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[2011] ZASCA 1
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South African Airways (Pty) Ltd v Aviation Union of South Africa and Others (123/2010) [2011] ZASCA 1; [2011] 2 BLLR 112 (SCA) ; 2011 (3) SA 148 (SCA) ; (2011) 32 ILJ 87 (SCA); [2011] 3 All SA 72 (SCA) (11 January 2011)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 123/2010
In
the matter between:
SOUTH
AFRICAN AIRWAYS (PTY) LIMITED
.................................................
Appellant
and
AVIATION
UNION OF SOUTH AFRICA
.............................................
First Respondent
BARNES,
M R AND 62 OTHERS
...........................................
2
nd
to 64
th
Respondents
SOUTH
AFRICAN TRANSPORT AND
ALLIED
WORKERS UNION
.................................................................
65
th
Respondent
LGM
SOUTH AFRICA FACILITY
MANAGERS
AND ENGINEERS (PTY)
LIMITED
................................................................................................
66
th
Respondent
ALLAN
AND 204 OTHERS
..............................................
67
th
to Further Respondents
Neutral
citation:
SAA v Aviation Union of SA
(123/10)
[2011] ZASCA
1
(11 January 2011)
Coram:
MPATI P, LEWIS, MHLANTLA and SHONGWE JJA
and EBRAHIM AJA
Heard: 8 November 2010
Delivered: 11 January 2011
Summary:
Labour Law –
s 197
of the
Labour Relations Act 66 of 1995
–
interpretation – termination of outsourcing agreements and
‘second generation’ transfers.
____________________________________________________________________
_
ORDER
On appeal from:
Labour Appeal Court
(Johannesburg) (Zondo JP and Davis and Leeuw JJA sitting as court of
appeal).
1 The appeal is upheld with costs including those
consequent upon the employment of two counsel.
2 The order of the Labour Appeal Court is set aside and
replaced with:
‘
The appeal is dismissed with
costs.’
___________________________________________________________________
JUDGMENT
LEWIS JA and EBRAHIM AJA (Mpati P, Mhlantla JA
concurring)
[1] This appeal concerns the interpretation of
s 197
of
the
Labour Relations Act 66 of 1995
. The section regulates, among
other things, the employment rights of employees of a business, or
part of a business, that is sold
as a going concern. It has been the
subject of much judicial interpretation, this case being one where
what is termed ‘second-generation
outsourcing’ is in
issue.
[2] Before turning to the facts it is
useful to deal with some terminology. Outsourcing itself refers to
the transfer of certain
work by an enterprise to a contractor. It
generally occurs where the managers of a business prefer to
concentrate on the core work
of the business and to enter into a
contract with another entity to perform services that are peripheral:
typical examples include
catering and cleaning.
1
[3] In
National
Education Health and Allied Workers Union v University of Cape Town
2
the Constitutional Court affirmed
that where an entity such as a university enters into contracts with
service providers to perform
work previously done by it, such as
catering or cleaning,
s 197
applies since the entity is transferring
a part of its business. The section reads:
‘
197
Transfer of contract of employment
(1) In this section and in
section 197A
–
(a) “business”
includes the whole or a part of any business, trade, undertaking or
service; and
(b) “transfer” means
the transfer of a business by one employer (“the old employer")
to another employer
(“the new employer”) as a going
concern.
(2) If a transfer of a business
takes place, unless otherwise agreed in terms of subsection (6) –
(a) 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;
(b) all the
rights and obligations between the old employer and an
employee
at the time
of the transfer continue in force as if they had been rights and
obligations between the new employer and the
employee
;
(c) anything
done before the transfer by or in relation to the old employer,
including the
dismissal
of an
employee or the commission of an unfair labour practice or act of
unfair discrimination, is considered to have been done by
or in
relation to the new employer; and
(d) the
transfer does not interrupt an
employee’s
continuity of
employment, and an
employee’s
contract of
employment continues with the new employer as if with the old
employer.’
[4] At issue in this appeal is
whether there has been a second or further transfer of a business as
a going concern by an old employer
to a new employer where there has
been one transfer of a business as a going concern (from A to B) and
possibly subsequent transfers:
by B back to A, or by B to C or by A
to C, but none of the transactions post the first transfer from A to
B has been proved to
have occurred. Transfers of workers’
employment contracts from A to B have, as we have said, been termed
‘first generation
outsourcing’. Subsequent transfers by B
(back to A or to C, or from A to C) have in the legal literature
generally, and in
several cases, been referred to as
‘second-generation outsourcing’. As Malcolm Wallis
3
points out, the transfer from A to C,
or from B to C, is nothing of the sort. Either the contract with the
first service provider
is terminated and A resumes performing the
services in issue, or A enters into a second (or third and so on)
contract with a different
service provider. In the latter case there
will be a transfer from A to C – a ‘first generation
outsourcing’.
