Management discretion: How far does it stretch?

‘Employer’s discretion’ and ‘management prerogative’ are terms used every day in business. These reflect the right of the employer to make business decisions in the interests of the effective running of the enterprise. This right is not confined to commercial business but extends to government departments, local authorities, parastatals, NGOs, welfare organisations and all other employers. However, the right of the manager to make business decisions is substantially limited both by the rules of each organisation and by South African labour law.

Every organisation has written or unwritten rules as to the limits of each manager’s authority. Whether or not such rules have been spelt out clearly, the fact remains that, in the mind of the supreme body governing the company, these limits exist – even if subconsciously.

Problems relating to over-stepping of these limits most frequently arise where the authority limits are not spelt out clearly, unambiguously and comprehensively. In such cases, managers take decisions that they are either not entitled and/or ill-equipped to take. The business may therefore suffer and the manager may be disciplined for this.

If it is shown that the manager reasonably believed he/she had the right and the duty to make the decision, his/her dismissal might be found to be unfair at the CCMA or other tribunal. This places the onus firmly on the employer with regards to the clear spelling out of the decision-making limits of each manager in all areas of his/her responsibility.

Limits imposed by labour law

All rules of the organisation must be vetted to ensure that they do not conflict with the law. For example:

It is fruitless and dangerous for the company rules to allow managers to fire employees without following proper dismissal procedure. This is because while the dismissing manager may be complying with company rules, he/she will be breaching labour law.

In many cases, it is fairly obvious and/or well known where the law draws the line. For example most employers know (I hope) that, on a first offence of late-coming, an employee cannot normally be fired regardless of the discretion that the company rules give managers to hire and fire.

However, it is not well known among employers the amount of discretion they have, for example, in making decisions about promoting employees. The Labour Relations Act (LRA) effectively prohibits unfair promotional practices but does not state what constitutes ‘fair’ and ‘unfair’ promotion. The big question then arises: on what grounds does a manger have the discretion to decide that an employee is not suitable for promotion?

In the case of Dumisa vs The University of Durban Westville (2001, 7 BALR 753):

The employer decided not to promote the employee because he failed to meet the employer’s promotional policy criteria.

While the CCMA did not find these criteria to be unfair, it ordered the employer to consider promoting the employee. This was because the arbitrator found that the employer had promised to consider the employee for promotion, therefore giving rise to a legitimate expectation.

The question here is whether the person who gave this undertaking to Dumisa had the authority to do so. If the employer’s promotional policy laid down specific promotional criteria which Dumisa did not fit then, in terms of the limits set by that policy, no person had the right to promise him that he would be considered for the post. It might have been different if the undertaking to consider him for promotion was made conditional on his meeting the criteria laid down in the policy.

Therefore, the arbitrator found that, while it is management’s prerogative to judge whether an employee is suitable for promotion, this prerogative is outweighed by any undertaking made to an employee that may contradict company policy.

In PSA obo Steenkamp vs SAPS (2003 7 BALR 786):

The arbitrator found that the employer did have a right to exercise its discretion in deciding whether the employee should be promoted.

However, the arbitrator also found that that this discretion had not been exercised fairly. This finding was based on the fact that the employer failed to bring sufficient evidence justifying why another employee was promoted instead of Steenkamp.

It is therefore the employer’s responsibility to ensure that:

  • Its rules affecting management decision-making are crystal clear,
  • Its policies are fully aligned with the law,
  • Its managers remain within the law and company policy, and
  • Management discretion is exercised based on the law, company rules and sound reasoning.

By Ivan Israelstam

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)