It is not uncommon for an employer to own multiple businesses. In these instances, employers often appoint management to run them instead while affording the employer a direct influence over each business from afar. The “corporate veil” is a misconception that a company’s managers, shareholders or directors are not legally responsible for the actions of the company.
It is known in law that a registered company is a separate legal entity from its owner. We need to ask ourselves in the labour context: “who will be held responsible as the “true” employer in a labour dispute?” This is answered in the case of Footwear Trading CC v Mdalose 2005 LAC BLLR 452, where an employee of Fila (Pty) Ltd filed an unfair dismissal dispute at the CCMA. Fila (Pty) Ltd attended the Arbitration process and subsequently received an adverse Arbitration Award. When the employee later applied to have the award made an order of the Court to enforce it, Fila (Pty) Ltd raised the argument that they were a dormant company and that their assets were held in another company, namely: Footwear (Pty) Ltd and that Footwear should rather pay the adverse Arbitration Award.
Footwear (Pty) Ltd objected to paying the adverse Arbitration Award and appealed to the Labour Appeal Court (LAC). The LAC had to determine who was liable for the Arbitration Award and held that the Labour Relations Act (LRA) did not include a definition for the term ’employer’ and that the identification of the word should be made by referring to the meaning of an ’employee’. An ’employee’ is someone who provides services to another person and is entitled to remuneration for those services.
The LAC found that the company or persons who had control of the undertaking should be regarded as the employer. Too often, the actual perpetrators hide behind the “corporate veil” to avoid legal responsibility. The LAC further held that legal personality might be disregarded when a corporation is merely an alter ego or conduit of another person.
The LAC held that in this case, both companies had the same directors, that Footwear (Pty) Ltd had a substantial and direct influence over Fila (Pty) Ltd and paid the staff, and several company documents cited both Fila (Pty) Ltd and Footwear (Pty) Ltd interchangeably. The LAC found that both companies were jointly and severally liable. However, since Footwear (Pty) Ltd was not present at the Conciliation and Arbitration proceedings, the Court held that both companies were, or should have been, reasonably aware of the proceedings. As such, they had no excuse as to the lack of knowledge and attendance to the matter.
This case demonstrates that employers should be cautious to hide behind the “corporate veil” to avoid legal responsibility for their company’s actions.
Article By: Raina Doorasamy
Dispute Resolution Official – CEO Durban