As we shall show, there was no evidence in this
matter that in fact B had transferred the business back to A or to a
third party,
C, or that A had transferred the business as a going
concern to C, and the appeal requires a consideration of this as well
as the
interpretation of
s 197.
[5] The appellant, South African
Airways (Pty) Ltd (SAA), is the former employer of a large number of
employees whose contracts
of service were transferred to the 66
th
respondent, LGM South Africa Facility
Manager and Engineering (Pty) Ltd (LGM), when SAA entered into an
outsourcing agreement with
LGM in terms of which its infrastructure
and support service department were transferred to LGM.
[6] The material terms of the
outsourcing agreement were the following. The agreement took effect
on 1 April 2000 and would expire
at midnight on 31 March 2010; SAA
retained an option to renew the agreement for a further five years
after the initial expiry of
the agreement; assets and inventory of
SAA pertaining to the transferred services were sold to LGM and, on
termination of the outsourcing
agreement, SAA would be entitled to
repurchase the assets and inventory of LGM dedicated to providing the
services under the agreement;
LGM and SAA agreed that transferred
employees were deemed to have been employed by LGM in terms of
s
197(1)(b)
and
s 197(2)(a)
of the LRA;
4
LGM was afforded the access which was
reasonably required to render the services, to use the office space,
workshops, the airport
apron, computers and the network of SAA at all
designated airports; LGM was entitled to an annual fee for rendering
the outsourced
services to SAA; the agreement was administered by a
Joint Executive Committee comprising representatives of SAA and LGM
and of
importance to the present dispute was a provision in the
agreement (clause 27) that SAA retained the right to transfer certain
services and all functions to itself or to a third party and to
obtain transfer or assignment of LGM to SAA of all third party
contracts.
[7] In June 2007, due to a change in ownership of LGM,
SAA gave LGM notice of termination of the outsourcing agreement with
effect
from 30 September 2007, as it was entitled to do in terms of
clause 26.12 of the agreement. In August 2007, SAA advertised for
tenders for the various services then performed by LGM in terms of
the outsourcing agreement. On 17 August, SAA called on LGM to
implement the handover plan in terms of the outsourcing agreement and
indicated that it had no obligation towards the staff of
LGM who had
been engaged in the services provided pursuant to the agreement.
[8] LGM in turn gave notice to the affected employees of
its intention to dismiss them on the basis of reduced operational
requirements.
The 64 individual respondents were originally employees
of SAA whose employment contracts were transferred to LGM in terms of
the
outsourcing agreement or were subsequently employed by LGM. All
were engaged in the services provided by LGM in terms of the
agreement.
[9] On 14 September, partly in an effort to obtain
certainty about the employment status of these respondents as from 1
October,
and partly to obtain a commitment from SAA to assume
responsibility for the transfer of the contract of the individual
respondents,
the Aviation Union of South Africa (AUSA), the union
representing them, and which is the first respondent in this appeal,
wrote
to SAA requesting confirmation that the employees would be
transferred back to SAA on 1 October and that they should report for
duty on that date.
[10] SAA responded that it was not prepared to give such
an undertaking. This deadlock culminated in the launching by AUSA and
others
(including the 65
th
respondent, the South African
Transport and Allied Workers’ Union (SATAWU) of an application
for interim declaratory relief
in the Labour Court. In essence the
respondents claimed an order that the termination of the outsourcing
agreement, or SAA’s
resumption of part or all of the
undertaking or services previously conducted by LGM, gave rise to a
transfer to SAA in terms of
s 197
of the Act. In the alternative, an
order was sought that if SAA granted specific tenders to third
parties, the award of such tenders
would amount to a transfer to the
new contractors under
s 197.
Only AUSA and SATAWU have participated
in this appeal. We shall refer to these respondents for convenience
as ‘the trade
unions’.
[11] The question to be determined, in the view of
Basson J in the Labour Court, was ‘whether there can be a
section 197
transfer between the unsuccessful outgoing contractor and
the successful incoming contractor? Put differently, the question
which
arises is whether this “second outsourcing”
constitutes a transfer as contemplated by
section 197
of the LRA’.
[12] The Labour Court found that it
could not, on the facts, conclude that there would be a transfer of
employees from LGM to SAA.
It also found that
s 197
contemplated only
‘first generation outsourcing’ and that, accordingly,
s
197
was not applicable to this matter. Basson J said that the
intention of the legislature was clear: only a transfer of a business
by
an
old employer was governed by
s 197.
There had not, in this case, been
any transfer by SAA of a business as a going concern to any entity
other than the first transfer
to LGM. The prerequisite for the
application of
s 197
was thus not met. She dismissed the application
with costs.
