Brief Summary

Labour Law — Outsourcing agreements — Termination — Applicants sought declaratory and interdictory relief following the termination of outsourcing agreements by respondents — Agreements included provisions for the application of section 197 of the Labour Relations Act 66 of 1995 regarding the transfer of employees — Respondents provided notice of termination, asserting that they would not continue providing services — Legal issue centered on whether the termination triggered the application of section 197 — Court held that the termination of the outsourcing agreements did indeed attract the provisions of section 197, obligating the respondents to comply with the transfer of employees as stipulated in the agreements.

Comprehensive Summary

Summary of Judgment

Introduction

The proceedings were brought as an urgent application in the High Court of South Africa, Western Cape Division, seeking primarily declaratory and interdictory relief arising from the termination of two outsourcing agreements, together with related payment relief.

The first applicant was Procare Outsourcing (Pty) Ltd (“Procare”), an outsourced resources provider supplying nursing staff and care workers to facilities managed by the respondents. The second applicant was the Agricultural, Food, Fishing and Retail Industry Workers Union (“AFRIWU”), a registered trade union that purported to represent certain employees of Procare. The first and second respondents were PGR Management t/a Palm Garden Retreat Management (Pty) Ltd (“PGR”) and Gragood Developments (Pty) Ltd (“Gragood”). Three further respondents were cited, but no substantive relief was sought against them.

The application was instituted on 7 August 2020, heard on 13 August 2020, and judgment was delivered on 20 August 2020. The court accepted that the matter was urgent and condoned non-compliance with ordinary time limits accordingly.

The dispute concerned the consequences of termination of outsourcing agreements that regulated the provision of nursing and caring services, and in particular whether the termination triggered the operation and implementation of section 197 of the Labour Relations Act 66 of 1995 (“the LRA”), and whether the High Court had jurisdiction to grant the relief sought. A further issue concerned whether Procare was entitled to payment of specific amounts claimed for July 2020 services, despite the respondents’ reliance on set-off.

Material Facts

In August 2019, Procare concluded two outsourcing agreements with PGR and Gragood respectively. The agreements were in identical terms and were treated collectively by the court as “the outsourcing agreements”. It was common cause that, before the outsourcing agreements were concluded, PGR and Gragood themselves provided the nursing and care services that were subsequently outsourced to Procare.

The outsourcing agreements contained detailed clauses (clauses 13.1 to 13.5) regulating the application and implementation of section 197 of the LRA in relation to employees who had been employed by PGR and Gragood to perform those services at the time the outsourcing commenced. Clause 13.1 expressly recorded that the outsourcing arrangement would constitute a transfer as contemplated in section 197, with section 197 applying to the agreement.

The agreements also contained clause 13.6, providing that if the agreement was terminated “for whatsoever reason” and the client (PGR or Gragood) continued providing nursing and caring services beyond the termination, then the termination would “attract the provisions of section 197 of the LRA”.

On 7 July 2020, PGR and Gragood gave Procare two months’ written notice terminating the agreements in terms of clause 20.4 (termination for convenience on two months’ notice). Procare responded on 10 July 2020 by referring to clause 13.6 and indicating that the parties and staff would need to engage in a tripartite arrangement.

PGR immediately responded that it would not be providing nursing and caring services, and that Procare should take steps arising from termination of the contract. Procare’s attorneys, on 14 July 2020, disputed the cancellation and the respondents’ entitlement to cancel until obligations under clause 13.6 were complied with.

Thereafter, the respondents purported to terminate summarily. Gragood delivered a notice on 16 July 2020 alleging dishonesty by Procare in relation to “Home Based Care” services and reconciliation of profits. PGR delivered a notice on 28 July 2020 alleging breach by Procare, including an alleged failure to supply nine senior staff members for the preceding six days.

In relation to payment, it was common cause that the parties had followed a practice in which Procare issued pro forma accounts or “sales orders” in advance, the respondents paid in advance, Procare paid employee salaries, and thereafter a month-end reconciliation was performed reflecting commission and VAT and any balance due. Procare sought urgent payment of amounts reflected in sales orders issued during July 2020, contending that it needed those funds to pay employee salaries.

It was also expressly acknowledged by Procare in the founding papers that there was a broader dispute about the full outstanding amounts due in respect of July 2020 services, and that either party could institute action proceedings later regarding that dispute. The respondents, for their part, did not squarely deny the existence of the sales orders debt but contended that any liability to pay was extinguished by set-off, relying on an intended counterclaim based on suspected double billing that still required reconciliation and quantification.

After termination notices, Procare notified the respondents that it was forced to proceed with a section 189 LRA process, and it appeared from the papers that such a process commenced shortly thereafter. The affected employees were not cited as parties to the application.

