Case Law and Legislation Review

Case Law and Legislation Review

Two recent Labour Court cases deal with the perplexing problem of s197 transfers of contracts of employment. The CCMA has produced an excellent summary of these cases. The CCMAil is distributed monthly. If you would like to make a contribution, subscribe or have any comments, e-mail HO@CCMA.org.za

Labour Court: JS227/03

Nokeng tsa Taemane Local Municipality & 1 other v Metsweding District Municipality and 4 others: Judge Landman

Transfer of contract as a going concern in terms of s197 of the LRA

Source: CCMAil December 2003 - summary written by Sarah Modise

The Gauteng Provincial Department of Health concluded a written agency agreement with the Metsweding District Council to render an Ambulance or Emergency service within its area of jurisdiction. The agreement was for a specific period. The Metsweding District Municipality (the respondent) mandated the Nokeng tsa Taemane Local Municipality (the applicant) to render such a service .The respondent, at later stage, offered the applicant a shift allowance of R250.00 per month to its Emergency Services. At the end of the contract the applicant stopped rendering its ambulance services. The assets connected to this function were then transferred to the province. The applicant concluded that 43 of its staff members should have been transferred to the respondent. The respondent, however, did not want to take responsibility for the transferred employees. The applicant then applied to the Labour Court for an urgent declaratory order, declaring that, in terms of section 197 of the LRA, as amended; the respondent had become the employer of the employees previously employed in its emergency services department.

Whether there was a transfer of the services as a going concern in terms of s 197 of the LRA

The employer argued that there was no written agreement between the parties regarding the transfer. It argued that s197(7) of the LRA requires a detailed agreement between the old employer and the new employer.

Noted:

The applicant only had an "impression" that there would be a take over of the emergency services by the respondent.

Also noted:

The letter from the last meeting held between the parties did not expressly state that there would be a transfer.

Held:

Based on the facts, there was no indication that there had been a transfer of the emergency services to the respondent as a going concern. There were no assets transferred to the respondent. The respondent was at that moment also not conducting a fully operational emergency service even though it might consider it. The respondent did also not wish to employ the applicant’s staff. Therefore, the contract ended without there being a transfer of services. The application was dismissed with costs including the reserved costs.

Case references

National Education Health and Workers Union v University of Cape Town and Others (2003) 24 ILJ 95 (CC)

National Education Health and Workers Union v University of Cape Town and Others (2002) 23 ILJ 306 (LAC)

Spijkers v Benedik (1986) ECR 1119

Viggosdottir v Islandspostur H F (2002) IRLR 425

Labour Court: J1196/03

NUMSA v Staman Automatic cc and Jobmates Labour Services (Pty) Ltd: Judge Landman

Transfer of contract s197 of the LRA

Source: CCMAil December 2003, summary written by Sarah Modise

At the beginning of the year the employer, with the advice of Jobmates Labour Services (JLS), decided to outsource all its employees. The union was informed of a written agreement between the employer and JLS. The agreements stipulated that the employer intended to transfer the employer’s rights and obligations under the employment contracts with its employees to JLS which is a temporary employment agency. The agreement further stipulated that, "the object of the agreement was to transfer services of Staman to JLS in the interests of the affected parties as a going concern within the ambit of s197". The union then referred a dispute to the Labour Court.

The Court had to determine whether the written contract between the parties was a transfer of a going concern as contemplated by s197 of the Labour Relations Act. By citing Harvey industrial Relations and Employment Law and Cheesman v R Brewer Contracts Ltd, the judge determined that in order to establish whether there had been a transfer of a business as a going concern, the Court first had to decide whether there was a business, trade, undertaking or service. Secondly, whether it had been transferred as a going concern.

The union argued that there was no "service" which could be transferred, while the employer argued the contrary.

Noted:

Citing Commissioner for Inland revenue v Transvaal Bookmaker’s association Co-operative Ltd 1953 (3) SA 203 (T) 206H the presiding judge argued that according to the Webster’s Dictionary the word "services" is defined as "acts or instances of helping or benefiting, conducts contribution to another ‘s advantage or welfare or benefit".

Further noted:

The Court argued that the old s197 and the present section did not define the meaning of ‘business", nor did it include the word "service" in the phrase business, trade, undertaking or service. In SAMWU v Rand Airport Management Co (Pty) Ltd & Others (2002) 12 BLLR 1220 (LC) the court concluded that a ""service" for the purpose of s197(1)(a) must embody an entity with a separate management structure with its own goals, assets, customers and goodwill and that, accordingly, the transfer of the "gardening function" of the Rand Airport did not constitute a part of business as defined and that there was no transfer of this function as a going concern."

The employees were employed to work for the employer. They were working with the machines that produced plastic products, or machine operators or as general workers. The employer had also had no intentions of parting with its machinery and therefore, no transfer of the machines or the business. This was evident in the agreement.

The agreement stipulated the core function of JLS "is to provide employees as a temporary employment services and other related matters which includes but not limited to, industrial relations, human resources, administration of labour and other related functions".

Held:

The Court held that "the services of the employees were not an economic identity that would retain its identity after the purported transfer". The employees would not be able to recognise the difference as they would be contracted back to the employer to do the same functions as they did before the transfer.

The transfers of the employees’ employment contracts were found not to have been a transfer within the meaning of s197 of the LRA. The employer was interdicted and restrained from transferring the employees.

Case references

Cheesman v R Brewer Contracts Ltd (2001) IRLR 144 (EAT)

Commissioner for Inland Revenue v Transvaal Bookmaker’s Association Co-operative Ltd 1953 (3) SA 203

Du Plessis v Joubert 1966 (4) SA 60

Modderfontein Deep Levels Ltd and Another v Feinstein 1920 TPD 288

Moodley v Scottburgh/Umzinto North Local 2000 (4) SA 524 (D) 531

National Education Health & Allied Workers Union v University of Cape Town (2000) 21 ILJ 1618 (LC)

National Education Health & Allied Workers Union v University of Cape Town (2003) 24 ILJ 95 (cc)

Nokeng tsa Taemane Local Municipality and Another v Metsweding District Municipality and Others, case no JS227/03 (LC)

S v Cocklin en Ander 1971 (3) SA 776 (A) 781

SAMWU V Rand Airport Management Co (Pty) Ltd & Others (2002) 12 BLLR 1220 (LC)

Schutte & Others v Powerplus Performance (Pty) Ltd and Another (1999) ILJ 665 (LC)

Wellworths Bazaars Ltd v Chandlers and Another 1947 (2) SA 37 (a) 43

Whitewater Leisure Management Ltd v Barnes (2000) IRLR 456 (EAT)

Wynnwith Engineering CO Ltd v Bernett & Others (2002) IRLR 170 (EAT)