[13] Basson J recognized, however,
that
s 197
should be interpreted so as to protect the work security
of employees affected by a business transfer. This was made clear in
Nehawu
5
where Ngcobo J said:
‘
But
the purpose of the Legislature involves protecting the interests of
both the employers and the workers. Employers are at risk
as far as
severance pay is concerned. Workers are at risk in relation to their
jobs. Properly construed
s 197
is for the benefit of both employers
and workers. It facilitates the transfer of businesses while at the
same time protecting the
workers against unfair job losses. That is a
balance consistent with fair labour practices.’
[14] However, Basson J concluded that the wording of the
section could not be rewritten so as to make it apply when there was
a
transfer ‘from’ an entity – the argument of the
trade unions being that there had been a transfer in 2007 from
SAA
once LGM ceased to be the employer. In any event, given that there
was no evidence of a transfer to SAA of any business, nor
of a
transfer to the service providers who took over the work on 1 October
2007,
s 197
was inapplicable.
[15] It should be noted that Basson J
considered the judgment of Murphy AJ in
Cosawu
v Zikhethele Trade (Pty) Ltd
6
where it was held that if a business
is transferred as a going concern in a second generation outsourcing
agreement, such a transfer
would fall within the ambit of
s 197.
She
distinguished
Cosawu
on the basis that there the second
business was so closely aligned to the first business that
s 197
was
applicable: in effect she considered that they were the same
business.
[16] The trade unions and the other
respondents appealed against the decision of the Labour Court to the
Labour Appeal Court which
found that the Labour Court had erred in
its approach to
s 197.
Davis JA (Leeuw JA concurring) adopted the
approach in
Cosawu
,
as did Zondo JP in a concurring judgment. They held that if a
business is transferred as a going concern in a second generation
outsourcing agreement, such a transfer (in this case
from
SAA) would fall within the ambit of
s
197.
[17] In
Cosawu
Murphy AJ, after referring to
Nokeng
Tsa Taemane Local Municipality v Metsweding District Municipality
,
7
said:
8
‘
Likewise,
I am persuaded that a less literal and more purposive approach is
justified in the context of
s 197.
. . . [T]he section is intended to
protect employees whose security of employment and rights are in
jeopardy as a result of business
transfers. A mechanical application
of the literal meaning of the word ‘by’ in
s 197(1)(b)
would lead to the anomaly that workers transferred as part of first
generation contracting-out would be protected whereas those
in a
second generation scheme would not be, when both are equally needful
and deserving of the protection. The possibility for
abuse and
circumvention of the statutory protections by unscrupulous employers
is easy to imagine. . . .’
[18] Murphy AJ considered that in the
circumstances it would be pragmatic to read ‘by’ as
‘from’. He said:
9
‘
A
pragmatic interpretation of this kind allows a finding that a
business in actual fact can be transferred by the old employer in
such circumstances, but that the transfer occurs in two phases: in
the first the business is handed back to the outsourcer and
in the
second it is awarded to the new employer. Importantly this
interpretation will be in conformity with the prescriptions of
s
39(2) of the Constitution obliging courts when interpreting
legislation to promote the spirit, purport and objectives of the
Bill
of Rights. By affording the same protection to employees affected by
first and second generation contracting out arrangements,
courts will
promote the spirit and advance the purport of equal treatment and
fair labour practices.’
As Wallis
10
observed of this reasoning,
interpreting ‘by’ to mean ‘from’ changes the
meaning of the definition, and
there was no justification for the
court’s changing the words that the legislature had used after
consideration and debate.
[19] Nonetheless, this was the reasoning of the Labour
Appeal Court in this matter too. But, as we shall demonstrate, this
approach
to interpreting legislation, and to the invocation of s
39(2), is not consonant with the approach of the Constitutional Court
and
this court, and the disregard of the words used by the
legislature on the basis of a general ‘fairness’
principle leads
not only to uncertainty but also to a failure to
observe the doctrine of separation of powers.
[20] SAA appealed against the Labour
Appeal Court’s decision, with the special leave of this court,
on two bases: first, that
the court below erred in its interpretation
of s 197 which is at odds with its ordinary meaning; and second, that
it erred in finding
on the facts that there was a transfer of a
business
as a going
concern
.
[21] The trade unions argued, on the other hand, that
the ‘purposive’ interpretation given to s 197 by the
Labour Appeal
Court is correct and should be adopted. Secondly, it
contended that the continuation of the services by SAA amounted to
the transfer
of a business as a going concern, as contemplated in s
197(1)(b).
