Dismissal ­ Transfers as a form of dismissal

Transfer of a business

Transfer of a business as a going concern

Companies, organisations, statutory bodies and state departments change all the time to adapt to changing
circumstances, respond to new challenges (now all the more significant as a result of globalisation and the fact
that local businesses often have to compete on a regional or international level), merging, the acquisition of a
business and restructuring.

All of these organisational changes will have an impact on employees and the employment relationships. From a
contractual perspective, the relationship is between one employee and one “employer”.

If a company or a person bought a business, they would not be buying only the buildings, the plant and
machinery – to keep the business running, the new owner would have to rely on the employees working there at
the time of the transfer. section 197 makes it possible for employment contracts to be transferred from one
employer to another. The “new” employer simply steps into the shoes of the “old” employer. The only thing that
changes is the identity of the employer.

Before the amendment to section 197 of the LRA, early decisions of the Labour Court relied heavily on foreign law
in order to properly interpret the section. The Constitutional Court has now determined that foreign law still
serves as a guideline, but must be interpreted against the backdrop of South African legislation and authorities.
United Kingdom regulations, particularly, do not apply to the interpretation of section 197 of the LRA. See Rural
Maintenance (Pty) Ltd and another v Maluti­A­Phofung Municipality 2017(1) BCLR 64 (CC)

Constitutional Court’s interpretation of “transferred as a going concern”

The central question when dealing with a transfer in terms of section 197 of the LRA is to establish whether the
business is being transferred as a going concern.

NEHAWU v University of Cape Town & Others

The sequence of Constitutional Court decisions began with NEHAWU v University of Cape Town & Others 2003 (2)
BCLR 154 (CC), the Constitutional Court confirmed that as the phrase “going concern” is not defined in the LRA,
the phrase must be given its ordinary meaning. What must be transferred must be a business in operation “so
that the business remains the same but in different hands”. The facts of each transaction will determine whether
this has occurred and, when deciding whether a business is transferred as a going concern, proper regard must
be given to the substance of the transaction rather than its form. A number of factors that are relevant when
deciding whether a business has transferred as a going concern include:

a transfer or otherwise of tangible and/or intangible assets;

whether or not employees are taken over by the new employer;

whether customers are transferred; and

whether or not the same business is being carried on by the new employer.

This list is not exhaustive and none of these factors can be decisive individually.

Although the second and third Constitutional Court decisions involve public entities, the principles established by
the Constitutional Court are equally applicable to the private sector.

City Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and others

In the second Constitutional Court decision, City Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd
and others 2015 (6) BCLR 660 (CC), City Power, a state owned enterprise established in terms of the Local
Government: Municipal Systems Act 32 of 2000 was engaged by the Johannesburg Municipality to distribute
electricity within the metropole. To do so, City Power concluded service contracts with various entities. The first,
Grinpal, a private company, was retained to manufacture, supply, install and operate smart metering systems and
electrical infrastructure for City Power. After several years, City Power terminated the contracts with Grinpal with
immediate effect, alleging that it had submitted a fraudulent tax certificate. After disputing the cancellation,
Grinpal agreed to hand over the full infrastructure, software and data bases of the projects to City Power and
that City Power would conduct the business until a new service provider was appointed. Grinpal launched an
urgent application declaring that its employees had transferred to City Power in terms of section 197 of the LRA.
The Labour Court granted that order, and rejected City Power’s further argument that section 197 does not apply
to organs of state. In a subsequent appeal, the Labour Appeal Court found that a transfer of business had taken
place which triggered the operation of section 197. The court noted that it had not been disputed that City Power
had taken over Grinpal’s business “as is”, with all its infrastructure, know­how and assets. The business was
identifiable and remained the same, the only difference being that it was now conducted by a different entity. The
court accordingly held that Grinpal’s employees transferred automatically to City Power.

