Foodgro, a division of Leisurenet Limited v Carol Keil (JA63/98) [1999] ZALAC 10 (24 June 1999)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Labour Appeal Court
SAFLII
>>
Databases
>>
South Africa: Labour Appeal Court
>>
1999
>>
[1999] ZALAC 10
|

|

Foodgro, a division of Leisurenet Limited v Keil (JA63/98) [1999] ZALAC 10; [1999] 9 BLLR 875 (LAC); (1999) 20 ILJ 2521 (LAC) (24 June 1999)

IN
THE LABOUR APPEAL COURT OF SOUTH AFRICA
HELD AT
JOHANNESBURG
CASE NO : JA 63/98
In
the matter between :
FOODGRO, a division of
LEISURENET LIMITED
Appellant
(Respondent
in the court a quo)
and
CAROL KEIL
Respondent
(Applicant
in the court a quo)
JUDGMENT
FRONEMAN
DJP :
[1] What is the effect on the
employment of an employee when her old employer transfers the
business where she works to someone else?
That is the issue that
needs to be decided in this appeal.
[2] On 1 February 1993 the
respondent (“the employee”) was appointed by MacRib Fast Food
Systems (Pty) Ltd (“MacRib”) as
its national public relations
officer and marketing manager. Just on four years later, on 1
January 1997, MacRib was acquired
as a going concern by the
appellant (“Foodgro”). MacRib told the employee of the
impending transfer of the business and promised
her that Foodgro
would employ her on the same terms and conditions as it, MacRib had
done. She continued working in her previous
position after the
transfer. On 23 January 1997 she signed a letter of appointment
setting out the terms and conditions of her
employment with Foodgro.
[3] The new letter of
appointment contained essentially the same terms and conditions as
the old contract of employment. It did,
however, record that the
appointment was effective only from 1 January 1997; that the first
three months of her employment would
be of a probationary nature;
and that the letter of appointment comprised the entire contract of
employment.
[4] On 30 May Foodgro informed
the employee that her services would be terminated on 30 June due to
operational needs. This letter
was preceded by two meetings held on
26 and 27 May between Foodgro officials and the employee. On
termination of her services
the employee was paid severance on the
basis that she had only been employed by Foodgro since January 1997.
[5] Not content with this kind
of treatment the employee approached the Labour Court for relief,
based on her alleged unfair retrenchment.
Mlambo J found in her
favour; declaring her dismissal procedurally unfair and ordering
Foodgro to pay the statutory retrenchment
package calculated as from
1 February 1993, compensation and costs. His judgment is reported
as
Keil v Foodgro (a division of Leisurenet Ltd)
[1999] 4 BLLR
345
(LC)
.
[6] On appeal Mr Cassim, who
appeared for Foodgro, contended that Mlambo J erred in finding (at
para [18] of the judgment) that
the 1997 letter of appointment did
not replace the employee’s contract of employment with MacRib, and
that it did not affect
her previous length of service since 1993 (at
para [17] of the judgment). He submitted that section 197(2)(a) of
the Labour Relations
Act, no 66 of 1995 (“the Act”) allowed the
replacement of the old terms and conditions of employment in a
transfer of business
and that the January 1997 letter of appointment
had the effect that the employee should be treated as starting her
employment in
1997, not 1993. The findings of unfair retrenchment
procedures and the amount awarded as compensation were also attacked
on appeal.
[7] Mr Robb, attorney for the
employee, contended that the provisions of section 197 (4) of the
Act precluded an agreement with
the effect Foodgro relied upon, and
that, even if it did not, the letter of appointment did not have the
effect contended for by
Foodgro. He also submitted that the
retrenchment was unfair and that no proper basis existed for
interfering with the compensation
award.
