judgment of Snyman AJ (regarding a claim related to the alleged unfair suspension of an employee) provides a good illustration of such a reading of McKenzie as definitive and finally dispositive of the issue of an implied duty of fair dealing (which was also followed in subsequent cases):
[T]he Court in McKenzie has made it clear that the right of employees to fairness in the employment relationship is fully determined by the provisions of the LRA, and is subject to all the limitations in the LRA, and cannot be implied into the contract of employment, and of specific relevance to the current matter in any regulatory provisions dealing with suspension ... Therefore, the current state of the law, as I see it, is now clear. There is no general right of fairness to be implied into a contract of employment of an employee or in any other employment provisions at an employer, regulating the employment relationship ... If an employee wants to challenge the fairness of his or her suspension, based on any general right of fairness, this can only be done in terms of the unfair labour practice provisions of the LRA, and with it, the dispute resolution provisions prescribed by the LRA.32
I will argue, however, that this is reading too much into McKenzie. I have pointed out that Wallis AJA dealt rather dismissively and simplistically with the clear authority of Murray. And even in dismissing Murray, by attempting to distinguish the case as having dealt with the claim of an employee not covered by the LRA, Wallis AJA was somewhat ambiguous, stating that the effect of any extended duty of fair dealing must be worked out in individual cases in the light of the statutory provisions giving effect to the constitutional guarantee of fair labour practices.33 This, apparently, does not reflect a general intention to put paid to the duty of fair dealing in all its forms of potential application to the employment relationship. Wallis AJA's finding should probably be reduced to little more than his statement that "insofar as employees who are subject to and protected by the LRA are concerned, their
contracts are not subject to an implied term that they will not be unfairly dismissed or subjected to unfair labour practices."34
34 McKenzie case para 56. Grant and Whitear-Nel are also of the opinion that this is the crux of what was held in McKenzie: "As to whether there is an implied term of fairness in the employment contract, the battle lines have been drawn between the line of cases starting with Fedlife … on the one hand, and the approach adopted in the Mohlaka case … and now the McKenzie case. The ratio decidendi of the McKenzie case is that the contract of employment of an employee to whom the Labour Relations Act applies does not contain an implied term that he will not be unfairly dismissed." Grant and Whitear-Nel 2013 SALJ 315.
35 McKenzie case para 13
36 As Du Toit explains: "To infer the existence of a common-law right duplicating a statutory right is to call into question the purpose of enacting that statutory right. Likewise, the reason for creating statutory rules where common-law rules already exist becomes unclear, since the promulgation of the former seemingly does not necessarily, as might have been thought, signify any intention of the legislature to replace the latter. Indeed, even the fact that the enactment of a statutory right (for example, an employer's right to dismiss an employee for a fair reason based on its operational requirements) is at odds with a common-law right (such as an employee's right to remain in employment until the expiry of a fixed-term contract) is not considered enough to overrule the latter right 'by necessary implication' in circumstances where the employer's operational requirements justify dismissal. This comes close to asserting the supremacy of common law over statute." Du Toit 2008 SALJ 97.
