CONTRACT TRANSFERS CAN CONSTITUTE SECTION 197 TAKEOVERS

CONTRACT TRANSFERS CAN CONSTITUTE SECTION 197 TAKEOVERS

Section 197 of the Labour Relations Act (LRA) places heavy responsibilities on the employer who takes over the business (or part thereof) of another employer as a going concern. This section forces the new employer to take over all the labour related obligations of the old employer. 

The term “business” in this context includes any employer’s undertaking be it big, small, profit-making or non-profit, unionised or not, private or government. 

However, not all takeovers fall under this legislation because not all are transfers ‘as going concerns’. It is vital for employers to know which transfers do and do not fall under this legislation because they need to know: 

  • whether the new employer will be forced to take over all the old employer’s employees and 
  • whether the new employer will have to recognise and preserve all the benefits, remuneration, working conditions, years of service and other rights of the employees.

Unfortunately the LRA does not define what a transfer ‘as a going concern’ is. This causes great confusion and sparks many disputes between employers on the one hand and employees and trade unions on the other. That is, takeovers often cause loss of jobs and employees are often desperate to stay on with the new enterprise. On the other hand, the new entity very often already has its own staff and wants to avoid the expense of taking on additional employees. 

However, the statutes are not clear enough to tell the parties whether the new entity must or must not comply with section 197 of the LRA. We have therefore offered below our view as to what circumstances would be likely to characterise a merger or takeover as the transfer of a going concern.

  • Where the transfer agreement itself labels the takeover as ‘a transfer of a going concern’ this would be significant.
  • Where the new entity took over the assets (tangible or intangible) of the old entity and continued to serve the same users of the business as had been served by the old entity this would indicate a section 197 transfer.
  • If the new undertaking continued the running of the business as a going concern in much the same way as it had been run before the takeover of a going concern this would point to the takeover of a going concern. 
  • Such a takeover would also be likely to qualify if the new undertaking served the same clients or the same client market as did the old undertaking.

Where a section of an undertaking is transferred this could also qualify as a takeover of a going concern under certain conditions. In the case of Crossroads Distribution (Pty) Ltd t/a Jowell’s Transport vs Clover SA (2008,6 BLLR 565), Clover had a contract to provide transport and  logistical services to Woodlands Dairy. When Clover terminated its contract with Woodlands Dairy, Woodlands awarded the contract to another company called Crossroads. Crossroads wanted all of Clover’s employees in the transport & logistics section to be transferred into its employ because the transfer of the contract from Clover to Crossroads constituted a takeover of a going concern but Clover wanted to retain the services of some of them. The Labour Court found that:

  • Second generation takeovers do not normally constitute takeovers as going concerns and therefore do not fall under section 197 of the LRA.
  • The fact that, after the take over Clover allowed Crossroads to use its premises and sold some of the furniture at the premises to Crossroads did not mean that this was a takeover as a going concern.
  • While the LRA provides that transfers of a service can constitute takeovers as going concerns for purposes of section 197 the transfer of contracts cannot constitute such a takeover.

 

Previously it could have been very good business for enterprises to enter into a take-over deal. However, under the confusing and very unclear interpretations of the law, the potential advantages of takeovers have become very much more uncertain. The Constitutional Court’s more recent SAA decision shows that second generation outsourcing can constitute a section 197 transfer.

This means that would-be buyers of businesses as well as contractors looking to take over catering, security, cleaning, construction and other services do not know if they are coming or going. Due to these concerns such employers should not enter into takeovers before consulting reputable experts in the labour law field. Our experience is that employers have found to their cost that going it alone is far more costly than getting the right advice.

BY   Ivan Israelstam, Chief Executive of Labour Law Management Consulting. He may be contacted on (011) 888-7944 or 0828522973 or on e-mail address: ivan@labourlawadvice.co.za. Go to: www.labourlawadvice.co.za

EMPLOYERS ARE NOT PROTECTED BY THE CORPORATE VEIL

EMPLOYERS ARE NOT PROTECTED BY THE CORPORATE VEIL

The Labour Relations Act (LRA), in its definition section says that an employee is someone who works for an employer. However, the designers of the LRA failed to define the term ‘employer’. This renders confusing our understanding of what an employer is and what an employee is. Despite the absence of a definition of an employer the LRA uses this term very frequently in placing heavy obligations on the employer by dictating, for example, that:

  • Within 30 days of receiving a notice from a registered trade union the “employer” must meet the union to conclude a collective agreement [Section 21(3)] 
  • An “employer” must disclose to a trade union representative (shop steward) all information relevant to the performance of his/her effectively [Section 16(2]
  • A dismissal is unfair if the “employer” fails to prove the dismissal was for a fair reason or was affected in accordance with a fair procedure [Section 188(1]

It may seem that the reason for the omission of the definition of an employer is that such definition is not necessary because it is obvious. However, more than once, when deciding who is to be held liable, the question of who the employer is has been raised. Is it the contracting company or the contractor’s client? Is it the employment agency or the entity that makes use of its services? Is the closed corporation the employer or is it the members of the cc? Is it the subsidiary company or is it the holding or parent company? The answers to these questions are not always clear cut.

