In terms of the South African Labour Relations Act, 1995 ("LRA") an employer may only dismiss an employee for a fair reason and in accordance with a fair procedure. Section 188 of the LRA recognises only three fair reasons for dismissal, namely the employee's conduct or capacity or the employer's operational requirements. The lines between the acceptable reasons for dismissal can become blurry, particularly where an employee is prevented from rendering services by external legal factors. Should such an employee be dismissed due to their incapacity to perform their functions? Or is it more appropriate that they be dismissed due to the employer's operational requirements? This issue has been a controversial one for some time.

Judicial Pinball

For example, in Trident Steel (Pty) Ltd v CCMA & Others (2005) 26 ILJ 1519 (LC), the Labour Court held that the dismissal of an employee due to their incarceration should have been based on the employer's operational requirements. But, in Samancor Tubatse Ferrochrome v MEIBC & others [2010] 8 BLLR 824 (LAC), the employer dismissed an incarcerated employee for 'operational incapacity'. In that case, the Labour Appeal Court found that incapacity is broader than just ill health and poor performance and would include external legal circumstances, such as incarceration, which are beyond the employee's control and prevent the employee from carrying out his duties. More recently, in Armaments Corporation of South Africa (SOC) Ltd v CCMA & others (2016) 37 ILJ 1127 (LC), the Labour Court held that the employer had correctly categorized a dismissal due to a legal prohibition on employment as a dismissal for incapacity.

Unfortunately, this judicial pinball has left employers unsure of the reason to cite, let alone the procedure to follow, in dismissing employees who are unable to perform their functions due to the intervention of external legal factors outside of their control.

The Labour Court has recently shed valuable light on the issue in the case of First National Bank, A Division of First Rand Bank Ltd V CCMA and Others (as yet unreported judgment, case no 1476/2016, delivered on 10 July 2017). In this case, the employee was appointed by FNB as a Sales and Service Consultant on 20 January 2011. In this position, the employee was also a Financial and Intermediary Services ("FAIS") representative as defined under the Financial Advisory and Intermediary Services Act, 2002 ("FAIS Act").

As a FAIS representative the employee was required to comply with the prescribed "fit and proper requirements" for FAIS representatives. This required the employee to successfully pass the regulatory examinations set by the Registrar of the Financial Services Board ("FSB"). If the employee failed to pass these exams, FNB, as an Authorised Financial Services Provider, would be unable to comply with its obligation under the FAIS Act to ensure that the employee was competent to act and comply with the fit and proper requirements under the FAIS Act. This in turn would mean that FNB could not lawfully employ the employee to sell and provide advice on FNB's financial products.

The employee, although experienced in the work he was employed to do, attempted and failed the regulatory exam a total of 15 times between 30 September 2004 and 31 December 2015. During this period, FNB also provided various training and learning to the employee. Ultimately, the employee was given up until 31 December 2015 to pass the exam, which he failed to do. On 31 December 2015, FNB informed the employee of two vacant 'non-FAIS' positions which he could apply for. The employee applied for one of the positions but was unsuccessful. Because FNB was unable to accommodate the employee in an alternative position, the employee was called to an incapacity hearing. The chairperson of the hearing found that the employee lacked the legal capacity to perform his contractual duties. FNB therefore dismissed the employee for incapacity.

The employee then challenged the fairness of his dismissal in the CCMA. The Commissioner reasoned that incapacity under the LRA only includes incapacity on the grounds of ill health or injury. The Commissioner rejected the employer's argument that the employee's failure to pass the regulatory exams resulted in a 'legal incapacity' to perform his duties. Instead, the Commissioner ruled that the dismissal was actually based on FNB's operational requirements. As a result, the Commissioner found that the employee's dismissal for incapacity was substantively unfair. Furthermore, because the employer had followed an incapacity procedure instead of a retrenchment procedure in dismissing the employee, the Commissioner also found that the employee's dismissal was procedurally unfair.

Unhappy with the outcome, FNB brought an application in the Labour Court to review and set aside the Commissioner's decision. To this end, FNB alleged, among other things, that the Commissioner had committed two reviewable errors of law - first "in finding that a dismissal, resulting from a legally imposed requirement for the job and thus supervening impossibility to perform, cannot be construed as an issue of incapacity"; and, second, that "the dismissal ought to have been for operational requirements".

In order to determine these issues, the Labour Court first considered whether the LRA recognizes any other form of incapacity besides ill health or injury. In this regard, the court considered the Samancor and Armscor judgments above and reasoned that where an external legal standard is imposed on an employee and the employee does not meet that standard, the employee is legally incapacitated from performing his obligations under the employment contract. On this basis, the Labour Court held that the Commissioner committed an error of law by finding that the only forms of incapacity under the LRA are ill health and injury.

With respect to whether the dismissal was actually based on FNB's operational requirements, the Labour Court stated that "it seems appropriate that the line between operational requirements and incapacity should be drawn where the employer determines or acknowledges the need to restructure its business and not where the employer cannot employ an employee because of a statutory provision prohibiting such employment". The court went on to say that "in the event of incapacity, the focus is on the qualities of the employee. In the event of operational requirements, the focus is on the employer and its decisions relating to its business". Based on this analysis, the court found that the dismissal originated from the inability of the employee to meet a legal requirement and that the Commissioner committed a further error of law in finding that the dismissal was based upon FNB's operational requirements.

Ultimately, the Labour Court concluded that the errors of law committed by the Commissioner resulted in a failure on the part of the Commissioner to determine whether there was a fair reason for FNB to dismiss the employee. This, the court held, constituted a reviewable irregularity.


The FNB case makes it clear that legal impediments to the performance of an employee's duties under the employment contract may constitute grounds for dismissal based on incapacity rather than operational requirements. An employer who dismisses an employee in these circumstances should therefore follow the guidelines on dismissals for reasons based on incapacity as set out in the Code of Good Practice: Dismissal under the LRA.

Given the numerous circumstances in which the tension between an employee's incapacity and the employer's operational requirements arises, the principles established by the Labour Court in the FNB case are welcome guidance for employers and legal practitioners alike.

Co-Author : Tumi Makibelo, Candidate Attorney in the law firm of Fasken Martineau Dumoulin (Johannesburg).