Rural Maintenance (Pty) Ltd and another v Maluti­A­Phofung Municipality

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 The latest Constitutional Court decision of Rural Maintenance (Pty) Ltd and another v Maluti­A­Phofung
Municipality 2017 (1) BCLR 64 (CC), also involved a contract between a municipality and two service providers to
manage, operate, administer, maintain and expand the its electrical distribution network for 25 years. After 2
years when the two service providers had gone to great expense to employ additional employees and add to its
infrastructure, the municipality cancelled the contract on the basis that it was null and void because the municipal
manager, who concluded the contract, lacked the authority to do so. After some too­ing and fro­ing, Rural
Maintenance (Pty) Ltd sought an order in the Labour Court declaring that the employees would transfer to the
municipality under section 197 when it assumed the electrical functions. The municipality argued that since the
contract was null and void from the outset, Rural Maintenance (Pty) Ltd were required only to transfer the 16
employees who had initially been transferred from the municipality, and disputed that the two services provider’s
businesses had been transferred to it as a going concern. The Labour Court held that the businesses had
transferred to the municipality as a going concern, and that section 197 accordingly applied to all their employees.

The Constitutional Court, in the appeal from the LAC decision (see Maluti­A­Phofung Local Municipality v Rural
Maintenance (Pty) Ltd and Another [2016] 1 BLLR 13 (LAC)), compared the factual situation in City Power which it
regarded an “as is” transfer of business to a municipality, with that of the “half­hearted” return of certain
components of the service providers’ businesses to the municipality. Without an “as is” transfer, the termination
of a service contract is literally the termination of the business, not its transfer back to the municipality. The
employment obligations of the erstwhile service provider must then be dealt with under section 189 of the LRA if
its business comes to an end for operational reasons. The service provider cannot transfer its obligation to the
municipality under the guise of section 197 but nevertheless seek to retain for itself the means to conduct the
service. The decision in this case was which employer should be responsible for the workers affected by the
change in circumstances.

While a transfer of a business as a going concern does not necessarily entail the transfer of all the assets of the
transferor, the onus rested on the service providers to describe the work performed by the additional workers
retained, and the means provided for them to perform that work. It was common cause that certain equipment
was retained by the service providers, and it was improbable that some of these employees had not continued to
use the retained equipment. Without a transfer of the means to do the work they did as part of the service
providers’ businesses, there could be no transfer of their business to the municipality as a going concern. The
Constitutional Court noted further that the Labour Appeal Court had assumed the validity of the service
agreement despite the municipality’s contention that it was null and void, and even though a dispute over that
issue was pending in the High Court. Had the LAC found that there was a transfer of business as a going
concern, a problem would have arisen. The municipality would then have been saddled with 127 new employees,
rather than 16, which would have been the consequence if the service agreement was declared null and void.
This illustrated the role the legal cause may play in the application of section 197. If the service agreement was
invalid, as the municipality claimed, the service providers would have to hand back the business operated by the
municipality at the time of the transfer, which included only 16 employees. If, however, the agreement was valid,
the legal cause of the transfer would be the valid contract. The majority accordingly disagreed with the minority
that the legal cause of the transfer of part of the service provider’ business was irrelevant.

The Constitutional Court held further that the Labour Appeal Court had not applied any new test to establish
whether a transfer of business as a going concern had occurred. The Labour Appeal Court had merely conducted
a factual inquiry, and found that many components of the service providers’ businesses had not been handed
over to the municipality. Apart from claiming that the components of the business it had retained were
“peripheral”, the service providers had failed to explain the nature and scope of that business.

An additional requirement is that the business must be in operation at the time of transfer. Support for this is
found in the Constitutional Court's reference to "a business in operation" in the NEHAWU v University of Cape
Town & Others 2003 (2) BCLR 154 (CC) decision.

Protection of employees during a transfer

The courts have emphasised that section 197 is designed to protect employees. When considering the factors set
out above, a "snapshot" of the entity before transfer should be compared to a snapshot of the entity after
transfer. If it appears that the entity has remained the same but in different hands, there is a strong probability
that section 197 will apply to the transfer. This is not an inflexible test and each case will be decided on its own
facts.