For example, in the case of Group 6 Security Pty) Ltd & another vs Moletsane & others (2005, 11 BLLR 1072) the employee was dismissed after an altercation with the employer. The CCMA ruled that the dismissal was unfair. The arbitrator found that the security company and one of its shareholders were jointly and severally liable for the payment of compensation to the employee and for the employee’s legal costs. The Labour Court, on hearing the review application, ruled that “the veil of a corporate entity may be pierced only when there are allegations of fraud, dishonesty or improper conduct.” In the Group 6 case the Court could find no misdoings. The shareholder who had been found by the CCMA to be jointly liable for the unfair dismissal had merely told the employee that the company was an empty shell and this did not constitute dishonesty. Also, the shareholder had not been a cited party at the arbitration hearing; he had only been a witness. The CCMA had therefore been wrong to make the shareholder jointly and severally liable for the compensation and costs to be paid to the employee.

What would have happened however, if the shareholder had been cited as a co-respondent at the CCMA and if he had been found to have committed an improper act. It is possible that the Court would have allowed the CCMA to look beneath the corporate veil for the person responsible.

In the case of Footwear Trading cc vs Mdlalose (2005, 5 BLLR 452) the employee was dismissed and won an award from the CCMA for compensation. The award was made against the employer, Fila (Pty) Ltd a company closely associated with Footwear Trading. The employee applied to the Labour Court for an order to make the CCMA’s award an order of court. Fila told the Court that it was dormant and that Footwear Trading had taken over certain of its assets. The employee also sought an order declaring Fila and Footwear Trading to be co-employers and therefore jointly and severally liable. Footwear denied that it was joined to Fila claiming that it merely carried out administrative tasks for Fila. The Labour Court rejected this and declared the two companies jointly and severally liable for the compensation payment due to the employee.

Footwear Trading then appealed against this decision to the Labour Appeal Court which found that:

  • The LRA does not define “employer” and that therefore the definition of this term must be derived from the definition of an “employee” which is someone who provides services. An employer is therefore a person who “receives services”. 
  • Legal personality may be disregarded where a corporation is a mere alter ego or conduit for another person 
  • Footwear Trading was in control of the business even if it was a separate legal entity and not technically the employer.
  • Footwear Trading was confirmed to be jointly liable for payment to the employee of compensation and the appeal was therefore dismissed.

 

The above is a warning to employers that the use of subsidiaries, associate companies and other surrogates for purposes of avoiding labour law obligations is extremely risky. It is far wiser to utilise available labour law expertise to ensure that the law is properly complied with so as to make ducking behind technicalities unnecessary.

To observe our experts debating hot labour law topics please go to www.labourlawadvice and click on the Labour Law Debate item in the menu.

BY   Ivan Israelstam, Chief Executive of Labour Law Management Consulting. He may be contacted on (011) 888-7944 or 0828522973 or on e-mail address: ivan@labourlawadvice.co.za

SUPPLEMENTARY BURSARY TRUST

SUPPLEMENTARY BURSARY TRUST

Intended for those presently in tertiary education or about to start it in 2021 whose financial situation may prevent the continuation or start of their studies.

Since this bursary supplements a student’s own financial contribution, it will not cover full costs of tertiary education at a state-recognised tertiary educational institution.

Bursaries will be awarded on academic and personal achievement, and satisfactory references.

Obtain application forms and information from: melfrieda@telkomsa.net

CLOSING DATE FOR COMPLETED APPLICATIONS

04 December 2020

Applicants will be notified of the final result of their applications after submission of certified copies of final results.

The benefit of strong boundaries

The benefit of strong boundaries

Do you often feel taken advantage of, or that you give too much without getting anything back in return – both in your personal and professional life? It might be worth considering whether this is because your personal boundaries are not clear or strong enough.

Boundaries help us prosper in our personal and professional lives by creating a healthier relationship with ourselves and others. According to Medium, “Having them in place allows us to communicate our needs and desires clearly and succinctly without fear of repercussions. It is also used to set limits so that others don’t take advantage of us or are allowed to hurt us.”

Are your boundaries clear?

What are some of the signs that you need to work on your boundaries?

  • If you find yourself consistently being a “doormat” – being taken advantage of, having difficulty saying no to others.
  • If you are a consistent people pleaser.
  • If you always find yourself looking to others for answers, and you struggle to make decisions for yourself.

To improve the situation, you’ll need to do some reflection. It’s important to start with yourself and make sure you know what you will accept and what you will not accept. 

Firstly, think about what your core values are, what your non-negotiable’s are, and what you are and aren’t willing to tolerate in your personal or work life. For example, you may decide that contributing to a non-sexist world is very important to you, and that if a friend or a co-worker makes sexist comments, you’ll speak up and object to that kind of language being used. In that way, your boundary becomes clear for the world to see, and will tell the people around you what you are and aren’t prepared to accept.

