South African franchising HR issues

It is often overlooked that in terms of South African labour legislation, employers enjoy very many rights. This is not to say that our labour law is not slanted towards the rights of employees, indeed it is. The intention behind this is far from sinister, rather, it stems from the assumption that generally speaking, the employee is the weaker party and requires protection. It needs to be said, however, that the chief reason why employers often get themselves into tricky (and ultimately expensive) situations when it comes to labour law issues is not that the law is weighted against them, rather, they fail to familiarise them with legal requirements and do not follow prescribed procedure.

This is one more area where most franchisees enjoy an advantage over their fully independent counterparts. In most instances, their network’s operations and procedures manual will provide guidelines. However, having a basic understanding of the issues involved in employing people is useful anyway and the following article provides that.

The employment contract

Writing in his publication What every South African employer should know, labour law expert Hylton Rubinstein makes the point that the employment contract forms the foundation of the employment relationship and should always be in writing. He also notes that our labour law distinguishes between permanent, temporary/fixed-term and casual employees and that each class is governed by a different set of regulations.

• Permanent employees are employed on an open-ended basis.
• Temporary/fixed-term employees are employed either for a specified period, or until a certain event occurs. An example of the latter would be the employment of a temporary secretary whose contract terminates the moment the permanent incumbent who is on maternity leave returns to work.
• Part-time employees work for less than 24 hours per month for the same employer.

Minimum conditions of employment are set out in the Basic Conditions of Employment Act, No. 75 of 1997. You need to familiarise yourself with the basics of our labour legislation. There are several good reasons for this, with the following standing out:

• As an employer, you are bound by this legislation and expected to adhere to it. How can you hope to comply unless you are familiar with the basic principles?
• Any clauses you include in an employment contract that are less favourable for the employee than those stipulated in the Act will automatically be unenforceable.
• Ignorance of the law is no defence.

While it would exceed the parameters of this article to enter into an in-depth discussion of the legislation that governs the employer/employee relationship, we will nevertheless attempt to clarify some of the issues that are often misunderstood:

1. The employment contract binds both parties
Employers know that once they have signed a contract of employment with an employee, they are bound by its terms but for some strange reason, they are not sure whether the contract is binding on the employee as well. The law is quite clear on this point. The moment an employee has expressed acceptance of a valid contract of employment by signing it, he or she is bound by its terms. In practice, this means that if, for example, the employee terminates the employment relationship without giving proper notice and/or fails to serve out the agreed notice period, the employer is entitled to impose a penalty payment. It is permissible to deduct this amount from the employee’s final pay.

2. Probationary period
It has become standard practice to build a probationary period into an employment contract. Given the practical difficulties surrounding the dismissal of an employee on the grounds of poor work performance, this is not surprising. What many employers overlook, however, is the fact that even during the probationary period, the employment contract may not be terminated at will. To avoid falling foul of the legislation, you should be aware of the following:

• The purpose of the probationary period is to give the employer a reasonable opportunity to assess the worker’s performance. The law is not specific regarding the duration of this period but says that it must be fair and reasonable. In a similar vein, should the employer wish to extend the probationary period beyond the time originally agreed upon, this must be fair and reasonable and can be contemplated only after the affected employee was afforded an opportunity to make representations on his or her own behalf.
• Throughout the probationary period, the employer is compelled to supervise the performance of the employee, provide guidance and give ongoing feedback. In other words, to “throw an employee in at the deep end of the pool, expecting him or her to either sink or swim” is no longer acceptable.
• An amendment to the Labour Relations Act that was passed in August 2002 makes it easier for employers to terminate employment during the probationary period. In essence, it states that anyone who attempts to assess the fairness of a decision to terminate must accept that the reasons for such a decision can be weaker than those required after expiry of the probationary period. However, a carefully documented procedure involving performance evaluation, feedback sessions, counselling/mentoring/ training) needs to be applied before termination. Termination “on expiry”, without implementing the prior steps, could easily be challenged.

3. How confidentiality clauses differ from trade restraints
The question of confidentiality clauses and/or restraint of trade agreements causes much confusion. These clauses deal with different issues and in fact have nothing at all in common.

• A confidentiality agreement seeks to protect confidential information that could damage an employer’s business interests were it to fall into the hands of actual or potential competitors. Even in the absence of a confidentiality clause, however, the employer’s rights would be adequately protected by common law. It remains, nevertheless, a good idea to insert such a clause into employment agreements.

