As key aspects of the Companies Act come into effect in the next year, one feature of the new law is the heightened role and responsibility of directors, including penalties for those found to be delinquent or criminally liable
As key aspects of the Companies Act come into effect in the next year, one feature of the new law is the heightened role and responsibility of directors, including penalties for those found to be delinquent or criminally liable.
The act gives direction for the removal of a director but is silent on what a company should do if that director is also an employee.
However, a recent labour court judgment gives clarity on the issue, finding that a director who is also an employee of a company effectively holds two positions and therefore acts in two different capacities.
In the case Chillibush vs Johnston & Others, the employee, a 20% shareholder and director of communications and marketing company Chillibush, was also appointed managing creative director, responsible for the management of the company’s business affairs.
When the employee tendered his resignation as a director of the company, the remaining shareholders also removed him from the position of managing creative director.
The dismissal was challenged at the Commission for Conciliation, Mediation & Arbitration (CCMA), eventually ending up before the labour court.
The court found the employee’s rights in terms of the Labour Relations Act could not be limited by the Companies Act, and that an automatic termination of the employee’s employment, if he or she ceased to be a director, was unconstitutional and in contravention of labour law.
“This recent labour court decision should send a warning to companies that hold the view that the Companies Act is the only legal point of reference when dealing with its directors,” says Anastasia Vatalidis, head of the employment law department at Werksmans Attorneys.
Vatalidis says companies should be aware that when dealing with the removal of a director, labour and company law should be used in a parallel process.
In his judgment, labour court judge Dion Basson said that, from a company law point of view, it was clear shareholders were entitled to terminate the directorship of any of the directors and that their discretion was unfettered. However, when dismissing an employee in terms of the Labour Relations Act , the discretion was not as unfettered and the procedures to be followed were far more complex.
Basson was not persuaded by the argument that the shareholders agreement superseded the employment contract.
He added that a limitation of an employee’s right against unfair dismissal was in conflict with case law and fell foul of the constitutional right of every employee to fair labour practices. “Fairness and not lawfulness is the overriding principle in labour law,” said Basson. “The fact that a director has been lawfully removed as a director does not mean this decision will also result in a fair dismissal as an employee.”
Prakash Naidoo
Thursday, 28 Oct 2010
http://www.fm.co.za/Article.aspx?id=125162
As key aspects of the Companies Act come into effect in the next year, one feature of the new law is the heightened role and responsibility of directors, including penalties for those found to be delinquent or criminally liable.
The act gives direction for the removal of a director but is silent on what a company should do if that director is also an employee.
However, a recent labour court judgment gives clarity on the issue, finding that a director who is also an employee of a company effectively holds two positions and therefore acts in two different capacities.
In the case Chillibush vs Johnston & Others, the employee, a 20% shareholder and director of communications and marketing company Chillibush, was also appointed managing creative director, responsible for the management of the company’s business affairs.
When the employee tendered his resignation as a director of the company, the remaining shareholders also removed him from the position of managing creative director.
The dismissal was challenged at the Commission for Conciliation, Mediation & Arbitration (CCMA), eventually ending up before the labour court.
The court found the employee’s rights in terms of the Labour Relations Act could not be limited by the Companies Act, and that an automatic termination of the employee’s employment, if he or she ceased to be a director, was unconstitutional and in contravention of labour law.
“This recent labour court decision should send a warning to companies that hold the view that the Companies Act is the only legal point of reference when dealing with its directors,” says Anastasia Vatalidis, head of the employment law department at Werksmans Attorneys.
Vatalidis says companies should be aware that when dealing with the removal of a director, labour and company law should be used in a parallel process.
In his judgment, labour court judge Dion Basson said that, from a company law point of view, it was clear shareholders were entitled to terminate the directorship of any of the directors and that their discretion was unfettered. However, when dismissing an employee in terms of the Labour Relations Act , the discretion was not as unfettered and the procedures to be followed were far more complex.
Basson was not persuaded by the argument that the shareholders agreement superseded the employment contract.
He added that a limitation of an employee’s right against unfair dismissal was in conflict with case law and fell foul of the constitutional right of every employee to fair labour practices. “Fairness and not lawfulness is the overriding principle in labour law,” said Basson. “The fact that a director has been lawfully removed as a director does not mean this decision will also result in a fair dismissal as an employee.”
Prakash Naidoo
Thursday, 28 Oct 2010
http://www.fm.co.za/Article.aspx?id=125162
No comments:
Post a Comment