Prescription (the lapse of arbitration awards) in employment
There have been a number of conflicting judgments dealing with the prescription of arbitration awards and how the term “debt” should be defined in the employment arena. As a result, section 145 (9) of the Labour Relations Amendment Act (“LRAA”) was enacted.
By way of background, “prescription” in this context means that a debt is extinguished after the lapse of a time period. South Africa has laws which specify different time periods for prescription, for example, the Prescription Act provides that contractual debts typically extinguish after three years. Prescription may be delayed or interrupted. Once prescribed, in general terms, the debtor is not liable for the debt.
Previously, many employers used delaying tactics in order for the employees’ claim in terms of an arbitration award to prescribe. Such delaying tactics included, for example, bringing reviews to prolong the legal battle with the aim having the arbitration award prescribe - as many unsophisticated employees are unaware that, in terms of the Prescription Act, an award containing a debt prescribes after three years.
What constitutes a “debt”
There has been much debate as to whether an action award (such as reinstatement), as opposed to an award sounding in money, constitutes a “debt” in terms of the Prescription Act.
Varying arguments have been raised in this regard. One such argument is that the legislature could not have intended that a reinstatement award could be undermined by prescription as it creates a right in favour of the employee that stems from the right to fair labour practice and it is one of the primary remedies in unfair dismissal cases.
However, the court in the recent case of CEPPWAWU v Rotolabel accepted a wide definition of “debt” and held that an award in favour of an employee, even one of reinstatement, constitutes a “debt” as it creates an obligation. The Rotolabel judgment confirms that the Prescription Act applies to all debts arising from arbitration awards whether the relief granted is compensation, reinstatement (with or without back pay) or re-employment.
The Labour Court in Circuit Breakers Industries Ltd v NUMSA held that an arbitration award prescribes after three years of the service of the award thus confirming that extinctive prescription was applicable to employment law. Furthermore the court held that the filling of a review application by an employer did not interrupt prescription. Despite this finding the court acknowledged that this position often has unfair consequences but noted that the imminent amendments to the LRA, which came into effect on 1 January 2015, would rectify this unfairness.
Since the advent of the LRAA the interruption of prescription of an arbitration award is now possible. Arbitration awards handed down after 1 January 2015 will qualify.
Section 145(9) of the LRAA provides that an application to set aside an arbitration award interrupts the running of prescription, in respect of that award.
This amendment has been welcomed as it aims to put a stop to employers’ avoidance and delaying tactics. Initially, and because a debtor’s application for review must be lodged within six weeks of service of the award, it may seem as though the amendment merely shifts the employer’s goalposts up by six weeks making the employees’ claim prescribe three years and six weeks from the date of service of the award. However, a more likely interpretation of the legislature’s intention is that the amendment should be interpreted to be analogous to civil proceedings, given the reference to the Prescription Act and the similar wording to section 15(1) of the Prescription Act, wherein the running of prescription is stayed until the date of final judgment.