8 June 2020 by , and Employment Alert

"With great power comes great responsibility" - a brief look at ostensible authority in the workplace

Ostensible or apparent authority is the authority of an agent as it appears to others. In the context of employment law, ostensible authority could lead to a situation where an employer may be held to commit to a certain action even though it was not properly authorised.

Eskom Holdings SOC Ltd v National Union of Mineworkers & others (2020) 41 ILJ 1125 (LAC)

This was an appeal in the Labour Appeal Court (LAC) that concerned a contractual claim for arrear salaries. The question before the court was whether the appellant (Eskom) had lawfully awarded ad hoc salary increases to the respondents (employees).

The material facts before the court were that Eskom decided to unilaterally award salary increases to a category of employees, in order to ensure those employees’ salaries were market related. Accordingly, this change was communicated and accepted without further agreement between Eskom and the employees.

The employees’ general manager, who was not authorised, signed and sent a letter to the employees setting out their revised salary. When the employees received their salary slips, however, the amounts reflected were less than the amounts set out in the letter.

The aggrieved employees approached management for an explanation and were informed that the general manager who had signed the letter had no authority to do so. Subsequently, the employees were notified of the correct salary adjustments. The employees were unsatisfied with the explanation received and approached the Labour Court with a contractual claim for specific performance in terms of section 77(3) of the LRA which gives the Labour Court concurrent jurisdiction with civil courts.

The Labour Court upheld the employees’ claim that the general manager who had signed the letters containing the initial ad hoc salary adjustments had the authority to sign the letters. Hence, Eskom was bound by such letter.

The evidence on appeal

The decision by members of ESKOM to increase salaries had been communicated to relevant managers in a memorandum by the divisional head of the human resources department of Eskom. This memorandum stated that the remuneration of the employees had to ensure salaries were as close as possible to market related salaries. This comparison was reflected in a spreadsheet and the increases approved by the executive manager.

The situation turned sour when the human resources department, made an error by reflecting the increases incorrectly. The amounts reflected in the letter signed by the general manager to which this dispute refers were not in fact the authorised amounts. Furthermore, the general manager that signed the letters, was not the office-bearer with the authority to approve the salary increases as contained in the letter.

This was supported by the contents of an agreement in respect of the basic salary for bargaining unit employees which contained a clause which read as follows:

‘all ad hoc salary agreements must be approved by the relevant divisional managing director. HR practitioners are, therefore, requested to ensure that all the ad hoc salary adjustments are approved by the relevant divisional managing director prior to processing the requested increase’.

The employees were fully aware of the clause in this agreement.

Furthermore, there was no evidence that the divisional managing director had approved the salary increases relied upon by the employees.

Findings

Accordingly, the LAC found that no valid contract between the parties providing for the initial salary increases could have lawfully come into existence through the letter signed by the general manager, in the absence of authorisation by the divisional managing director.

The court also referred to the doctrine of ostensible authority and stated that there is no evidence to suggest that the employees were misled into believing that any ad hoc salary increase could have been granted without the required approval.

On this basis, the appeal was upheld and the Labour Court judgment was set aside.

It is important that employers are very clear regarding the process and procedure surrounding the authorising of actions such as offers of salary or other adjustments. In the event that the employees in this case had been faced with a different situation, namely being able to provide evidence of having been misled as to the manager’s authority to sign these letters, the employees may have been able to rely on the doctrine of ostensible authority in order to strengthen their claim. 

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