South African Municipal Workers Union and Others v Rand Airport Management Company (Pty) Ltd and Others (JA9/03) [2004] ZALAC 17; (2005) 26 ILJ 67 (LAC); [2005] 3 BLLR 241 (LAC) (3 December 2004)

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South African Municipal Workers Union and Others v Rand Airport Management Company (Pty) Ltd and Others (JA9/03) [2004] ZALAC 17; (2005) 26 ILJ 67 (LAC); [2005] 3 BLLR 241 (LAC) (3 December 2004)

47
IN THE LABOUR
APPEAL COURT OF SOUTH AFRICA
(HELD AT JOHANNESBURG)
Case No. JA9/03
In the
matter between:
SOUTH
AFRICAN MUNICIPAL
WORKERS UNION 1
st
Appellant
ISMAEL
MANAMA AND OTHERS 2
nd
& Further Appellants
And
RAND
AIRPORT MANAGEMENT
COMPANY(PTY) LTD 1
st
Respondent
TURNKEY FACILITY MANAGEMENT
(PTY)
LTD 2
nd
Respondent
CAPITAL AIR SECURITY
OPERATIONS (PTY)LTD 3
rd
Respondent
JUDGMENT
Zondo JP
[1] As Davis AJA says in the judgement that he has
prepared in this matter which appears after this one and in which I
concur, this
matter concerns the application of sec 197 of the Labour
Relations Act 1995 (Act 66 of 1995) (“the Act”) to outsourcing.
The
aspect that I wish to deal with is an aspect which, in my view,
puts the first respondent’s conduct before the 1
st
August 2002 and after in the correct perspective.
[2] The conduct of the first respondent that I refer to
is the fact that prior to the 1
st
August 2002 it had expressly said that the outsourcing of its
security and garden services that it intended to embark upon at that
stage would be a transfer of business as a going concern in terms of
sec 197 of the Act but subsequent to that date – and in the
proceedings in the Labour Court and in this Court, the first
respondent’s stance was that sec 197 had no application in this
matter.
[3] In the above regard reference should be made to a
letter dated the 21
st
June 2002 that the first respondent addressed to Mr M.W. Machaka and
other employees. In that letter the first respondent referred
to the
various discussions that it said had been held since March 2002. In
the second, third and fourth paragraphs of that letter
Mr Wehmeyer,
who dealt with this matter on behalf of the first respondent at the
time and deposed to the answering affidavit filed
on behalf of the
first respondent in these proceedings, wrote thus:
“
Management has, as indicated to you, no option but
to outsource the security function in the business as this is not a
core function
of the business.
The
function will be outsourced in terms of
section 197
of the
Labour
Relations Act to
[the third respondent] with effect from 1 August
2002.
You
will therefore be required to enter into new employment contracts
with [the third respondent] as from that date. Should you not
find
the alternative employment suitable we will be forced and have no
alternative but to enter into retrenchment procedures in terms
of
section 189
of the
Labour Relations Act.
I
trust
that you will consider the alternative employment and that we can
reach an amicable agreement.”
(Underlining
supplied). The date of the 1
st
August 2002 as the date of implementation was later postponed to the
1
st
September
2002.
[4] It will be noticed from the first of the three
paragraphs of the letter quoted above that the first respondent was
saying that
it was going to outsource the security function and that
this was in terms of sec 197 of the Act. In the second of the three
paragraphs
quoted above, the first respondent said that the employees
would be required to enter into new contracts of employment with the
third
respondent but that, should the employees not find “
alternative
employment suitable”
, it would have no
alternative but to enter into retrenchment procedures in terms of sec
189 of the Act.
[5] In a letter dated the 31
st
July 2002 addressed to the first respondent, the first appellant’s
attorneys recorded that
“(o)ur clients
accept your statements that the transfer of the non-core functions
constitutes a ‘transfer as a going concern?
Section 197
of the
Labour Relations Act, 1995
is therefore applicable. In these
circumstances if the transfer proceeds the employees will, by
operation of law, be transferred
to [the third respondent] on the
same terms and conditions of employment
.”
[6] On the 1
st
August 2002 the first respondent sent letters to the employees –
including the second and further appellants – informing them
that
it was terminating their services with effect from the 31
st
August 2002. The fourth paragraph of that letter read thus: “
Should
you wish to be re-employed you are requested to approach the company
taking over the services for a position. Should the company
require
your service prior to the 31
st
August 2002, [the first respondent] will allow you to take up such
employment without any reductions to the pay as set out hereinabove.”
In a letter dated the 1
st
August 2002 addressed by the first respondent to the first
appellant’s attorneys, the first respondent wrote in its last
paragraph:
“
In the light of the fact that
[the first respondent] intends terminating services,
section 197
is
not applicable
and any application
brought for a declaration as stated in your letter will be vigorously
opposed.”
(Underlining supplied.)
[7] The fact that earlier on the first respondent had
mero motu stated quite expressly that the outsourcing was “
in
terms of
sec 197
” of the Act but that on
the 1
st
of August
2002 it said that sec 197 was not applicable marked an about turn on
the part of the first respondent on the issue. The
question that
arises is why the first respondent made this about turn. Had the
first respondent not changed its mind on this, the
appellants would
probably not have instituted these proceedings. In the first
respondent’s answering affidavit, Mr Wehmeyer sought
to explain it
thus in par 34:
“I was always under the
erroneous belief that outsourcing of any department of a company is
done in terms of section 197 of the
Act.”
