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Resigning to avoid disciplinary action? Think again

Many employees try to avoid their fate of dismissal by resigning with immediate effect. The question whether an employer can discipline an employee who it is alleged has committed a serious offence, when faced with a resignation with immediate effect by such employee, has been one that the Labour Court has been grappling with for years. This uncertainty has made it difficult to advise employers whether they can proceed with a disciplinary enquiry, which may lead to the dismissal of the employee who has resigned.
Image source: © michaeljayfoto –
Image source: © michaeljayfoto – 123RF.com

This topic was dealt with in Naidoo v Standard Bank SA Ltd. In this case, two employees were charged with gross misconduct and dishonesty. However, they challenged the jurisdiction of their employer to continue with their disciplinary hearing after they resigned with immediate effect. The two employees applied to the Labour Court to grant them an interdict which prohibited their employer from continuing with their disciplinary hearing after their resignation.

On the same day that the employees received the notice to attend a disciplinary hearing, they submitted their resignation letters to their employer. The employer did not accept the resignations with immediate effect and informed the employees that they have to serve their 28 days’ notice period, as stipulated in their contracts of employment.

Issues at hand

Three issues had to be determined by the court. Firstly, whether an employee’s resignation with immediate effect brings the employment relationship to an end. Secondly, whether employers have the right to hold employees to the notice periods stipulated in their contracts of employment. Lastly, whether employers can proceed with disciplinary enquiries even if the employees attempted to resign with immediate effect.

In order to determine the abovementioned issues, the court had to establish when resignation takes effect and in doing so, the court distinguished two types of resignations. Firstly, resignation on notice, where resignation will only take place after the employee has served his/her notice period. Secondly, in such a case where an employee resigns with immediate effect he/she will not have to serve his/her notice period and resignation will be effective immediately. It was held by the court that the latter instance will terminate the employment relationship.

Order for specific performance

It was further held by the court that if an employer seeks to hold an employee to their notice period after the employee resigned with immediate effect, the employer is required to first seek an order for specific performance. This was not done by the employer in this case. In the absence of an application for specific performance, the court ruled that employers have no right to proceed with disciplinary hearings for employees who resigned with immediate effect.

This judgment constituted a rather startling exposition of the legal position where someone is in breach of a contract and the remedies available to the aggrieved party who wishes to hold the person in breach to the terms of the agreement. It also departed from the applicable principles of contract law.

Situation revisited

Luckily this undesirable state of affairs was revisited in Mthimkhulu v Standard Bank of SA, when the Labour Court was yet again faced with the question of whether an employee who has been found guilty of a serious offence can escape a finding of dismissal by resigning before the employer announces the sanction.

In this case, the employee was found guilty for acting in a grossly dishonest and fraudulent manner. However, before the chairperson of the disciplinary enquiry could determine an appropriate sanction, the employee resigned with immediate effect. Once notified of the resignation, the employer sought to hold the employee to serve his 30 day notice period, as stipulated in his contract of employment. A few days later the employer announced that the appropriate sanction for the employee, in this regard, was dismissal. The employee challenged the sanction as he argued that his employer no longer had jurisdiction to discipline him.

The court had to determine what the legal effect of a resignation was before the announcement of a sanction of dismissal. The court held that the resignation by the employee was nothing more than a stratagem. The employee knew that the inevitable finding of the disciplinary enquiry would be dismissal and as such he resigned before this could be announced.

Contractual power remains

The court confirmed the judgment of Mzotsho v Standard Bank of SA (Pty) Ltd which stated that where an employee has resigned with immediate effect, even before receiving a notice to attend a disciplinary hearing, the contractual power to discipline remained.

Accordingly, if an employee is obliged to serve their notice period in terms of their contract of employment, and he/she decides that they do not wish to do so, it will constitute a repudiation of their contract of employment. Applying strict contractual principles, the aggrieved party would in such instances have an election either to accept such repudiation and sue for damages, or to reject such repudiation and hold the employee to the contract.

The court held that in this case it was clear that the employer did not elect to cancel the agreement, thus keeping it alive. The court continued that the election to cancel lies with the aggrieved party and not the aggressor.

The judge in the Mzotsho case expressly disagreed with the judgment in the Naidoo case (referred to above) as being clearly wrong where it was found that the aggrieved party in these types of circumstances has to approach the court, and apply for an order of specific performance. The court in the Mzotsho case held that an election by the aggrieved party will keep the contract alive and that no order for specific performance is necessary. Furthermore, the court correctly found that specific performance is a remedy and not a right, whereas the election to keep the contract alive is a right afforded to the aggrieved party.

Principles of contract

Ultimately it was held that resignation with immediate effect, before a sanction of dismissal is announced, has no legal effect in circumstances where the employer rejects the attempted resignation as a repudiation, and holds the employee to the notice provisions in their contract. In such circumstances, the employer may proceed with the disciplinary action notwithstanding the attempted resignation with immediate effect.

It is heartening that a return to strict principles of contract has prevailed. Employers therefore need not hesitate to proceed with a disciplinary enquiry which may lead to the dismissal of an employee where the employee attempts to resign with immediate effect and where the employer has not accepted such resignation.

About Danie Pretorius

Danie Pretorius is a Director at Fluxmans

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