Ivan Israelstam | Chief Executive | Labour Law Management Consulting | mail me |
Where an undertaking (or part thereof or a service) of any kind is transferred by one employer to another 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.
Unfortunately, the LRA does not define what a transfer ‘as a going concern’ is. This causes great confusion and sparks many disputes between employers, employees and trade unions. This confusion also causes a serious problem for contractors considering making a bid for an outsourcing deal. They need to know for certain, before signing the deal, whether they will be forced to take over all the old employer’s employees.
While the sale of a business as an operating entity has normally been considered to qualify under the heading of a section 197 transfer, it has, for some time, been unclear whether the outsourcing of an enterprise to a contractor without selling the entity constitutes the transfer of a going concern.
This uncertainty emanates from the fact that due to the LRA’s vagueness, it is up to each judge to decide as to whether a section 197 takeover has occurred or not.
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 found that the takeover of a contract by one contractor from another constituted the takeover of a going concern. That 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, and those employees may not be dismissed for reasons related to the takeover!
The Zikhethele decision and certain other similar court decisions were hailed as resounding victories for trade unions trying to preserve the jobs of their members involved in outsourcing arrangements. At the same time these decisions constitute a massive blow for contractors as well as for businesses wishing to outsource certain functions.
Due to the uncertainty and complexities involved contractors and other employers should not enter into outsourcing agreements before consulting a reputable labour law expert to establish whether winning a new contract will mean a victory or a disaster.
 comes into effect.){kind=link}