He
then went on to say that from the letter concerned it was clear that
their intention was that as a result of the outsourcing, the
employees would be required to enter into new employment contracts
with the third respondent as from such date. He pointed out that
the
letter did say that, if any employee did not find suitable
alternative employment with the third respondent, the retrenchment
procedure would be resorted to. Mr Wehmeyer’s explanation is
deficient in at least one respect. That is that he does not say what
made him change from his belief that the “
outsourcing
of any department of a company is done in terms of sec 197 of the
Act.”
[8] The only explanation that I can think of for this
apparently inexplicable stance on the part of the first respondent is
one which
has as its source what the first respondent said in the
last sentence of the letter under discussion. In the last sentence
the first
respondent said:
“In the light of
the fact that Rand Airport intends terminating services, section 197
is not applicable”
. In particular note must
be taken of the first part of that sentence. What that sentence
conveys is that the reason why sec 197 was
not applicable was because
the first respondent was terminating the services of the employees.
This statement manifests the first
respondent’s understanding at
the time of when sec 197 applied to a transaction such as the one the
first respondent was concerned
with. That understanding was that sec
197 of the Act did not apply if there was no agreement for the
employees from the transferor
to the transferee. In all probability
the above understanding of the law with regard to the applicability
of sec 197 which the first
respondent had as at the 1
st
of August 2002 has as its source the majority judgement of this Court
in
Nehawu v University of Cape Town (2002) 23
ILJ 306 (LAC).
In that matter
this Court held that, if the transferor and
transferee of a business or part of a business did not agree that the
workforce be also
transferred from the transferor to the transferee,
sec 197 did not apply. That judgement had been delivered in February
2002 and
the Constitutional Court had not heard the appeal that was
noted to it against that judgment. Accordingly, as at immediately
before
the 1
st
August the law relating to sec 197 was as laid down in that judgment.
[9] The Constitutional Court subsequently set aside that
judgement. (see
Nehawu v University of Cape
Town (2003) 24 ILJ 95 (CC
)). It held that it
was not a requirement that the transferor and the transferee agree to
transfer the workforce before there could
be a transfer of business
or part thereof as a going concern in terms of sec 197. In fact with
effect from the 1
st
August 2002 the Labour Relations Amendment Act, 2002 (Act no 12 of
2002) came into operation. One of the amendments it brought about
was
a definition of the word “business” that included “
service
”.
Accordingly, to the extent that there may have been doubt before
whether transferring a service could fall within the ambit of
sec
197, that doubt was completely removed with effect from the 1
st
August 2002. That amendment also included sec 187(1)(g) of the Act
which in effect outlawed the dismissal of employees because of
a
transfer of business or part thereof as contemplated by sec 197 or
for a reason that is connected with such a transfer. From the
1
st
August 2002 when sec 187(1)(g) came into effect such a dismissal
became automatically unfair.
[10] In the light of the above it, therefore, seems to
me that, read against the above background, what the first respondent
believed
as at the 1
st
August 2002 was that, if there was an agreement that the employees
be transferred, sec 197 would apply but that, if there was no
such
agreement, sec 197 would not apply. In the first respondent’s own
understanding the fact that it was dismissing the second
and further
appellants meant that the transaction was taken out of the ambit of
sec 197. I do not think that the first respondent
would have taken
the stance that sec 197 would not apply to the situation had it taken
the view that agreement to transfer the employees
to the contractors
was not a sine quo non for the application of sec 197 to the
situation. I also do not think that the first respondent
would have
gone ahead and dismissed the employees if it had known that, with
effect from the 1
st
August 2002, which was the day on which it wrote to the second and
further appellants dismissing them with effect from the 31
st
August 2002, the dismissal of employees because of, or, for a reason
connected with, a transfer contemplated in sec 197 was automatically
unfair.
[11] It seems to me, therefore, that the first
respondent’s stance as from the 1
st
August 2002 which it has maintained to date despite the judgement of
the Constitutional Court in Nehawu v University of Cape Town
referred
to above originates from its understanding of what law was at the
time but which it seems not to have changed after the
Labour
Relations Amendment Act, 2002
, which contained
sec 187(1)(g)
came
into operation on the 1
st
August 2002 and after the delivery of the judgement of the
Constitutional Court Nehawu case.
Zondo JP
I agree.
Jafta AJA
IN THE LABOUR APPEAL COURT OF SOUTH AFRICA
(HELD
AT JOHANNESBURG)
Case
No. JA9/03
In the matter between:
SOUTH AFRICAN
MUNICIPAL WORKERS UNION
1
st
Appellant
ISMAEL MANAMA AND
OTHERS
2
nd
& Further Appellants
And
RAND AIRPORT MANAGEMENT COMPANY(PTY) LTD 1
st
Respondent
TURNKEY FACILITY
MANAGEMENT (PTY) LTD 2
nd
Respondent
CAPITAL AIR SECURITY
OPERATIONS (PTY)LTD 3
rd
Respondent
JUDGMENT
DAVIS AJA
INTRODUCTION
[1] This appeal concerns the application of sec 197 of
the Labour Relations Act, 1996 (Act 66 of 1996) (“
the
Act
”) to outsourcing. The facts are largely
common cause. What is in dispute are the conclusions to be drawn from
those facts and the
legal issues that arise from them. It is
appropriate to first set out the facts and the sequence of events
that led to these proceedings.
