By Mohsina Chenia and Nicholas Preston
When we think of labour legislation, the Companies Act is not the first law that comes to mind. However, it’s dangerous for employers to disregard this statute because it grants significant additional rights to trade unions. For instance, section 20(4) allows any trade union to approach the High Court for an order restraining the employer from doing anything inconsistent with the Companies Act. Be warned, though, that the act contains 225 different sections where employers’ lesser-known obligations may lurk – here are six areas that you need to be aware of…
1. Business rescue proceedings – Section 31(3) and 128
Business rescue proceedings aim to rehabilitate employers that are in financial distress:
- When the proceedings begin, the employees usually continue to be employed on the same terms and conditions of employment.
- If it’s necessary to perform retrenchments, these are carried out under section 189 and/or 189A of the Labour Relations Act (LRA).
- The employees rank as the employer’s unsecured preferent creditors if the latter owes them any amounts that need to be paid before the rescue proceedings. Trade unions that represent affected employees have the right to access the employer's financial statements and, armed with this information, are able to initiate the business rescue process themselves by approaching a High Court.
2. Loans and financial assistance to directors - Section 45(5)
In the past, when employers provided financial assistance to directors, this could be authorised by a resolution.
Now, according to the Companies Act, the employees’ trade union must be given a copy of the resolution within:
• 10 business days if the value of the loan or assistance is more than 1% of the employer's net worth, or
• 30 business days after the end of the financial year-end in all other circumstances.
This may have far-reaching consequences for employers who used to give directors and embark on retrenchments after this in terms of section 189 and 189A of the LRA.
3. Protection for whistle blowers - Section 159
Any employee who makes a disclosure (called a protected disclosure) under the Protected Disclosures Act 26 of 2000 (PDA) is protected from civil, criminal and administrative liability if that discovery reveals the employer has committed a genuine wrongdoing, e.g. corruption. Employees who make protected disclosures about corruption, in good faith, are also protected from disciplinary action in terms of the LRA.
The Companies Act expands on the PDA because:
• It allows an employee, registered trade union or employee representative to make the disclosure.
• The disclosure can now also be made to the Companies and Intellectual Property Commission (CIPC), the Companies Tribunal or the Takeover Regulation Panel.
4. Application to declare a director delinquent - Section 162(2)
This section gives trade unions the right to approach the High Court and apply for company director to be declared delinquent if he:
• Grossly abuses his position,
• Takes personal advantage of an opportunity, and
• Harms the employer's business and/or acts in breach of his/her functions, so breaking the relationship of trust.
It appears that a director who has been declared a delinquent will be prevented from acting as a director for that particular employer.
5. Probation - Section 162(7) and (8)
• Trade unions can now also apply to have a director placed on probation when the director acts materially and inconsistently towards his duties.
• During probation period, the director may be required to undergo remedial education or pay compensation to any person adversely affected by his conduct. In some instances, this may mean that compensation is aid to the trade union or employees.
6. Derivative actions - Section 165(2)
• This section will allow trade unions to serve demands on the employer to begin or continue with legal proceedings that protect the legal interests of the employer. The employer is only able to set aside the demand if it believes it is frivolous, irritating and without any merit.
• Alternatively, within 60 business days the employer must commission a report to initiate or continue proceedings or refuse to comply with the demand. The trade union can then approach a High Court to start or continue with the proceedings in the name of, and on behalf, the employer.
This article first appeared on HR Pulse.