The rights of employees following a transfer of an undertaking in terms of section 197 of the Labour Relation Act in an outsourcing context

• Main Author: Crouse, Chantell Belinda
• Format: Others
• Language: English
• Published: Nelson Mandela Metropolitan University 2012
• Subjects: Employee rights; Employees > Transfer > Law and legislation
• Online Access: http://hdl.handle.net/10948/d1015060

The protection that employees enjoy under our common law in the transfer of a business of its employer is very little. Common law only concerns itself with the lawfulness of a contract of employment. Common law is, however, now also experiencing the effect of the Constitution which provides for fair labour practices. Proper legislation was enacted to afford employees proper protection against dismissals resulting out of a transfer of a business by the employer as a going concern. Such a dismissal would be automatically unfair in terms of section 187(1)(g) of the LRA. The protection that employees enjoy is governed by section 197 of the LRA. This section provides that the new employer is placed in the “shoes” of the old employer. It also further states that the new employer could be held accountable for the unlawful actions of the old employer against an employee prior to the transfer taking place. Section 197 of the LRA, however, does not apply to all transfers of businesses. There are some key concepts that are of importance to determine its applicability. Such concepts include whether there was a transfer of a business or a part of the business and whether it was transferred as a going concern. The words “transfer” and “business” are defined in section 197(1)(a) and (1)(b) of the LRA. However, the words “going concern” are not defined and one would have to scrutinise case law for guidance in considering whether the transfer was done as a going concern. A leading case is that of Schutte Powerplus Performance (Pty) Ltd.1 In this case the court held that one must consider the substance of the agreement in determining whether the business was transferred as a going concern. It further held that the lists of factors that one should have regard to are not exhaustive. Section 197 of the LRA also applies to employees whose services have been outsourced. Outsourcing of services occurs where an employer discontinues a service or activity that is in most cases not part of the main business of the employer, and contract an outside contractor to take over that service or activity. This matter was given clarity in the case of SA Municipal Workers Union v Rand Airport Management Company (Pty) Ltd.2 The court came to the conclusion that section 197 could apply to outsourcing, provided it passes the test of “transfer” as well as the test of what constitutes a “business or service”. Outsourcing to labour brokers is, however, not covered by section 197 of the LRA. The matter was given consideration by the Labour Court in CEPPWAWU v Print Tech (Pty) Ltd.3 Another question is whether second-generation outsourcing is covered by section 197 of the LRA. Second Generation Outsourcing occurs when an employer put the outsourced service out to tender upon the outsource contract coming to an end and a new entity is awarded the outsourcing opportunity following the original outsource entity being unsuccessful in its bid to secure the contract for an additional term.