The facts
[2] First
respondent operates and manages Rand Airport. Until 31 May 2000 Rand
Airport was an entity owned and managed by the greater
Johannesburg
Metropolitan Council. On that date, pursuant to a restructuring
within the council, first respondent began to run Rand
Airport.
[3] At a
meeting on 11 March 2002, first respondent informed employees that it
was experiencing financial difficulties and wished
to discuss this
position at a further meeting. At that further meeting on 18 March
2002, first respondent disclosed financial information
to employees’
representatives, who were asked to proffer solutions to some of the
financial problems experienced by first respondent.
A number of cost
cutting measures were raised and discussed. During the course of the
meeting Mr André Wehmeyer, managing director
of first respondent,
intimated that certain specialized services appeared to be more
costly when conducted ‘in house’ rather
than being sub-contracted
to a third party.
[4] On 18 April 2002 Mr Wehmeyer wrote a letter to the
first appellant in which he stated that five meetings had been held
with the
staff since 11 March 2002 in which the financial position of
first respondent had been discussed. He wrote of the need to
‘revisit…
the staffing requirements’ and then referred to
possibilities which had been considered including ‘voluntary early
retirement,
outsourcing or any other possibilities that you may want
to be considered’.
[5] Further
meetings took place and on 14 June 2002 Mr Wehmeyer informed
representatives of first appellant that the intention of
first
respondent was not to retrench but rather to outsource, a point which
was reiterated in a further letter written by Mr Wehmeyer
on 16 June
2002.
[6] In a letter addressed to the first appellant on 25
June 2002, the intention of first respondent was set out by Mr
Wehmeyer thus:
‘
I also want to inform you that it is the intention of
Management to proceed with the proposal of outsourcing the non-core
activities
as indicated to you before namely Security, Garden
Services and Cleaning effective 1 July 2002’.
[7] On 21 July 2002 first respondent gave notice that
the non-core functions would be outsourced in terms of section 197 of
the Act
to a sub-contractor with effect from 1 August 2002. On the
same day Mr Wehmeyer again wrote a letter to the affected employees
headed
‘Retrenchment due to Operational Requirements’. In this
letter Mr Wehmeyer informed second appellant that “
Should
you wish to be re-employed you are requested to approach the company
taking over the services for a position. Should the company
require
your services prior to 31 August 2002 Rand Airport will allow you to
take up such employment without any reductions to the
pay set out
herein above.”
The letters to other
employees conveyed the same message.
[8] On 6 August 2002 first and second respondents
concluded a written agreement concerning the outsourcing of the
gardening service.
Attorneys acting on behalf of first appellant
enquired as to whether sub-contractors would guarantee the affected
workers jobs on
application by them, what their conditions of service
would be in the event that they were employed and whether they would
start
as new employees if their applications were successful.
[9] On 13 August 2002 first respondent replied, and
recorded, that it was retrenching employees, that it could not
comment on whether
the relevant sub-contractors would guarantee jobs
to retrenched workers, what their conditions of service would be in
the event that
they were hired and further confirmed that they could
commence as new employees if their applications were successful. A
similar
response was also received from second respondent.
Proceedings in the Labour
Court
[10] On the 23
rd
August the appellants brought an application before the Labour Court
as a matter of urgency. The substantive orders that they sought
in
terms of the notice of motion were in the following terms:
“1. ……….
Declaring that the company’s (sic) transfer of its
garden department to the second respondent [i.e. Turkey Facility
Management
(Pty)Ltd] constitutes a transfer of part of a business as
a going concern, as contemplated in
section 197
of the
Labour
Relations Act, 1995
;
Declaring that the company’s (sic) transfer of its
security department to the third respondent constitutes a transfer
of part
of a business as a going concern, as contemplated in
section
197
of the
Labour Relations Act, 1995
;
Ordering that the contracts of employment of the
second and further applicants are transferred from the first
respondent to the
second and third respondents on the same terms and
conditions and without interruption of their service with the first
respondent,
with effect from the date of the transfer of the
security and garden departments.”
[11] The matter was argued before Landman J in the
Labour Court. With regard to the security functions, the Labour Court
dealt with
the matter in the following terms in paragraphs 30-33:.
“
30. I shall deal with the security functions and
the declarator requested in this regard. But firstly I should note
some common facts
and considerations:
Rand Airport conducts the business of providing an
airport and related services to the aviation industry.
The cleaning and security services are essential as
other services in the long run but are non-core functions.
Capital Air co-ordinates the functioning of the
shift system at Rand Airport. This includes its own staff and the
nine or so security
officers of Rand Airport. This is done because
Rand Airport did not have sufficient staff to provide night shift
nor co-ordinate
the roster system. Rand Airport required 24
security members but had only 9 and therefore had early on
contracted with Capital
Air to provide a service. The security
officers of Rand Airport were not integrated with Capital Air in
terms of the reporting
lines. Rand Airport guards wear a different
uniform. Rand Airport has its own security equipment. Its security
guards do not
report to Capital Air’s managers. Capital Air would
treat Rand Airport’s security guards as new employees. Any
applicants
for positions at Capital Air must be able to be
registered with Security Industry Regulatory Authority.
