BY Brian Patterson AND Nomampondo Banzi
When are companies obligated to pay salaries during lockdown?
It is an unfortunate reality that many businesses have struggled to survive during lockdown. This is the position four restaurants in South Africa found themselves in after they were prohibited from operating during a level 5 lockdown. They subsequently applied to the High Court for business rescue. A key question that arose was whether the restaurants were obligated to pay their employees during the lockdown.
One of the considerations in being granted business rescue is whether a company has failed to pay any amount in terms of an obligation related to a public regulation or contract, with respect to employment related matters.
While the court found that the requirements to be put under business rescue were met, the court considered whether it was impossible for the restaurants to have complied with their obligations to pay their employees’ salaries during lockdown. It pointed out that the requirements for the doctrine of supervening impossibility (that is, to terminate or suspend a contract) are stringent and that, if there is a proper tender of services by an employee, an employer would generally be under an obligation to their pay salary.
The level 5 lockdown regulations
Controversially, the court seemed to accept that the level 5 lockdown regulations made it clear that employers were not excused from their obligation to pay their employees' salaries. This was because the regulations contained a list of essential services that were permitted to operate. This included the “Implementation of payroll systems to the extent that such arrangement has not been made for the lockdown, to ensure timeous payments to workers.”
However, this interpretation of the regulations is incorrect. The regulations authorised employees who worked with payroll systems to work in order to make it possible to pay other employees who were permitted to work. It did not permit employees of restaurants to work. As such, the regulations rendered it unlawful for the restaurant employees to tender their services due to statutorily imposed supervening impossibility and this excused the restaurants from the legal obligation to pay salaries.
So, although there was no legal impediment on the restaurants to pay salaries, it is our contention that the duty to pay salaries did not arise because any tender of service by the restaurant employees would have been unlawful in terms of the regulations. The court correctly records the “no work, no pay” principle which means that the duty to pay salaries arises upon a tender of services by employees. An allegation to that effect was never made by the restaurants and the basis on which the court found that employees did tender their services is unclear.
Can business decisions be made by court?
The court also argued that the restaurants could have opened for the sale of cold foods once this was permitted by the regulations. With respect, the court is not best placed to make such a business decision. While the applicants produced evidence to support that contention, courts are not empowered to usurp business decisions of employers. The restaurants had taken a decision to not operate during the national lockdown and to rather assess their financial position and commence business once the lockdown had ended. Arguably, the restaurants could have been opened for deliveries only in May and collections and deliveries in June, in which case employees could have tendered their services and a duty to pay salaries would then arise. However, if the duty to pay salaries arose, that would only be in respect of May and June, not April as the court held.
As such, it is our view that this judgment should be reconsidered and overturned on appeal.
Executive | Employment
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Senior Associate | Employment
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