Blood in the boardroom can be avoided

Nkiwane Ndaba | Saturday October 5, 2013 13:34

It is very common to hear these words exchanged in the corridors: 'We will meet in court,' 'My lawyer will be serving you with the papers,' and 'We are not paying a dime.'

In the world of executive terminations, the stakes are high and some of the most acrimonious unfair terminations take place within the secret confines of the boardroom parallel to very high settlement agreements.  The bottom line is that, Managerial staff are not immune to disciplinary action.

Commentators have observed that such executive terminations are often characterised by the following scenarios:

• Too much time being wasted and too much   money being spent on consultants and lawyers to sort out the mess... after the fact;

• A total disregard of fair labour practices;

• A high-handed approach, subjective to emotions and big egos; and

• The payment of very high settlements.

Who is a manager? Section 14 (3) of the Trade Disputes Act 15 of 2004, broadly defines a management employee as an employee who '(a) has authority, on behalf of his employer, to employ, transfer, suspend, lay off, recall, promote, terminate the employment of, reward, discipline or deal with the grievances relating to the employment of any fellow employees or effectively to recommend any such action or the manner in which such grievances ought to be dealt with, if the exercise by him of that authority is not merely of routine or clerical nature but requires the use of his discretion..(b) Participates in the making of a general policy regarding relations between his employer and his fellow employees or any of them; or (c) is employed in a capacity that requires him to have full knowledge of the financial position of the undertaking or enterprise in which he is employed or gives him free personal access to other confidential information relating to the conduct of his employer's business'

This definition may not be easy to apply in all circumstances, hence expert advice must be sought if in doubt as to the management status, or otherwise, of an employee.  As a general rule, it is trite that before taking disciplinary action against an employee as a result of their poor work performance, the employee should have been taken through certain steps.  Such steps would include counselling, training, coaching and warnings.

In cases of managerial or executive employees, the need for warnings and opportunity to improve is less apparent.  This was the Industrial Court's position in the case of E. Basimolodi v. John Silas Transport, IC. 75/98, where Ebrahim-Castens J. (as then she was) cited a passage from a ruling found in James v. Waltham Holy Cross Urban District Council [1973] ICR 398.  The following was said about the need for a warning: 'An employer should be very slow to dismiss upon the ground that an employee is incapable of performing the work which he is employed to do, without first telling the employee of the respects in which he is failing to do his job adequately, warning him of the possibility or likelihood of dismissal on this ground, and giving him an opportunity of improving his performance. But those employed in senior management may by nature of their jobs be fully aware of what is required of them and fully capable of judging for themselves whether they are achieving the requirement.  In such circumstances, the need for warning and an opportunity to improve is less apparent.  Again, cases can arise in which the inadequacy of performance is so extreme that there must be an irredeemable incapacity.  In such circumstances, exceptional though, they no doubt are, a warning and opportunity for improvement are of no benefit to the employee and may constitute an unfair burden on the business.'

The courts have disagreed with the contention that a senior employee of managerial status does not have to be warned or given an opportunity for improvement.  See the case of Unilog Freight Distribution (Pty) Ltd v. Muller (1998) 19 ILJ 229 (SCA).

Fairness will always demand that, as a general rule, an employee should be warned and given such opportunity, although as more flexible and lenient approach is adopted compared to a junior employee.The degree and content of such warnings to senior employees may well differ from that which is given to other employees.

The dividing line between misconduct and poor work performance is not absolute as the same offence may fall within both categories. It is an entrenched employment principle that employers may require their employees to work according to the reasonable standards - quantitative and qualitative - set by their employers. Where an employee fails to attain the standards, the employer may terminate the employment contract due to the employee's incapacity.

It is an established fact that managerial staff are not immune to disciplinary action.  It has in fact, been observed by labour commentators, that managerial staff are under increasing scrutiny as management structures become more flatter and employers focus on more value-adding work performance.  Case law supports the idea that the employer must be left to decide on the performance standards.  An example is found in the South African CCMA case of Colyer v. Drager SA (Pty) Ltd (1996) 7 (1) SALLR 19 where it was held that 'the standard conduct and performance required of an executive or senior employee must for sound business and economic reasons be left to the employer to decide'.  A demand that a manager must deliver in terms of the set standards falls squarely within the purview of the above reasoning.

In yet another South African case of Venter v. Renown Foods Products (1989) 10 ILJ 320 at 321 it is stated that: 'It was decided in the Erasmus case that a disciplinary code does not normally apply to a person in the position of a manager and that the employer must discuss the issue with the employee and that the employer must, where possible, try and find alternatives to prevent the dismissal. If he has take reasonable steps and no solution can be found he may then dismiss the employee (Senior Manager). In Rossouw v. Mediese Navorsingraad (2) (1987) 8 ILJ 660 at 664B-G, the court held that the employer must give notice to the senior manager of the alleged deficiency and that he must lend a helping hand with correction thereof...'.