More fundamentally, as discussed above, Wallis AJA's reasoning in McKenzie, while appearing cogent, was premised significantly on a different basis than that of Cameron JA in Murray. The ratios of these two judgments were very different. In McKenzie the claimant averred that his employer, in breach of an express, alternatively tacit, alternatively implied term that he would not be unfairly dismissed, had terminated his contract. After finding that there was no express or tacit term to this effect, Wallis AJA continued to extrapolate the claimant's case as being the following:
That leaves, as the foundation for the pleaded allegation, only the possibility of an implied term properly so called. Such a term could either be said to flow from the provisions of s185 of the LRA dealing with unfair dismissal or could lie in a development of the common law in accordance with section 39(2) of the Constitution. In argument the appellant based his case on the first of these and it is that argument that I now address.35
Accordingly, the ratio decidendi of the judgment in McKenzie was based on the fact that the source of the alleged implied duty of fairness which underpinned the claim was the unfair dismissal provisions contained in Chapter VIII of the LRA. And Wallis AJA's reasons for rejecting such an averment are sound (for example, the fact that implying a term which simply reiterated the provisions of the Act would constitute unnecessary duplication).36 But this loses sight of the fact that Cameron JA's recognition
of the implied duty of fair dealing in Murray was based very clearly on the constitutional development of the common-law obligations of trust and confidence inherent in the employment contract. For Cameron JA, the source of the implied term of fair dealing was the section 23 right to fair labour practices. In McKenzie it was correctly observed that the LRA is silent on the question of whether the dismissal provisions of the Act should be imported into the employment contract (and that the LRA and BCEA contain express provisions which stipulate that some of its provisions are to be read into contracts). So Mr. McKenzie could not show a statutory source for the reading-in of the dismissal provisions into his contract.37 But Commander Murray was more happily placed, in the sense that the Constitution itself, in section 39(2), provides the imprimatur for developing the law regulating his contract in the light of the section 23 right and the absence of legislative protection of this right for the claimant. Accordingly, I would submit that McKenzie should not be construed as constituting any "about-turn" or "backtracking" in the SCA's stance on an implied duty of fair dealing, or that it shows that the SCA has closed the door on the recognition of the importation of fairness into the contract of employment through the constitutional development of the common law.38 The case was simply decided on a different basis, and the clear and unequivocal statement in Murray which reflects the recognition of an implied duty of fair dealing must stand until such time as it may be overturned by the Labour Appeal Court39 or the Constitutional Court.
37 The Labour Court in the Goussard case similarly held that it would be inappropriate to import the unfair dismissal provisions of the Labour Relations Act 66 of 1995 (the LRA) into an employment contract, basing its judgment on McKenzie.
38 Others have also expressed the opinion that the McKenzie case may not be the last word on the subject of the importation of fairness into the common-law contract outside the realm of the labour legislation – see Van Eck and Mathiba 2014 ILJ 870.
39 As the apex court in labour law matters, following the abolition of the SCA's jurisdiction in labour law matters by means of the Constitution Seventeenth Amendment Act of 2012.
Apart from the fact that these two judgments were based on different premises (as explained earlier) and the fact that Wallis AJA in McKenzie seemed to misconstrue the clear wording of Cameron J's important dictum in Murray, it should be noted that the rationale of the McKenzie judgment is also more limited than it might seem at first glance. It is important to understand this, as the effect of McKenzie may otherwise be construed to be much broader than it really was. (For example, one commentator believes that this judgment has shut the door completely on common-law claims for breach of contract arising from dismissal, unless the employment contract contained an
express provision to that effect.40 Of course, this would be contrary to Fedlife and Makhanya). What Wallis AJA held in McKenzie was simply that the common-law employment contract does not include an implied term not to be unfairly dismissed. This does not constitute a wholesale rejection of the judicially recognised implied duty of mutual trust and confidence or of Murray's constitutionally developed implied duty of fair dealing. Accordingly, the ruling in McKenzie would purport to have the same effect as the so-called "Johnson exclusion zone"41 fashioned by the House of Lords in Johnson v Unisys Limited,42 which has subsequently been taken to exclude only unfair dismissals from the reach of the implied duty of trust and confidence in that jurisdiction,43 and to leave unfair conduct by the employer short of dismissal (and during the employment relationship prior to a dismissal) untouched and actionable under the implied term.44 As Bosch observes with reference to the subsequent (to Johnson) decision of the House of Lords in Eastwood v Magnox Electric Plc:45
40 Geldenhuys 2016 PELJ 19-20.
41 See Wahlstrom-Schatt Dismissal of the Implied Term of Mutual Trust 13.
42 Johnson v Unisys Limited 2001 UKHL 13 (hereafter the Johnson case).
43 In Australia it seems that the implied duty of trust and confidence has been completely excluded from the employment contract, following the judgment of the High Court of Australia in Commonwealth Bank of Australia v Barker 2014 HCA 32 (hereafter the Barker case).