Most importantly Capital Air and Rand Airport have
not concluded an outsourcing agreement. Whether they do so or not
is said to
be dependent on the outcome of this application launched
by the applicants on an urgent basis for a declaratory order. This
application
was launched on the basis that Rand Airport had
concluded an agreement with Capital Air to replace its existing
security operations.
This supposition, on the version of Capital
Air (which I must accept on these papers) has not taken place.
Capital Air and Rand
Airport are awaiting the outcome of this
application before deciding whether to outsource the security
operations to Air Capital.
Capital Air opposes this application;
especially as it has been brought on an urgent basis.
I do think it desirable to grant a declaration on a
set of facts which may not come to pass. Nor do I think it
permissible to
provide advice so that Rand Airport and Capital Air
can decide whether to enter into a contract; more so, where they do
not seek
this declaration.”
[12] With regard to the gardening functions, the Labour
Court had this to say in paragraphs 34- and 35:.
“
34. This brings me to the relief sought in regard
to the gardening function. The following facts and circumstances
considered cumulatively
persuade me that the gardening services of
Rand Airport do not constitute part of a business (as defined) and
that there can be no
transfer of this function as a going concern.
the gardening functions form part of maintenance
services;
these services form part of the non-core activities
of Rand Airport.
Rand Airport outsourced the garden functions to
Turnkey. The garden services which Turnkey is to render include
cutting grass, pruning
and trimming trees, weeding, landscaping and
watering. Cleaning services will also be provided. This contract is
to run until 31
April 2004 and may then be terminated on three
months notice.
Rand Airport and Turnkey, on their version, which
must be accepted, did not intend to transfer the applicants working
in the gardens.
Gardening services is not an entity. It has no
separate management structure, no own goals, no assets, no customers
and no goodwill.
It is merely an activity and will be such in the
hands of Turnkey. It is not intended to make a profit or gain some
other advantage.
The gardening function is being outsourced for a
limited period.
35. Even if I were persuaded that the gardening
functions constitute a part of a business and that it was
transferred, it would not
constitute the transfer of a going concern
within the meaning assigned to this term by the Labour Appeal Court
in the NEHAWU v UCT
case. See Craig Bosch “Two wrongs make it more
wrong, or a case for minority rule”
2002 SALJ 501
at 511 who is of
the view that the meaning of “a going concern” attributed to it
by the LAC has survived the amendments to the
LRA. As stated earlier
I am bound by this decision.”
[13] In the result Landman J dismissed the appellants’
application with costs on the 27
th
September 2002. Landman J granted the appellants leave to appeal to
this Court in respect of the part of the matter that relates
to
gardening services and refused leave to appeal in respect of that
part of the matter that relates to security functions. The Judge
President was then petitioned for leave to appeal in respect of the
part of the matter that relates to gardening functions. This
Court
duly granted leave to appeal in regard to that part, hence this
appeal.
The appeal
[14] It is common cause that the first respondent sought
to outsource its gardening and security services to outside
contractors because,
apparently, it would be cheaper to have such
services provided by contractors. It is also common cause that to
this end the first
respondent awarded tenders to the second and third
respondents for the provision of such services. Subsequent to the
second respondent
being awarded its tender, a written contract was
concluded between itself and the first respondent for it to provide
the services
for which it had been awarded the tender. It is
undisputed that as at the time of the launching of the urgent
application in the
Labour Court, the first and third respondents had
not signed any written contract in terms of which the first
respondent would provide
the services in respect of which it had been
awarded the tender.
[15] The appellant’s case is that the contracts of
employment of the second and further appellants were transferred
automatically
to the second and third respondents pursuant to
agreements between the first respondent and second respondent in one
instance and
in another between the first respondent and third
respondent. The transfer of contracts of employment that the
appellants contended
took place is one referred to in sec 197 of the
Act. In this regard it is apposite to quote sec197(1) and (2). They
read thus:-
“
(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.”
[16] Whether or not the contracts of employment of the
second and further appellants have been transferred automatically to
the second
and third respondents, as the case may be, depends upon
whether there has been a transfer of business in one instance from
the first
respondent to the second respondent and, in another, from
the first respondent to the third respondent as contemplated in sec
197
of the Act. In order to determine whether there has been a
transfer of business in this case, it is necessary to first have
regard
to the meaning of the word “
business
”
in sec 197.
[17] Section 197 was amended pursuant to Act 12 of 2002.
Of particular relevance to the present dispute is the amendment which
introduced
the concept of ‘service’ into the definition of
‘business’ and, hence, of ‘transfer’ as contained in section
197(1) of
the Act. Although not defined in the Act, the common
meaning of ‘service’ as set out in the new Shorter Oxford English
Dictionary
is ‘The provision of a facility to meet the needs or for
the use of a person or a person’s interest or advantage; assistance
or benefit provided to someone by a person or thing; an act of
helping or benefiting another; an instance of beneficial, useful or
friendly actions; the action of serving, helping or benefiting
another; behavior conducive to the welfare or advantage of another;
friendly or professional assistance’.
Do security and gardening services constitute a
“service” as contemplated in sec 197 of the Act?
