The Amendment Acts bring sweeping changes to the corporate law landscape and some of those changes have implications for employers and the workplace. In particular, new requirements for disclosure of remuneration place a spotlight on income inequality across different levels of employees and introduce a mechanism to enforce transparency relating to remuneration where this is not always the case or the practice, although these particular requirements are not yet in force.

Furthermore, the Second Amendment Act extends the time bar to hold directors and, in some respects, prescribed officers, irrespective of their status as employees or not, accountable in terms of delinquency orders and civil damages claims, if good cause is demonstrated. These amendments are in force, and have retrospective effect. The potential relaxation and extension of the relevant time bars has significant implications for directors, as it lengthens the period in which they can be held legally accountable for fiduciary failures, separate to any internal disciplinary measures that may be taken by a company to terminate their employment or appointment. Stakeholders will benefit from an increased timeframe to investigate, collate evidence and initiate legal proceedings. Directors who previously evaded consequences due to statutory time constraints now face legal exposure for a longer period. These amendments, and their impact on employers and employees, will each be dealt with in turn below.

New requirements relating to remuneration

For a detailed analysis of the new sections 30A and 30B relating to remuneration, see our previous alert here.

As mentioned above, these sections are not yet in force and regulations are required to flesh out the content of the remuneration policy and remuneration report, amongst other things. For present purposes, the provisions are briefly as follows:

In terms of section 30A, all public and state-owned companies must prepare a remuneration policy for approval by shareholders at an annual general meeting (AGM) every three years.

In terms of section 30B, all public and state-owned companies must prepare a remuneration report in respect of the previous financial year for approval by shareholders at each AGM. The remuneration report must consist of, amongst other things, the remuneration policy and an implementation report, which in turn must contain details of:

• the total remuneration received by each director and prescribed officer of the company;
• the total remuneration in respect of the employee with the highest total remuneration;
• the total remuneration in respect of the employee with the lowest total remuneration;
• the average total remuneration of all employees median remuneration; and
• the remuneration gap reflecting the ratio between the total average remuneration of the top 5% highest paid employees and the total average remuneration of the bottom 5% lowest paid employees of the company.

For the purposes of section 30B, the term “employee” is defined in accordance with section 213 of the Labour Relations Act, 1995 (LRA). In this context, an employee is:

• any person, excluding an independent contractor, who works for another person or for the state and receives, or is entitled to receive, remuneration; and
• any other person who, in any capacity, contributes to the operation or conduct of an employer’s business.

“Remuneration,” as defined in the First Amendment Act, encompasses all salary and benefits received, including employer contributions to benefit funds, as well as short-term and long-term incentives such as share options and incentive awards. Therefore, all remuneration calculations for the purposes of the implementation report must account for these components. 

Although section 30A does not deal with the situation where the remuneration policy is not adopted by shareholders, section 30B includes a ‘two-strike rule’ which is not a model of clarity but which on one reading provides that: If the remuneration report is voted down by shareholders at a particular AGM (‘strike one’), non-executive directors who serve on the remuneration committee of the company must stand for re-election to that committee at the next AGM. Then, if the next report is also voted down at that next AGM (‘strike two’), non-executive directors who serve on the remuneration committee of the company are deemed to step down from the board at that AGM (but are eligible for re-election to the board), but with the condition that they are precluded from being remuneration committee members for two years.  

These amendments mandate shareholder approval of a company’s remuneration policy every three years, alongside annual approval of the remuneration report. This calls for a careful distinction between these documents to ensure clarity and strategic flexibility. It is prudent for the remuneration policy to outline the company’s overarching approach to remuneration governance, while reserving granular details for the remuneration report, which can be more readily adjusted annually without requiring more frequent shareholder approval within the three-year policy cycle. The requirement for annual approval of the remuneration report enhances shareholder oversight, reinforcing the need for proactive engagement with shareholders in respect of remuneration strategies and details.