In the FAWU v The Cold Chain (Pty) Ltd. & Another 2010 1 BLLR 49 (LC) case, the Cold Chain outsourced certain
functions from its Port Elizabeth branch. It argued that as no assets were transferred it had merely concluded a
sub agency agreement with the other company, Freezerlines, which was in the same Group. The arrangement
would be that Cold Chain would pay Freezerlines to perform these functions. Had Cold Chain sold its operations
to Freezerlines, the sale would have constituted a transfer of a business as a going concern. The court was of the
view that in these circumstances there was no reason why the proposed arrangement should not have the same
consequences of a transfer. The court decided that the statutory term “business” has a wider meaning than the
ordinary dictionary meaning. Even if the warehousing function did not form part of the Cold Chain's business, the
functions would constitute a "service" previously provided by the Cold Chain. These services would, in terms of
the proposed arrangement, now be performed by Freezerlines and as a result section 197 applied to the
outsourcing arrangement described above. Essentially, in each case, the court will look at the substance of the
transfer agreement between the old and the new employer to determine whether section 197 applies (see
Communication and Allied Workers Union v Mobile Telephone Networks [2015] JOL 33385 (LAC)

Changes to terms and conditions of employment

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 that the employment relationship is not interrupted as a result of the transfer and that all rights and obligations
associated with that employment relationship remain intact. This means that collective agreements transfer with
the business as well as any restraints of trade that any employee may have agreed with the old employer.

The wording of section 197(2)(a) does not allow for any employee to object to the transfer. Any variation to the
legal consequences of section 197 can only be achieved by agreement between the parties as required by
section 197(6) of the LRA.

Fleet Africa (Pty) Ltd v Nijs

In Fleet Africa (Pty) Ltd v Nijs [2017] 5 BLLR 450 (LAC), while the arbitration proceedings, as to whether the old
employer’s employees had been transferred to the new employer, were still in progress, the old employer
concluded a settlement agreement with employees, including the respondent employee, in terms of which she
was to accept a voluntary severance package. When the arbitrator then ruled that the old employer’s employees
had transferred automatically to the new employer in terms of section 197, the old employer sought to cancel the
settlement agreements on the ground that there was no employment relationship between it and the employees
when it was signed. The court noted that the old employer had not contended that the agreement did not comply
with common law requirements. The settlement agreement was one envisaged by section 158(1)(c) of the LRA,
as read with section 158(1A), which defines a settlement agreement for purposes of section 158(1)(c) as “a
written agreement in settlement of a dispute that a party has a right to refer to arbitration or the Labour Court”,
excluding disputes that may be referred only in terms of sections 22(4), 74(4) or 75(7).The employer had
specifically relied on section 142A(1), which gives the Commission for Conciliation, Mediation and Arbitration
(CCMA) power to make settlement agreements arbitration awards. The difference between sections 142A(1) and
158(1A) is obvious – the former provision adds to the CCMA’s powers, while the latter elaborates on the Labour
Court’s powers under section 158(1)(c). These two provisions cannot be read together. As to whether the
agreement was one contemplated by section 158(1)(a), the only question was whether there was a dispute
between the parties when it was signed. At the time, there had been a long dispute between the parties and the
old employer had chosen a two­pronged strategy to resolve it. The arbitration and consultation processes had a
common objective aimed at resolving the same dispute. That dispute could have been referred the CCMA or an
accredited council.

The court noted further that section 197 provides that the new employer is automatically substituted for the old
employer unless otherwise agreed in terms of section 197(6) between the old and/or new employers, on the one
hand, and a person or body referred to in section 189(1).The words “unless otherwise agreed” envisage that the
parties to a dispute concerning section 197 may resolve it by means of a settlement agreement. The dispute
between the old employer and the employee was concluded in full and final settlement of any claims arising from,
inter alia, an entitlement to a transfer in terms section 197.