[18] Mr Bruinders submitted that the gardening service
as well as the security service fell within the term “
service
”
in sec 197 of the Act. That would appear to be the way in which first
and third respondents also saw the activities of gardening
and
security. In clause 20 of the agreement between first and second
respondents, it is provided that Annexure A ‘being a description
of
the services to be rendered is attached hereto (and) forms an
integral part of this agreement.” Annexure A then sets out the
services which the second respondent was obliged to undertake,
including, for example, mowing, edging and fertilizing of lawn as
well as cultivation, weeding, pruning, fertilizing of the planted
area. In the similarly drafted agreement that was meant for signature
by first and third respondents but had not been signed at the time of
the institution of these proceedings, the latter is referred
to as
the service provider. In the recordal to the agreement it is stated:
“
The company requires the guarding and
security services to be provided and maintained on the standard
required by the South African
Civil Aviation Authority”.
[19] Respondents did not dispute the correctness of the
submissions made by appellants with regard to ‘service’ and for
good reason.
The meaning of the word “
service
”
read within the context of second respondent’s obligations or third
respondent’s intended obligations (if it signed an agreement
with
the first respondent) towards first respondent provide compelling
justification for the conclusion that both the gardening and
security
functions fell within the definition of the word “
service
”
as contemplated in section 197(1) of the Act. I, therefore, conclude
that the gardening and security services fell within the
ambit of the
word “
service
” in
sec 197 of the Act.
[20] The above conclusion means that the gardening and
security services of the first respondent would be capable of being
transferred
in the manner contemplated in sec 197. Before I can
consider whether or not they were so transferred, it is necessary to
first consider
the meaning of the phrase “
transfer
of a business as a going concern
”.
What does it mean to transfer
a business or a service “as a going concern”?
[21] In
the determination of whether a business has been transferred as a
going concern, the critical phrase is ‘a going concern’.
It is
not defined in the Act. Understandably this phrase has given rise to
intense judicial scrutiny. The starting point of any
enquiry must be
the minority judgment of
Zondo JP
in
Nehawu v University of Cape Town and Others
2002
(23) ILJ 306 (LAC). In paragraphs 64 and 65 of that judgement Zondo
JP had this to say with regard to the phrase ‘a going
concern’,
as it appeared in section 197 of the Act prior to the amendment of
2002:-
‘
[64]
Furthermore, I am of the view that the question whether in a
particular case a business has been transferred as a “
going
concern
” is a matter for objective
determination. This does not mean that the intentions of the parties
are irrelevant but it does mean
that the say- so of the parties
cannot be conclusive. In my view there are a number of factors that
are relevant in determining whether
or not a business has been
transferred as a going concern. These may include what will happen to
the goodwill of the business, the
stock-in-trade, the premises of the
business, contracts with clients or customers, the workforce, the
assets of the business, whether
there has been an interruption of the
operation of the business and, if so, the duration thereof, whether
same or similar activities
are continued after the transfer or not
and others. I do not think that the absence of anyone of these will
on its own mean that
the transfer of the business has not been one as
a going concern. I would align myself with the approach adopted by
the European
Court of Justice when, in paras 11, 12 and 13 of its
judgment in the Spijkers case, it said:
“
[11]…. It appears from the general structure of
directive 77/187 and the wording of Article 1(1) that the directive
aims to ensure
the continuity of existing employment relationships in
the framework of an economic entity, irrespective of a change of
owner. It
follows that the decisive criterion for establishing the
existence of a transfer within the meaning of the directive is
whether the
entity in question retains its identity.
[12] Consequently it cannot be said that there is a
transfer of an enterprise, business or part of business on the sole
ground that
its assets have been sold. On the contrary, in a case
like the present, it is necessary to determine whether what has been
sold is
an economic entity which is still in existence, and this will
be apparent from the fact that its operation is actually being
continued
or has been taken over by the new employer, with the same
economic or similar activities.
[13] To decide whether these conditions are
fulfilled it is necessary to take account of all the factual
circumstances of the transaction
in question, including the type of
undertaking or business in question, the transfer or otherwise of
tangible assets such as buildings
and stocks, the value of intangible
assets at the date of transfer, whether the majority of the staff are
taken over by the new employer,
the transfer or otherwise of the
circle of customers and the degree of similarity between activities
before and after and the duration
of any interruption in those
activities. It should be made clear, however, that each of these
factors is only part of the overall
assessment which is required and
therefore they cannot be examined independently of each other.’
[65] In my view the position is that there will be
cases where the transferor and the transferee agree that the
workforce will be
taken over by the transferee but the transaction
cannot be described as transfer of the business as a going concern if
many of the
other factors that are relevant to a transfer being one
as a going concern are absent and there will be transactions where
the transferor
and the transferee will agree that the workforce will
not be taken over but the transaction still amount to a transfer of a
business
as a going concern because of the presence of many or all of
the other factors that go to making a transfer of a business to be
one
as a going concern. Accordingly each transaction must, in my
view, be considered in its own merits in the light of all the
surrounding
circumstances of the transaction before a determination
can be made whether it constitutes a transfer of a business as a
going concern.’
The majority of this Court in that case, namely,
Van Dijkhorst AJA with whom Comrie AJA agreed, held that there can be
no transfer
of a business as a going concern unless both the
transferor and the transferee have agreed that the latter takes the
former’s workforce
over as well.”
[22]
The matter subsequently went to the Constitutional Court. The
judgement of the Constitutional Court is reported as
Nehawu
v University of Cape Town & others (2003) 24 ILJ 95 (CC).
