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 employees of the old undertaking and to recognise all the terms and conditions of these employees including their years of service.
Both the sale/merger of a business and the outsourcing of a business function to a contractor constitute the transfer of a going concern. Even the transfer of a contract from one contractor to another can fall under section 197 of the LRA.
In the case of COSAWU vs Zikhethele Trade (Pty) Ltd (2005, 14 LC 11.3.2 ) as reported in Contemporary Labour Law 14 No. 12) the Labour Court decided that the takeover of a contract by one contractor from another constituted the takeover of a going concern.
This decision means that:
- if contractor A loses the contract which is then outsourced to B (the new contractor) then B is required to take over all the employees of A who were employed on the contract!
- The new contractor is therefore not able to use its existing employees to carry out the work; it must use the workers who were employed by the outgoing contractor.
- If, in the process of the takeover, the employees of contractor A are dismissed to make way for B’s employees, this would be an automatically unfair dismissal in terms of section 187(1)(g) of the LRA! On the other hand, if B retrenches its own employees to make way for the employees being transferred by A this could also be an automatically unfair dismissal because these dismissals took place for reasons related to the takeover of a going concern.
- For a contracting business to win a contract may no longer be a victory because this double-edged sword could destroy the contracting business.
This new decision added to those handed down by the Labour appeal Court and Constitutional Court have been hailed as a resounding victory for trade unions trying to preserve the jobs of their members involved in business takeovers and outsourcing arrangements. At the same time, these three decisions constitute a massive blow for contractors and for businesses wishing to outsource certain functions.
Due to the massive dangers involved contractors and other employers should not enter into outsourcing agreements before consulting reputable labour law to establish whether winning a new contract will mean a victory or a disaster.
To attend our 12 May 2017 seminar in Johannesburg on WINNING THE WORKPLACE WAR please contact Ronni at firstname.lastname@example.org or on 0845217492 or (011) 782-3066.
BY lvan lsraelstam, Chief Executive of Labour Law Management Consulting. He may be contacted on (011) 888-7944 or 0828522973 or on e-mail address: email@example.com.