High stakes, low thresholds June 2020

By NEIL COETZER AND COURTNEY WINGFIELD, Published in Employment Law

Employers are often cautious when seeking to discipline senior managerial employees who fail to meet the performance standards required of them. There are a number of reasons for this. The nature of a dismissal for poor performance often involves 'soft' issues and requires employers to demonstrate a deficiency in proper management, acumen or leadership. Such qualities are not easy to prove. Senior employees also often have the financial resources to engage attorneys to represent them during any disciplinary proceedings and this can lead to delays and disruptions in the process. Fallouts between senior managers are also often extremely disruptive to a business and can sometimes lead to factionalism within a senior management team.

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In view of all these problems, it has become commonplace for employers to conclude mutual separation agreements to facilitate the departure of the recalcitrant manager, in full and final settlement, and get on with their business. While there may be sound business reasons for this approach, setting such precedents may suggest to other employees that poor performance is rewarded in the workplace, and make dealing with poor performing managers more difficult in the future.

Navigating these problems need not necessarily be overly burdensome or costly for the employer. Item 9 of the Code of Good Practice: Dismissal sets out the requirements that should be met before an employee may be dismissed for poor work performance. It provides that when determining whether a dismissal for poor work performance is fair, consideration should be had to whether the employee failed to meet a performance standard, whether they were aware or could reasonably be expected to be aware of that performance standard, whether they were given a fair opportunity to meet the performance standard and whether dismissal was the appropriate sanction in the circumstances.

Senior managers and the Code of Good Practice

An employer's decision to dismiss senior managerial employees who fail to cut the mustard should not be subject to the same scrutiny as in other dismissal cases. The reasons for this are obvious and are aptly described in the well-known judgment of the Labour Appeal Court in JDG Trading (Pty) Ltd t/a Price 'n Pride v Brunsdon (2000) 21 ILJ 501 (LAC) where it found that it is important that the employer's business should not have to suffer, to the detriment of all concerned, through the ineptitude or inefficiency of a particular employee.

This is one of the fundamental reasons why the 'normal' requirements for a dismissal for poor work performance, as set out in the Code of Good Practice, may be relaxed substantially or completely in the case of a senior managerial employee. This was confirmed in Somyo v Ross Poultry Breeders (Pty) Ltd [1997] 7 BLLR 862 (LAC) where the Labour Appeal Court found inter alia that the 'normal' requirements do not find application in two circumstances. Firstly, where the manager or senior employee has the knowledge and experience to judge for themselves whether they are meeting the standards and, secondly, where the degree of professional skill is so high and the potential consequences of a departure from the standards is so serious that even one failure to comply with the standards is enough to justify a dismissal.

What is the standard to be met?

In Brodie v Commission for Conciliation, Mediation and Arbitration and others (2013) 34 ILJ 608 (LC) the Labour Court confirmed that the legal principles applicable to dismissals for poor performance depend on the particular position and level of seniority of the employee. The court reiterated the position set out in Sun Couriers (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and others (2002) 23 ILJ 189 (LC) where it was held that courts should be slow to interfere with performance standards set by the employer. It found that performance standards should only be interfered with if they are grossly unreasonable or unattainable.

When dealing with whether an employer is required to set out performance standards for senior employees, the Labour Court in New Forest Farming CC v Cachalia (2003) 24 ILJ 1995 (LC) and A-B v SA Breweries Ltd (2003) 24 ILJ 1995 (LC) held that in circumstances where a senior managerial employee asks for a job description, this is a clear indication that such an employee is not senior managerial material. The court further found that a senior managerial position, and the salary attached thereto, presuppose a function beyond that of the ordinary foot soldier, and more in keeping with that of a field commander. It is clear therefore that senior managerial employees should be reasonably aware of the required standards of their performance without further counselling by the employer in this regard, and should be given a reasonable time to meet these standards.

What is a 'reasonable time'?

The Labour Court in Boss Logistics v Phopi (2010) 31 ILJ 1644 (LC) set out the relevant factors to be considered when determining whether the employee has been afforded a reasonable time to comply with the standards required. The Labour Court found that relevant factors are the complexity of the job, the volume and nature of the work, the nature of the employer's business, and the qualifications and experience of the employee. Therefore, in these circumstances, no set period can be established but rather fairness should guide the employer.

In line with the fundamental theme of the Code of Good Practice, the opportunity to be heard has significant importance when considering dismissing a senior employee for poor work performance. The Labour Appeal Court in JDG Trading found that it would be unfair for the employer to apply the 'normal' guidelines regarding counselling to senior managerial employees. It commented that an experienced executive who needs to be counselled is probably not fit to be an executive. Following on from this, the court found that an employee in these circumstances cannot oversee other employees if they cannot even oversee themselves.

Soft issues such as acumen, judgement and leadership

The Labour Appeal Court in JDG Trading recognised that there could be considerable difficulties in proving soft issues such as "leadership, resolve, business acumen, judgment and effective administration are not readily provable in a court. A deficiency in such qualities is not readily provable either".

Coupled with the acknowledgement from the court that an employer is entitled to choose, with as much freedom as is compatible with the honest exercise of discretion, who it wants near or at the helm of its enterprise, the employer's prerogative is given greater emphasis when dealing with the dismissal of senior managerial employees.

Giving managers the right tools and support

The courts have made it clear that an employer must provide a senior manager with the resources required in order to perform at the level necessary. In Palace Engineering (Pty) Ltd v Ngcobo & other (2014) 35 ILJ 1971 (LAC), the Labour Appeal Court found that the dismissal of a senior managerial employee for poor work performance was unfair in circumstances where the employer had not provided the employee in question with the tools required to satisfactorily perform these functions. This position has been confirmed by the Labour Appeal Court in Damelin (Pty) Ltd v Solidarity on behalf of Parkinson & others (2017) 38 ILJ 872 (LAC).

It is clear from the case law that although the requirements for the dismissal of senior managerial employees for poor work performance are not as onerous as those applied to 'ordinary' employees, fairness is still the underlying criterion. In these circumstances, employers are not required to extensively counsel the employee in question. The employer should provide the employee with a reasonable opportunity to comply with the standards in line with the criteria established in Boss Logistics and ensure that the employee is afforded all of the required resources to ensure that they can comply with the standards.

Should the employee nevertheless fail to comply with the requirements, the employer will be entitled to dismiss the employee in order to prevent or avert any dire and potentially catastrophic consequences that may arise as a result of the employee's inability, inaction or poor performance. Although the courts may be inclined to defer to the decision of the employer more readily in dismissals of senior managerial employees for poor performance, legal advice should nevertheless be sought to ensure that the principle of fairness is adhered to in the unique circumstances of each matter.

Coetzer is a Partner and Wingfield an Associate with Cowan-HarperMadikizela.