There are similarities as well as differences in the way managerial employees are disciplined and the way non-managerial employees are disciplined. As already alluded to, there is a wealth of case law that suggest that in some respects, managerial staff may be subject to disciplinary proceedings in way that differs to those of other categories of employees. It is often argued that given their seniority, managers should not have to be appraised on 'chapter and verse' of their minimum performance criteria. Critical to this exercise is the requirement that employers must ensure that such managers know and understand the objectives against which their performance is to be measured.

When considering the fairness of a dismissal for poor work performance, case law provides for certain guidelines which employers should ignore at their peril.  Care should be taken to note that the employer cannot, for example, unilaterally and/or unfairly demote, reduce terms and conditions of employment, dismiss or  restructure without 'consulting' the employee concerned.

Before taking disciplinary steps, employers must make sure that they are dealing with misconduct.  Taking disciplinary steps without first establishing if one is dealing with a case of misconduct is actually dangerous.  What is misconduct?  Simply put, it is a blameworthy act or omission on the part of the employee. It is important to note that both the act/omission and the blameworthiness must be provable on the balance of probabilities.  An alleged act of misconduct must be proved.

Blameworthiness itself arises from either negligence or intent.  Poor work performance as an act of alleged misconduct amounts to the employer accusing the employee of performing or acting in a manner short of how the employer could have reasonably expected the employee to perform or act.

Before wielding the axe on an executive, the employer must consider what is known as substantive fairness. In dealing with the said aspect, I address albeit briefly what substantive fairness is.  It has now become established that fairness and validity must be the hallmark of each and every decision to terminate an employee's contract of employment.  Put differently, an employer can only terminate an employee's contract of employment with or without notice if he has valid reasons for such termination. The rules of natural justice dictate that there must be a valid reason for any termination of a contract of employment.

These rules of natural justice are not derived from the Employment Act of Botswana but are provided for by the conventions and recommendations of the International Labour Organisation (ILO), which conventions Botswana has embraced.  The basic requirements for a fair dismissal are set out in article 4 of ILO Convention no. 158 of 1982, which provides as follows: 'The employment of a worker shall not be terminated unless there is a valid reason for such termination connected with the capacity or conduct of the worker or based on the operational requirements of the undertaking, establishment or service.' [Underlining supplied]

Rycroft and Jordaan in their book South African Labour Law, 2nd edition, deal with poor work performance as a form of misconduct as well as the situation where it does not amount to misconduct and at page 211 paragraph 4.8 opine that: '4.8 Dismissal for unsatisfactory work performance'.

This broad category includes dismissal for incompetence resulting from lack of skill or training, incompatibility or incapacity due to medical or health reasons...  The main reason for distinguishing between employees who are willing to perform their obligations and those who cannot do so efficiently - i.e. between those who are guilty of misconduct and those whose performance is merely unsatisfactory - is that their culpability is different.  Culpability is a factor which affects the fairness of a dismissal, while it may be fair to punish an employee who refuses to perform properly, it will not be fair to do so if the employee is not capable of performing properly.  'There is no point' it has been said, 'in trying to discipline an employee for doing something he cannot do'.  Bearing in mind that unsatisfactory work performance is often the result of a lack of skill or training, or even poor selection on the part of the employer, this approach is no doubt correct.  The employer is not precluded from dismissing the employee, but it may only do so after it had taken reasonable measures to try and correct the defective behaviour.'  [Underlining supplied]

The substantive fairness of a dismissal for unsatisfactory performance depends on whether the employer can fairly be expected to continue with the relationship, bearing in mind its own interests and those of the employee, and the circumstances of the case...  The dismissal will be substantively fair only if consideration of these factors indicate that the employee's incompatibility is irreparable.' [Underlining supplied]

The above principles are not based on South African legislation but on principles of equity and hence such principles are also applicable in Botswana as prerequisites for a dismissal based on unsatisfactory work performance due to incompetence.  It can only be safe for an employer seeking to terminate a senior manager to first of all make sure that they have established that the prerequisite requirements have been followed.  It is of no use to rush to dismiss and then land in court and pay heavily both on costs and on the settlement itself.

To be on the safe side, employers are encouraged to seek for a mutual termination of the contract of employment as was seen in the case of Johannes Pountwa v. Vintage Travel and Tours IC 117/03.

In the said case, Johannes was employed as a Manager and, on several instances he was absent from work due to ill-health and his below average work performance impacted adversely on the employer's business.  Consequent to the said absence and following several warning written and verbal, an agreement was reached to mutually terminate his contract of employment.  Where an employee agrees that they are not suited to continue in the employment and may volunteer to leave the company, such termination would be amicable and thus mutually agreed.

Executive dismissals surely do not need to involve a major spat, but a properly planned problem-solving approach will yield positive results - a timely, cost-effective and mutually acceptable separation.