44 Wahlstrom-Schatt, writing on Australian law in this context, explains: "In Johnson v Unisys Ltd, it was held that common law compensation cannot be granted for a breach of the implied term for any harm consequential to the fact or manner of dismissal. This was because compensation was already regulated by statutory unfair dismissal schemes. Australian authorities have since adopted this approach. The rule still allows for damages to be awarded for a breach of the implied term outside of unfair dismissal. For example, where the employer provides an unfair reference and the employee suffers resultant loss. However, a strict construction of the exclusion zone may be said to exclude mutual trust and confidence from applying to constructive dismissal. In response to this difficulty, the House of Lords drew a distinction, ruling that loss flowing from conduct before constructive dismissal is unaffected by the Johnson exclusion zone. In practice, this has meant that the implied term and unfair dismissal scheme have been able to coexist in the UK. Rather than regarding trust and confidence as imposing a norm of behaviour and therefore intruding on the legislature's domain, its implication would better reflect the mutual expectations of the parties involved in employment relationships." Wahlstrom-Schatt Dismissal of the Implied Term of Mutual Trust 13.
45 Eastwood v Magnox Electric Plc; McCabe v Cornwall County Council 2004 UK HL 35.
Lord Nicholls held that where an employee acquires a cause of action (like breach of contract) prior to dismissal, that cause of action remains unimpaired by the subsequent dismissal and the statutory rights flowing from it. Financial loss may flow from the employer's acting unfairly when taking steps leading to the dismissal (such as suspension) or causing an employee to suffer financial loss from psychiatric or other illness caused by the employer's pre-dismissal
treatment of the employee. In those cases the employee may bring a common-law claim which precedes and is independent of the subsequent dismissal.46
46 Bosch 2006 ILJ 40. As one Canadian commentator observes, considering the impact of the Johnson case, this judgment has limited the application of the duty of trust and confidence in respect of the manner of dismissal of an employee, but this duty "continues to apply to conduct during the performance or ‘subsistence’ of the contract" – Doorey 2005 Queen's LJ 541.
47 The McKenzie case has been interpreted as having quite far-reaching consequences in cases of unfair dismissal, beyond only the question of its impact on the existence or not of an implied term. Geldenhuys, referring to the McKenzie case, views the judgment as closing the door on any civil claim based on breach of contract, unless the contract contains an express provision allowing the employee to approach the civil courts: "Although it is in principle possible to claim additional civil damages, the statutory restriction in section 194 of the LRA extends beyond the doors of the Labour Courts in the absence of a specific provision allowing for further claims in the contract of employment. In other words, if the employer and the employee did not include a stipulation in the contract of employment which specifically provides access to the civil courts in a case of a breach of contract which would also be a dismissal, the remedies provided in the LRA would be such an employee's only recourse." Geldenhuys 2016 PELJ 19-20. It is doubtful whether this view of the effect of the McKenzie case is correct, as it would fly in the face of both the Fedlife and Makhanya cases (and s 77(3) of the Basic Conditions of Employment Act 75 of 1997 (the BCEA)) regarding the continued concurrent jurisdiction of the civil courts for breach of contract claims and the fact that the event of the termination of employment by the employer may constitute both a(n) (unfair) dismissal and a(n) (unlawful) breach of contract. As Van Eck and Mathiba point out (with reference to the McKenzie case para 58): "[T]he court was at pains to explain that it retained the jurisdiction to entertain disputes such as the one before it [namely a breach of contract claim arising from dismissal]. It held that "[i]n the present case the issue is whether Mr McKenzie's contract contains a term implied by law as pleaded by him. That is a question within this court's jurisdiction and in my view the answer is that it does not. What creates difficulties is when the merits of a claim are confused with the jurisdiction to deal with it"."
48 McKenzie case para 54: "What is important to bear in mind is that the effect of any extended duty of fair dealing must be worked out in individual cases in the light of the statutory provisions giving effect to the constitutional guarantee of fair labour practices."
Accordingly, even if the judgment in McKenzie is correct in having dismissed the notion of an implied duty on the employer not to unfairly dismiss the employee47 (which I am not convinced is the case, as I will explain below), it is submitted that this judgment does not constitute the wholesale rejection of the application of the implied duty of fair dealing in multiple facets of the employment relationship, as formulated in Murray. In fact, Wallis AJA seemed to say as much.48
And this raises the spectre of a rather paradoxical and problematic result, if it has created a "McKenzie exclusion zone" where Murray's implied duty of fair dealing applies to employer conduct short of dismissal or prior to dismissal but not to dismissal itself. The paradox was referred to in argument in the Australian High Court case of Commonwealth Bank of Australia v
Barker49 (which rejected the notion of the recognition of the implied duty of trust and confidence in Australian employment contracts). The claimant (the respondent) in that case argued that the area left for the operation of the implied term of trust and confidence as formulated in the UK House of Lords case of Malik and Mahmud v Bank of Credit and Commerce International SA50 is therefore with respect to "trust-destroying conduct" on the part of an employer which does not have the consequence of ending the employment relationship. Writing his minority judgment, Kiefel J summarised the parties' arguments as follows:
49 The Barker case.
50 Malik and Mahmud v Bank of Credit and Commerce International SA 1997 UKHL 23.
51 Barker case para 97. Emphasis added.
52 Du Toit 2008 SALJ note 166 at 130, also recognises this paradoxical situation in respect of excluding recourse to the common-law right only in cases of dismissal (quoting Hepple Rights at work): "An important 'leak', in the case of the UK, is the fact that the rule in Johnson v Unisys precludes a common-law right of action only where a statutory remedy exists (e g, in the event of dismissal) but leaves it intact where no such right of action exists (e g, in the event of suspension). As a result, employers must dismiss rather than suspend employees to avoid the risk of claims for uncapped damages." Lady Hale also referred to this anomalous result of the "Johnson exclusion zone" in Gogay v Hertfordshire County Council 2000 IRLR 703 para 69.
The respondent suggests that a term by which damages are awarded for "trust-destroying conduct" would promote the maintenance of the employment relationship. The appellant submits to the contrary and that the effect of implying the term of trust and confidence is not likely to be the maintenance of employment relationships, but the greater likelihood of their termination. For instance, an employer, faced with the possibility of a claim for common law damages for wrongfully suspending an employee, or a claim for unfair dismissal for which compensation would be limited, may be inclined to choose dismissal.51
Excluding dismissal from the area of application of the implied duty of fair dealing (if the existence of this duty was not rejected in toto in McKenzie by overturning Murray, as I argue is the case) may very well leave employers with the potential to forum-shop, in anticipando, in order to bring any potential fall-out of its unfair conduct within the strictures of a CCMA claim where compensation is capped, rather than before the civil courts where large awards for damages may be incurred.52 This, surely, would fly in the face of the intention of the legislature in fashioning the LRA's unfair dismissal scheme in order to protect employees, and foster employment and the maintenance of the employment relationship.
Writing in 2008 Du Toit referred to Hepple's53 explanation of the interaction between statutory and common-law rights in the employment sphere (in the UK context):
53 Hepple Rights at Work 20.
The common law of employment and statutory rights [Hepple] argued, "are imbricated, like overhanging roof-tiles, and keep each other in place. Their separation in Johnson v Unisys and other cases means there is a leaky roof." In South Africa the approach in Johnson [v Unisys] has been rejected.
These views were expressed prior to the McKenzie judgment. If McKenzie is indeed to be read as having mimicked the creation of a "Johnson exclusion zone" in South African law, which has rejected the application of a duty of fair dealing only in dismissal (and, possibly, unfair labour practice) cases while leaving its application to all other aspects of the employment relationship intact, this would similarly constitute a "leaky roof" scenario. I believe such an interpretation of McKenzie is untenable. While, as I have argued above, I do not believe that McKenzie has overturned Murray on the recognition of the implied duty of fair dealing, I believe that even such a more restricted interpretation (excluding recourse to such a duty only in unfair dismissal and unfair labour practice claims) is just as objectionable. And I will argue in Part 3 of this piece that popular arguments in favour of such an exclusion (the overlap between unlawfulness and unfairness, and the policy reasons behind the establishment of a discrete statutory unfair dismissal and unfair labour practice dispute resolution scheme) are not as convincing as they may appear at first glance.
Having considered the judgments of the SCA which sought to develop the common law in order to import fairness into the employment contract, as well as having argued that McKenzie's purported rejection of Murray's implied duty of fair dealing is an erroneous interpretation of the effects of McKenzie, I will in Part 3 of this piece consider the main arguments for and against the continued recognition of such a duty.
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List of Abbreviations
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Commission for Conciliation, Mediation and Arbitration
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Labour Relations Act 66 of 1995
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Queen's Law Journal
SA Merc LJ
South African Mercantile Law Journal
South African Law Journal
Supreme Court of Appeal
Tydskrif vir die Suid-Afrikaanse Reg