As long as the ex-employee has been informed at the outset of the confidentiality of certain information and the employer has taken reasonable precautions to protect it, the employer could take legal steps against him or her for misuse of this information. A claim could also be brought against a competitor who knowingly uses such information.

• A restraint of trade clause, also known as a non-competition agreement, seeks to prevent ex-employees from setting up business in opposition to the former employer, or accepting employment with a competitor. The enforcement of such an agreement is fraught with difficulties as this could infringe upon an individual’s right to earn a living. In practice, a court is unlikely to uphold it unless it can be shown that the restraint is absolutely necessary to protect the legitimate interests of the former employer, reasonable in time and area, not excessively burdensome upon the former employee and not against public interest.

4. Exclusions from protection
Employees whose annual earnings exceed a certain threshold, currently R115772, are excluded from most of the provisions contained in the Basic Conditions of Employment Act of 1997 that deal with the regulation of working hours. High-income earners are not the only ones who are excluded from certain forms of protection. Others who fall into this category include:

• Senior employees who have the authority to represent the employer in negotiations, be it internally or externally, and/or hire, discipline and dismiss employees
• Sales people who routinely visit customers and are in effect permitted to set their own working hours.

The rationale behind these exclusions is that individuals who fall into the categories listed above are deemed to possess special skills and are usually highly sought after. This should give them sufficient negotiating power to secure terms that protect their own interests but this does not give employers the right to abuse them.

Statutory requirements for the employment contract

The Basic Conditions of Employment Act No. 75 of 1997 makes it compulsory for employers to provide their employees (except employees who work for less than 24 hours per month) with a written contract of employment or a letter of appointment that clearly sets out the nature of the employment relationship and the rights and obligations of both parties. The following is a summary of the minimum information such a contract should contain:

• The full name and address of the employer
• The name of the employee and his/her occupation
• The employee’s place of work; if the employee works at various locations it should be stated
• The date of commencement of the employment relationship and details of a probationary period if applicable
• Ordinary days and hours of work plus arrangements pertaining to overtime
• Ordinary rate of pay, overtime rate, other cash payments and payments in kind
• Details of deductions to be made, for example PAYE, UIF and medical aid
• Frequency of payouts and the mechanics thereof, for example by direct bank deposit
• Details of termination, either period of notice or upon expiry of a fixed-term contract
• A list of other documents that form part of the employment agreement.

Other labour law issues

In addition to the Basic Conditions of Employment Act, employers should familiarise themselves with the following pieces of legislation:

The Labour Relations Act (LRA)

This act applies to any employment situation, regardless of the size of the employer’s company. A major portion of this Act deals with dispute resolution, which is dealt with by the CCMA (Commission for Conciliation, Mediation and Arbitration) and the Labour Court.

Many of the decisions made by these bodies explore the fairness of the employer’s actions. An act of an employer would be seen in labour law to be unfair if it infringes upon an employee’s rights and is one-sided, unnecessary and/or considered inappropriate and/or considered excessive when examined in the light of a given set of circumstances.

Another term that is frequently used in labour law is “reasonableness”. Although it is almost inevitable that any definition of this term will be subjective, the Labour Court provides some guidance. In the case of Auf der Heyde versus University of Cape Town (2000, 8 BLLR 877), the definition of “reasonable expectations” advanced by the Labour Court reads as follows: “… an equity criterion, ensuring relief to a party on the basis of fairness in circumstances where the strict principles of the law would not foresee a remedy.”

Labour law expert Ivan Israelstam offered a more practical definition, which is perhaps of more use to the average employer. Writing in The Star Workplace, he defines reasonableness as: “… a situation, decision or viewpoint based on objective thinking, the facts of each case and a balance between the rights and legitimate needs of the parties concerned.”

The Employment Equity Act (EEA)

South Africa has a legacy of discrimination in relation to race, gender and disabilities that has denied access to opportunities for education, employment, promotion and wealth creation to a large segment of South Africa’s peoples. The Employment Equity Act, No. 55 of 1998 issued in terms of Section 25(1)), was passed to address this issue and is administered by the Department of Labour.

• All designated employers and their employees are affected by the Act.
  • Designated employers are employers who either employ 50 or more employees, or whose annual turnover equals or exceeds the defined turnover thresholds for a small business; depending on the industry sector, these range currently from R2 million to R25 million.
  • Designated employers must prepare an Employment Equity Plan that must be updated annually.