The court held further that in the circumstances the old employer could not rely on the fact that the employee
might have been fully aware that the agreement was conditional on the outcome of the arbitration then in
progress. If such a condition was intended, it would have been stated. Once the settlement agreement was
concluded, the arbitration process should have halted, because the employee was no longer entitled to be
transferred and obtain a “double benefit”. The court found it unnecessary to comment on the propriety of the fact
that the employee had presented herself to begin working for the new employer.

The court accordingly held that the settlement agreement complied with all the requirements of the law, that the
old employer was legally entitled to conclude it when it did, and that the Labour Court had jurisdiction to make
the agreement an order of court and exercised its discretion properly by so doing.

Section 197(3)(a) requires the new employer to transfer employees on terms and conditions that “are on the
whole not less favourable” to the employees than those on which they were employed by the old employer. This
gives the new employer the right to change terms and conditions unilaterally provided on the whole, the
employee is not prejudiced as a result.

Jenkin v Khumalo Media Connexion (Pty) Ltd.

Any attempt by the new employer to materially vary the terms and conditions of employment post transfer, will be
unlawful. In theJenkin v Khumalo Media Connexion (Pty) Ltd [2010] 12 BLLR 1295 (LC) case, Jenkin was employed
in the printer division of Transnet that was bought by another company. The company changed names twice and
Jenkin was then told that his contract had come to an end as he has been engaged by the last entity on a fixed
term contract. The court found the dismissal to be unfair and noted that the business had remained the same
despite the change in ownership and name of the company. The court held that Jenkin was entitled to severance
pay calculated from the time he began employment with Transnet together with compensation for his unfair
dismissal.

However, any change in terms may be agreed with the employee and if agreement cannot be reached, the
employer may resort to a lockout to force the change.

Transfer of collective agreements

Section 197(2)(b) of the LRA confirms that all the rights and obligations between the old employer and an
employee at the time of transfer become rights and obligations between the new employer and the
employee.Section 197(5)(b)(ii) of the LRA confirms that any collective agreement in terms ofsection 23will also
bind the new employer unless otherwise agreed in terms ofsection 197(6)of the LRA. Any agreements not to be
bound by any collective agreement must be concluded between the old employer, the new employer and the
affected
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 Section 32(1) of the LRA allows a bargaining council to extend a collective agreement that is within the registered
scope of the bargaining council, to non­parties. See Guidance note: The legal framework for collective bargaining
and collective agreements

These collective agreements will also transfer and bind the new employer as set out above. Post transfer, the
new employer can invoke its rights in terms of section 62of the LRA requesting a demarcation as to whether the
transferred employees remain employed or engaged in the same sector that existed prior to the transfer.

Any collective agreement dealing with organisational rights as set out in Chapter 3 of the LRA concerning a trade
union's level of representivity with the old employer, should not transfer. Any Chapter 3 rights that may apply
post transfer must be determined on the levels of union representation with the new employer. For a discussion
on the union’s level of representivity, see Guidance note: The union’s level of representivity

Pension rights upon a transfer of a business as a going concern

Before one is able to assess the impact of a section 197 transfer on an employee's pension rights, it is important
to identify the exact contractual terms due to the employee in respect of the pension scheme. It is this enquiry
that will determine which obligations of the old employer transferred to the new employer.

Telkom SA limited & Others v Blom

In Telkom SA limited & Others v Blom [2003] 7 BLLR 638 (SCA) the court dealt with the circumstances of Telkom
transferring its electronics services division as a going concern to Molapo Technology (Pty) Ltd. (Molapo). In terms
of the sale of the business, all benefits held in the Telkom pension fund in respect of the transferring employees
transferred to a new pension/provident fund which was to be created by Molapo. Blom and other employees
transferred to Molapo and claimed they were entitled, upon transfer to the new company, to be paid out benefits
due to them from the Telkom pension fund. It was contended that Blom and other employees were not entitled to
be paid out pension benefits because their contracts had not been terminated and instead had been transferred
to Molapo in terms of section 197of the LRA. The Applicants were entitled to be paid the benefits provided for by
the rules of the Telkom pension fund on the termination of employment as a result of the abolition of their post.
The court accepted that the transfer of business from Telkom to Molapo was part of a re­organisation of Telkom's
business and as a result Blom and others’ posts were abolished.