[8] Section 197 of the Act
reads as follows :
“
197
Transfer of contract of employment
(
1) A
contract of employment may not be transferred from one employer
(referred to as “the old employer”) to another employer
(referred to as “the new employer”) without the
employee’s
consent, unless -
(a) the whole or
any part of a business, trade or undertaking is transferred by the
old employer as a going concern; or
(b) the whole or
a part of a business, trade or undertaking is transferred as a going
concern -
if the old employer
is insolvent and being wound up or is being sequestrated; or
because a scheme of
arrangement or compromise is being entered into to avoid winding-up
or sequestration for reasons of insolvency.
(2)(a) If a business, trade or undertaking is transferred in the
circumstances referred to in subsection (1) (a), unless otherwise
agreed, all the rights and obligations between the old employer and
each
employee
at the time of transfer continue in force as if
they were rights and obligations between the new employer and each
employee
and, anything done before the transfer by or in
relation to the old employer will be considered to have been done by
or in relation
to the new employer.
(b) If a business is transferred in the circumstances envisaged by
subsection (1) (b), unless otherwise agreed, the contracts of
all
employees
that were in existence immediately before the old
employer’s winding-up or sequestration transfer automatically to
the new employer,
but all the rights and obligations between the old
employer and each
employee
at the time of the transfer remain
rights and obligations between the old employer and each
employee
,
and anything done before the transfer by the old employer in respect
of each
employee
will be considered to have been done by the
old employer.
(3) An agreement contemplated in subsection (2) must be concluded
with the appropriate person or body referred to in section 189
(1).
(4) A transfer referred to in subsection (1) does not interrupt the
employee’s
continuity of employment. The employment
continues with the new employer as if the old employer.
(5) The provisions of this section do not transfer or otherwise
affect the liability of any person to be prosecuted for, convicted
of, and sentenced for, any offence.”
[9] The provisions of section
197 are, as pointed out by Seady AJ in
Schutte and others v
Powerplus Performance (Pty) Ltd and another
(1999) 20
ILJ 655 (LC) at para. [27], the first of its kind in South African
legislation. The common law prohibition of transferring
a contract
of employment from one employer to another without the consent of an
employee is given effect to in the first part of
section 197 (1),
but the qualifications to this rule (section 197(1)(a) and (b)),
their particular application (section 197(2)
and 197(3), as well as
the ‘continuity of employment’ provision (section 197(4)), are
not of common law origin. The proper
interpretation of these
provisions is a matter of considerable dispute between the parties.
[10] The ease or otherwise,
with which businesses, trades or undertakings may be transferred,
and the consequences flowing from
these transfers for employers and
employees alike, may be very important for the economic well-being
of a country. There may indeed
be very good economic reasons why
the free and unrestricted transfers of businesses, trades and
undertakings will promote commercial
efficiency and thus ultimately
promote economic development. This consideration underpinned much
of Mr Cassim’s argument that
new employees should be allowed to
‘contract out’ of onerous provisions in section 197 which
protected employees in general
when transfers take place. To hold
otherwise, it was suggested, would stifle the entrepreneurial spirit
so essential to a successful
economy.
[11] The pursuit of economic
development by means of a particular interpretation and application
of the Act is, however, qualified
by the injunction that it must be
done in conjunction with other goals, namely those of social
justice, labour peace and the democratisation
of the workplace.
This is to be done by fulfilling the primary objects of the Act :
giving effect to fundamental rights and International
Labour
Organisation obligations; providing a proper framework for
collective bargaining and the formulation of industrial policy;
and
promoting orderly collective bargaining, employee participation in
workplace decision making and effective resolution of labour
disputes (subsections 1 and 3 of the Act).
[12] Under the common law, the
sale of a business usually meant the termination of existing
employment contracts. The purchaser
was under no obligation to
offer re-employment to the employees. The choice of employees not
to continue employment with a new
employer was said to be “the
main difference between a servant and a serf” (per Lord Atkins in
Nokes v Doncaster Amalgamated Collieries Ltd
[1940]
3 All ER 549(HL)).
But the demands of the times we live in change,
as was recognised by the industrial court in exercising its unfair
labour jurisdiction
under the old Labour Relations Act, no 58 of
1956. In
Kebeni v Cementile Products (Ciskei) (Pty) Ltd
(1987) 8 ILJ 442 (IC) the need to protect employees in situations of
this kind was recognised by requiring safeguards in the transfer
agreement, such as a clause deeming all existing contracts of
employment to be transferred to the purchaser (at 450 B-C). It did
not however go as far as insisting upon the inclusion of such a
clause as an enforceable right.
