Written by Ayanda Katjitae, Associate and Frank Sebatana, Candidate Attorney
Many companies, domestically and Internationally, are suffering the aftermath of COVID-19 Lockdown measures. Companies have experienced losses and, accordingly, are reducing costs by either downsizing and/or outsourcing their workforce.
This article, deals with the transfer of employee contracts to a new employer as contemplated in Section 197 of the Labour Relations Act, (hereafter “LRA”).
The LRA provides specifically for the transfer of a business and/or the services of the employees and this article will expand on Section 197 transfer of contract of employment and business.
PURPOSE OF SECTION 197 EMPLOYEE CONTRACT OF EMPLOYMENT
The core function of section 197 is to protect and maintain the employees’ existing rights and responsibilities with the employer. Section 197 places a duty of care on the new and previous employer who conclude a transfer of employee contracts of employment or a business to ensure that the same benefits of the employees are reserved.
WHICH TRANSFERS ARE SUBJECT TO THE LRA?
The LRA does not specifically define what constitutes a transfer, thus this causes numerous disputes between new and old employers, employees and recognised trade unions.
Some business practitioners confuse the provisions of the Old Labour Relations Act of 1956 (hereafter “Old Act”) and they overlook the status of the transfer that is taking place.
Failure and/ or neglect to consider whether the new employer has a discretion to reject or accept the transfer of the employees will have dire legal consequences in terms of the LRA. A dismissal for a reason related to a transfer of a business as a going concern will constitute an automatically unfair dismissal in terms of s187(1)(g) of the LRA, which will result in the more burdensome remedies associated with automatically unfair dismissals being available to the successful employee.
Such commercial transactions should be treated with extreme caution and rather administered by a labour law expert.
In some instances, section 197 compliance must be strictly observed, specifically in the following circumstances: –
- Where the collective transfer agreement labels the takeover as “a transfer of a going concern”, this would be significant;
- Where the new business takes over the assets of the old business and continues to serve the same clients of the business as had been served by the old business, this would indicate a section 197 transfer;
- If the new business continues 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; and
- Such a takeover would also be likely to qualify if the new business served the same clients or the same client market as did the old business.
Factors that are considered when determining a going concern transfer include the following: –
- If, there is a transfer of assets;
- If, there is a transfer of employees by the new employer;
- If, there is a transfer of customers; and
- Whether or not the same business is being carried on by the new employer.
THE RIGHTS OF EMPLOYEES AFTER A SECTION 197 TRANSFERS.
The LRA protects the employees right to continuity of employment through the provisions of section 197.
The new employer is automatically substituted in the place of the previous employer in respect of all contracts of employment. All the rights and obligations that existed prior to the transfer, irrespective if they were specifically included contractually or orally, that existed between the previous employer and the employees, will continue in force against the new employer.
The new employer automatically takes over all the obligations that the old employer had with and against the employees as if they have been done by the new employer.
It is important that the rights and obligations that the transferred employees have cannot be any less favourable than those which they had with their previous employer. In cases where the transfer is less beneficial, the matter may be referred to the CCMA for further adjudication.
THE ISSUE OF THE TRANSFERRED EMPLOYEES PROVIDENT; PENSION OR RETIREMENT FUND.
When employees are being transferred the new employer upon agreement with the previous employer; employees, or trade unions, may agree to transfer the employees to a new pension, provident or retirement fund.
However, it is important to ensure that the requirements of the Pension Fund Act, No 24 of 1956 are complied with.
Understanding the ongoing business transfer and employee services in terms of section 197 is a difficult and dauting task, and interpreting it is even more complex in relation to the type of business transfer. An Infringement and non-compliance of the LRA may result in Employees referring the matter to the CCMA and labour Unions may not approve such a transfer. Should you find yourself uncertain of any provision that relates to a transfer in terms of section 197, it is important that you contact us to be guided correctly and to avoid unnecessary costs.
Take note that this article does not constitute legal advice, contact our Labour Law experts for legal assistance.