• Some portions of the Act apply to all companies, regardless of their size. This means, for example, that any form of unfair discrimination would constitute an infringement of the Act.

As can be seen, the potential impact of the Act on the operation of a small business is wide-ranging but in the light of its complexity, a detailed discussion would exceed the parameters of this article. Comprehensive information is available from the regional offices of the Department of Labour (DoL) and from the DoL’s web site – www.dol.gov.za – which, by the way, is well presented and extremely user-friendly. In addition, we would advise you to seek competent professional advice from a labour law expert, preferably before you have a potential problem on your hands.

The Skills Development Act (SDA)

This aim of this Act is the furtherance of lifelong learning and the facilitation of upward mobility of South Africa’s workforce. To create a sound financial footing for this noble goal, the Act compels employers to pay a levy calculated as a percentage of their enterprise’s payroll, which is currently set at 1%. Please note the following:

• Expectations are that the contribution percentage will be increased in the not too distant future.
• Very small firms, with a payroll of less than R500 000 per annum, are exempt. (This has a downside, however, as it excludes such employers (and their staff) from participation in many SETA programmes.)

The promulgation of the Skills Development Act has led to the creation of sectoral training bodies, known as SETAs, which are responsible for the training of workers in specific industry sectors. The good news is that subject to certain conditions being in place, companies are entitled to claim part of their skills levy contributions back in the form of cash grants, to be used towards approved staff training schemes.

You should make it a priority to talk to your sectoral SETA. Although not all SETAs are created equal, meaning that some are more effective in their service delivery than others, your SETA should be able to provide you with a host of useful information, including conditions for your firm’s participation in a learnership scheme and the award of training grants. You should also approach the regional office of the Department of Labour in your area for guidance. The impact of labour legislation

South Africa’s labour legislation covers ten stages in the employment cycle and it is important for every employer to be aware of these stages. They are the following:

1. Recruitment advertisement

• The law stipulates that advertisements for vacancies should be published in a newspaper that is generally accessible to the widest possible number of likely job seekers. Essentially, most of the major national and regional newspapers would qualify but care should be taken to ensure that the publication is aimed at the correct target market. The choice of language used is equally important in this regard.
• The job requirements that are specified in the advertisement must be relevant to the particular job. You may not stipulate requirements that could be interpreted as discriminatory unless this can be justified by the requirements of the job.

For example, unless you are the head of a church and interviewing candidates for the position of parish priest, it would be safer not to ask job applicants about their religious affiliation. In most instances, it will have no bearing on the applicant’s ability to perform work-related duties.

2. Job interview

It’s important to keep notes that provide a summary of the proceedings during an interview and to note why a particular applicant was found to be unsuitable. These notes will be invaluable should a case of unfair discrimination be opened against you at the CCMA. It is therefore advisable to retain them for a reasonable period, say 8-12 months.

3. Hiring decision and employment procedure

Once you have decided to hire a person, put everything in writing but keep in mind that whatever you agree on must be within the boundaries of the relevant legislation.

A clause in the employment contract that purports to reduce the prescribed minimum leave period, for example, would not be worth the paper it is written on, even if the employee had willingly agreed to it. Trade restraints are another problem area; unless they are carefully worded and reasonable with regard to the geographic area they cover and extent of time for which they apply they could easily become unenforceable.

Probationary periods must be reasonable as well, and it is important to remember that even during the probationary period, prescribed procedures must be followed before an employee can be dismissed.

4. Working conditions

Business ethics and common sense combine to suggest that in the long term, only a happy and well-rested workforce will be productive. It is especially important to adhere to limitations on the number of hours employees are permitted to work. Remember, too, that the employer could be held responsible should an individual in his or her employ cause an accident due to fatigue.

5. Training

The Employment Equity Act (EEA) places a responsibility on employers to train their workforce. As this makes perfect business sense anyway, it should not create too much of a problem for any employer and assistance schemes are available. Contact your SETA for details.

6. Motivation and advancement

Although smaller companies are currently exempt from the requirement to submit a formal affirmative action plan, it is good business practice to work towards this anyway. Make reasonable efforts to build a team that fairly reflects the ethnic composition of the country, provide training and mentoring, reward achievement and promote from within as far as this is practical and you’ll have little to worry about.

Important note: Legislation as it stands at present does not compel the employer to implement employment practices that impact negatively on the viability or competitiveness of the business.