[13] That the provisions of
section 197 are primarily aimed at the further protection of
employees is, in my view, quite apparent
:
if
the purpose was to make it as easy as possible for purchasers to
acquire a business from another without incurring obligations
to
existing employees, the introduction of section 197 would have been
unnecessary. The common law would have created adequately
for that
situation;
the
provisions relating to automatic transfers of contracts of
employment (section 197(1) and (2)) and the non-interruption of
an
employee’s ‘continuity of employment’ (section 197(4))
secures advantages not previously enjoyed by employees;
even
after automatic transfers of contracts of employment under section
197 employees may still, unilaterally, resign from employment,
without attracting additional sanction under the Act. An employer
only has the ordinary contractual remedies against them;
new
employers however become subject to the additional sanctions or
remedies under the Act upon transfer of the employment contract.
[14] That provisions of the
kind set out in section 197 are aimed at the protection of employees
also appear from similar instruments
in other jurisdictions.
[15] The relevant provisions
for members of the European Community appear in Council Directive
no.77/187/EEC :
“
Article 3
1 The
transferor’s rights and obligations arising from a contract of
employment or from an employment relationship existing on
the date
of a transfer within the meaning of Article 1(1) shall, by reason of
such transfer, be transferred to the transferee.
Member states may
provide that, after the date of transfer within the meaning of
Article 1 (1) and in addition to the transferee,
the transferor
shall continue to be liable in respect of obligations which arose
from a contract of employment or an employment
relationship.
2 Following the
transfer within the meaning of Article 1(1), the transferee shall
continue to observe the terms and conditions agreed
in any
collective agreement on the same terms applicable to the transferor
under that agreement, until the date of termination
or expiry of the
collective agreement or the entry into force or application of
another collective agreement. Member States may
not limit the
period for observing such terms and conditions, with the proviso
that it shall not be less than one year.
............
Article 4
1 The transfer of
an undertaking, business or part of a business shall not in itself
constitute grounds for dismissal by the transferor
or the
transferee. This provision shall not stand in the way of dismissals
that may take place for economic, technical or organisational
reasons entailing changes in the work force.
...............
2 If the contract
of employment or the employment relationship is terminated because
the transfer .......... involves a substantial
change in working
conditions to the detriment of the employee, the employer shall be
regarded as having been responsible for the
termination of the
contract of employment or of the employment relationship.”
(Quoted from
Harvey on
Industrial Relations and Employment Law, London, Butterworths, Vol
3, P/132,133,134).
[16] Effect was sought to be
given to these directives in the United Kingdom in the
Transfer
of Undertakings (Protection of Employment) Regulations 1981 (SI
1981/1974)
. Regulations 5 and 8(1) are of relevance :
“
5 Effect of
relevant transfer on contracts of employment, etc.
[Except where
objection is made under paragraph (4A) below,] a relevant transfer
shall not operate so as to terminate the contract
of employment of
any person employed by the transferor in the undertaking or part
transferred but any such contract which would
otherwise have been
terminated by the transfer shall have effect after the transfer as
if originally made between the person
so employed and the
transferee.
Without prejudice
to paragraph (1) above but subject to paragraph (4A) below,], on
the completion of a relevant transfer -
all the
transferor’s rights, powers, duties and liabilities under or in
connection with any such contract, shall be transferred
by virtue
of this Regulation to the transferee; and
anything done
before the transfer is completed by or in relation to the
transferor in respect of that contract or a person
employed in
that undertaking or part shall be deemed to have been done by or
in relation to the transferee.
