Ivan Israelstram, Chief Executive of Labour Law Management Consulting, writes:
Where an undertaking (or part thereof) of any kind is transferred to another undertaking as a going concern, section 197 of the Labour Relations Act (LRA) comes into effect. This forces the new entity to take over all the obligations of the old undertaking in cases:
- Where the transfer agreement itself characterises the transfer as the transfer of a going concern as contemplated in section 197 of the LRA, this would be significant.
- Where the new entity took over the assets of the old entity and continued to serve the same users of the business as had been served by the old entity, this would indicate a section 197 transfer.
- If the new undertaking continued the running of the business as a going concern in much the same way as it had been run before the takeover of a going concern, this would point to the takeover of a going concern.
- Such a takeover would also be likely to qualify if the new undertaking served the same clients or the same client market as did the old undertaking.
- Where a section or service of an undertaking is transferred, this could also qualify as a takeover of a going concern. In the case of Schutte & others vs Powerplus Performance (Pty) Ltd and another (1999, 20 ILJ 665) the Labour Court found that the takeover of a company’s motor workshop by a contractor did constitute the takeover of a going concern and forced the contractor to take over all the workers attached to the motor workshop employees.
- The sale of a business as an operating entity would be likely to qualify under the heading of a section 197 transfer. This would also apply where the running of the enterprise is outsourced to a contractor. In the case of NEHAWU vs University of Cape Town & Others (2000, 1 BLLR 803) the Labour Court found that the outsourcing of the university’s cleaning, maintenance and gardening functions did not constitute the takeover of a going concern because the university did not transfer its equipment and other assets to the contractor and because the outsourcing was not of a permanent nature. However, the Constitutional Court later overturned this decision.
Due to the complex nature of the section 197 legislation and the resulting confusion, employers should not enter into takeovers before consulting reputable experts in the labour law field. Our experience is that employers have found to their cost that going it alone is far more costly than getting the right advice.
Details: Labour Law Management Consulting, (www.labourlawadvice.co.za); email, ivan@labourlawadvice.co.za or 011 888 7944 or 082 852 2973.
