When is a third party liable for labour law transgressions?

By Ivan Israelstam, chief executive of Labour Law Management Consulting

Where two entities are conducting themselves as one enterprise they may, under certain circumstances, be held liable for ill treatment of each other’s employees. This will not always be the case. In the matter of Nakani vs Commercial Hygiene (2005 unreported) the Bargaining Council for the Chemical Industry (BC) found that:

• Commercial Hygiene and its associate company, Soap and All operated from the same premises
• The case documents potentially suggested that both companies might have been involved in employing Nakani
• The same person owned both companies

Despite this the BC found against the employee’s claim that the two companies were one business. This was because:

• The two companies were legally separate entities
• The documents suggesting possible co-employership were erroneous
• Neither company controlled the other

However, in the case of Foorwear Trading cc vs Mdladlose (CLL Vol. 15 No. 1 August 2005) a very different decision was made. When Mdladlose was dismissed she sued her employer, Fila (Pty) Ltd at CCMA. The arbitrator found the dismissal to be unfair and ordered reinstatement with full back pay.

When the employer failed to comply with the award the employee went to Labour Court which found the two companies to be jointly liable and ordered Footwear to comply with the CCMA award. This was because the two entities had operated so as to give the impression that they were one business.

Footwear appealed to the Labour Appeal Court which found that:

• A cc is a legal entity separate from its owners
• Under certain circumstances a court is justified in ignoring the above mentioned separateness. This is known as ‘lifting the corporate veil’
• Persons who have control of the undertaking in which the worker is employed should be the employer in circumstances where one entity is an empty shell and another entity has the power to make decisions and to pay wages.
• There were, in any case, several undeniable documents showing Footwear to be the joint employer of Mdladlose
• The way the two companies were run gave a clear impression that they were joint employers

The appeal was therefore dismissed.

We have here two cases where the companies concerned were fighting joint liability. In both cases the two cited companies had the same address and the same owner. Despite this, the findings on joint liability were different in each case. This is not surprising because:

• It was not shown, in the Commercial Hygiene case, that it had been operating as part of Soap and All or that one company had control over the other
• The name of Commercial Hygiene was not on the employee’s payslip
• There were not several, undeniable, documents proving co-employership

These two opposite case decisions fell largely on the degree to which the two entities could be seen to be co-employers. This difference is somewhat subtle, and lay people cannot be expected to make the distinction. Employers are therefore advised that, before grappling with the thorny issue of joint and several liability in labour law, they should consult an expert versed in this area.

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