The court held that the transfer by Telkom to Molapo was the causa sine qua non of the termination of the
contractual relationship with employees. . As a result, the employees were entitled to benefits in terms of the
fund's rules. This principle was followed in the case of IMATU & Others v Cape Joint Retirement Fund & Others
2007 3 BPLR 263 (C) para 27I – 271C.

Subsequent to these cases, section 197 was amended and section 197(4) specifically points out that the transfer
of employment will not prevent an employee from being transferred to a pension, provident, retirement or similar
fund other than the fund to which the employee belonged prior to transfer. The only stipulation is that the
conditions set out in section 14(1)(c) of the Pensions Fund Act 24 of 1956 must be satisfied.

Vawda v Standard Bank Group Retirement Fund

In Vawda v Standard Bank Group Retirement Fund [2010] 3 BPLR 371 (PFA) the pension fund adjudicator
confirmed that the position in relation to a pension fund transferring in circumstances of a transfer of a business
as a going concern, are regulated bysection 197(4). It was pointed out that the legislature envisaged a
mechanism where employees were able to transfer their accumulated pension benefits into a scheme in which
the transferee employer participates, or an alternative pension vehicle. This would preserve the continuity of
retirement provision together with the continuity of employment.

The judgment confirms that section 197(4)is drafted in a manner which allows the parties concerned to regulate
the varied circumstances that may arise in relation to pension funding, transfers and participation as a result of a
section 197 transfer.

On the facts of the Vawda case, the pension fund adjudicator held that the employee was not entitled to a
withdrawal benefit at the time of transfer as he was still employed and the employment was never interrupted by
thesection 197 transfer.

Joining the new employer

In Kunyuza Indsutrial Ltd and another v Ace Wholessalers (Pty) Ltd and others [2015] 7 BLLR 683 (LC), the
Labour Court held that the general rule that parties who had not been invited to conciliation cannot be joined in
subsequent dismissal proceedings was not applicable to the new employer after a section 197 transfer as the
new employer has a substantial interest in the outcome of a dismissal dispute.

Section 197does not require the new employer to provide a pension fund which is in every respect identical to the
fund established by the old employer. Although not yet decided by the courts, the new employer should ensure
that transferring employees are offered a fund which is "broadly comparable" to the fund they were members of
when employed with the old employer. In other words, the employees should not be materially prejudiced as a
result of the transfer. To limit risk in this regard, the new employer should rely upon expert actuarial advice to
satisfy itself that the new fund is comparable to the old fund. If this is done properly then the new employer will
satisfy its obligations set out insection 197 of the LRA.

Continuity of employment
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 Section 197(2)(d) of the LRA confirms that the transfer of a business as a going concern does not interrupt an
employee's continuity of employment. The employee's contract of employment continues with the new employer
as if it was with the old employer.

Essentially the old contract of employment is transferred to the new employer. This interpretation is reinforced by
section 187of the LRA which provides that any dismissal is automatically unfair if the reason for that dismissal is a
transfer, or a reason related to a transfer contemplated in section 197. This is reinforced by section 197(2)
(a)which confirms that if a transfer of a business takes place, the new employer is automatically substituted in the
place of the old employer in respect of all contracts of employment in existence immediately before the date of
transfer. This would mean that if the employment contract is terminated the day before the business transferred,
then new employer will not be automatically substituted in the placed of the old employer in respect of that
employment contract because, in theory, no contract existed at the time of transfer as it had already been
terminated. However, this point of distinction loses relevance in the event of a dispute given that section 197(2)
(c)confirms that acts by the old employer, including the dismissal of an employee, are considered to have been
done by the new employer.

