© Webber Wentzel 2012
The New Companies Act, 2008
Trade Union Rights
A foreign company which is a party
to an employment contract in SA
SASLAW 30 May 2012
Presented by Nick Robb
Trade union rights in the Companies Act
Introduction
• The Companies Act forms part of a raft of new legislation which includes
the National Credit Act and the Consumer Protection Act which have as
their focus the strengthening of individual rights as against “Big Business”.
• The purposes of the Act include:
– promoting compliance with the Bill of Rights in the application of
Company Law
– re-affirming the concept of the company as a means of achieving
economic and social benefits
– providing for the efficient rescue and recovery of financially distressed
companies in a manner that balances the rights and interests of all
relevant stakeholders
• In pursuance of such goals, trade unions are afforded a number of
significant rights
Trade union rights
• The definitions section defines “registered trade union” as a trade union
registered in terms of section 96 of the LRA
• The Act does not use that term consistently in the various provisions which
appears to be an oversight by the drafters
• In certain instances, the term “a trade union representing employees of the
company” is used instead
• The effect of this apparent oversight is that it is conceivable that nonregistered trade unions enjoy certain of the rights afforded trade unions in
the Act, which is an anomaly
Trade union rights
• Part B of Chapter 2 – Incorporation and legal status of companies – in
terms of s20(4) “a trade union representing employees of the company”
has the right to apply to the High Court for an appropriate order to restrain
the company from doing anything inconsistent with the Act
• Part C of Chapter 2 – Transparency, accountability and integrity of
companies – in terms of s31(3) “trade unions” must be given access to
company financial statements for purposes of initiating a business rescue
process
• In neither instance, is the term “registered trade union” used
Trade union rights
• Part D of Chapter 2 – Capitalisation of profit companies – in terms of s45
(loans or other financial assistance to directors) – if the board authorises
the company to provide direct or indirect financial assistance to a director
or prescribed officer, it must provide a copy of the resolution to that effect
to “any trade union representing its employees”
– either within 10 business days if the value of the loan, debts,
obligation or assistance exceeds .1% of the company’s net worth
– or in any event within 30 business days after the end of the financial
year
• A resolution is void to the extent that the provision of that assistance
would be inconsistent with the section
Trade union rights
• Part A of Chapter 6 – Business Rescue proceedings – “any registered trade
union representing employees of the company” is defined as an “affected
person” in relation to a company – s128(1)(a)(ii)
• In addition, any employee of the company not represented by a “registered
trade union” is defined as an “affected person”
Trade union rights
•
An affected person acquires various rights
– to receive publication of the notice of the resolution to commence BR proceedings from
the company, and its effective date, including a sworn statement of the facts relevant to
the grounds on which the board resolution was founded. A failure to receive such
publication from the company results in the resolution lapsing.
– to receive publication of a copy of the notice of appointment of the BR practitioner. A
failure to receive such publication from the company results in the resolution lapsing.
– to be advised by the board of the company why the board has not adopted a BR
resolution, along with reasons.
– to apply to set aside the resolution on various grounds.
– to apply to set aside the appointment of the BR practitioner.
– to participate in the hearing of any application objecting to the company resolution.
– to apply to court for an order placing the company under supervision and commencing
BR proceedings if the company does not.
Trade union rights
• During the BR process, every “registered trade union representing any employees of the
company” and any unrepresented employee is entitled to
– notice of all court processes and other relevant events concerning the BR process
– participate in any court proceedings
– form a committee of employees’ representatives
– be consulted by the BRP during the development of the BR plan
– be present and make submissions to the meeting of the holders of voting interests
before a vote is taken on any proposed BR plan
– vote with creditors on a motion to approve a BR plan
– propose the development of an alternate plan or present an offer to acquire the
interests of one or more affected persons if the proposed BR plan is rejected
Trade union rights
• Every “registered trade union representing the employees of the company”
must be given notice by the BRP of the meeting which the BRP must
convene and preside over within 10 business days after being appointed,
being a meeting of employees’ representatives
• The BRP must inform the trade union and employees’ representatives
whether she believes there is a reasonable prospect of rescuing the
company
Effect of B R proceedings on employees
• Employees remain employed on same terms and conditions except to the
extent that:
– “changes occur in the ordinary course of attrition”
– employees and the company agree different terms in accordance with
applicable labour laws
• Any retrenchment accords with sections 189 or 189A – of course!