When
the matter was heard by the Constitutional Court,
Ngcobo
J,
on behalf of a unanimous Court, said the
following in paragraphs 56, 57 and 58 of his judgement:-
“
[56]
The phrase “going
concern” is not defined in the LRA. It must therefore be given its
ordinary meaning unless the context indicates
otherwise. What must be
transferred must be a business in operation “so that the business
remains the same but in different hands”.
Whether that has occurred
is a matter of fact which must be determined objectively in the light
of the circumstances of each transaction.
In deciding whether a
business has been transferred as a going concern, regard must be had
to the substance and not the form of the
transaction. A number of
factors will be relevant to the question whether a transfer of
business as a going concern has occurred,
such as the transfer or
otherwise of assets, both tangible or intangible, whether or not
workers are taken over by the new employer,
whether customers are
transferred and whether or not the same business has been carried on
by the new employer. What must be stressed
is that this list of
factors is not exhaustive and that none of them is decisive
individually. They must all be considered in the
overall assessment
and therefore should not be considered in isolation.
[57] There is nothing either in the context or
language of section 197 to suggest that the phrase “going concern”
must be given
the meaning assigned to it by the majority. On the
contrary, the purpose of the section and the context in which that
phrase occurs
suggests otherwise.
[58] The
fact that the seller and the purchaser of the business had not agreed
on the transfer of the workforce as part of the transaction
does not
disqualify the transaction from being a transfer of a business as a
going concern within the meaning of section 197. Each
transaction
must be considered on its own merits regard being had to the
circumstances of the transaction in question. Only then
can a
determination be made as to whether the transaction constitutes the
transfer of a business as a going concern. In this regard
I agree
with Zondo JP.”
[23] It is also apposite to refer to a statement by Lord
Fraser
in Mellon v Hector Powe
[1981]
1 All ER 313
at 317 h-j where, among other things, he said that a
business “
is transferred as a going concern
‘so that the business remains the same business but in different
hands’….whereas”
in the case of a
transfer of assets
“the assets are
transferred to the new owner to be used in whatever business he
chooses”.
(See para 61 of
Zondo
JP’s
minority judgment in Nehawu’s case,
supra.)
[24]
Both
Zondo JP
in his judgment in this Court in Nehawu’s case and Ngcobo J in his
judgement in the same case in the Constitutional Court were
careful
to desist from developing an inflexible test. Both emphasized that
the list of factors set out in their judgments were not
‘exhaustive
and that none of them is decisive individually’ (
Ngcobo
J
at para. 56 and Zondo JP at para 64 and
65). When
Landman J
delivered
the judgment of the Court
a quo
,
the law on the transfer of a business as a going concern was as set
out in the majority judgment of this Court in the Nehawu
case.
The
Constitutional Court had not yet handed down its judgment.
Accordingly, Landman J was bound by the interpretation given in the
majority judgment as to the meaning of the phrase “
going
concern
”. In the majority judgment the test
adopted was inflexible. It was that “
a
business is a going concern only if its assets, movable and
immovable, tangible and intangible are utilized in the production of
profit (or, in the case of an undertaking, the attainment of its
goal…in every business
”
(Nehawu
v University of Cape Town & others 2002 (23) ILJ 306 (LAC) at
312J- 313 B)
.
[25] Having dealt with the question of when it can be
said that there has been a transfer of business as a going concern,
the question
that arises now is whether there has been a transfer of
business as a going concern in this matter. That is the question to
which
I now turn.
Has there been a transfer of
business or service from the first respondent to the second
respondent and the third respondent in this
matter as a going
concern?
[26] Mr Bruinders placed considerable emphasis on the
amendment to section 197 which was introduced in terms of Act 12 of
2002 in
which the word ‘service’ was introduced into the
definition of business. He submitted that, on the basis of this
amended definition
a transfer of a business as a ‘going concern’
included the transfer of a ‘service’ as a ‘going concern’. Mr
Bruinders
contended that the manner in which the security and
gardening services were to be undertaken by the second and third
respondents
provided an indication that in each case a service would
continue to be provided for the same purpose although by another
party.
Accordingly, so submitted Mr Bruinders, there had been a
transfer of the service as a ‘going concern’.
[27] In support of this submission Mr Bruinders referred
to the decision of the Court of Appeal in
Betts
and Others v Brintle Helicopters Limited and Another
1997
IRLR 361
(CA). In this case, defendant provided helicopter services
to and from oil rigs in the North Sea. Until 30 June 1995 this
service
was conducted in terms of three contracts covering separate
sectors of the North Sea. When the contracts were about to expire on
30 June 1995, new contracts were put out to tender and Shell (UK), on
behalf of whom the services were to be performed, decided that
no
single company would be awarded all three contracts. Defendant
obtained two of the contracts, and the third which covered the
Southern sector went to second defendant. None of the sixty six
people who were employed by first defendant to operate this contract
were employed by second defendant which fulfilled its contractual
obligations from different locations. Seven employees of first
defendant claimed that there had been a transfer of an undertaking
between first and second defendant, as a result of which they
had
become employees of second defendant by operation of law. They sought
a declaration to this effect.
