Jun 15, 2012
Facts of business transfer determine labour law applicabilityBack
Africa|LGM South Africa|South African Airways|Africa|Contracting|Maintenance|Service|Services|Similar Services|Claire Gaul|Operations
© Reuse this
Webber Wentzel partner Claire Gaul explains that the Constitutional Court, with clarification provided by the Labour Court, in December 2011, stated that the facts around a transfer determine the applicability of Section 197 of the LRA. That is irrespective of whether the entity is profit-making or not, whether there is a sale of a business, a donation of a business or a sale of part of a business, and if there is an identifiable entity that provides similar services after the transfer.
Section 197 states that there are automatic statutory employment consequences if a transaction conforms to a transfer of a business, trade, undertaking, service, or part thereof.
All the rights and obligations between the old employer and an employee at the time of the transfer continue to remain in force as if they had been the rights and obligations entered into between the new employer and the employee. Further, the transfer does not interrupt an employee’s continuity of employment and an employee’s contract of employment continues with the new employer as if with the old employer.
“The Constitutional Court said two key ques- tions must be answered to determine if Section 197 will apply. Does the transaction create rights and obligations that require one entity to transfer something in favour of or for the benefit of another, or to another? If the answer is ‘yes’, does the obligation imposed within the transaction contemplate a transferor who has the obligation to effect the transfer or to allow the transfer to happen, and is there a transferee who receives the transfer?
“If the answer to both questions is ‘yes’, the transaction contemplates a transfer by the transferor to the transferee, and hence Section 197 may apply.”
However, the Constitutional Court noted that it is important to determine whether the transfer is of going concern, meaning that operations continue after the transfer. Further, the court said that what must be transferred is a business in operation, so that the business remains the same, or similar, but in different hands.
“One must determine the facts around a transfer objectively with regard to the substance of the transaction, regardless of the form that the transaction takes. If a business or coherent entity, which is identifiable and conducts identifiable activities, . . . continues in the hands of another, it is enough to trigger the application of Section 197 regarding employment protection,” says Gaul.
“Is there a transaction which involves the movement of an identifiable service from one entity to another entity and which will be continued in the hands of the latter? This is the critical question to ask.
“The theme throughout the Section 197 cases before the courts is the necessity of reviewing decisions from an employment perspective, not the principles of property, company or insolvency. The crucial question is whether, taking a realistic view of the activities in which employees are employed, there exists an economic entity which, despite changes, remains identifiable, but not necessarily identical, after the alleged transfer,” she explains.
Further, Gaul highlights the case of national airline South African Airways (SAA) and facility management company LGM South Africa heard by the Constitutional Court, in which there was reference to the original outsourcing contract whereby SAA outsourced maintenance operations to LGM South Africa. SAA, at the end of its contract with LGM South Africa, wanted to appoint another service provider to provide similar services.
The Constitutional Court noted that, in that specific case, the original agreement was of importance but not of overriding importance.
“This means that the question of first-generation outsourcing and whether second-generation outsourcing, where the business receiving the services changes service providers, triggers Section 197 is moot. As long as a transfer or transaction fulfils the requirements to trigger Section 197 of the LRA, then the section is applicable to that transfer.
“Again, one has to look at the facts to deter- mine if the service is of going concern (continuing), rather than a simple contracting out of a service to a service provider, which does not trigger the application of Section 197,” explains Gaul.
“The scope of Section 197 of the LRA is wide open and each case must be considered on its facts to determine if Section 197 will apply,” she concludes.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Creamer Media Senior Deputy Editor
Other Economy News
Article contains comments
Updated 14 minutes ago A 7 500 m2 rooftop solar system has been installed on several buildings at the V&A Waterfront, in Cape Town. The powering of several buildings on the iconic property will result in an estimated 1 640 000 kWh/y of clean energy. So far, 900 kW have been successfully...
Updated 27 minutes ago The 865 km gas pipeline from the central processing facility (CPF) in Temane, Mozambique, to Secunda, South Africa, is to undergo a further $210-million expansion, the Republic of Mozambique Pipeline Investments Company (Rompco) confirmed on Monday. Rompco is a joint...
Updated 28 minutes ago With many organisations worldwide unprepared for the rapidly evolving Internet of Things (IoT) era, Cisco has unpacked plans to bolster the ability of companies in South Africa to embrace the new digital reality. Cisco’s new country digital acceleration (CDA)...
Recent Research Reports
Water 2015: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2015 Report considers the aforementioned issues, not only in the South African context but also in the African and global context in terms of supply and demand, water stress and insecurity, and access to water and sanitation, besides others.
Input Sector Review: Pumps 2015 (PDF Report)
Creamer Media’s 2015 Input Sector Review on Pumps provides an overview of South Africa’s pumps industry with particular focus on pump manufacture and supply, aftermarket services, marketing strategies, local and export demand, imports, sector support, investment...
Liquid Fuels 2015: A review of South Africa's liquid fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2015 Report examines these issues in the context of South Africa’s business environment; oil and gas exploration; fuel pricing; the development of the country’s biofuels industry; the logistics of transporting liquid fuels; and...
Road and Rail 2015: A review of South Africa's road and rail sectors (PDF Report)
Creamer Media’s Road and Rail 2015 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail infrastructure and network, the funding and maintenance of these respective networks, and...
Defence 2015: A review of South Africa's defence sector (PDF Report)
Creamer Media’s Coal 2015 report examines South Africa’s coal industry with regards to the business environment, the key participants in the sector, local demand, export sales and coal logistics, projects being undertaken by the large and smaller participants in the...
Real Economy Year Book 2015 (PDF Report)
There are very few beacons of hope on South Africa’s economic horizon. Economic growth is weak, unemployment is rising, electricity supply is insufficient to meet demand and/or spur growth, with poor prospects for many of the commodities mined and exported. However,...
This Week's Magazine
The BMW Group will invest R6-billion at BMW Group South Africa’s (BMW SA’s) Rosslyn plant to produce the next-generation X3 sports-activity vehicle (SAV) for the local and export markets. Rosslyn will continue production of the current 3 Series through its lifecycle,...
The lack of consequences for poor performance and transgressions on the part of contractors remains a significant hurdle to tackling South Africa’s service delivery challenges, delegates heard at the Consulting Engineers South Africa Infrastructure Indaba, on...
City of Ekurhuleni executive mayor Mondli Gungubele earlier this month officially named the city’s bus rapid transit (BRT) system, Harambee.
About 58% of unstructured data stored by companies is dark data, which means that the value or regulatory importance of the data has not been determined. Subsequently, most of the stored data add costs, rather than increasing revenue or reduce regulatory risks, says...
Effective logistics, import/export and manufacturing consulting services require detailed industry knowledge and experience, but can add significant value to these industries by providing expert advice on various technical elements in their value chains, says...