• A BRP may not suspend an employment contract
• A court may not cancel any provision of an employment contract
• Employees are preferred unsecured creditors in respect of any remuneration,
reimbursement for expenses or other amounts relating to employment due
and owing immediately before BR proceedings began
Trade union rights
• Part A of Chapter 7 - Protection for whistle-blowers
– a “registered trade union” that makes a disclosure contemplated in the
section (s159) has qualified privilege in respect of the disclosure and is
immune from any civil, criminal or administrative liability in terms of
such disclosure
– the disclosure must be made in good faith to CIPRO, the Companies
Tribunal, the Panel, a regulatory authority, an exchange, a legal
adviser, a director, prescribed officer, company secretary, auditor,
internal audit, board or committee of the company
Trade union rights
– subject matter – similar to the PDA – less comprehensive
– trade union must reasonably believe at the time of disclosure that the
information showed that the company or director or prescribed
officer:
• contravened the Act, Close Corporations Act, Share Blocks Control
Act, Co-Operatives Act, Copyright Act, Performers Protection Act,
registration of Copyright in Cinematograph Films Act, Counterfeit
Goods Act, Designs Act, Merchandise Marks Act, Patents Act,
Trade Marks Act, Unauthorised Use of Emblems Act, “Vlaglied”
Copyright Act, Protection of Business Act, Part A of Chapter 4 of
the CPA
Trade union rights
– failure to comply with any statutory obligation to which the company
is subject
– conduct endangering health or safety of the environment
– unfair discrimination or condoning unfair discrimination
– contravened legislation which exposes the company to actual or
contingent liability or is inherently prejudicial to its interests
Trade union rights
• Part B of Chapter 7 – Application to declare director delinquent or under
probation [s162(2)] – “a registered trade union” may apply to a court for an
order:
– declaring a director delinquent if the director consented so to act
whilst ineligible or disqualified, continued to act whilst under a
probationary order, grossly abused the position, took personal
advantage of information or an opportunity, inflicted harm upon the
company either intentionally or grossly negligently, acted in a manner
amounting to gross negligence, wilful misconduct or breach of trust in
the performance of functions and duties [s162(5)(a) to (c)]
– placing a director under probation if the director acted in the manner
set out in s162(7), subject to the provisions of s162(8) – too detailed
to summarise conveniently
Trade union rights
• Part B of Chapter 7 - Derivative actions [s165] – a “registered trade union”
may
– serve a demand on a company to commence or continue legal
proceedings, or take related steps, to protect the legal interests of the
company
– a company so served may only apply to set the demand aside on
grounds it is frivolous, vexatious or without merit
– if not the company must commission a report and within 60 business
days either initiate or continue proceedings, or refuse to comply with
the demand
– the trade union may apply to court to bring or continue proceedings in
the name and on behalf of the company
Trade union rights
– in exceptional circumstances the trade union may forgo the demand
process and apply to court to bring proceedings in the name of and on
behalf of the company
– rebuttable presumption that granting leave not in the company’s best
interests if
• proceedings are against or by a third party
• the company has decided not to bring or not to defend or to
discontinue, settle or compromise such proceedings
• all of the participating directors acted in good faith, had no
personal financial interest, informed themselves about the subject
matter and reasonably believed the decision was in the best
interests of the company
A foreign company which is a party to an employment contract in SA
Section 23
• Section 23 (1) provides that an external company must register with CIPRO
within 20 business days after it first begins to conduct business within the
Republic:
– as an external non-profit company if, within the jurisdiction in which it
was incorporated, it meets legislative or definitional requirements that
are comparable to the legislative or definitional requirements of a
non-profit company incorporated under this Act;
– as an external profit company, in any other case
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Section 23
• Section 23 (2) provides that a foreign company must be regarded as
conducting business, or non-profit activities, as the case may be, within the
Republic if that foreign company:
– is a party to one or more employment contracts within the Republic;
or
– subject to certain sections is engaging in a course of conduct or has
engaged in a course or pattern of activities with the Republic over a
period of at least 6 months, such as would lead a person to reasonably
conclude that the company intended to continually engage in business
or non-profit activity within the Republic
Effect of registration
• Section 23 must be read with Regulation 20. S23 requires an external
company to:
– continuously maintain an office in the Republic;
– register the address of its office;
– be assigned a unique registration number and be maintained on the
register of external companies;
– be subject to a compliance notice from CIPRO should it fail to register
and if in continued default cease carrying on business – anomalous
situation in the context of being “deemed” to be conducting business
if the foreign company does not wish to be held to be conducting
business!
