In this article, we look at a recent judgment from the High Court which dealt with an employer's obligation to pay its employees' salaries in circumstances where the employer had closed its business because of the lockdown.
One of the most topical issues in relation to COVID-19 and employment law is the issue of whether an employer is released from its obligation to remunerate its employees in circumstances where its employees are prevented, by a supervening impossibility, from tendering their services to the employer. This issue was recently pronounced upon by the High Court in Johannesburg in the matter of Mhlonipheni v Mezepoli Melrose Arch and Others ("Mhlonipheni").
The relevant facts of this case are quite simple and arose in the context of business rescue. Essentially, employees applied to have their employers placed in business rescue on the basis of their employers not paying their April 2020 salaries. It was common cause that the employers (who were three upmarket Johannesburg restaurants) had not traded since South Africa's national lockdown was implemented on 27 March 2020. The employers had taken the decision not to trade under Alert Levels 5, 4, or 3 and only to resume operations once the lockdown was lifted. One of the main issues to be determined was whether the non-payment of the employees' April 2020 salaries was lawful or not.
In dealing with the issue of impossibility of performance, the High Court correctly acknowledged that the common law doctrine of supervening impossibility is applicable to employment contracts. The High Court also correctly acknowledged that an employer's duty to remunerate its employees (and the employees' commensurate right to remuneration) arises not from actual performance, but from the employees merely tendering their services.
The High Court went on to reason that the Alert Level 5 Regulations made it clear that employers were not excused from their obligation to pay their employees' salaries, because the list of "essential services" under the Alert Level 5 Regulations included the implementation of payroll systems to ensure timeous payments to workers. Furthermore, the High Court stated that the employers were permitted to conduct various forms of limited trade under Alert Levels 5, 4 and 3 (such as the sale of cold foods and/or operation on a delivery basis), but elected not to in anticipation that such limited trade would not be profitable, and/or would be more burdensome or economically onerous. The High Court reasoned that this did not excuse the employers from their obligation to remunerate their employees. The High Court further said that "economic hardship is not categorised as being a force majeure event" as "it does not render performance objectively and totally impossible".
At times, with respect, it is hard to follow the reasoning of the High Court in relation to the issue of the payment of salaries and impossibility of performance. However, the issue, certainly could have been determined by an application of basic and trite employment law and contract law principles.
Two of the most fundamental aspects of an employment relationship are, on the one hand, an employee's duty to tender their services to their employer and, on the other hand, the employer's corresponding duty to remunerate their employees. Simply, if an employee is precluded by means of a supervening impossibility (or legality) from tendering their services to their employer, their employer is released from their corresponding duty to remunerate the employee. The primary question to be answered is whether the employees were prevented from tendering their services, not whether the employer was entitled to trade in some way or another. Admittedly, the latter question will necessarily need to be considered too. Indeed, that employers may be entitled to implement a "no work no pay" principle in circumstances where their employees have been unable (and prohibited by law) to return to work during the COVID-19 pandemic was recently recognised, albeit only as obiter, by the Labour Court per Prinsloo J, in the matter of Macsteel Service Centres SA (Pty) Ltd v National Union of Metal Workers of South Africa and Others ("Macsteel").
Various lessons can be drawn from the judgment including:
- the determination of whether or not employees are precluded by means of a supervening impossibility from tendering their services is an objective and factual inquiry and one that must be undertaken thoroughly and critically. However, the principle that remains applicable to employment contracts is that where employees are not able to tender their services at all due to a legislative enactment or legal impossibility then the obligation to pay them would fall away;
- in the context of COVID-19, courts dealing with employment law disputes will not take well to employers adopting the position, without thorough justification, that they are simply going to "throw in the towel" and not attempt to do whatever they can to try to continue trading so to protect their employees' employment and livelihoods through the payment of their salaries; and
- should employers, based on their pre-COVID-19 operations, find it too economically burdensome to operate under current restrictions, the appropriate recourse would be the contemplation of dismissals due to their operational requirements.
Legalities aside, as explicitly recognised by Prinsloo J in Macsteel, the situation that employers and employees find themselves in is unprecedented, distressing and uncertain, and the best answers and solutions, according to Prinsloo J, are to be found in applying common sense and seeking common ground to find a solution. This call by Prinsloo J is one which should be heeded by both employers and employees.
Originally published 22 June 2020
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