Compulsory Private Arbitration in South African Employment Contracts: Can Employees be barred from the CCMA?
A very contentious issue in South African labour law is whether employers can contractually require employees to resolve dismissal disputes through private arbitration rather than approaching the Commission for Conciliation, Mediation and Arbitration (CCMA). The 2 cases below provide some valuable insights on this question.
The Principle of Pacta Sunt Servanda vs. Statutory Rights
The cases of Gerber v STANLIB Asset Management [2022] 3 BLLR 251 (LAC) and Naidoo v Liberty Holdings (JR558/16) [2019] ZALCJHB 56 (19 March 2019) illustrate how South African courts approach the enforceability of compulsory private arbitration clauses in employment contracts.
In Gerber v STANLIB, the Labour Appeal Court upheld a ruling that stayed proceedings before the Labour Court and referred the dispute to private arbitration. The court found that the employee’s contract validly incorporated the company’s Employee Relations Handbook by reference, which required dismissal disputes to be resolved through private arbitration.
Mr. Gerber was dismissed by STANLIB Asset Management for misconduct. He referred four claims to the Labour Court, including claims B (automatically unfair dismissal under section 187(1) of the LRA) and D (substantively and/or procedurally unfair dismissal as an alternative claim). STANLIB raised a jurisdictional point in limine, arguing that the court lacked jurisdiction because Gerber was contractually obliged to refer dismissal disputes to compulsory private arbitration as per his terms of employment.
The court emphasized several key points:
- The LRA encourages private dispute resolution
- The principle of pacta sunt servanda (agreements must be kept) applies
- The company’s Disciplinary Code and Grievance Procedures in the handbook were validly incorporated into the employment contract
- The compulsory private arbitration clause had been consistently applied since 2002
Similarly, in Naidoo v Liberty Holdings, the Labour Court dismissed a review application where a CCMA commissioner had ruled that the Commission lacked jurisdiction to hear the dispute due to a private arbitration clause in the employment contract.
Mr. Naidoo was employed as a Senior Manager – Group Tax at Liberty Holdings until his dismissal for misconduct. He attempted to refer his unfair dismissal dispute to the CCMA, arguing he was not bound by the private arbitration clause in the company’s Employee Relations Handbook.
Naidoo contended that:
- He was never given a copy of the Employee Relations Handbook when he commenced employment.
- He never agreed to resolve disputes via private arbitration and never waived his right to refer matters to the CCMA.
- Private arbitration would mean automatic legal representation and potential costs to him after the first R30,000, which would be prejudicial.
- The chairperson of his disciplinary hearing appeared on the list of possible arbitrators, raising concerns about impartiality.
- The use of the word “may” in the handbook’s clause 12.1.1 meant he could choose between private arbitration or the CCMA.
Notwithstanding the above arguments, the court ruled that the commissioner came to the correct conclusion that the CCMA did not have jurisdiction to arbitrate the matter due to the existence of the private arbitration clause.
The Debate Continues
While these cases demonstrate that properly drafted and incorporated arbitration clauses can be enforceable, employers should remain aware that this remains a contested area of law.
Some practitioners argue that the statutory right to refer unfair dismissal disputes to the CCMA should not be easily contracted away. Others counter that freedom of contract and the LRA’s encouragement of private dispute resolution support the enforcement of such clauses.
Vulnerable Employees
Section 147(6) of the LRA states that: “If at any stage after a dispute has been referred to the Commission, it becomes apparent that the dispute ought to have been resolved through private dispute resolution in terms of a private agreement between the parties to the dispute, the Commission may –
(a) refer the dispute to the appropriate person or body for resolution through private dispute resolution procedures; or
(b) appoint a commissioner to resolve the dispute in terms of this.
The key points to consider are:
- Voluntary Agreement: The arbitration clause must be part of a voluntary agreement between the employer and the employee. It should not be imposed unilaterally by the employer.
- Fairness and Accessibility: The arbitration process must be fair and accessible to the employee. This includes considerations such as the cost of arbitration and the location of the arbitration proceedings.
- Statutory Rights: The arbitration agreement should not deprive the employee of their statutory rights under the LRA. For example, the employee should still have the right to refer disputes to the CCMA if the arbitration agreement is found to be unfair or unreasonable.
Practical Considerations
- Proper incorporation is essential: Ensure that arbitration clauses are clearly incorporated into employment contracts, either directly or by clear reference to company policies or handbooks.
- Documentation matters: Keep evidence of the existence and communication of policies containing arbitration clauses. In both cases, the employers could prove the arbitration provisions had been consistently applied and were accessible to employees.
- Address cost concerns: Consider dividing all arbitration costs fairly, e.g. 25/75 to overcome one of the primary objections to private arbitration – that it may be financially burdensome for employees compared to the cost-free CCMA process.
- Ensure procedural fairness: Establish a diverse panel of potential arbitrators and clear procedures to ensure natural justice, as courts will scrutinize whether private arbitration provides safeguards comparable to statutory forums.
- Consistent application: Both cases demonstrated that the companies had consistently applied their arbitration policies, which strengthened their position in court.
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