Legal Issues

The central legal questions were, first, whether the High Court had jurisdiction to determine and grant the declaratory and interdictory relief sought in relation to section 197 of the LRA, given the scheme of exclusive Labour Court jurisdiction under section 157 of the LRA. This was primarily a question of law, determined by reference to the pleaded cause of action and the statutory allocation of jurisdiction.

Secondly, the court had to consider whether it should determine a contractual dispute concerning whether the outsourcing agreements were validly terminated on notice (terminating 31 August 2020), or whether the later purported summary terminations were effective, and whether the High Court should entertain that dispute in circumstances where it was closely connected to prospective section 197 litigation in the Labour Court. This raised questions concerning the application of law to fact (contractual termination provisions applied to undisputed and disputed termination notices) and also involved a discretionary or evaluative determination about the appropriate forum in the interests of justice.

Thirdly, the court had to decide whether Procare was entitled, on motion, to urgent payment of specified amounts for July 2020 sales orders, and whether the respondents’ reliance on set-off created a genuine dispute defeating such relief. This involved the application of established principles of set-off to the facts, including whether the alleged counter-indebtedness was liquidated and due and payable.

Court’s Reasoning

The court approached jurisdiction by emphasising that parties cannot confer jurisdiction by agreement. Although clause 29.2 of the outsourcing agreements purported to provide that the High Court had exclusive jurisdiction over disputes arising out of the agreements, the court held that jurisdiction must be determined in accordance with applicable law, not by the parties’ contractual choice.

Applying section 157(1) of the LRA, the court noted that, because no violation of constitutional rights was alleged, the question was whether the matter concerned issues that the LRA (or other law) required to be determined by the Labour Court. The court adopted an expansive approach to section 157(1), consistent with Constitutional Court and Supreme Court of Appeal authority emphasising the role of the Labour Court as a specialist forum and discouraging forum shopping.

Against that background, the court reasoned that the interpretation, application, and implementation of section 197 of the LRA fall squarely within the exclusive jurisdiction of the Labour Court. It noted that section 197 regulates core employment consequences of transfers as going concerns and sits within the broader statutory framework governing employment relationships. The court referred to section 158(1) of the LRA, which empowers the Labour Court to grant compliance orders, interdicts, and declarators in relation to disputes arising from section 197, and to section 182 of the LRA, which ensures alignment with Labour Appeal Court jurisprudence.

When assessing the applicants’ request for a declaration that termination of the outsourcing agreements “attracted” section 197 and for interdictory relief compelling steps to implement section 197, the court held that granting such relief would necessarily require it to determine whether section 197 was triggered. That determination depends on whether there is, objectively, a transfer of a business as a going concern under section 197(1), which is a factual and legal enquiry guided by specialist labour jurisprudence. The court stressed that this cannot be determined merely by the parties’ intention or contractual stipulation (such as clause 13.6); it requires an objective evaluation of the transaction’s substance, including factors such as transfer of assets, taking over employees, and continuity of business operations. On this basis, the High Court concluded it lacked jurisdiction to grant the section 197-related declaratory and interdictory relief.

Regarding the declaratory relief sought on termination (a declaration that the agreements were validly cancelled on notice on 6 July 2020 and would terminate on 31 August 2020), the court accepted that this issue could be determined as a contractual matter without interpreting or applying section 197. It therefore fell within the concurrent jurisdiction of the High Court and Labour Court. However, the court took account of the close connection between the termination issue and the prospective section 197 dispute, and the practical risk that determination by the High Court could delay section 197 proceedings if appeals followed in a different hierarchy of courts, to the detriment of those seeking urgent labour-related clarity, particularly where retrenchment processes had commenced.

The court then considered the doctrine of continentia causae (cohesion of a cause of action), noting authorities recognising that a court with jurisdiction over part of a dispute may assume jurisdiction over the whole where convenience, justice and good sense justify that. The court reasoned that the doctrine could also support the converse outcome in appropriate circumstances, namely that the High Court could decline to exercise its jurisdiction over part of a dispute in favour of a specialist court determining the matter holistically. The court held that, in the interests of justice, convenience and good sense, the termination issue should be dealt with by the Labour Court, and therefore declined to determine it in this application.

In respect of the payment relief, the court treated Procare’s claim as grounded in the contractual relationship and not dependent on section 197 or other LRA provisions. The High Court therefore had jurisdiction to determine it. The respondents’ opposition rested not on a denial of the sales orders indebtedness, but on the contention that liability was extinguished by set-off based on an intended counterclaim.

The court applied trite principles that set-off operates only where there are mutual debts that are both liquidated and due and payable. On the respondents’ own version, their counterclaim was based on suspicion of double billing, required a full debatement of account, and was still being quantified and reconciled. The court concluded that the respondents had not established a liquidated debt capable of set-off and that their opposition did not create a dispute of fact sufficient to defeat payment on the papers. The court therefore granted payment orders limited to the specific sales orders proven and identified in the final order.

