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27/11/2018

Patrick Deale - Trust At The Top

Can a Board of Directors skip the disciplinary procedure and use a fast-track procedure to dismiss
a CEO when they believe the trust relationship has broken down?

This possibility of such a novel procedure emerged in the Labour Court* in October. The CEO applied to court for an urgent interdict to stop Transnet from dismissing him without a hearing. Transnet has an employment agreement with the CEO which included an arbitration agreement to resolve any dispute which could arise between the parties. It also has a Disciplinary Code and Procedure as a condition of service.

Suspension pending enquiry
The Board's first step was to follow the normal disciplinary process. It gave the CEO notice of its intention to suspend him from duty and an opportunity to show cause why he should not be suspended. The CEO
made representations and was not suspended. No disciplinary enquiry followed and that's where this step ended.

"Truncated" procedure pending dismissal
The Board's next step was to use a "truncated" procedure in the employment agreement. It appears that this is a special procedure in the CEO's employment contract which is designed to fast-track his removal if the Board loses trust in him as the leader of the company. The Board can apply this procedure if:
It has lost trust and confidence in the CEO
It believes the CEO has failed to comply with his fiduciary duties
It believes the CEO is not aligned with the values of the company
It also appears that the Board believed it could use this fasttrack procedure to skip the more drawn out disciplinary procedure. It proceeded to give the CEO 14 days' notice to show cause why he should not be dismissed.

Urgent Interdict
Instead of responding to the notice - the CEO applied to the Labour Court for an urgent interdict to stop the Board from using this truncated procedure to dismiss him. He claimed his dismissal using this procedure would be unlawful.

Ruling
The court ruled in the CEO's favour and stopped the truncated procedure. It declared that the CEO's employment agreement incorporates the Disciplinary Code and Procedure and stayed the application "... pending the outcome of the arbitration process contemplated in the employment agreement."

It will be evident from this chain of events that the fast-track procedure can't be used instead of the disciplinary procedure or in this case the arbitration process. However, there may well be merit in introducing a fast-track procedure in the employment contracts of senior executives. It could be used specifically for cases in which the Board loses trust and confidence in the leadership of the company.

Executives at this level are held to the highest standards of responsibility and accountability. They're also more able to defend themselves and to have access to legal representation. The right to a fair hearing could thus be preserved.

TIP: An employer should follow its internal procedures as they currently stand. A fast-track procedure which by-passes the agreed procedures could render the outcome unfair. The law may well develop to legitimise procedures like this in future. They could be used to quickly and fairly resolve problems which arise in the all-important relationships of trust at senior leadership levels.

*Siyabonga Gama V Transnet Soc Limited & 13 Others (The Board of Directors) LC J3701/18 19 October 2018 (Unreported)

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 Patrick Deale Trust At The Top.GIF
 Patrick Deale Trust At The Top.pdf


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