[28] The Court of Appeal accepted that the provision of
helicopter services to and from the oil rigs constituted an
undertaking or
an economic entity. However, the Court did not find
that there had been a transfer of such an undertaking. It appeared
to accept
the following submission by appellants’ counsel:
‘
Unlike
school or hospital cleaning or other labour intensive operations in
which…’a group of workers engaged in a joint activity
on a
permanent basis may constitute an economic entity’, the situation
in this case was more complex. At risk of over-simplification,
the
labour force was not the only asset of the Brintel Beccles operation,
and the vast majority of its assets Brintel retained, so
the
situation here was precisely that envisaged by European Court…in
the case of
Suzen’
.
(at para 45).
[29] In
Suzen v Zehnacker
Gebaudereinigung Gmbh
1997 IRLR 255
(ECJ) at
para 33 the European Court of Justice dealt with EEC Directive 77/187
which covers the transfer of undertakings and said:
‘The Directive
is to be interpreted as meaning that the Directive does not apply to
a situation in which a person who had entrusted
the cleaning of his
premises to a first undertaking terminates his contract with the
latter and, for the performance of similar work,
enters into a new
contract with a second undertaking, if there is no concomitant
transfer from one undertaking to the other of significant
tangible or
intangible assets or taking over by the new employer of a major part
of the workforce, in terms of their numbers and
skills, assigned by
the predecessor to the performance of the contract.’
[30] On one reading of the judgments in
Betts
and
Suzen
taken
together, it may be contended that these
decisions stand in the way of appellants’ submissions, particularly
the conclusion reached
in
Betts
that
second defendant had ‘simply obtained a fresh contract for carrying
men and goods to the same oil rig from a different land
base, using
different helicopters, different crews, but inevitably landing on the
same oil rigs and using the same oil rigs facilities’
(at para.
45). However, in both
Betts
and
Suzen
the court was
not required to apply a definition of business which expressly
included the concept of ‘service’. Significantly,
in the case of
Betts
the provision of
helicopters with different crews transporting personnel and goods,
albeit to the same oil rig but from a different
land base, was held
to be an undertaking or economic entity for the purposes of the
Directive. The appeal by the providers of the
helicopter services
succeeded because it was found that no undertaking was transferred.
The successful tenderers obtained a contract
to provide a service but
the key infrastructure was never transferred.
[31] In
presenting his argument that there had not been a transfer of
business as a going concern in this case, Mr Pauw submitted
that the
intention of the transferor and the transferee was critical. He
submitted that it was clear from the facts of this case
that the
parties did not intend a transfer of the business or of the services
as a going concern. He further submitted that the first
respondent
was entitled to dismiss the second and further appellants for
operational requirements at the time that it did. He submitted
that a
court should not lightly conclude that a transfer of business as a
going concern had occurred in circumstances where that
is not what
the parties intended.
[32] I think that the answer to Mr Pauw’s contention
with regard to the role of the intention of the transferor and
transferee is
that the question of what determines whether there has
been a transfer of a business as a going concern has been dealt with
both
in the judgement of ZondoJP in this Court in the Nehawu case as
well as in Ngcobo J’s judgement in the same case in the
Constitutional
Court. It is clear from those judgments that the
intention of the transferor and the transferee does not play a
critical role, let
alone a decisive role in the determination of such
a question. There is no warrant to repeat it here. The answer to Mr
Pauw’s argument
that the first respondent was entitled to dismiss
the second and further appellants for operational requirements at the
time that
it did so is to be found in sec 187(1)(g) of the Act. Sec
187(1)(g) was introduced into the statute by Act 12 of 2002 which
came
into operation on the 1
st
August 2002. It provides that a dismissal is automatically unfair “
if
the reason for the dismissal is – a transfer, or a reason related
to a transfer, contemplated in section 197 or 197A
.”
Quite clearly the aim of this provision is to make it clear that an
employer has no right to dismiss an employee because of a
transfer
contemplated in sec 197 or 197A or for any reason connected with such
a transfer. Where an employer seeks to transfer a
business or a part
thereof or a service to another employer and such transfer would, if
implemented, be a transfer of business or
undertaking or service as a
going concern as contemplated by sec 197 of the Act and is initially
prepared to let the employees go
over to the new employer but later
dismisses such employees when there is a dispute about the terms and
conditions of employment
that they will enjoy after such transfer to
the new employer – which is what happened in this case - there can
be no doubt that
the reason for the dismissal of the employees in
such a case is either the transfer or a reason connected with such a
transfer. Accordingly,
the first respondent’s dismissal of the
second and further appellants was something that the first respondent
was not entitled
to do and constituted a violation of their right not
to be dismissed for such a reason. Sec 187 provides that such a
dismissal is
automatically unfair.
[33] In this case the appellants’ case that there has
been a transfer of business or service, as a going concern and,
therefore,
of the contracts of employment is based, in the first
place, on the assertion that in the one instance the first and second
respondents
and, in another, the first and third respondents,
concluded agreements in terms of which the second and third
respondents would take
over certain functions previously performed by
employees of the first respondent. If there were no such agreements,
that would be
the end of the appellants’ case. If, however, such
agreements were concluded, that would not necessarily mean that there
had been
a transfer of business or service as a going concern but
what would have to be inquired into is whether that is a type of
agreement
that, if implemented, would attract the application of sec
197 of the Act. If the answer was that that is not the type of
agreement
that would attract sec 197 of the Act if implemented, that
would mark the end of the inquiry. If, however, it is a type of
agreement
which, if implemented, would attract the application of sec
197, the next question would be whether such agreement was
implemented.