[22] As we have said, to invoke the protection of s 197
the transfer must comprise two elements: there must be a transfer of
a business
as a going concern; and that transfer must be by the old
employer to the new employer. But the court below reasoned that an
examination
of the multiple meanings of the word ‘by’
indicated that the literal interpretation of the section, which would
preclude
any possible extension to second generation transfers, was
not justified linguistically. This was so because the wording of the
section does not necessarily mean that the transferor has to play an
immediate positive role in bringing about the transfer. Relying
on
the judgment of Murphy AJ in
Cosawu
, it approved the view that
a literal meaning of the word ‘by’ would lead to the
anomaly that workers transferred as
part of first generation
contracting out would be protected, but not those of the second
generation scheme, despite both being
equally deserving of the
protection afforded by s 197.
[23] Moreover, a literal interpretation, the Labour
Appeal Court found, again relying on
Cosawu
, was susceptible
to abuse by unscrupulous employers: employees might not only lose
their continuity of employment but also their
severance benefits
because the old employer, having lost its business to the new
employer, would lack the means to pay its debts
and in addition owed
no more obligation to any of those employees. Thus the court below
held that a literal interpretation of the
word ‘by’ in s
197 was subversive of the very purpose of the section and found that
a purposive construction of the
section was warranted.
[24] The trade unions argued that this is a permissible
form of interpretation when one is attempting to give effect to the
right
to fair labour practices, guaranteed by s 23(1) of the
Constitution, and the right to equality enshrined in s 9 of the Bill
of
Rights. These rights, they submitted, inform the proper meaning of
s 197, which would reinforce the primary object of the Act –
to
promote economic development, social justice, labour peace, and the
protection of employees against loss of employment. On the
facts of
the present matter, the ‘transaction’ would be covered by
the wording of s 197 – a transfer from SAA.
[25] SAA, on the other hand, urged us
to consider the plain and unambiguous choice of language in s 197 as
indicative of the legislature’s
intention that s 197 should
apply to a situation only where there are two elements to a
transaction: the transfer of a business
as a going concern, made
by
an old employer to a new employer. It
argued further that it was now trite that s 39(2) of the
Constitution, which compels an interpretation
of legislative
provisions in light of the values embedded in the Bill of Rights,
applies only where the language of the statute
is not unduly
strained. The Constitutional Court, in
Investigating
Directorate: Serious Economic Offences & others v Hyundai Motor
Distributors (Pty) Ltd & others
;
In Re Hyundai Motor
Distributors (Pty) Ltd & others v Smit NO & others
,
11
stated:
‘
. . .
[J]udicial officers must prefer interpretations of legislation that
fall within constitutional bounds over those that do not,
provided
that such an interpretation can be reasonably ascribed to the
section.
Limits must, however, be placed
on the application of this principle. On the one hand, it is the duty
of a judicial officer to interpret
legislation in conformity with the
Constitution so far as this is reasonably possible. On the other
hand, the Legislature is under
a duty to pass legislation that is
reasonably clear and precise, enabling citizens and officials to
understand what is expected
of them. A balance will often have to be
struck as to how this tension is to be resolved when considering the
constitutionality
of legislation. There will be occasions when a
judicial officer will find that the legislation, though open to a
meaning which
would be unconstitutional, is reasonably capable of
being read “in conformity with the Constitution”. Such an
interpretation
should not, however, be unduly strained.’
[26] Harms DP in
Minister of Safety and Security v
Sekhoto
12
most recently summarized these
principles, in so far as relevant here, as follows:
‘
. . .
There is a distinction between interpreting legislation in a way
which "promote[s] the spirit, purport and objects of
the Bill of
Rights" and the process of reading words into or severing them
from a statutory provision under s 172(1)(b), following
upon a
declaration of constitutional invalidity under s 172(1)(a).
. . . The first process, being
an interpretative one, is limited to what the text is reasonably
capable of meaning. The second can
only take place after the
statutory provision, notwithstanding the application of all
legitimate interpretative aids, is found
to be constitutionally
invalid.’
[27] And of course in
S
v Zuma
13
the Constitutional Court cautioned
against using the Constitution to interpret the language of
legislation to mean whatever a court
wants it to mean. It would
appear that in
Cosawu
and this case the courts considered
that a particular outcome promoted the objects of the Act and the
section in particular, and
disregarded the intention of the
legislature as manifested in the clear language of the section.
[28] There was no challenge to the
constitutionality of s 197 in this matter. A collateral challenge in
the guise of reading a word
to mean something different is simply not
legitimate. See in this regard
The
Law Society of the Northern Provinces v Mahon.
14
It would be tantamount to usurping
the role of the legislature.