Effect of registration
• Registration in terms of Regulation 20 entails:
– filing the required notice and filing fee;
– providing a certified copy of its Memorandum of Incorporation or
similar document, as well as its certificate of incorporation or
comparable document;
– providing the required statement setting out the address of its
principal office outside the Republic and the names and addresses of
its directors;
– providing the address of its registered office in the Republic;
– providing the name and address of the person in the Republic who has
consented, and has been appointed, to accept service of documents
Effect of registration
• Tax consequences - establishment of an office/conducting business:
– VAT – SARS may rule that the foreign company will no longer be
exempt from registering as a VAT vendor
– s101 of the Income Tax Act – requires appointment of public officer to
represent the employer for income tax purposes if “carrying on
business OR having an office” - foreign company becomes liable to
deduct and pay over income tax in respect of employees - PAYE
– income tax – complex question on account of bilateral tax treaties –
grey area – could become liable to register as tax-payer
• Trading / commercial consequences – licensing restrictions, competitive
restrictions
• Fact of a presence
Effect of registration
• Summary
– not too onerous administrative requirements;
– tax consequences - significant
– trading and other concerns – difficult to quantify
The deeming provision
• Dealing only with the first part of the provision – s23(2)(a)
• Requirements to trigger the provision:
– a foreign company
– that is a party
– to one or more employment contracts
– within the Republic
First element
• It must be a “foreign company”
– only applies to incorporated entities
– it must be foreign
Second element
• It must be a “party” to one or more contracts
– a contracting party in the generally accepted usage of the term
– therefore has entered into a written contract with the employee
– contract need not have been entered into or concluded in the Republic
– requirement much wider – a party to a contract which could have
been concluded anywhere and at any time prior to its current
operation in the Republic
Third element
• One or more employment contracts
– common law definition (Wallis):
“It is a contract whereby the employee undertakes to place his or her personal
services at the disposal of the employer for a period of time in return for the
payment of an agreed remuneration termed a wage or salary”
Third element
• Further characteristics in terms of the common law:
– object is the rendering of services
– employee at the beck and call and renders services at the behest of the
employer
– the services are at the disposal of the employer which has the discretion
to decide whether or not it wants them rendered
– employee subordinate, obliged to obey lawful commands orders and
instructions
– employer has the right of supervision and control by prescribing what
work must be done and the manner in which it must be done
– it terminates by death of the employee or the expiration of the period of
service (contractual notice, retirement – contractual term, expiry of
agreed contractual term)
Third element
Statutory definitions
• LRA and BCEA – “employee means any person, excluding an independent
contractor, who works for another person or for the State and who
receives, or is entitled to receive, any remuneration; and any other person
who in any manner assists in carrying or conducting the business of the
employer”
• Employed and employment have corresponding meanings
• EEA and SDA and UIA essentially identical – COIDA has other elements but
the essentials remain
• s200A / s83A of the LRA / BCEA
Third element
• The test applied by the courts
• Been through various mutations
• Has evolved to its present form consisting of three principal criteria:
– an employer’s right to supervision and control
– whether the employee forms an integral part of the employer’s
organisation
– the extent to which the employee is economically dependent on the
employer (Davis JA in State Information Technology Agency (Pty) Ltd v
CCMA and others)
Third element
• The Davis test is designed to establish the existence of an “employment
relationship” – once established rights flow in terms of employment
legislation
• The deeming provision requires being a “... party to one or more
employment contracts ...” which is / could be a formal requirement rather
than a substantive requirement – i.e. in addition to the substantive
requirement and therefore widens the net
• Is there a distinction between the two as a consequence of the Companies
Act formulation? The formulation could have been “... the foreign company
employs one or more employees in the Republic ...” – same as the Davis test
Third element
• Illustration of the possible distinction:
American Co has a subsidiary in SA, SA Co. It seconds employee Mr Woods
to SA Co for two years as he has plummeted from being a star performer
to an also-ran, and needs reinvigoration. In terms of the secondment
agreement SA Co supervises and controls Mr Woods, he is integrated into
SA Co, SA Co pays him his remuneration, and he carries out all duties in SA.