Clarify your thoughts

I would encourage you to write down your values and non-negotiables – the process really helps you clarify your thoughts, and internalise them. One you’ve written these down, make a concerted effort to be aware of the decisions that you make on a daily basis and how you behave around others. 

I would also encourage you to be aware of who you surround yourself with. Do they share the same core values as you? Do they have a moral compass? Do they have your well-being in mind? If your friends are aligned to your values, you’ll have less work to do in defending your boundaries. This can be more tricky in a workplace as you have less control over who your colleagues are, so in this instance it’s even more important that you are clear about what you are and aren’t prepared to accept.

You will find that your relationships with others will improve when you work on setting your boundaries. You will be able to communicate clearly about what you will do and won’t do, and those around you will start responding accordingly – and you’ll start gaining the respect of others once they see that you are prepared to stand up for yourself. Others need to know your boundaries just as much as you do! 

The bottom line is that setting boundaries isn’t selfish. Instead, it’s a sign that you practice self-respect and self-care, and are confident in who you are.

Yumna Aysen, Life Coach (www.ohyesitsyumi.com)

Employers: UNFAIR DISCIPLINE CAN CAUSE CONSTRUCTIVE DISMISSAL

Employers: UNFAIR DISCIPLINE CAN CAUSE CONSTRUCTIVE DISMISSAL

Constructive dismissal means that the employee resigns and claims that the resignation occurred not because the employee wanted to leave but as a result of the employer’s intolerable conduct.

Due to the fact that the employee alleges that the resignation was involuntary and was intentionally or unintentionally coerced by the employer, the resignation becomes a constructive dismissal. It is possible that this terminology originated from the idea that such a resignation submitted under duress can be seen to have been ‘constructed’ or ‘created’ by the employer.

In order to convince an arbitrator or judge that unfair constructive dismissal has in fact taken place the employee must show that:

  1. The employment circumstances are so intolerable that the employee could truly not continue to stay on
  2. The unbearable circumstances were the cause of the resignation of the employee
  3. There was no reasonable alternative at the time but for the employee to resign in order to escape the circumstances 
  4. The unbearable situation must have been caused by the employer 
  5. The employer must have been in control of the unbearable circumstances.

The labour law on constructive dismissal was born out of case law and was later codified in the Labour Relations Act No. 66 of 1995 (LRA). Section 186 (1)(e) includes in the definition of dismissal the situation where “…an employee terminated a contract of employment with or without notice because the employer made continued employment intolerable for the employee.”

It must be stressed that questionable acts of the employer will not always constitute unfair constructive dismissal. This will depend on the extent to which the employer’s conduct falls within the five tests for constructive dismissal outlined earlier in this article.

However, employers need to be careful in interpreting the meaning of these five tests. For example, test number 3, where the employee must show that he had no reasonable alternative but to resign must not be simplistically interpreted. For instance, it is often the case that the employee theoretically has the option of remaining in the employment relationship and referring an unfair labour practice to the CCMA or other tribunal. Where the employee fails to do so and resigns instead, this will not always mean that he has failed test number 3. Passing this test will depend a great deal on whether, under the circumstances at the time, the employee could reasonably have been expected to stay on in the employer’s employ for purposes of referring the unfair labour practice dispute. Truly unendurable circumstances would make such a route unreasonable.

Employees must be equally careful not to misinterpret the law. Where, for example, an employer notifies an employee of a disciplinary hearing this could genuinely be seen as unbearable to the employee. However, a resignation by the employee for purposes of avoiding the disciplinary hearing is unlikely to constitute unfair constructive dismissal. For example in the case of Mvamelo vs AMG Engineeering (2003,11 BALR 1294) the employee was informed that he was to be called to a disciplinary hearing for theft and that criminal charges would also be laid. He resigned and claimed constructive dismissal but lost the case because it was found by the arbitrator that he had resigned to avoid the disciplinary steps of which he had been notified.

However, where disciplinary steps have been taken unfairly and this renders the employment circumstances intolerable this can constitute constructive dismissal. For example, in the case of Solidarity obo Van Der Berg vs first Office Equipment (Pty) Ltd (2009, 4 BALR 406) the employee was found to have been performing his work poorly. As a result the employer decided to stop paying him his salary and replaced it with a commission structure. The employee resigned and went to the CCMA where it was found that the employee had been a victim of unfair constructive dismissal. This was because the employee could not be expected to continue employment under such intolerable circumstances.

Employers need to be extremely careful that they do not discipline employees unfairly. Otherwise the employer might have to pay tens of thousands of rands in compensation and legal costs.

To observe our experts debating hot labour law topics please go to www.labourlawadvice and click on the Labour Law Debate item in the menu.

BY   Ivan Israelstam, Chief Executive of Labour Law Management Consulting. He may be contacted on (011) 888-7944 or 0828522973 or on e-mail address: ivan@labourlawadvice.co.za. Go to: www.labourlawadvice.co.za

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