[29] In
Standard
Bank Investment Corporation Ltd v Competition Commission &
others
;
Liberty
Life Association of Africa Ltd v Competition Commission & others
15
this court dealt with the
interpretation of the
Competition Act 89 of 1998
, the issue in the
appeal being whether the Competition Commission is one of the
regulatory authorities whose approval of a bank
merger and an
insurance merger is required. Various arguments against a literal
interpretation of the section were raised in favour
of a purposive
construction. Whilst recognizing the need to give effect to the
object or purpose of legislation, the court stressed
that it is not
the function of a court to do violence to the language of a statute
and impose its view of what the policy or object
of a measure should
be. It quoted the the dictum of Innes CJ in
Dadoo
Ltd & others v Krugersdorp Municipal Council
:
16
‘
Speaking
generally, every statute embodies some policy or is designed to carry
out some object. When the language employed admits
of doubt, it falls
to be interpreted by the Court according to recognized rules of
construction, paying regard, in the first place,
to the ordinary
meaning of the words used, but departing from such meaning under
certain circumstances, if satisfied that such
departure would give
effect to the policy and object contemplated. I do not pause to
discuss the question of the extent to which
a departure from the
ordinary meaning of the language is justified, because the
construction of the statutory clauses before us
is not in
controversy. They are plain and unambiguous. But there must, of
course, be a limit to such departure. A Judge has authority
to
interpret, but not to legislate, and he cannot do violence to the
language of the lawgiver by placing upon it a meaning of which
it is
not reasonably capable, in order to give effect to what he may think
to be the policy or object of the particular measure.’
Thus the court stressed the limits of
judicial interpretation and held that to do otherwise would be to
fail to respect the separation
of powers and to usurp the function of
the legislator. In our view, the advent of the Constitution has not
changed this fundamental
principle.
17
[30] In
South
African Police Service v Public Servants Association
18
the Constitutional Court dealt with
the interpretation of the Police Service Regulations in a purposive
and contextual sense, where
the regulations in question were designed
to serve diverse purposes in a complex context. The court emphasised
that a purposive
approach to interpretation does not give a court
licence, through an interpretative exercise, to distort the ordinary
meaning of
words beyond that which those words are reasonably capable
of bearing. Sachs J said:
‘
Interpreting
statutes within the context of the Constitution will not require the
distortion of language so as to extract meaning
beyond that which the
words can reasonably bear. It does, however, require that the
language used be interpreted as far as possible,
and without undue
strain, so as to favour compliance with the Constitution. This in
turn will often necessitate close attention
to the socio-economic and
institutional context in which a provision under examination
functions. In addition it will be important
to pay attention to the
specific factual context that triggers the problem requiring
solution.’
[31] SAA contended that the interpretation favoured by
the Labour Appeal Court represents a radical departure from the
fundamental
rule of statutory construction: that when the language
chosen by the legislature is clear, words have to be given their
ordinary
grammatical meaning in the context in which they appear in
the statute. The choice of language in s 197 is plain and
unambiguous.
By the deliberate use of the word ‘by’, the
legislature showed that it intended s 197 to apply to a situation
where
there are at least two positive actors in the process. The
ordinary meaning of the word ‘by’ requires positive
action
from the old employer who transfers the business to the new
employer. Broken down to its essential components s 197(1)(b), in the
context of the section as a whole, has the following unambiguous
meaning: the word ‘by’ identifies the old employer
as the
means or instrumentality for effecting the transfer of the business;
the definition of ‘transfer’ identifies
the entity to
which the business is transferred, namely the new employer; and the
section then identifies the consequences of the
transfer for the new
employer, the old employer and the affected employees. To interpret
the word ‘by’ to mean ‘from’,
as the court
below did, argued SAA, not only strains the meaning of the word but
also fundamentally changes the meaning of the
section as a whole
since it no longer requires any action on the part of the old
employer. This is not consonant with the intention
of the legislature
as evinced by the ordinary meaning of the word ‘by’.
[32] The ‘purposive’ interpretation adopted
by the Labour Appeal Court was aimed, it said, at preventing abuse.
This
concern on the part of the court is misconceived because there
is, as SAA argued, no suggestion of any abuse in the present case.
And even if we accepted that such abuse is possible, that is no
reason to distort the plain meaning of the section. We accordingly
conclude that the Labour Appeal Court erred in adopting an approach
to the interpretation of s 197 which is at odds with the ordinary
meaning of the words chosen by the legislature. By interpreting the
word ‘by’ to mean ‘from’ the court
impermissibly distorted the meaning of the word.
[33] The second ground on which the
LAC erred, argued SAA, is that the evidence did not establish that
there was a transfer of a
business activity as a going concern. What
is meant by ‘going concern’ is ‘a business in
operation’ and
whether transfer has occurred is a factual
matter, to be determined objectively by reference to all relevant
factors considered
cumulatively, the list not being exhaustive and
none of the factors being individually decisive:
Nehawu
.
