In terms of the new Companies Act, 71 0f 2008, a director may be removed from office by an ordinary resolution adopted at a shareholders meeting despite any agreement that director may have with the company or with the shareholders.
This provision is subject to the shareholders giving the director in question notice of the meeting and affording the director a reasonable opportunity to make a presentation to the meeting before the resolution is put to a vote.
However, in the event that the director is also an employee of the company, he/she has a right to claim damages or other compensation due to his/her loss of office as director or any other office as a result of being removed as a director.
Thus, the removal of a director in terms of the Companies Act does not constitute fair dismissal of that director if he/she is an employee in terms of the Labour Relations Act (LRA).
This principle was illustrated in the case of Chillibush v Johnston & Others, a judgment handed down by the Labour Relations Court (LRC). The creative director of the company, Chillibush, was a shareholder as well as an employee of the company responsible for the management of the company’s business affairs.
After he tendered his resignation as director, the shareholders also removed him from his position as managing creative director.
The director approached the CCMA with the submission that his removal as creative managing director was unfair. The CCMA found that the director was not an employee in terms of the LRA and the matter went on appeal to the LRC.
Despite the fact that the shareholders had concluded an agreement with the director whereby the shareholders agreement superseded any employment contract between the director and the company, the LRC found that the director was an employee and that his rights in terms of the LRA could not be limited by the Companies Act.
His dismissal was held to be unconstitutional and in contravention of the LRA.
This decision sends a warning to companies when removing a director from office that labour and company law should be used in a parallel process. When removing a director from office in terms of the Companies Act, the shareholders have an unfettered discretion.
However, their discretion is not as unfettered when dismissing an employee in terms of the LRA and the procedure for substantive and procedural fairness must be followed.