Alex T. Magaisa
I have now had an opportunity to study the judgment of the Supreme Court in the case of National Railways of Zimbabwe v Zimbabwe Railways Artisans Union & others SC/46/2015. The judgment was delivered on the July 27th 2015, just over a year after the matter was heard on June 14th 2014.
The judgment has been described by the media as “another landmark decision” and in somewhat hyperbolic terms as a “shock”, coming as it does, hard on the heels of a high-profile and controversial decision of the same court delivered less than a fortnight earlier. In that case, the Zuva Petroleum case, the Supreme Court essentially confirmed a licence to employers to fire employees on notice in terms of a contract, thereby avoiding the need to go through the long-drawn procedures under the Labour Act.
The few common denominators between the judgments are that, firstly, they both involve labour matters and secondly, in both cases, the employees lost against their employers. It is important to investigate whether the latest case warrants the “landmark” label that has already been ascribed to it by the media. The fact that the two latest cases from the Supreme Court deal with the relationship between labour and capital and that in both cases capital scores a victory over labour are circumstances that are bound to cause some excitement in the media and indeed, in the court of public opinion. But a sober assessment to appreciate the meaning of the case is important.
It will become apparent that for the most part the Supreme Court has merely confirmed basic rules of the law of contract. There are other issues which the court did not discuss and remain to be resolved, if they are, in future, brought before a court of law.
Facts of the NRZ case
The matter pitted the employer, the NRZ against its employees, represented by various unions. The essential issue in dispute was over the question of entitlement to allowances in the context of collective bargaining agreements (hereafter “CBA”). The law provides a facility for workers, through their unions to collectively bargain with the employers in respect of various labour issues, some of which are listed under s. 74(3) of the Labour Act.
These issues include the rates of wages, benefits for employees, housing and transport facilities or allowances, measures to combat workplace violence, requirements for occupational safety, etc. They cover a vast array of rights and interests that can be included in a CBA. The idea is that employers and employees get together and come up with a CBA, covering all or some of these issues. There is no limit as to what may be included. There is no mandatory list of things that should be included in a CBA, which, as this case shows, might be regarded as a weakness of the legislation. If allowances were part of a mandatory list of issues to be included in a CBA, it would strengthen the employees’ claim that they are a right that must be enforced.
In this particular case, NRZ averred that they were happy enough to negotiate the basic wages, using this method but they had reservations over allowances. The employees wanted housing and school fees allowances, probably as they had been used to getting such allowances in the past. In short, NRZ and its employees failed to agree over the issue of allowances.
They took the matter to conciliation, a method of resolving disputes, but when it did not work out, the Labour Officer handling the process referred the matter to arbitration. At arbitration, the arbitrator ruled against the NRZ. His ruling was that housing and school fees allowances “have to exist in one form or the other” suggesting that they were a right to which employees were entitled. On this basis, he proceeded to set a figure, although the basis of the calculation was not clearly set out. NRZ continued to protest and appealed to the Labour Court.
The Labour Court upheld the decision of the arbitrator and dismissed NRZ’s appeal. Unhappy with the outcome, NRZ appealed to the Supreme Court. This was the appeal that was before the Supreme Court and over which a decision was made on the 27th July 2015.
Supreme Court Decision
For the Supreme Court the key question was whether the arbitrator had acted properly and validly when he set the allowance, thereby effectively imposing terms of a CBA upon the employer and the employees. This involved a determination as to whether such allowances were a right to which an employee was entitled or were merely an interest which was optional.
The Supreme Court ruled that the arbitrator was wrong to impose his own terms into a CBA between the parties as he did not have the power to do so. It also ruled that the Labour Court was wrong to uphold the decision of the arbitrator.
On the issue of allowances, the Supreme Court quite correctly said since they had not been negotiated and agreed by the parties they were not part of the CBA and hence they were not a right or an entitlement due to the employees. It is for the parties to agree, the court said. “It is not a matter where the court can intervene. A court can only intervene to enforce any agreement the parties will have concluded”.
In this regard, one cannot fault the court. A contract is an agreement between parties. The doctrine of freedom of contract demands that parties have the exclusive rights to agree on the terms of their contract. Likewise the doctrine of privity of contract ensures that no third party can impose his or her own terms into a contract between parties and courts are generally reluctant to interfere.
The Supreme Court went further and criticised the arbitrator. “His [the arbitrator] finding that housing and school fees allowances “have to exist in one form or the other” was misguided, devoid of any legal basis and irresponsible”. The view was that the arbitrator was wrong to impose the terms of a CBA upon the parties. On analysis, if the arbitrator really felt his assertion was correct, then he needed to do more to justify it. What was the basis for his statement that they have to exist in one form or another? He needed to explain this.
What therefore is the importance of and implication of this judgment in regard to the general relationship between employers and employees? It is important to set out what this judgment means and also to allay fears but pointing out what it does not mean, lest there is panic and confusion.
Can an employer withdraw allowances/benefits?
On analysis, what had happened in this matter was that the NRZ had withdrawn housing and school fees allowances from its employees. The broad legal question, which gives the case fundamental status, is whether an employer is at liberty, in an employment relationship, to withdraw allowances.
The answer to this question lies in the contractual relationship between the employer and the employee.
If the contract between an employer and an employee provides for an allowance, the payment of that allowance is a right that can be enforced in terms of the contract. If therefore, as an employee you are negotiating a contract, you would be well-advised to ensure that any allowance or benefit is part of the contract. This naturally is likely to suit highly-skilled employees with better bargaining power but probably not the general labour force which lacks the same bargaining power to get an employer to pay an allowance. It’s all down to market forces.