Any reference in
paragraph (1) or (2) above to a person employed in an undertaking
or part of one transferred by a relevant transfer
is a reference to
a person so employed immediately before the transfer, including,
where the transfer is effected by a series
of two or more
transactions, a person so employed immediately before any of those
transactions.
Paragraph (2) above
shall not transfer or otherwise affect the liability of any person
to be prosecuted for, convicted of and
sentenced for any offence
[(4A) Paragraphs (1) and (2) above shall not operate to transfer his
contract of employment and the rights, powers, duties and
liabilities under or in connection with it if the employee informs
the transferor or the transferee that he objects to becoming
employed by the transferee.
[(4B)] Where an employee so objects the transfer of the undertaking
or part in which he is employed shall operate so as to terminate
his
contract of employment with the transferor but he shall not be
treated, for any purpose, as having been dismissed by the
transferor.]
[Paragraphs (1) and
(4A) above are] without prejudice to any right of an employee
arising apart from these Regulations to terminate
his contract of
employment without notice if a substantial change is made in his
working conditions to his detriment; but no
such right shall arise
by reason only that, under that paragraph, the identity of his
employer changes unless the employer shows
that, in all the
circumstances, the change is a significant change and is to his
detriment.
................
Dismissal of
employee because of relevant transfer
(1) Where either before or after a relevant transfer, any employee
of the transferor or transferee is dismissed, that employee
shall be
treated for the purposes of Part V of the 1978 Act and Articles 20
to 41 of the 1976 Order (unfair dismissal) as unfairly
dismissed if
the transferor or a reason connected with it is the reason or
principal reason for his dismissal.”
(Quoted from
Harvey
,
above, Vol3,R/144,149-150)
[17]
The Employment Rights
Act, 1996 (UK)
also deals with the issue:
“
218 Change
of employer
................
If a trade or
business, or an undertaking ....... is transferred from one person
to another -
the period of
employment of an employee ..... counts as a period of employment
with the transferee, and
the transfer does
not break the continuity of the period of employment.”
[18] The usefulness of these
comparative provisions should not be overstated. The differences in
wording from section 197 are quite
obvious, as is the fact that they
find their applications in societies different in history and
development from our own. It would
be unnecessarily parochial,
though, not to enquire whether the treatment of these provisions in
these jurisdictions do not provide
some insight for the proper
interpretation and application of section 197 of the Act.
[19] The European Court of
Justice held, in
Foreningen af Arbejdsledere I Danmark v
Daddy’s Dance Hall
A/S:324/86
[1988] IRLR 315
(ECJ)
that, in the context of the Directive (para [15] above), an employee
is not in a position to validly waive rights under the
Directive
even in circumstances where, as a consequence, the employee receives
benefits which place him in a better position.
The provisions of
section 197(2)(a) and (b) of the Act make it clear that the benefits
of their particular provisions may be changed
by agreement between
the relevant parties. The
Daddy’s Dance Hall
case can thus
not be of help to the employee in the present case insofar as the
alleged amendments in Foodgro’s letter of appointment
of “the
rights and obligations between the old employer and each employee at
the time of transfer” are concerned. They may
be validly amended.
[20] It is interesting to
note, however, that until the decision in
Wilson v St Helens
Borough Council
[1996] IRLR 320
(EAT),
[1997] IRLR
505
(CA) it was the conventional view that once regulation 5 of the
Transfer of Undertakings regulations “has operated, that does
not
mean that the employee’s contractual rights are set in stone; the
transferee employer may then (with the employee’s consent)
alter
terms and conditions just as much as the transferor might have done
..... The restriction on contracting out ...... would
not prevent
such changes in terms and conditions after the proper effect of the
transfer .......” (
Harvey
, above, Vol 3,R/147).The
Wilson
v St Helens Borough Council
case challenged that conventional
view by finding that if the operative reason for the variation was
the transfer of the undertaking,
then the variation will be
ineffective. That was not the basis of the employee’s case in the
present instance, however.
