Whilst from the onset it is correct to say that the Labour Relations Act does not apply to shareholders of a private company in South Africa, this view is perhaps too simplistic and overlooks the common situation amongst smaller and growing businesses in South Africa whereby individuals are both shareholders and employees in a company.
In larger companies, the distinction between shareholders and employees is more defined, and in most cases, shareholders only act in that capacity. However, this is generally not the case in smaller companies whereby shareholders act in a dual capacity as both shareholder and employee.
It is important to distinguish between the roles and the governing legislation controlling each role.
Employees are defined within Section 213 of the Labour Relations Act as:
a. Any person, excluding an independent contractor, who works for another person or for the state and who receives or is entitled to receive any remuneration; and
b. Any other person who in any manner, assists in carrying on or conducting the business of the employer.
Employees are afforded the statutory rights and obligations as envisaged by the Labour Relations Act as well as supporting legislation such as the Basic Conditions of Employment Act and Employment Equity Act. The Employees’ obligations are also set out in the employment contract. Furthermore, employees are required to conduct themselves in a manner which furthers the interest of their respective employers.
Where an employee’s conduct falls short of this duty of care, the Labour Relations Act sets out the requirements for an employer to dismiss an employee in a manner that is both procedurally and substantively fair.
Notionally, the shareholders invest in the company in return for dividends. The shareholder in a proprietary limited is protected from the liabilities that the company incurs as the company is a separate legal entity from the shareholders. The rights of shareholders are essentially limited to;
- Voting on key issues affecting the direction of the company
- Appointment and removal of Directors
- Transfers of ownership
- Dividend and distributions
- Issuing of shares, buybacks and mergers
- Winding up and final distributions
The Companies Act 71 of 2008 regulates the rules and regulations as well as the rights and obligations of shareholders and directors.
DUALITY OF ROLES:
In South Africa, the company structure creates duality of roles where an individual may act in the capacity of a shareholder and as an employee. The issue then arises as to which governing legislation applies when a decision at shareholder level may affect another party who is also an employee in some capacity. In such instances, both the Companies Act, as well as the Labour Relations Act, would apply.
In Chillibush v Johnston and Other the matter disputed whether the shareholders’ agreement superseded the contract of employment. The Labour Court citing PG Group (PTY) LTD v Mbambo NO and others 2005 BLLR found that while the decision of shareholders to remove a director falls within the scope of the Companies Act, the decision to remove the director from the employment by way of an automatic termination clause constitutes an unfair dismissal in accordance with the Labour Relations Act. Accordingly, no shareholder agreement may supersede the scope and protection of the Labour Relations Act.
In considering whether the CCMA has jurisdiction in a matter regarding a decision of shareholders, one must look at the underlying relationship between the company and the party affected by the decision. If it is subject to an employment contract or falls within the definition of an employee in accordance with Section 213 of the Labour Relations Act, careful regard must be made to such decisions as it will fall within the ambit and scope of the Labour Relations Act.
Article by: Wesley Lazarus
Dispute Resolution Official – George