The unprecedented protest action, looting and destruction encountered in KwaZulu-Natal and parts of Gauteng recently has shaken the country to its core. Amongst the hapless victims of this damage and destruction have been many employers who have lost their businesses, some of them razed to the ground. In some instances employers will be able to rebuild their businesses over time, in other cases their businesses may never re-open. Many of these employers are small businesses that do not have the financial reserves, and possibly insurance, to recover from this devastation.

Small businesses play a vital role in the South African economy and it is estimated that they contribute approximately 35% to the country’s GDP and employ 55% of the country’s labour force. The impact of the destruction of these businesses on the unemployment rate (currently 32.6%) goes without saying and could not have come at a worse time for our beleaguered economy, already reeling from the damage inflicted by the COVID pandemic.

This editorial considers the obligations of employers, who have lost their businesses or part thereof towards their employees. It questions whether such employers are required to continue to remunerate and employ their employees when their workplaces are no longer functional.

In terms of the BCEA an employer is obliged to remunerate an employee who tenders their services, irrespective of whether actual performance takes place. Under ordinary circumstances the failure of an employer to pay an employee’s remuneration and benefits can give rise to both a contractual and statutory breach, unless a recognised legal defence exists. However these are not ordinary circumstances as employers may not be in a position to accept employees’ tender of services.

In terms of the common law principles of contract, a contract terminates automatically when it becomes permanently impossible to perform the terms of the contract due to no fault on the part of either party. Supervening impossibility of performance occurs when performance of the obligation is prevented by superior force (force majeure) that could not reasonably have been foreseen or guarded against. This may include physical impossibility such as acts of nature (for example the illness or death of an employee), acts of state such as the imprisonment or conscription of an employee, or acts of third parties such as strikes that prevent an employee from working or an employer from providing employment. It may also include legal impossibility such as a statutory requirement that prohibits an employee from working, as occurred during the Covid-19 hard lock-down. The recent tragic events that led to the destruction of many businesses, which were neither foreseeable nor preventable, provide a clear illustration of a force majeure and give rise to a situation of absolute impossibility of performance.

In Transnet Ltd t/a National Ports Authority v The Owner of mv Snow Crystal [2008] 3 All SA 255 (SCA) the court noted that as a general rule impossibility of performance brought about by force majeure, vis major or casus fortuitus will excuse performance of a contract. But it will not always do so. In each case it is necessary to “look to the nature of the contract, the relation of the parties, the circumstances of the case, and the nature of the impossibility invoked by the defendant, to see whether the general rule ought, in the particular circumstances of the case, to be applied”. The rule will not apply if the impossibility is self-created or due to the fault of either of the parties.

Employers are accordingly under no legal obligation to continue to remunerate their employees where their businesses are unable to operate due to no fault of their own, as in the present circumstances. This is in keeping with the well-known maxim of “no work no pay”.

But what is the impact of this impossibility of performance on the ongoing employment relationship? Is statutory termination required where a business is destroyed or does the employment contract terminate automatically, thereby bypassing the statutory requirements?

In the context of an employment contract absolute impossibility of performance will result in the automatic termination of such contract, and will not constitute a dismissal per se. However in terms of labour legislation the contractual termination of an employment relationship does not exempt an employer from the statutory requirements for a fair dismissal, with the exception of the termination of a contract by effluxion of time. Nonetheless it is difficult to pigeon-hole such unprecedented and unusual circumstances into the recognised categories of dismissal. Operational incapacity, which arises when employees are unable to tender their services due to extraneous factors, does not seem to be applicable – as the operational incapacity does not emanate from the employees themselves.

It is possible that the affected employees may be dismissed for operational requirements. A dismissal for operational reasons requires a decision on the part of the employer to terminate the employment relationship due to the economic, technological and structural needs of the enterprise. However in the current context it may be a stretch to conclude that employees were dismissed due to decisions taken by employers, when the circumstances leading to loss of employment were not within the control of employers. Furthermore the procedural and substantive fairness requirements specified in s 189 and 189A of the LRA, which requires a joint consensus-seeking consultative process, appear to be futile in the case of a business that has been destroyed – other than possibly consultations around severance pay and re-employment agreements. However, should a business be partially damaged or should an employer intend to rebuild a destroyed business, the possibility exists for the temporary suspension/lay off of affected employees until such time that they are operational again.

These are all questions that will more than likely be addressed by the CCMA and Labour Courts in time to come. Until then many of the affected employees, innocent victims of the damage and destruction, will join the ranks of the unemployed.

Tamara Cohen

Tamara Cohen