7. Control

Legislation prescribes that you keep formal records of work attendance, pay details and other statutory requirements pertaining to the employment of staff. We recommend that you expand on this requirement by noting achievements as well as problem areas in each employee’s personnel file and keep this file updated at all times.

8. Dismissal procedures

The dismissal process is governed by the Labour Relations Act, No 66 of 1995. Although it has to be said that the Act provides substantial protection to employees and the dismissal process has indeed become a veritable minefield, it would be wrong to assume that employees can no longer be dismissed. The key to effectiveness in this area is to let the employee know, in no uncertain terms, that a problem exists. This should be linked to the provision of reasonable assistance, for example by offering extra training and counselling. Once it has become clear, however, that the employee stands no reasonable chance of making the grade, swift action is called for. Such action must be seen to be firm, fair and consistent, and every step should be carefully documented.

8.1 Dismissal for poor work performance
Should an employee fail to make the grade, proceed as follows:

• Issue a warning of poor work performance. Notify the employee that his or her performance fails to meet expectations, set out the reasons therefore and set a reasonable date for a further performance review. If additional training appears to be necessary, arrange this as soon as possible but in consultation with the employee.
• Issue a final warning before termination. Referring to the initial warning, point out to the employee that unsatisfactory progress has been made, provide details that underpin your statement and set a reasonable date for a final review.
• Termination of employment. Refer to the warnings given and advise the employee that, as performance has failed to improve to acceptable levels, employment will be terminated. The employee is entitled to a formal hearing, which has to follow a defined format.

It is especially important to remember that the employee must be advised of his or her right to representation and he or she must be permitted to state his or her case. Should the termination be upheld, the employee is entitled to receive, in addition to any outstanding payments due to him or her, a Certificate of Service.

8.2 Termination for misconduct
This can be a tricky area and because circumstances tend to vary widely, professional assistance should be obtained before you take any steps. For your information, the following procedure will normally be followed:

• be represented, for example by a colleague or a union representative
• present evidence
• call witnesses.

The notification should be issued in duplicate and the employee should be asked to confirm that he or she has received it by signing one copy. The copy that has been signed by the employee should be filed in the employee’s personnel file.

Should an employee refuse to sign the copy of the notification, it would be advisable to have an independent witness who has observed delivery of the notification attest to the fact that the notification has been delivered.

• The chairperson will open proceedings by giving an outline of the alleged offence. In appropriate circumstances, proof of the alleged misconduct or lack of performance will be presented and witnesses may be called.
• The employee has the right, and must be given the opportunity, to respond to the allegations made. He or she should also be permitted to question witnesses and offer witnesses of his or her own. The employee has the right to conduct his or her defence either in person or through his or her official representative.
• Detailed minutes of the proceedings should be kept, bearing in mind that these may be entered into evidence during a CCMA hearing, should this eventuality arise.

• An individual of good standing who is accepted as impartial by both parties, usually a trusted outsider, should hear the appeal and make a ruling.
• Once the finding has been announced, the employee must be advised that, should he or she be dissatisfied with the proceedings, the matter may be taken to the CCMA.

9. Formal dispute resolution proceedings

The Labour Relations Act, No. 66 of 1995 provides that if a dispute in the workplace cannot be resolved internally to the satisfaction of an aggrieved employee, this employee has the right to declare a dispute. He or she then has access to a series of institutions ranging from the CCMA to the Labour Appeal Court. As the matter moves forward through these channels, the legal process becomes progressively more time consuming, formal and expensive. Common wisdom has it that even if you are convinced that you have an ironclad case, it is usually advisable to seek an early settlement.

9.1 The CCMA
The CCMA is a dispute resolution body that functions at two levels:

• Conciliation/mediation - This is the first step. The CCMA commissioner, an independent and acceptable third party, will try to conciliate the dispute as a means of helping the disputing parties to arrive at an agreed-upon solution. If no agreement is reached, the dispute remains unresolved.
• Arbitration - Unresolved disputes may, depending on their nature, be referred either to the CCMA for arbitration or to the Labour Court for adjudication. During arbitration, the parties ask an independent third party, namely a CCMA commissioner, to hear the case, consider their respective viewpoints and then make an award. The moment the parties agree to this process, they accept the outcome in advance as being final and binding. In other words, right of appeal is waived.

Con-arb: Although the CCMA process is far quicker than proceedings at the Labour Court, it is time-consuming nonetheless. If conciliation is unsuccessful, an arbitration hearing will be scheduled for a later date which could be weeks or even months off.