19
[34] The Labour Court, in concluding that there was no
transfer of a going concern, had regard to the lack of an agreement
regulating
the re-transfer of employees back to SAA from LGM, and the
lack of any indication that the services would revert to SAA. The
Labour
Appeal Court, on the other hand, did not delve into the
factual question whether there was a transfer as a going concern:
instead
it held that s 197 covers the situation ‘whereby, after
SAA cancelled the mutual outsourcing agreement, it invoked clause
27
of the outsourcing agreement to compel LGM to implement the handover
plan’. That court did not consider what this handover
plan
entailed and whether the issues dealt with in it permitted the
conclusion that there was a transfer of a business as a going
concern. On the evidence, argued SAA, the only document referring to
the ‘hand over plan’ was a letter from SAA, annexed
to
the second and third respondent’s answering affidavit. In the
letter SAA pointed out that a plan must, without delay,
be developed
for a hand-over process as envisaged in the outsourcing agreement and
be implemented. There is no evidence whatsoever
that such a hand-over
process was actually implemented, what it entailed and when the
process was completed. Thus no facts existed,
when the application
was brought, to sustain a finding that a transfer as a going concern
did take place.
[35] In this respect the approach of
the Labour Appeal Court, in finding that an evidential basis did
exist for finding that any
transfer of a business as a going concern
occurred, was clearly wrong. Where parties wish to enter into an
outsourcing agreement,
and then for the business to revert to the
outsourcer, or to be transferred to another provider, there must be a
clear re-transfer,
demonstrated through written contracts or conduct,
of all assets and obligations of the business, including the transfer
of workforce
rights and obligations so that no difficulty arises in
invoking the protection afforded by s 197 to affected employees who
have
been involved in carrying out the services provided for in the
initial outsourcing agreement. As was held in
Crossroads
Distribution (Pty) Ltd t/a Jowells Transport v Clover SA (Pty) Ltd
:
20
‘
The
entity which provided the service in this case was not transferred at
any stage. There was no transfer of any kind, only the
conclusion of
separate transactions starting with the termination of one contract
and ending in a new contract. A transferring
party (“old
employer”) and a transferee (“new employer”) as
envisaged by section 197 are also not identifiable
in this case. Here
is a situation where an institution ─ if I may borrow a term
from counsel for Crossroads ─ on termination
of a contract
which it has concluded as principal for the provision of services,
contracts with another provider for the same service.
Section 197 as
it stands does not apply to such a situation. This can be
demonstrated with an example in the heads of argument
filed by
Crossroads. A municipality has a contract with a certain car hire
company (“company A”) to meet the travel
needs of its
employees. If it then terminates that contract and concludes a
contract with “company B”, must all the
employees of
company A now be employed by company B? Surely not.’
[36] The trade unions argued, however, that on
termination of the outsourcing agreement between LGM and SAA, the
only probable inference
to be drawn was that there was a ‘double
transfer’, that is a transfer by LGM to SAA at midnight on 30
September 2007,
and a transfer by SAA thereafter to the entity that
commenced providing the services in question. Counsel argued that it
is an
absolute precondition that every time there is an outsourcing
agreement, on its termination there is automatically a transfer back
to the original owner, provided the latter remains the owner of the
assets which had been transferred in terms of the initial agreement.
[37] The trade unions argued also that it was clear on
the facts before us that the respondents had established that a
transfer
of business activities as a going concern would take place
at midnight on 30 September despite there being a lacuna in the
evidence
placed before the Labour Court by way of affidavits from
which such a conclusion could be reached. It referred to its founding
papers in which it was alleged that from 1 October 2007, SAA would
either have had to provide the services itself or it would have
had
to engage one or more service providers. SAA’s response was
that after completion of the tender process, the successful
bidder
would commence rendering services, without being specific as to who
would provide these services from 1 October 2007 until
the tender
process had been completed. It emphasized the fact that SAA had at no
stage indicated that the services would not continue
after midnight
30 September.
[38] As authority for the proposition
that a transfer contemplated by s 197 was possible in the
circumstances, and does in fact
occur in such cases, the trade unions
referred to an English case,
Dines
& others v Initial Health Care Services Ltd and Pall Mall
Services Group Ltd.