On costs, the court reasoned that the applicants had succeeded only to a small extent (payment relief) and were substantially unsuccessful on the core section 197 and related declaratory/interdictory relief. It therefore ordered the applicants to pay 80% of the respondents’ costs.

Outcome and Relief

The court condoned the applicants’ non-compliance with the Uniform Rules of Court applicable to service and time limits and heard the matter as urgent in terms of Rule 6(12)(a).

The court granted payment relief directing PGR to pay R150 821.82 to Procare in respect of sales orders SO024 and SO022 dated 15 July 2020 within seven days, and directing Gragood to pay R65 207.75 to Procare in respect of sales order SO023 dated 7 July 2020 within seven days.

The court dismissed the application for the remaining relief sought in prayers 2, 3, 4, 5 and 6 of the notice of motion, which included the declarators and interdictory relief concerning termination and the application and implementation of section 197.

The applicants were held jointly and severally liable for 80% of the respondents’ costs.

Cases Cited

Fredericks and Others v MEC for Education and Training Eastern Cape and Others 2002 (2) BLLR 119 (CC).

Gcaba v Minister for Safety and Security and Others [2009] 12 BLLR 1145 (CC).

Motor Industry Staff Association v Macun NO and Others 2016 37 ILJ 625 (SCA).

Chirwa v Transnet Limited and Others (2008) 29 ILJ 73 (CC).

O Thorpe Construction and Others v Minister of Labour and Others (2015) 36 ILJ 935.

Makhanya v University of Zululand 2010 (1) SA 62 (SCA).

South African Municipal Workers Union and Others v Rand Airport Management Co (Pty) Ltd and Others (2005) 26 ILJ 67 (LAC).

National Education Health and Allied Workers Union v University of Cape Town and Others 2003 (3) SA 1 (CC).

National Education Health and Allied Workers Union v University of Cape Town and Others 2002 (4) BLLR 311 (LAC).

Roberts Construction Co Ltd v Wilcox Bros (Pty) Ltd 1962 (4) SA 326 (A).

Permanent Secretary, Department of Welfare, Eastern Cape Provincial Government and Another v Ngxuza and Others 2001 (4) SA 1184 (SCA).

Schierhout v Union Government (Minister of Justice) 1926 AD 286.

Lester Investments (Pty) Ltd v Narshi 1951 (2) SA 464 (C).

Bhima v Proes Street Properties (Pty) Ltd 1956 (1) SA 458 (T).

Whelan v Oosthuizen 1937 TPD 304.

Legislation Cited

Constitution of the Republic of South Africa, 1996, section 173.

Labour Relations Act 66 of 1995, sections 157, 158, 182, 189 and 197.

Basic Conditions of Employment Act 75 of 1997.

Rules of Court Cited

Uniform Rules of Court, Rule 6(12)(a).

Held

The High Court held that it lacked jurisdiction to grant the declaratory and interdictory relief requiring it to determine and enforce the application and implementation of section 197 of the LRA, because such matters fall within the exclusive jurisdiction of the Labour Court under section 157(1) of the LRA.

The High Court further held that, although the contractual termination question could in principle fall within its concurrent jurisdiction, it would not determine that issue in the urgent application, because it was in the interests of justice, convenience, and good sense that the Labour Court should decide matters integrally connected to the section 197 dispute.

The High Court held that Procare was entitled to payment of the amounts proved in respect of specified July 2020 sales orders, and that the respondents’ reliance on set-off failed because the alleged counter-indebtedness was not shown to be liquidated and due and payable.

LEGAL PRINCIPLES

Jurisdiction in labour-related disputes is determined by the statutory allocation of power under the LRA, assessed with reference to the pleaded cause of action, and not by contractual forum-selection clauses purporting to confer jurisdiction on the High Court.

The interpretation, application, and implementation of section 197 of the LRA, including whether section 197 is triggered by a transaction as a transfer of a business as a going concern, are matters that fall within the exclusive jurisdiction of the Labour Court. Whether a transfer has occurred is to be determined objectively in the light of all the facts and the substance of the transaction, and not by the parties’ intention or contractual characterisation alone.

Even where the High Court has jurisdiction over a contractual issue connected to labour consequences, it may, in an appropriate case, decline to exercise that jurisdiction on evaluative grounds informed by considerations of justice, convenience, and good sense, particularly where fragmentation of proceedings could cause delay and prejudice, and where a specialist court is better placed to determine the connected dispute.

Set-off operates only when mutual debts are both liquidated and due and payable. An unquantified, speculative, or reconciliation-dependent counterclaim is insufficient to establish a liquidated debt capable of set-off on motion proceedings, and does not without more create a dispute of fact defeating payment relief.

Procare Outsourcing (Pty) Ltd and Another v PGR Management t/a Palm Garden Retreat Management (Pty) Ltd and Others (10676/2020) [2020] ZAWCHC 113 (20 August 2020)