While some companies may understandably find the remuneration disclosures required by these amendments unsettling, they present an opportunity for companies to refine their remuneration frameworks, ensuring transparency and coherence. They enable companies to clearly define compensation structures, establish principles for salary reviews, and enhance transparency regarding remuneration and benefits, particularly relating to executive positions. Strengthening governance in this area fosters greater transparency, predictability and accountability within the remuneration remit. Moreover, these amendments encourage a structured approach to addressing pay disparities, ensuring that compensation remains equitable yet aligned with factors such as skill, expertise and seniority. A carefully considered remuneration strategy also safeguards financial sustainability while demonstrating a commitment to fair pay practices, which can, in turn, enhance employee trust, engagement and retention.

Extension of time bars for bringing miscreant directors to book

Where a director or prescribed officer (this is essentially an executive who has, or materially participates in, general executive control over the company or a significant portion of its business – regardless of whether or not they are a director) breaches their fiduciary duties to the company, the company has a claim against that director for any loss, damages or costs as a result of that breach. This applies to all companies. In these cases, the Prescription Act 68 of 1969 does not apply and, previously, the position was that a hard time bar applied within which the company had to commence with a claim, namely three years from the date of the relevant act or omission. This was not effective or appropriate as companies often only discover breaches of fiduciary duties by directors long after they occur.

Section 77(7) of the Companies Act was therefore amended to provide that a company can apply to court to extend the three-year period referred to above, on good cause shown. This has retrospective effect, i.e. even if the breach occurred prior to the amendment of section 77, a court can extend the three-year period on good cause shown.

Furthermore, in terms of section 162 of the Companies Act, certain persons (including a company or a shareholder) can apply to court to declare a person delinquent on certain specified grounds, for example where that person grossly abused the position of a director. Previously, the person had to have been a director within the two years immediately preceding the application to declare them delinquent. The two-year period has now been extended to five years in the Second Amendment Act. A court may extend this period on good cause shown and, as with the change to section 77, this change has retrospective effect.

Importantly however, the relaxation of these time bars is relevant only to claims brought under the Companies Act, i.e. for breach of fiduciary duties and the duty of care, skill and diligence. They do not apply to claims arising purely from a contractual, employment-law setting – these would continue to be regulated by general prescription rules.

The employee’s position in business rescue

In terms of section 135(1) of the Companies Act, where a company is in business rescue and any amounts (including remuneration) become due to employees but are not paid, those amounts are regarded as “post-commencement finance” and are ultimately paid in the order of preference set out in section 135(3)(a) of the Companies Act. Employees are outranked only by the payment of the business rescue practitioner’s remuneration and expenses and the payment of the expenses associated with the business rescue proceedings. The amendments to the Companies Act strengthen a landlord’s position in the context of business rescue, in relation to claims for utilities that are not paid by the tenant during business rescue proceedings. These claims now rank above pre-commencement claims, but below employee claims. As such, the position of employees effectively remains the same. This principle applies to all companies.

The social and ethics committee’s enhanced standing

A key provision introduced by the Companies Act back in 2011 that gives recognition to employees’ rights and interests, is the requirement for certain categories of companies to have a social and ethics committee. This committee has a reporting and monitoring role, and one of the areas within its domain is the company’s compliance with binding and non-binding labour law and employment equity codes. While the role and functioning of this committee remains the same under the Amendment Acts, it is notable that for public and state-owned companies these committees must now be elected by shareholders and not by the board. Moreover, public and state-owned companies’ social and ethics committees must now have a majority of non-executive directors. However, it remains to be seen if this change will prove to be too obscure in terms of its impact on employees’ interests: all that happens now is that it is the shareholders, and not the board, who decide who will be monitoring the company’s sustainability and corporate citizenship activities. 

Conclusion

The Amendment Acts bring to the fore significant changes to the corporate regulatory landscape, including areas that intersect with employment and workplace matters.

In time, as these amendments are not yet in effect, companies need to adopt informed, prudent and structured measures in relation to their obligations regarding remuneration disclosure to ensure adequate compliance that meets the expectations of shareholders and employees.

More immediately, companies must review their policies and procedures relating to disciplinary processes and investigating procedures, particularly in relation to directors and prescribed officers, to ensure alignment with the extended timeframe to hold directors accountable for failure to uphold their fiduciary duties and to maximise the effective use of this time period in assessing and determining the nature and extent of any such breaches.