21
Here the appellants were employed as
cleaners at a hospital by the first respondent who held a contract
for cleaning services for
the Health Authority. On expiration of the
contract on 30 April 1991, and after a competitive tendering process,
the contract was
awarded to the second respondent as from 1 May. The
appellants were dismissed by the first respondent on the grounds of
redundancy
and given redundancy payments. On 1 May they commenced
employment with the second respondent and continued to carry out the
cleaning
service at the hospital. In these circumstances the Court of
Appeal held that the Industrial Tribunal before which the appellants
had instituted proceedings against the first respondent for unfair
dismissal, had misdirected itself by finding that there was
no
transfer of an undertaking when the second respondent took over the
hospital cleaning contract from the first respondent. It
held that as
the cleaning services were to be carried out by essentially the same
labour force on the same premises and for the
same health authority,
there was a transfer of an undertaking which took place in two
phases: the handing back by the first respondent
to the health
authority of the cleaning services at the hospital; and the handing
over by the health authority of the cleaning
services to the second
respondent on the following day.
[39] Counsel for the trade unions stressed that what is
significant in deciding whether there had been a transfer in
circumstances
where SAA had played the role of facilitator, as in a
transfer of the business by LGM to SAA, and then yet another transfer
to
the third contracting party, are the tangible and intangible
assets which are in fact transferred to ensure continuation of the
business activity. But there was no evidence that any such assets
would be transferred, given that the relief was sought before
the
date of termination of the contract between SAA and LGM.
[40] In motion proceedings, as these
were, courts are bound to decide matters of fact on the papers before
them. It is not permissible
to make findings of fact only on a
weighing up of the probabilities:
Administrator,
Transvaal & others v Theletsane & others.
22
Botha JA said that ‘in motion
proceedings, as a general rule, decisions of fact cannot properly be
founded on a consideration
of the probabilities, unless the Court is
satisfied that there is no real and genuine dispute on the facts in
question . . .’.
He continued to say that ‘the room for
deciding matters of fact on the basis of what is contained in a
respondent’s
affidavits, where such affidavits deal equivocally
with facts that are not put forward directly in answer to the factual
grounds
for relief on which the applicant relies, if it exists at
all, must be very narrow indeed’.
[41] In the absence of a factual basis for the Labour
Court to have concluded that there was a transfer of a business as a
going
concern by LGM either to SAA or to another entity, its decision
to dismiss the application was correct. Accordingly the Labour Appeal
Court erred in upholding the appeal to it.
[42] 1 The appeal is upheld with costs including those
consequent upon the employment of two counsel.
2 The order of the Labour Appeal Court is set aside and
replaced with:
‘
The appeal is dismissed with
costs.’
____________________
C H Lewis
Judge of Appeal
____________________
S Ebrahim
Acting Judge of Appeal
SHONGWE JA (dissenting)
[ 43] I have read the judgment of Lewis JA and Ebrahim
AJA, and regrettably, I do not agree with the order proposed by them.
It
will not be necessary for me to deal with the facts of the appeal
as they appear in detail in the main judgment.
[44 ] My point of departure is that when one looks at
the nature of the transaction and the purpose of section 197, it
becomes clear
that by operation of law there must have been a
continuation of the services provided by LGM to SAA or any third
party resulting
from the termination of the outsourcing agreement.
[45] The purpose of section 197 is to protect the
interest of both the worker and the employer. Also to give
consideration to the
interests of the third party who would take over
the services – see
National Education,
Health and Allied Workers’ Union v University of Cape Town
2003 (3) SA 1
(CC) at 29 para 62 (See also
Chirwa
v Transnet Ltd & Others
[2007] ZACC 23
;
2008 (4) SA 367
(CC) para 110).
[46] The majority judgment makes the point that there is
a paucity of evidence regarding what was actually transferred. Even
counsel
for SAA argued that there is a lack of evidence and that the
Unions bear the onus. It is further argued that the Unions could have
approached the court with a request to lead further evidence on or
after the termination of the outsourcing agreement.
[47] In my opinion there is no need to embark on an
exercise to define or analyse whether the word ‘by’ in
the definition
of transfer means that the old employer must be the
one taking a positive and active role in the proposed transfer. In
the present
case clause 27 of the Outsourcing Agreement makes
provision for LGM to positively assist SAA in the manner described in
the clause
to effect the transfer. Therefore upon termination of the
Outsourcing Agreement the transfer would be effected by LGM to SAA
who
will now become the new employer. It is unimaginable how SAA
would conduct the tender process if it did not receive transfer from
LGM. Even the benefits that LGM was enjoying under the outsourcing
agreement came to an end. This clearly demonstrates the understanding
by the parties of the concept of outsourcing.
[48] The transaction is structured in such a manner that
upon termination of the outsourcing agreement, LGM must transfer, as
a
going concern of course, back to SAA whatever LGM received from the
initial outsourcing agreement.
[49] The factual evidence exists in the form of
circumstantial evidence and in the form of the understanding that
exists between
the contracting parties dealing with second generation
outsourcing. The purposive interpretation method takes care of
avoiding
the potential of abuse by employers of the outsourcing
concept of doing business especially in protecting the employee. I,
with
respect, embrace the reasoning and conclusion of counsel for the
respondent as explained in para 24 of the main judgment.