[21] The legal contention
advanced on her behalf was that although section 197(2)(a) allowed
the amendment, by agreement, of the
terms and conditions of her
employment with the old employer, it did not allow for contracting
out of the transfer of the contract
of employment or for the
interruption of her continuity of employment by the transfer. The
latter, it was said, is expressly forbidden
by section 197(4).
[22] In my view this
submission is sound. The subject matter of section 197(2)(a) is
“all the rights and obligations between
the old employer and each
employee at the time of the transfer” (as well as the contract of
employment itself in the case of
section 197(2)(b)), but not an
employee’s ‘continuity of employment’. The latter is a
calculation, a fact - not a right
or obligation between old employer
and employee (compare
Macer v Abafast Ltd
[1990] IRLR 137
(EAT)).
[23] It is true that an
employee’s continuity of employment - the calculation, or fact -
may be used as a measure for determining
the extent of rights or
obligations, or as a standard or criterion for other purposes. An
example of the former is the formula
used in section 196(1) of the
Act to determine the statutory minimum payable as severance when an
employee is dismissed for operational
reasons. An example of the
latter is when length of service is used for the selection of
employees for retrenchment (LIFO). But
these instances are very
different from saying that ‘continuity of employment’ is itself
a right or obligation contemplated
in section 197(2). It is not.
[24] In its essence Mr
Cassim’s argument was not merely that the new agreement signed by
the parties on 24 January 1997 amended
the terms and conditions
between MacRib and the employee, but that it replaced that agreement
in its entirety and that there was
never any transfer of the
employment contract itself. This submission cannot be upheld.
[25] Section 197(1)(a) and (b)
provides for the automatic transfer of an employee’s contract of
employment upon transfer of the
business, trade or undertaking in
the circumstances set out in the section. Section 197(2)(b) allows
for the contracting out of
the transfer of the contract of
employment itself, but section 197(2)(a) does not. Under section
197(2)(a) the relevant parties
may alter the terms of the
transferred contract, but they cannot escape the fact of its
existence. Because an employee’s continuity
of employment is not
a right or obligation, or a term or condition of the employment
contract, express provision was made in section
197(4) that the
transfer of the employment contract would not interrupt that
continuity. There is no provision in it, similar
to section 197(2),
which allows the parties to alter an employee’s continuity of
employment by agreement.
[26] It follows that I am of
the view that Mlambo J, was correct in finding that the agreement
signed by the employee on 24 January
did not replace the employee’s
previous contract of employment and that its terms could not affect
her previous length of service.
[27] He also found her
retrenchment procedurally unfair because of non-compliance with the
requirements of section 189 of the Act.
In
Johnson &
Johnson (Pty) Ltd v Chemical Workers Industrial Union
[1998]
12 BLLR 1209
(LAC) at para. [27] this court held that ‘the
ultimate purpose of section 189 is .... to achieve a joint
consensus-seeking process’.
Foodgro paid scant regard to the
letter or spirit of section 189. On the evidence on record the
probabilities are that when the
first meeting was held with her on
26 May a final decision had already been taken to retrench the
employee. She requested written
information, relevant to a proper
consultation process, which she was initially promised, but never
received. She was never given
a proper opportunity to discuss the
possible alternatives to retrenchment. In short, the finding of
procedural unfairness was
fully justified. In view of the incorrect
reliance on her shorter period of service her dismissal was probably
also substantively
unfair, but it is not necessary for the purpose
of this appeal to enquire into that aspect any further.
[28] Lastly, the compensation
award is in accordance with the decision in
Johnson and Johnson
,
above. It seems clear that section 194(1) of the Act was drafted on
the assumption that the period between dismissal and bringing
the
matter to finality would be much shorter than it has turned out to
be in practice. It is the task of the legislature to rectify
this
problem. There are limits to what a court can do to alleviate this
kind of situation.
[29] The appeal is accordingly
dismissed with costs.
FRONEMAN
DJP
I
agree.
NICHOLSON
JA