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"Legal runs this place now!"

Publish date:2017-07-17

James White, in an article, "The Challenge of Ethical Leadership", uses the above exclamation to express the frustration of some managers with the burden of compliance being placed due to regulatory intervention, codes of conduct and judicial decisions. Regulations and codes can be accommodated more easily in the management processes, as knowledge thereof and its content are well known in advance. Court judgements that are also law arrive on the scene without prior warning. These judgements may have a drastic impact on how certain management processes are conducted. The implication – what might have been regular yesterday, is irregular today. It is therefore also not uncommon to hear the phrase "nothing happens unless the legal people say it is okay" – An attitude or culture that in the long run could dose out the enterprise’s flame.

We live in a society that is eager to litigate. Action groups use litigation to promote their various causes, and commercial enterprises are easy prey. Everywhere, there are customers or clients who believe that they have been done in by a product or service provider and are ready to sue, especially if they do not carry the risk of legal cost. Insurers, in return, set higher premiums and compliance standards. It is therefore not surprising that slowly but surely legal issues start to distract managers from their real objective, i.e. to create value for the owners.

Furthermore, in many instances, the courts are placed in a position where it will inadvertently start interfering with issues that do not fall within their terrain. Neither the country nor businesses can be managed and run through the courts. A typical example of where a court was induced to become involved in a managerial issue and then made a decision that may have dire consequences for management is the recent case of KALIPA MTATI V KPMG SERVICES (Pty) Ltd (J2277/16) [2016] ZALCJHB 403.

In the above case, the court ordered that the disciplinary hearing instituted by KPMG against Mtati and finalised after the Mtati has resigned, being declared null and void. Mtati, when faced with the possibility of disciplinary action, decided to resign with notice. However, KPMG decided that it will continue with the disciplinary process. Mtati then resigned with immediate effect. KPMG advised Mtati that they are in any case continuing with the disciplinary process and that she is welcome to attend. Mtati attended the proceedings and raised the argument that she could not be disciplined as she had already resigned. The chairman informed her that she is to proceed with the enquiry. Mtati then left the proceedings and approached the Labour Court for an urgent interdict to stop the disciplinary proceedings. In the meantime, Mtati was found guilty of, inter alia, dishonesty and the chairman ruled that she should be dismissed.

Mtati approached the court and set an order "to interdict the first respondent (KPMG) from proceeding with the disciplinary hearing after her resignation." It is therefore quite clear that Mtati wanted to stop the enquiry process. Mtati’s representative argued that KPMG "did not have the right to discipline her”. It was on this basis that it was argued that the decision of the chairman of the disciplinary hearing was null and void.

KPMG argued that the court should not involve itself in this matter, as the case is moot because it no longer presents an existing or live controversy. The interdictory relief sought was overtaken by events. There was no employment relationship in existence any more. The action (dismissal) that it was formulated to prevent has occurred. The relief sought was therefore academic. KPMG in actual fact confirms that since the Mtati has left their services, the decision to dismiss is of no consequence. Why then bother with a court order if it would make no difference?

The court, however, decided not to leave it there. It believed that the findings reached by the enquiry have an ongoing impact on Mtati and therefore the motive for disciplining her requires scrutiny by the court. It concluded that KPMG had no jurisdiction to discipline Mtati following her second letter of resignation. The court goes further and declares the disciplinary hearing instituted by KPMG as null and void and set aside. The court not only deals with the moot issue of dismissal, but also interferes with the enquiry process, which is an ordinary management process of establishing what went wrong in the business and who is responsible.

The implications of this decision are that some advisors and consultants will and already are busy advising their clients not to proceed with disciplinary enquiries once an employee has resigned with immediate effect. This is a simplistic and short-sighted approach. Surely an employer should be entitled to take steps to establish what went wrong and/or form an opinion as to the appropriateness of the particular employee’s conduct in the workplace. From a governance perspective – can a manager simply ignore what happened in the business and carry on as usual? It is suggested that such an attitude would be irresponsible.

Management has a duty to ensure that all employees act diligently and conscientiously pursuing the interest of the owner. That entails that the employee cannot compete with its employer nor can it involve itself in any action that could jeopardise discipline in the workplace. It is also the duty of an employer, when it comes to discipline, to ensure that it is consistently applied. What if, at a later stage, disciplinary steps are taken against an employee for a similar transgression, but the employee does not resign. What would the position be if that employee argues that her conduct should not be investigated because the other employee’s conduct, who resigned, was not investigated? Management must also ensure that weaknesses in the system that can be abused by opportunistic employees be rectified to ensure that such irregular behaviour does not happen again. In many instances, especially with regard to senior employees, it is necessary to conduct a thorough enquiry as to what transpired and what led to the resignation of that particular employee.

It is also necessary to form an opinion of the conduct of the employee that had resigned. This aspect should never be left in the air. What is to happen if this employee, who has resigned under the cloud of a pending disciplinary enquiry, after five years applies for a position at the former employer? Would such an employee be able to argue that the employer could not draw any conclusions from the employee’s resignation then as the enquiry was never completed? Just as a matter of interest, the collective agreement dealing with disciplinary matters in respect of employees employed in the local government sector specifically provides that if disciplinary proceedings are instituted against an official and the official resigns, all disciplinary processes stop. The result of this rule is that many corrupt officials immediately resign when the municipality contemplates disciplinary action. That allows the official to, some months later, apply for another position in local government. Although such an official may have involved himself in serious transgressions, nobody can point a finger at him.

It is therefore evident from the above that a superficial interpretation of the judgement can have serious unintended consequences for the employer. On the other hand, this judgement cannot just be ignored. To get a better understanding of the issue, it is necessary to enquire as to what discipline in actual fact is. Formal discipline can be defined as: action taken by management against an individual or group who have failed to conform to the rules established by management within the organisation.

It is therefore evident that discipline relates to the actual action taken by an employer against an employee. It does not relate to the process of establishing what went wrong and who was responsible or whether a particular individual was responsible. It would appear as if the court confused the actual act of discipline with the enquiry process. It is therefore suggested that a court cannot stop managers to establish what went on in its business. It cannot dismiss somebody who has already resigned, but is fully entitled to establish what went wrong and form an opinion of that particular employee’s conduct.

It is suggested that employers approach such a problem in the following manner:

  • Advise all employees that although an employee may resign pending a disciplinary enquiry, the enquiry into what happened and the employee’s role in the occurrence will be investigated;
  • Such an employee whose conduct is to be investigated is welcome to attend the proceedings and make submissions to the person conducting the enquiry;
  • The finding of the enquiry will be taken up in the records of the employer;
  • The employer, if it has an agreement with other service providers to list employees who were found to be dishonest or fraudulent, will continue to do so.

As reflected in the introduction to King III, there is always a link between good corporate governance and the law. Good governance does not exist separate from the law. However, this does not mean mindless compliance. The issues that need to be complied with need to be carefully discerned, considered and integrated in policies and procedures. Compliance should never be at the expense of enterprise. To conclude – “Legal should not run the place”

Pieter Greying




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