[50] Courts must avoid becoming too legalistic in
approaching matters of interpretation. Lord Greene M R in
Bidie
v General Accident Fire and Life Assurance Corporation Limited
[1949] 1 Ch 121
at 129 said the following:
‘
The
first thing to be done, I think, in construing particular words in a
section of an Act of Parliament is not to take those words
in vacuo,
so to speak, and attribute to them what is sometimes called their
natural or ordinary meaning. Few words in the English
language have a
natural or ordinary meaning in the sense their meaning is entirely
independent of their context. The method of
construing statutes that
I myself prefer is not to take out particular words and attribute to
them a sort of prima
facie
meaning
which as a whole and ask myself the question: “In this statute,
in this context, relating to this subject-matter,
what is the true
meaning of that word?” In the present case, if I might
respectfully make a criticism of the learned judge’s
method of
approach, I think he attributed too much force to the abstract or
unconditioned meaning of the word “representation’”
No doubt in certain contexts the word “representation”
would b e sufficient to cover not merely probate, not merely
letters
of administration with the will annexed, but administration
simpliciter. The real question that we have to decide is, what
does
the word mean in the context in which we here find it, both in the
immediate context of the sub-section in which the word
occurs and in
the general context of the Act, having regard to the declared
intention of the Act and the obvious evil that it is
designed to
remedy.’
[51] SAA failed to volunteer information after receiving
the application initially, as to what was going to happen upon
termination
of the outsourcing agreement. There is no doubt that a
second generation outsourcing was on the cards and SAA knew very well
in
advance what it was going to do. It would be unfair and unjust to
expect the workers not to have approached the court immediately
after
hearing that new tenders had been advertised. It could have been
prejudicial to them if they waited after the termination.
For them to
stay protected by the law, they deemed it prudent to approach the
court on an urgent basis before termination lest
they were estopped
from exercising their right.
[52] Section 39(2) of the Constitution 108 of 1996
provides that ‘when interpreting any legislation, and when
developing the
common law or customary law, every court, tribunal or
forum must promote the spirit, purport and objects of the Bill of
Rights.’
It is trite that courts should strive to promote the
establishment of a society based on democratic values, social justice
and
fundamental human rights. To construe the provisions of section
197 otherwise than to give effect to its purpose, would encourage
the
abuse of employees by employers.
[53] I associate myself with the findings and conclusion
of the LAC, and would propose the following order:
‘
The appeal is to be dismissed
with no order as to costs.’
___________________
J SHONGWE
Judge of Appeal
APPEARANCES
APPELLANT: GJ Marcus SC (with him Ms K Pillay & Ms N
Mji)
Instructed by Cliffe Dekker Hofmeyr Inc, Sandown
Naudes, Bloemfontein
FIRST TO 64
TH
RESPONDENTS: JG van der Riet SC
(with him Ms I de Vos)
Instructed by Ruth Edmonds Attorneys, Johannesburg
McIntyre & Van der Post, Bloemfontein
65
th
RESPONDENT: Webbers, Bloemfontein
Instructed by Cheadle Thompson & Haysom,
Johannesburg
1
A
useful discussion of outsourcing by Malcolm Wallis is to be found in
‘Is Outsourcing In? An Ongoing Concern’ (2006)
27
ILJ
1.
2
2003
(3) SA 1
(CC).
3
Op
cit p 2.
4
The
section itself now provides expressly that 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. The provision was inserted in
2002:
previously there had been some doubt – settled in
Nehawu
above – whether there was an automatic
transfer of rights of employment to the new employer.
5
Above,
para 70.
6
[2005]
9 BLLR 924
(LC).
7
(2003)
24
ILJ
2179
(LC) at 2183.
8
Para
29.
9
Para
29.
10
Op
cit p 11.
11
[2000] ZACC 12
;
2001
(1) SA 545
(CC) paras 23-24.
12
(131/10)
[2010] ZASCA 141
(19 November 2010).
13
[1995] ZACC 1
;
1995
(2) SA 642
(CC) paras 17-18.
14
(86/2010)
[2010] ZASCA 175
(2 December 2010).
15
[2000] ZASCA 20
;
2000
(2) SA 797
(SCA).
16
1920
AD 530
at 543.
17
See
also Wallis op cit p 11.
18
2007
(3) SA 521
(CC) para 20.
19
Above,
para 56.
20
[2008]
6 BLLR 565
(LC) para 15.
21
[1994]
IRLR 336
(CA).
22
[1990] ZASCA 156
;
1991
(2) SA 192
(A) at 196I-197D.