The CBA itself is in fact a contract – it is just a contract between employees as a group and the employer. If the CBA provides for an allowance, then the employees can enforce it as a matter of contract. These are standard rules of the law of contract. As the Supreme Court itself pointed out, the court will “only intervene to enforce any agreement the parties will have concluded”. In this particular case, there was no CBA between the NRZ and its employees and therefore employees had no contractual right to enforce. The arbitrator had imposed a term into the contract, which the Supreme Court held to be invalid.
The judgment therefore means employers and employees are free to enter into CBAs but in this regard, the neither the courts nor the arbitrators have the right to interfere and impose terms on the parties. Whether or not employees get the terms they want, including allowances, will depend upon their bargaining power and negotiating skills.
This, of course, begs the question as to what happens where the parties fail to reach an agreement with the employer? How is that matter resolved? There is also a further question, which we touch on below: whether employees who have been receiving allowances/benefits for years can argue that they have become entitled to the allowances/benefits? In this case, the parties went to conciliation and then to arbitration, but the attempt by the arbitrator to resolve the dispute by imposing a figure was rejected by the court as improper and invalid. It takes the matter back to the parties, to find a solution.
What this means at the end of the day is that the matter is left to the forces of the market. Unless the employees are in a position to push the employer to the negotiating table and to agree to pay an allowance, they have to live with that fact. The decision effectively liberates employers for whom it is now abundantly clear that they can refuse to agree to an allowance and thereby effectively withdraw allowances. For the employees, the case shows that an allowance is not a right or entitlement but merely an interest which may or may not be included in a CBA.
In short, the employer has a right to withdraw allowances, if they are not part of the contractual relationship.
What about Existing Obligations?
What about a situation where allowances had accrued over a period of time, with the employer promising to pay but saying it couldn’t do so immediately for lack of funds? This question is pertinent in light of various companies and employees that are precisely in this situation. Can these employers cancel the accrued allowances and refuse to pay employees on the back of these judgment? Can they say their obligation is extinguished by virtue of the judgment?
Again, much will depend on the facts of each individual case. The judgment certainly frees companies from having to agree to allowances in future. It confirms that they can withdraw allowances. However, if they had previously agreed as part of the CBAs or as part of individual contracts with employees, then they would be bound to pay as a matter of contractual obligation. In other words, the workers would be able to claim allowances successfully on the back of prior agreements. Unlike the NRZ case, they will be enforcing an agreement to pay an allowance not seeking to force the company into an agreement, which is what the Supreme Court rejected. In short, the Supreme Court judgment in the NRZ case does not extinguish existing obligations to pay allowances where an agreement, private or collective exists.
Implied Term/Legitimate Expectation?
What about a situation where employees have been receiving benefits/allowances from the employer for a long period of time? Can the employer suddenly withdraw these allowances? Would this not be a breach of a legitimate expectation? Could it be said that the payment of allowances had become an implied term of the contract, which employees have a right to enforce? This is a matter that was not addressed by the Supreme Court, probably because it was not brought to its attention.
In simple terms, the doctrine of legitimate expectation applies where a person’s claim falls short of legal right but argues that he is nonetheless entitled to a hearing before that claim, which would be regarded as a ‘legitimate expectation’ is withdrawn. It is a doctrine that emerged within the context of courts trying to enhance the duty to act fairly in administrative matters.
Thus, for example, where a person is employed on a fixed term contract, which has been renewed several times, it might be said that at some point he has a legitimate expectation that his contract will be renewed. The idea behind this is to protect employees against employers who would choose to keep employees on fixed term contracts thereby avoiding obligations such as paying pensions and other perks that come with permanent employment.
Likewise, there might be a case to be made where employees have been consistently receiving allowances over a long period of time, that they had developed a legitimate expectation that they would receive such allowances as part of their employment contract or that it had become an implied term of the employment contract. This is not to say it would be successful, but it would be arguable. In this regard, it’s important to note that the doctrine of legitimate expectation has space in our new constitution under s. 68 which provides for the right to fair administrative conduct and in this regard it would bind authorities that are covered by this section. For this reason, state-related entities, which might be regarded as performing functions of a public nature, would have to seriously consider the implications of this right before withdrawing what might be regarded as a legitimate expectation.
Conclusion
In conclusion, it was certainly another good day in court for employers and for capital. As the Supreme Court said, an employer is not obliged to pay an allowance unless he has agreed to it. In the words of the court,
“There is nothing wrong with that approach. Each undertaking is beset with its own peculiar circumstances. The fact that one employer considers it appropriate to pay allowances puts no obligation on another employer to do the same”.
In other words, the choice is really down to the employer. No doubt, from the employers’ side this decision will be seen as rational, whereas employees will moan at the loss of what they might have taken for granted as part of their entitlements. The truth, however, is that the world over, unless they are part of the contract, allowances are often non-contractual and can be withdrawn at any time by the employer depending on circumstances. It may be the case that the Zimbabwean employee had become used to receiving an allowances as part of the perks. Hence the vehicles, fuel coupons, mobile phone air-time, school fees for private education and bonuses, but the days of these generous perks are surely numbered.
The only issue is that the top bosses, who are also employees, will probably not feel the pinch because they will use their vantage position to secure their allowances and benefits through contract. It is the ones at the bottom, the bulk that have to depend on CBAs that will feel the most painful pinch because now wearing the hat of employer, the bosses will simply say the company can no longer afford.
In short, the honeymoon for the Zimbabwean employee is over.
waMagaisa