Section 197(2)(b) of the LRA provides for the continuation of all the rights and obligations between the old
employer and an employee at the time of the transfer. This means that the new employer may be required to
carry out obligations that arose prior to the transfer but that had not been carried out by the old employer. This
would include issues such as the payment of bonuses and any other form of incentive. Annual leave and sick
leave cycles will also continue uninterrupted with the new employer. See Transport Fleet Maintenance (Pty) Ltd. v
NUMSA [2003] 10 BLLR 975.

It is the terms and conditions set out in the employment contract that will transfer to the new employer. Whether
policies enjoyed with the old employer transfer to the new employer will depend on whether that policy, custom
or work practice has been incorporated into the contract of employment. This will depend on the facts. It is for
this reason that a thorough due diligence exercise should be conducted prior to any transaction which may
include the transfer of employees.

Enforcement of acquired rights against new employer

An employee may wish to enforce his contractual rights against the new employer by claiming specific
performance. This step would be appropriate if the new employer was offering the employee terms and
conditions that were "on the whole less favourable" than those enjoyed prior to the transfer. The aggrieved
employee may also approach the Labour Court asking for an order compelling the employer to comply with its
statutory obligations as set out in terms of section 197. A more drastic response would be for the employee to
resign and claim constructive dismissal as contemplated by section 186(1)(f)

Transfers and insolvency

This section applies when the "old employer" is insolvent or if a scheme or arrangement or compromise is being
entered into to avoid the winding or sequestration for reasons of insolvency of the business. The section gives
effect to the constitutional right to fair labour practices. See NEHAWU v University of Cape Town & Others 2003
(2) BCLR 154 (CC) at para 62.

An important difference in section 197Aof the LRA in comparison tosection 197, is that the rights and obligations
between the old employer and each employee do not transfer to the new employer. See Section 197A(2)(b). This
is of importance to business rescues because it ensures that any purchaser is not saddled with employees’ claims
against the old employer.

Therefore, in the absence of any agreement to the contrary, the effect of section 197A is to transfer contracts of
employment of employees who had been in the old employer's service prior to insolvency to the new employer.
However, all rights and obligations that may have accrued between the old employer and its employees prior to
transfer must be excluded.

Section 197A(2)(a) confirms that the new employer is automatically substituted in the place of the old employer in
all contracts of employment that existed immediately before the old employer's provisional winding up for
sequestration.

Second generation outsourcing

Small words with big meanings

Second generation outsourcing or contacting occurs where there is a change in the provider of an outsource
service. An example would be where A contracts with Contractor B and the contract comes to an end. The
contract is put out to tender and the contract is awarded to Contractor C. The question arises whether there can
be a transfer of employment in terms of section 197 between the unsuccessful contractor B and the successful
contractor C? It was previously argued that this cannot be becausesection 197 relates to a transfer "by" the old
employer to the new employer. In the case of second generation outsourcing, the old employer is the outgoing
contractor and the new employer is the incoming contractor. According to this argument there is no transfer by
the old employer to the new employer and second generation contracting does not find application insection 197.

Having
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 transfer is misleading and the true enquiry remains whether there has been a transfer of a business as a going
concern by the old employer to the new employer. What remains significant is whether the outsourced event is a
business as a going concern or whether it is the provision of an outsourced service. This is determined by the
facts.

In circumstances where the outsourcing institution did not offer the service from the outset, then it must be that
the service cannot be part of the business being transferred. In these circumstances it is “a simple contracting
out of the service, nothing more and nothing less.” See Aviation Union of South Africa & Another v SAA (Pty) Ltd &
Others 2012 2 BCLR 117 (CC) at para 105 and 106. See Guidance note: Section 197 of the of the LRA and its
interpretation for additional Constitutional Court decisions regarding meaning of “transfer of a business”.

The courts have examined the meaning of the word “by” and whether it means “positive action from the old
employer who transfers the business to the new employer”. This was the point taken by the SCA in SAA (Pty) Ltd
v Aviation Union of SA [2011] 2 BLLR 112 (SCA) finding that section 197 did not include second generation
contracts. The SCA went on to say that by interpreting the word “by” in the section to read “from”, the LAC had
“impermissibly distorted the meaning of the word”.

