Employment contracts frequently refer to the employer's codes and policies in one way or another. While many may include standardised and vague provisions along the lines of "the employee shall comply with the Employer's policies and procedures, as amended from time to time", others expressly incorporate an employer's policies and procedures as contractual terms, sometimes inadvertently.
The significance of the distinction between contractual terms and broadly framed policies is not a new issue before our courts. For example, this question was addressed as early as 1992 in Gallagher v Norman's Transport Lines (Pty) Ltd where the High Court recognised that policies such as disciplinary codes are flexible guidelines which may be unilaterally adjusted by the employer. Unless it is proven that there is an intention on behalf of the employer to incorporate the terms of these policies as contractual terms, they will not constitute contractual terms. However, it appears that many employers still do not fully appreciate the distinction between merely referring to policies in contracts (and hence retaining their flexibility) and referring them in such a way that incorporates them as binding contractual terms.
A line of recent Labour Court cases reveals that failing to scrutinise or draft such clauses with care can have serious consequences for employers - particularly in a disciplinary or performance management context. Below, we discuss the key considerations and practical takeaways for employers in relation to the incorporation of policies, more specifically disciplinary codes, into employees' contracts of employment.
Generally, employers' disciplinary policies and procedures are guidelines from which employers may deviate, provided they act fairly and lawfully. However, when a disciplinary code is incorporated into employees' terms and conditions of employment in the contract of employment, the employer loses flexibility in respect of the amendment and application of the disciplinary code. The employer will be required to abide by the code, as a binding contractual term. Further, if the employer wishes to effect any amendments to the code, it may only do so with the consent of the employees concerned.
cause of action, forum and remedies
If an employer's disciplinary code is incorporated into an employee's terms and conditions of employment, an aggrieved employee who alleges that the employer has breached it can plead their case as one for breach of contract in terms of sections 77(3) and 77A(e) of the Basic Conditions of Employment Act, 1997 ("BCEA"). In terms of s 77(3) of the BCEA, the Labour Court has concurrent jurisdiction with the civil courts to hear and determine any matter concerning a contract of employment.
In a case involving a breach of contract, the innocent party can elect either to hold the other party to the contract or cancel the contract and sue for damages.
Recently, in Wereley v Productivity SA and Another ("Wereley"), the Labour Court held that where there is a breach of a disciplinary code that constitutes a term and condition of employment, specific performance is an appropriate remedy to restore the status quo ante. In this case, the employer had summarily terminated a contract in circumstances where a disciplinary hearing had not been completed. The court granted an order of reinstatement and ordered the employer to comply with the contractual obligation created by its disciplinary code.
Nevertheless, an order of specific performance is discretionary and must be afforded sparingly, particularly in employment contracts, as the Labour Court reminded us recently in Mpane v Passenger Rail Agency of SA & Others ("Mpane"). The Court held as follows:
"This court ought to be cautious in matters such as the present where executive employees rely on the contractual remedy of specific performance to enforce policies and procedures incorporated into contracts of employment. This is particularly so in cases where the facts disclose a complete breakdown in the relationship of trust and confidence between the employer and the employee. Specific performance ought ordinarily not to be granted where the employer can show a deterioration of the employment relationship to the extent that it would make it difficult for the employee to continue his or her work and thus cause hardship. This is particularly so where the employee is one in whom the utmost confidence is required."
In the above-mentioned case, Mpane successfully vindicated her right to enforce policies and procedures expressly incorporated into her employment contract and was granted an order of specific performance with costs awarded in her favour. Judge van Niekerk ordered that Mpane be reinstated consequent to a dismissal in breach of her contract of employment and the employer was directed to comply with its contractual obligations towards Mpane in respect of its performance management and development policy, read with its disciplinary code and procedure, prior to the decision to terminate her services.
It is important to note that, the mere mention of the disciplinary code in the contract of employment, does not mean that it is a term and condition of employment. It must be expressly stated in the contract of employment that it is a term and condition of employment, as was held in Raseroka v SA Airways (SOC) Ltd. In this case, the employee alleged that her contract of employment incorporated the provisions of SAA's disciplinary code, which specified that, where dismissal for misconduct was contemplated, a disciplinary hearing had to be held. The court found that the employee had to prove that her contract of employment stipulated that the provisions of the disciplinary code formed part and parcel of her terms and conditions of employment in her contract of employment. Mere reference to the code and an undertaking in the contract that the employee was bound by it, did not constitute such incorporation. On a proper consideration of the contract and the code, the court could not find that the code had been incorporated into the employee's contract. All that the employment contract provided was that the applicant was bound by the disciplinary code, along with a number of other policy regulations.
The court held as follows: "This is a standard provision found in most employment contracts. Surely it cannot be legitimately contended that an undertaking by an employee to be bound by the terms of a disciplinary code from time to time then entitles that employee to a contractual right, as established by that disciplinary code. In my view, far more than such a reference is needed."
In contrast, in Wereley, the court held that the following provision in the contract of employment incorporated the disciplinary code:
"The parties agree that all terms and conditions of employment are:
- as specified in this contract,
- those conditions of employment not specified in this agreement shall be in terms of the employer's rules, regulations and procedures, and
- should the employment contract and also the employer's rules, regulations and procedures be silent on any specific point any relevant labour legislation shall apply"
One of the potential consequences of the incorporation of a policy into an employee's contract of employment is that any amendment to the policy will require the consent of the employee; a unilateral change would constitute a breach of contract. In an attempt to avoid this problem, employers often attempt to introduce a measure of flexibility into the contract by providing that employees are bound by a policy "as amended from time to time" by the employer. This provision may provide an employer with some protection against claims that the amendment to a policy constitutes a breach of contract. This will not necessarily prevent an employee from claiming that dismissal in compliance with an amended policy is unfair.
In respect of amendments to a disciplinary code incorporated into the terms and conditions of employment of employees, if an employer fails to obtain the consent of employees to do so, the employees may, as an alternative to their breach of contract remedies, refer a dispute in terms of section 64 claiming a unilateral change to terms and conditions of employment. If the employer fails to restore the status quo ante, the employees may embark on a strike in certain circumstances.
On the basis of the above, it is important that employers bear these risks in mind when deciding whether to incorporate policies, especially disciplinary codes, into contracts of employment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.