Scenario: You’ve just reached the final stages of the negotiation of the sale of your business, but before signing on the dotted line, you realise that the purchaser intends “doing away” with all of the current employees and replacing them with new staff.
These employees are almost family to you as they have worked for you for years and you are worried about their well-being. How do you protect your employees?
Previously, when a company was sold, closed down or taken over by another business, all existing employment contracts were terminated.
But, section 197 of the LRA has changed the position. Now, when a business is sold, the contracts of employment of the existing employees are automatically transferred to the new employer.
When a business is sold as a going concern, our labour laws protect certain rights of the employees of the old employer when they are transferred to the new employer. The new employer is automatically substituted in the place of the old employer in respect of all contracts of employment, including verbal contracts, which existed immediately before the transfer.
Essentially, the new employer steps into the shoes of the old employer and all rights and obligations between the old employer and an employee at the time of the transfer continue in force as if they had been rights and obligations between the new employer and the employee.
Anything done before the transfer by or in relation to the old employer, including the dismissal of an employee or the commission of an unfair labour practice or act of unfair discrimination, is considered to have been done by or in relation to the new employer.
The transfer does not interrupt an employee’s continuity of employment. The new employer is not allowed to employ the employees on terms and conditions less favourable to the employees than those on which they were employed by the old employer.
Some of these terms may include: leave accrued to the employees; any severance pay due; and any other payments due to the employees.
The old employer and the new employer need to conclude a written agreement that deals with liability in respect of those aspects.
In the absence of an agreement to the contrary, the old employer is jointly and severally liable with the new employer to any employee who becomes entitled to receive a payment as well as for any claim concerning any term or condition of employment that arose prior to the transfer.
Employers who intend selling their business as a going concern and the buyers of such business should take careful note of the provisions of our labour law so as to avoid any unforeseen liabilities.
To conclude, we strongly advise that you enter into a written agreement that makes provision for these types of situations and that if you are not sure on the points of law, you seek the relevant professional advice.
Article contributed by Stacey Bonser & Kenny Smith of Tuckers Inc
ALSO READ:
Follow us:
For more #hyperlocal news at your fingertips, visit Benoni City Times, Springs Advertiser, Brakpan Herald, African Reporter and Kathorus Mail.
