A highly contested and expensive case between Nkosana Makate and Vodacom has resulted in bad precedence in the field of company law on the issue of ostensible authority, as experts in this field have argued (see the works of V Madlela and P Lehloenya; and RD Sharrock).
But the case is even worse in the field of intellectual property law, and presumably also distorts employment law on the issue of the fiduciary duties of the employee to the employer.
There is no doubt that the work concerned (the “Please call me” service) is an intellectual creation of Makate. Despite being an intellectual property subject matter, the case has been decided solely as a contractual dispute, turning a blind eye to the underlying ownership of the “Please call me” product. Our courts have warned against deciding intellectual property issues based on other disciplines of the law, yet this caution was ignored in the “Please call me” case.
The parties worked under the presumption that the “Please call me” service as created by Makate, belongs to him, that is, ownership vests in him. This is also evidenced by the amount of money (R10-billion) that Makate requires from Vodacom as compensation; it reflects an owner who “assigned” his work subject to payment of royalty. But is this really the case? Do the Copyright Act or Patents Act vest ownership of the work in the employee (who can in turn assign it to the employer upon payment of a royalty)?
Practitioners in the field of intellectual property law know that South Africa has largely followed the United Kingdom law, but where differences exist our courts have not hesitated in showing such differences.
The South African intellectual property law statutes require that for works that were created during the course of the employment, and if such inventions/works benefit the employer, ownership vests in the employer unless varied by agreement. Accordingly, there are two presumptions that have to be rebutted: the first is whether the “Please call me” product was created during the course of employment, and the onus vests on the employer.
To this end, the South African law differs from the British law in that South African law speaks of “course of employment”, while the British law refers to “course of duties”. It means that in the case of South Africa, it is sufficient to prove the existence of employment, which also includes apprenticeship.
Thus, whether the “Please call me” product was made as part of executing one’s task as prescribed in the job description in the contract of employment is irrelevant – what matters is that the product was made while Makate was employed by Vodacom and that the product benefits the employer because it falls exactly within the same functional description of the employer, Vodacom.
In addition, the South African law does not draw a distinction between inventive employees and non-inventive employees as British law does; accordingly, it is immaterial that Makate was a trainee accountant, a task far removed from product development. Had this case been argued accordingly as an intellectual property matter, the employer could have easily discharged the onus placed on itself here.
The second presumption is that despite the work being created during the course of employment, there was nonetheless an agreement between Makate and Vodacom to share the proceeds, and the onus is placed on the employee here. To this end, Makate indicated that there was an agreement, which he concluded with Vodacom as a businessman, that is, as an independent service provider while still employed by Vodacom.
This is particularly worrying, because employees cannot conclude agreements with employers – it creates conflict of interest. Where do we draw a line between conflict of interest and “business deals” such as the one alleged here? The finding that Makate concluded a business deal with Vodacom creates an environment for hoarding of information that is necessary for solving employers’ problems, and for employees to come back later to demand benefit sharing when they have solved these problems.
Our courts demand that there must be a legally binding agreement, not just some vague understanding. The agreement on the amount to be paid to Makate was deferred to a later date, and further to the chief executive officer should the two (inventor and director of product development) not agree. One wonders whether this uncertainty could be said to be a legally binding agreement or some vague understanding that the employee-creator would be rewarded for the use of his work by the employer, bearing in mind also that in essence any work that is concluded during the course of employment, and which benefits the employer, belongs to the employer.
It is also important to note that the employee here had received praises within the company as an “employee who developed a workable solution” for the company, not as an independent service provider who provided an excellent service.
Obviously, the party representing the employer must have capacity to bind the employer. Other corporate law scholars and practitioners have already analysed this issue and concluded that the Constitutional Court misguided itself here in the manner in which it applied the doctrine of ostensible authority.
It seems that Vodacom is about to lose billions resulting from the improper application of the law.
While one feels that Makate deserves some form of reward, the law needs to be applied properly, and where the current law shows gaps as it does to the extent that it makes no difference between inventive and non-inventive employees and it does not provide guidance regarding assignments of works created by non-inventive employees, the legislature must be given space to fill the gaps. DM/BM