Employers should take careful note of a December 2025 judgment by the Labour Court wherein the principles applicable to determining what constitutes “just and equitable” compensation for substantively unfair dismissals were clarified, with the court confirming that compensation is not automatically limited to an employee’s actual financial loss.

The matter arose from the dismissal of a senior employee who, less than six months after the commencement of his employment, was dismissed. The charges were brought pursuant to his exploration of an employment opportunity with a competitor. At arbitration, the CCMA found the dismissal to be substantively unfair and, because reinstatement was not sought, awarded the employee the maximum compensation of 12 months remuneration. The commissioner advised that such quantum was arrived at due to several factors, including: the six months of permanent employment; the grossly unfair nature of the dismissal; the emotional and psychological impact of the dismissal; the lack of current employment; and that the charges having been contrived and fabricated in response to the employee’s intention to resign.

The employer launched a review application, challenging both the finding of substantive unfairness and the compensation awarded. The Labour Court upheld the finding of substantively unfairness, highlighting in its judgment that the employee was legally entitled to seek alternative employment during his current employment, even with a competitor, and that the contractual provision which prohibited him from seeking employment with a competitor during his employment was unenforceable and contrary to public policy.

The court did however reduce the compensation awarded. The central issue was whether the compensation should be restricted to the employee’s actual financial loss. In this regard, the court revisited the on-going debate in prior cases regarding the nature of compensation for unfair dismissals including the view that compensation should reflect the employee’s actual financial loss and should not be punitive towards the employer, and the contrary view which recognises compensation as a solatium for the infringement of an employee’s right to fair labour practices. The court reconciled these positions by holding that compensation must be just and equitable to both parties, taking into account all relevant factors, including both patrimonial loss, such as actual financial loss, and non-patrimonial loss, such as humiliation and emotional distress. 

In reaffirming the principles underpinning the awarding of compensation, the court confirmed that commissioners exercise a narrow discretion in awarding compensation. Interference by the court is warranted where this discretion is exercised on the basis of an incorrect factual premise or wrong principle. The lack of employment contributed to the maximum compensation awarded by the CCMA. However this was factually incorrect as the employee had secured further employment and had experienced only three months of unemployment. The court however found that limiting compensation to the period of unemployment would have ignored the seriousness of the employer’s conduct and the humiliation and distress the employee had suffered by having trumped up charges brought against him in response to him exercising his legal right to seek other employment opportunities and by being suspended pending a disciplinary process intended to force his exit from the business. By balancing the employee’s relatively short period of unemployment against the unfair and contrived nature of the dismissal, the Labour Court substituted the award with six months compensation, finding this amount to be just and equitable to both parties in the circumstances.

This judgment serves as a reminder that compensation awards are not limited to any actual financial loss during the period of unemployment and employers should be mindful that their conduct in relation to disciplinary processes, both adverse and auspicious, may impact upon the compensation awarded.