Throughout the term of secondment Mr Woods’ contract with Am Co
remains extant. Am Co conducts no activities in SA
• In terms of the Davis formulation Mr Woods is employed by SA Co. There is
the possibility of dual employment, with Am Co as well, but is that an
employment contract in SA?
• Is Am Co party to an employment agreement in SA? Mr Woods retains his
employment agreement with Am Co and is in SA carrying out his duties albeit
for SA Co
Third element
• What if the operation of the employment contract between Am Co and Mr
Woods is formally suspended for the duration? Is Am Co still party to an
employment contract in SA during the period of suspension i.e. for the
secondment?
• What if Am Co retains residual obligations to Mr Woods for the period of
secondment e.g. his 401k plan (state pension), a portion of his salary is paid
into his Florida bank account to pay his bond and maintenance obligations, and
golf club subs?
• Does it matter if Am Co is a signatory (party?) to the secondment agreement in
terms of which Mr Woods is employed by SA Co for the duration
Third element
• Alternative illustration
– English Movie company employs Mr Ritchie in the UK as a movie
director. Mr Ritchie relocates to Cape Town. Eng Co has no presence
in SA and no subsidiary company. Eng Co and Mr Ritchie enter into a
carefully crafted independent contracting contract in terms of which
Mr Ritchie is allocated tasks – scouting locations etc. - from time to
time and is paid in the UK. Mr Ritchie’s embittered movie star ex-wife
contacts CIPRO. CIPRO decides Mr Ritchie is an employee of Eng Co
based on the Davis formulation and hence Eng Co is party to an
employment contract in the Republic. Eng Co is required to register
and establish and maintain an office if the arrangement with Mr
Ritchie is to continue. Mr Ritchie may no longer be paid off-shore, is
subject to PAYE deductions and Eng Co becomes subject to VAT and
income tax
Third element
• If the Companies Act formulation is intended to be strictly formal and shall be
interpreted as such then in the case of secondments:
– foreign companies would at the least need to suspend the operation
of their employment contracts for the duration;
– foreign companies should not be parties to contractual arrangements
governing employment for the duration;
– residual obligations in the foreign territory would probably have no
impact since they are serviced outside the Republic
– remuneration should be paid by SA Co – normal practice for foreign Co
to pay and recover from SA Co – that practice could be an unwelcome
trigger
– the Davis test approach is not knocked out – it co-exists
Third element
• On the other hand:
– if the Davis formulation only is to be applied
employment contract” means “employed” in SA
– “party to an
– not required to contrive a set of facts in the case of secondments but
independent contracting contracts with foreign companies subject to
scrutiny
Fourth element
• Within the Republic
–
employee’s duties and obligations carried out in SA
–
employee obtains rights in terms of SA legislation?
• What if the secondment agreement expressly disavows applicability of SA
legislation, sets up an appropriate dispute resolution mechanism on foreign
soil, provides for the governing law to be that of Switzerland (e.g. the Red
Cross)?
Contact details
Nick Robb
Partner
Webber Wentzel
Tel. (011) 530 5627
Email nick.robb@webberwentzel.com
Legal Notice: these materials are for training purposes only and do not constitute legal or other professional advice.
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