The South Gauteng High court handed down a judgement last week, in which it placed Mezepoli and Plaka – two high profile Johannesburg restaurants – into business rescue.
This was on the basis that their unpaid salary bill to employees was a legal debt and that the restaurants’ legal defence, of inability to pay, constituted grounds to place them into business rescue, noted Bradley Workman-Davies, director at Werksmans Attorneys.
“But it seems the court’s reasoning was flawed and stems from a fundamental misunderstanding of lockdown regulations,” he said.
The court found that the usual principle of force majeure – in which parties to a contractual relationship can hold the agreement to be unenforceable – did not apply to an employment relationship, on the basis that the employment contracts entered into between the parties did not contain force majeure clauses.
Force majeure clauses are not recognised by the Labour Relations Act as a fair reason for the termination of the employment relationship, said Workman-Davies.
The court nevertheless considered whether usual common law principles of legal impossibility of performance could have an effect on the employment relationship.
In so doing, the court recognised that there is a stringent test to be passed, before it can be accepted that the performance of a party’s legal obligations may be excused on the basis of this legal impossibility to perform, said Workman-Davies.
The court, in applying this test and making its finding in this case demonstrably reached the incorrect conclusion, he said.
The reason is that although the court correctly held that the legal obligation to pay salaries arises from an employee merely tendering services, and not having to actually perform any work, it then went further to find that employers were not excused from their legal obligation to pay salaries,
This is because employees were able to tender their services, level 5 lockdown regulations were expressly recognised as an essential service “implementation of payroll systems, to the extent that such arrangement has not been made for the lockdown, to ensure timeous payment to workers.”
“The above findings are wrong in both law and fact, since the employees in this case, and all other employees who were not recognised as essential services workers during the Level 5 and Level 4 phases of lockdown, were not legally able to tender their services.”
Non-essential workers, which included all of the restaurant staff employed by the employers in this case, were locked down in their homes, unable to leave their premises, unable to travel to work, and liable to arrest if they attempted to do so, noted Workman-Davies.
The court’s entire argument, underpinned by an assumption that employees were able to tender their services, and therefore entitled to payment of salaries, is legally incorrect, the legal expert said.
With regard to the reference to payroll systems in the lockdown regulations, the court appears to have been confused by the fact that a limited number of businesses were legally able to operate during the Level 5 and Level 4 phases of lockdown, and a limited number of essential staff were able to work, said Workman-Davies.
The reference to payroll systems in this case was to allow payment to such staff, and not to every person who is an employee.
“On this flawed reasoning, the court found that the employers had failed to legally discharge their obligation to pay April salaries, and that such salaries were owed to the employees, making them creditors for the purposes of the business rescue application, which was granted by the court,” said Workman-Davies.
Further compounding its error, the court also dealt with the payment of Temporary Employee Relief Scheme (TERS) Benefits from the UIF, which were paid to employees in advance by the employers, said said Workman-Davies.
The court found that although some UIF payments were made to employees, they still remained entitled to their salaries.
This is at odds with the purpose of the UIF TERS Scheme, which expressly recognises that employees on temporary lay-off – due to the legal impossibility of doing so, under the Level 5 and Level 4 phases of lockdown – were entitled to the TERS benefits, the legal expert said.
Had employees been legally entitled to their salaries, the entire basis for the existence of the TERS scheme would be academic,” said Workman-Davies.
“While efforts of the court to aid employees is laudable, it did so on a complete misunderstanding of the relationship that exists in the vacuum of the full effect of the legality of employees being able to work, or tender services, during the lockdown.”
“This judgement should be appealable, and should be overturned on a closer consideration of the legal issues,” said Workman-Davies.
This is because a large number of employers have correctly adopted an approach of legal impossibility during the lockdown, which has resulted in the suspension of the legal obligations of both the employer (to pay salaries) and the employee (to work or to tender services), he said.