The most important reason for employing people is the need for their skills. The question is whether the money expended in order to acquire and retain these employee skills should be seen as an expense or as an investment.

Most frequently employers consider the money spent on employment as an expense. This expense is most often amongst the biggest, if not the very biggest, one. Employment expenses include, amongst others recruitment costs, training expenses, salaries and commissions, employment benefits such as employer contributions medical aid and retirement schemes, leave costs, absenteeism and perks such as motor vehicles.

Aside from these traditional employee costs, there are other expenses that are not always included in the employment budget. These include legal costs related to labour issues and could include, for example, the legal fees for fighting CCMA and Labour Court cases, the payment of compensation orders made at these forums and back pay associated with reinstatement orders.

There is not necessarily a right or wrong answer to the question of whether employees should be seen as an expense or as an investment. This is because the answer depends on whether the employer sees the employee as a ‘necessary evil’ or as an asset. Employers that use proactive measures aimed at minimizing unnecessary costs and avoiding the need for expensive legal battles tend to think that employees are an asset.

However, employers must add to the above mentioned hard expenses the unquantifiable costs associated with the time needed to prepare for and attend CCMA and Labour Court hearings. When all the quantifiable and non-quantifiable 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 employee expense mentality. 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 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
  • 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.

In Allpass vs Mooikloof Estates (Pty) Ltd (2011 5 BLLR 462) the employee, a  manager on a short fixed-term contract, was dismissed for dishonestly failing to disclose that he was HIV positive during his pre-employment process. In the Labour Court, the employer submitted evidence that the employee’s HIV condition would hamper the carrying out of his job responsibilities and that when they attempted to discuss this problem with the employee he refused to participate. The Court decided that the employer’s true motive for the dismissal was the employee’s HIV status and not that he had failed to disclose this fact. This constituted an automatically unfair dismissal.

The Court ordered the employer to pay the employee compensation equal to 12 months’ remuneration as well as the legal costs incurred by the employee for the services of two advocates.

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 who wish to convert their employment expense from an expensive nightmare into an investment need to

  • Develop a mature and mutually respectful relationship with employees
  • Inform themselves of the skills of their employees
  • Train their employees towards optimal competency
  • Avoid ignoring employee misconduct and poor work performance
  • Discipline employees firmly and swiftly but only where the proven facts justify it
  • Utilize the skills of a reputable labour relations expert to ensure that they know when they can and cannot demote, retrench, fire or otherwise discipline employees.

To book for our 7 June seminar in Johannesburg on CHAIRING DISCIPLINARY HEARINGS please contact Ronni via ronni@labourlawadvice.co.za or 0845217492.