Devil in the details: Calculating compensation for unfair dismissal

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The Labour Court held that there was no merit to the company’s main grounds for review. It did, however, find that in calculating the compensation awarded, the arbitrator committed an error of law in that he failed to take into account the employee’s remuneration at the time of her dismissal, as outlined in section 194(1) of the Labour Relations Act, 1995 (LRA).

Background facts

On 29 April 2021, the company issued a letter to the employee announcing that ‘short-time will be imposed for [her] position as accountant from 3rd May’. This entailed a reduction in the number of days she worked (from five to three) and her salary would be reduced by 40%. Notwithstanding this change in circumstances, the CEO sent the employee various emails enquiring about work-related matters on days she was not meant to work, including a Sunday.

On that following Monday, upon arriving at work, the employee entered the CEO’s office where an altercation ensued. The employee was alleged to have told the CEO that she (the CEO):

• was ‘raping’ the company;
  
• was too weak to make decisions on her own and that the employee was sick and tired of her;
  
• should be bringing business to the company instead of sitting behind her desk ‘doing nothing’, and is just a pretty face who sits and drinks wine when they go to the Jewellex conference whilst expecting the employees to do the work;
  
• was the reason that the company lost money on marketing campaigns, which was causing suffering to the staff; and
  
• would advise the company’s board chairperson that the CEO was an irresponsible CEO who lost a laptop bag and misplaced the banking dongle.

The employee also refused to lower her voice when speaking to the CEO.

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A day later, the company charged the employee with gross misconduct in the form of gross disrespect and issuing threats to the CEO. A week later, and following a disciplinary hearing, the company dismissed the employee. At the time of her dismissal, she had been employed for over 13 years.

Aggrieved by her dismissal, the employee referred an unfair dismissal dispute to the CCMA. The arbitrator found her dismissal to be substantively unfair and ordered the company to pay the employee eight months’ compensation calculated at the rate of remuneration she received prior to the reduction in salary.

The company disagreed with this outcome and brought an application to review and set aside the award.

Findings of the Court

In concluding that the grounds for review lacked merit in relation to the reasons for the dismissal, Makhura J confirmed that the test for review is whether the decision is one that a reasonable decision-maker could not reach.

In determining the matter, the arbitrator considered the context that led to the altercation and whether the statements made by the employee were true. Based on the evidence at arbitration, the Court accepted the following as fact:

• the company was experiencing financial challenges;
  
• the employee was the only one affected by short-time and who received a 40% salary reduction in salary;
  
• the employee’s position as an accountant was critical to the company, was demanding and required her to work more than the three days a week (as she continued to do);
  
• the CEO did not take a salary cut;
  
• the Company wasted over R2.5m on a marketing campaign that had no benefit to it;
  
• the CEO used to sit and drink wine the whole day when they attended the Jewellex conference; and
  
• the CEO once lost a banking dongle and the employee threatened to report her to the board.

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Therefore, what was said by the employee during the altercation was largely factual and the CEO was equally guilty insofar as the altercation was concerned. As such, the arbitrator’s decision was not unreasonable, and the Labour Court dismissed these grounds of review.

On the compensation to be awarded, the Court had regard to the fact that section 194(1) of the LRA provides that the amount of compensation to be awarded to an employee whose dismissal is found to be substantively unfair may not exceed the equivalent of 12 months’ compensation and must be calculated at the remuneration rate of the employee at the time of dismissal.

In awarding the employee eight months’ compensation at the rate before her salary reduction, the arbitrator committed an error of law. The Labour Court accordingly set aside the compensatory aspect of the award and substituted it for compensation at the remuneration earned at the time of the employee’s dismissal (ie. the reduced rate).

Key takeaways

The judgment highlights the importance of arbitrators abiding by the limits of compensation as provided for in section 194 of the LRA. Any award of compensation should be based on the employee’s remuneration at the time of their dismissal.

It is significant in this case that the employee did not challenge the unilateral decision of the company to reduce her salary. Had she done so, or had she instituted a cross review to claim the maximum compensation at the reduced salary rate, the outcome may have been different.