Heavy restrictions placed on business operations in South Africa under the Disaster Management Act ("DMA") during the COVID-19 pandemic meant that many employers were unable to work and consequently faced challenges in making payments to their employees in terms of their employment contracts or collective agreements. Courts are now providing more clarity on what employer obligations were when faced with supervening impossibility of performance during the initial period of the Covid-19 pandemic.

In the recent decision in Glencarol (Pty) Ltd v National Bargaining Council for the Clothing Manufacturing Industry (Northern Chamber) and Another, Van Niekerk J dealt with an application to review an arbitration award where the arbitrator had upheld a bargaining council's compliance order compelling the Glencarol (Pty) Ltd ("the Employer") to comply with a collective agreement relating to the payment of annual bonuses and leave pay.

During the initial period of the national lockdown in 2020, the DMA Regulations prohibited the Employer from conducting business and its employees were prohibited from attending work. Subsequently, when calculating its employees' annual leave pay and annual bonuses entitlement in terms of a bargaining council collective agreement, the employer excluded this period of the "hard lockdown" from its calculation. The bargaining council did not agree with this approach. It issued a compliance order instructing the Employer to comply with the clauses relating to the payment of annual leave pay and bonuses.

The arbitrator found that the Employer had contravened certain clauses of the collective agreement because, amongst other things:

  • the mere fact that it became difficult or expensive to discharge obligations did not mean that performance had become impossible;
  • nothing indicated that all players in the industry were unable or could not comply with the collective agreement; and
  • if performance was objectively impossible, the parties to the bargaining council could have suspended the collective agreement's provision, but did not do so.

On review in the Labour Court, Van Niekerk J accepted that, during the period of the hard lockdown, both the Employer and the employees could not perform their obligations in terms of the employment contracts and that it would have been unlawful to do so. In effect, this meant that the employees could not lawfully tender their services and, as a result, the Employer was not required to pay them. The court further accepted that the period during which the contract was, in effect, suspended did not have to be taken into account when calculating leave pay and annual bonuses.

In light of the above, the arbitrator's award was found to be incorrect and was set aside.

Comment

It is submitted that the court's approach was correct in law.

In terms of South African common law contractual provisions, the principle of impossibility of performance on the part of the employer is, in effect, limited. This is because, if employees tender their services, an employer is obliged to pay the employee's remuneration, notwithstanding that the employer cannot provide them with work to do due to some external factor or circumstance.

Impossibility on the part of the employer would only arise if the employer was objectively unable to lawfully provide work. However, in this case, due to the operation of the DMA Regulations, employees were legally prohibited from working and thus tendering their services. Accordingly, the Employer was not lawfully permitted to accept such an unlawful tender and had no legal obligation to pay the employee. This decision by Van Niekerk J accords with the advice we provided to clients at the time.

The above principle only applies during the "hard lockdown" period when performance was legally impossible. Thereafter most employees were then entitled to tender their services, and arguably, if they did tender such services, an employer would have been required to pay them even if that employer did not have work for the employees to do. Difficulty or operational challenges in running a business does not result in legal impossibility of performance.

Nevertheless, the issue remains relevant during the era of load-shedding. If employees tender their services to an employer, but the provision of work by the employer is not possible due to load-shedding, is there an obligation to pay them? There is no doubt that this issue will be canvassed in future decisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.