How to balance legal compliance against managerial prerogative.


The staff bill is normally the biggest expense for any enterprise, and includes:

  • Recruitment costs,
  • Training expenses,
  • Salaries and commissions,
  • Employment benefits, such as employer contributions to medical aid and retirement schemes,
  • Leave costs,
  • Costs of cover for absent or sick employees, and
  • Perks such as motor vehicles..

Another major expense - often excluded from the budget - is the cost of fighting labour law cases and the concomitant compensation/back pay orders.

In many enterprises the legal cost expense is excessively high because the employer is focusing too exclusively on exercising its management prerogative and ignoring the need for legal compliance. This manifests in the managers ‘firing first and asking questions afterwards’.

When all the administrative and legal costs are taken into account it is no wonder that many employers see employees as an expense rather than as an investment.

The laws of South Africa contribute to the mentality of seeing employees as an expense. Our laws promote minimum wage levels, negotiated pay increases, compulsory benefit contributions in some industries, in certain cases paid sick leave for employees who have no doctor’s certificates, skills levies, unlimited back pay amounts for dismissed employees, and compensation/damages orders that can greatly exceed 24 months’ remuneration.

In the case of Kern vs Mudau and others (2007, 6 BLLR 566) the employee was found to have been demoted. Despite the fact that he had not suffered any financial loss the employer was ordered to pay him compensation based on 12 months’ remuneration.

In Wallace vs Du Toit (2006 8 BLLR 757) the employee was dismissed because she fell pregnant. The employer was ordered to pay the employee compensation equal to one year’s salary.

In Parry vs Astral Operations Ltd (2005 10 BLLR 989) the Labour Court found that the employee had been unfairly retrenched. The Court awarded the employee:

  • Contractual damages,
  • Relocation costs,
  • Share options,
  • Accrued profit shares,
  • Notice pay,
  • Salary for time worked,
  • Severance pay,
  • Compensation equal to12 months’ remuneration, and
  • Punitive scale legal costs.

In Evans vs Japanese School of Johannesburg (2006 12 BLLR 1146) the Labour Court found that the employee had been automatically unfairly dismissed. The employer was therefore ordered to pay the employee compensation and damages well in excess of two years’ remuneration. The amount came to R406 668.

Looked at from this point of view, it is difficult to see employees as anything but a source of great expense. However, employers cannot ignore the value that employees can add to the business or other organization. Employers that wish to convert their employment expense from what is often an expensive nightmare into an investment need to use a balanced approach to regaining management prerogative by:

  • Developing a mature and mutually respectful relationship with employees,
  • Informing themselves of the skills of their employees,
  • Training their employees towards optimal competency,
  • Ensuring that they do not ignore employee misconduct and poor work performance,
  • Disciplining employees firmly and swiftly, but only where the proven facts justify it, and
  • Utilizing the skills of a reputable labour law expert so as to ensure that they know when they can and cannot demote, retrench, fire or otherwise discipline employees.


BY lvan lsraelstam, Chief Executive of Labour Law Management Consulting. He may be contacted on (011) 888-7944 or 0828522973 or via e-mail address: [email protected]. Go to:
This article first appeared in The Star edited by the Consulting Editor Portal Publishing.
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