The Constitutional Court held that the enquiry should not be limited to the meaning of the word "by" in section
197 as it is currently drafted. There is no doubt that the word “by” in the section must be given its proper
meaning. The question that must be asked is whether a transaction contemplated a transfer of a business by the
old employer to the new employer and whether the transaction creates rights and obligations that requires "one
entity to transfer something in favour or for the benefit of another or to another". If so then the transaction
contemplates a transfer from the transferee to the transferor and if the transfer is of a business as a going
concern then it will attract the obligations set out in section 197.

It is important to ask whether the agreement upon which the transaction is based contemplates merely
outsourcing a service or whether it contemplates the transfer of the business operation that delivered the
service. This usually depends on whether the service provider upon cancellation is entitled to continue to use the
assets of the service. If this is so then the business cannot be said to have transferred.

Procedural aspects

Constructive dismissal
Section 197(2)of the Labour Relations Act 66 of 1995 (LRA) sets out the consequences that flow from a transfer of
a business as a going concern. Broadly speaking, the transfer of the business as a going concern will result in the
transfer of the employees to the new business. The section goes on to confirm that the new employer is
automatically substituted in the place of the old employer in respect of all contracts of employment.

The definition of dismissal in section 186(1)(f) of the LRA includes circumstances where an employee terminates a
contract of employment after a transfer in terms of section 197. These are in circumstances where the new
employer provides the employee with conditions or circumstances at work that are "substantially less favourable"
to the employee than those provided by the old employer. Conditions or circumstances that are not identical may
not trigger this section. The employee will have to show that he is materially prejudiced as a result of the change
in terms of employment or working conditions. The section indicates that the employee can claim constructive
dismissal in these circumstances.

The test whether the employee is in fact significantly worse off post transfer will depend on the facts and will
have to be considered objectively. A material change to terms and conditions of employment may include:

expecting an employee to transfer and work in a different geographic location or a material change in
the distance the employee is expected to travel to get to work;

a material change in status and benefits such as travel allowances and severance; or

a change in retirement age.

To be successful with any claim, the employee would have to show that the new employer's conduct rendered
ongoing employment intolerable. Again this is an objective test and the employee will have to show that his
resignation from the new employer was a last resort after resorting to all reasonable options which would include
exhausting internal grievance procedures. See Pretoria Society for the Care of the Retarded v Loots [1997] 6
BLLR 721 (LAC)

Automatically unfair dismissal

Section 187(1)(g) of the LRA defines a dismissal as automatically unfair if the reason for the dismissal is "a
transfer or a reason related to a transfer, contemplated in section 197 or section 197A."

If the facts support a link between the transfer of the business and the employee's dismissal and that the
transfer was the main cause of the dismissal, then that dismissal will be automatically unfair. This will usually
occur in circumstances where the new employer does not want to employ all of the employees employed by the
old employer in circumstances where there is a transfer of a business as a going concern.

Retrenchments
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 If by way of agreement as contemplated by section 197(6) of the LRA, the old employer retains certain employees
who do not wish to transfer, nothing will prevent the old employer from retrenching them provided a commercial
rationale exists and there is proper compliance with any internal procedures and section 189of the LRA.

Dismissal for operational reasons post transfer will be dealt with on the facts. Provided the employer is able to
justify the need to restructure and retrench based on its own operational requirements, then the dismissal
should be fair. Careful attention will have to be given to selection criteria as employees transfer with their service
intact.

Author Details
Original Author: Michael Maeso, Partner and Head of the Employment Law Department , Shepstone and
Wylie, Updating Author: Ingrid Lewin, Labour Lawyer
Transfer of a business
Second generation outsourcing
Original Author: Michael Maeso, Partner and Head of the Employment Law Department , Shepstone and
Wylie
Procedural aspects

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