If it was not implemented, then there would not have
been a transfer of business or service as a going concern and,
therefore, there
would not have been a transfer of contracts of
employment. If there was implementation, there would have been a
transfer of business
or service as a going concern and, therefore,
also a transfer of the contracts of employment of the relevant
employees. In the light
of all of this, I turn to consider the
position between the first respondent and the second respondent
first.
Was
there an outsourcing agreement between the first and second
respondents and, if so, was the relevant service transferred as a
going concern from the first respondent to the second respondent?
[34] There is no doubt that first and second
respondents concluded a written outsourcing agreement in terms of
which the second respondent
was obliged to perform certain functions
previously performed by employees of first respondent. A copy of the
signed agreement between
the first and second respondents was annexed
to the papers. The duration of the agreement was initially to be
from the 1
st
September 2002 to the 31
st
August 2004. In terms of clause 2.1.2 of that agreement, the second
respondent had an option to renew the contract for a further
two
years from the 1
st
July 2004 to the 30
th
June 2006. In the last sentence of paragraph 15.5 of the answering
affidavit, Mr Wehmeyer, first respondent’s managing director,
referred to a copy of the memorandum of agreement between the first
and second respondents and said that such memorandum of agreement
had
“
already been finalized…”.
The
functions which the second respondent was to take over from the first
respondent in terms of that agreement are set out in the
agreement.
[35] First and second respondents thus concluded an
agreement in terms of which second respondent was to take over
certain functions
previously performed by the first respondent with
effect from the 1
st
September 2002. I am satisfied that the functions which second
respondent undertook to perform in terms of their agreement fell
within the ambit of “service” as contemplated by section 197 of
the Act and that this was an agreement to transfer a service
within
the ambit of section 197 of the Act as a going concern. Accordingly,
the agreement was an agreement that, upon implementation,
would have
attracted the application of sec 197 of the Act. If the agreement was
implemented, the contracts of employment of the
relevant employees
would have been transferred from the first respondent to the second
respondent.
[36] The question that arises is whether the agreement
was implemented. The agreement was to be implemented on the 1
st
September 2002. The appellants’ urgent application was launched in
the Labour Court on 23 August 2002, that is eight days before
the
date on which date the agreement was going to be implemented if
everything went according to plan. Appellants did not supplement
their papers prior to the hearing before the Court
a
quo
to give evidence of whether the plan
to implement the agreement on 1 September materialised
.
They could have sought and obtained the leave of the Court a quo to
supplement their papers. They did not do so. Accordingly, there
is no
evidence on the record to show that the agreement was implemented on
the 1
st
September.
In the absence of such evidence, I cannot make a finding that the
agreement was implemented on the 1
st
September 2002. Anything might have happened between the launching of
the application on 23 August and the intended day of implementation
which might have led to the agreement no longer being implemented. I
cannot speculate on the issue. There being no evidence whether
the
agreement was implemented on the 1
st
September, I cannot make a finding that there was a transfer of
business or service as a going concern from the first respondent
to
the second respondent on the 1
st
September 2002. If I cannot make a finding that there was such a
transfer of business or service as a going concern, equally I cannot
make a finding that the contracts of employment of the relevant
employees were transferred on the 1
st
September 2002 from the first respondent to the second respondent. In
these circumstances I am unable to find that any contracts
of
employment of employees were transferred from the first respondent to
the second respondent on the 1
st
September 2002. I now turn to deal with the same issue but now in
relation to the first and third respondents.
Was there an outsourcing agreement between the
first and third respondents and, if so, was the relevant service
transferred from the
first respondent to the third respondent as a
going concern?
[37] Essential to the finding of
Landman
J
was the conclusion that no contract had
been concluded between first and third respondents at the time that
appellants launched their
application. The question which thus
requires determination concerns this particular finding, namely,
whether first and third respondents
had concluded an outsourcing
agreement.
[38] In a letter addressed to Mr W Machaka in the
Control Room of the first respondent dated the 21
st
June 2002 bearing the heading: “
Outsourcing
of non-core functions”,
Mr Wehmeyer said on
behalf of first respondent:
“
Management
has, as indicated to you, no option but to outsource the security
function in the business as this is not a core function
of the
business. The function will be outsourced in terms of
Section 197
of
the
Labour Relations Act to
Capital Air Security (Pty) Ltd with
effect from 1 August 2002.
You will therefore be required to enter into new
employment contracts with Capital Air Security Service (Pty) Ltd as
from that date.
Should you not find the alternative employment
suitable, we will be forced and have no alternative but to enter into
retrenchment
procedures in terms of
Section 189
of the
Labour
Relations Act.
I
trust that you will consider the alternative employment and that we
can reach an amicable agreement.”
The reference in the extract to Capital Air Security
(Pty) Ltd is a reference to third respondent.
[39] In a letter addressed to first appellant on the
25
th
June 2002, Mr
Wehmeyer said that he had made it ‘abundantly clear that we want
to outsource the non-core activities in the business
as it makes
business sense to do so.’ He said that the affected staff members
had been informed that they would have an opportunity
to accept or
reject the offer of alternative employment. He said further that the
intention was that the outsourcing would take
effect in respect of
security, garden services and cleaning from the 1
st
July 2002. This date was later altered to the 1
st
September 2002. In its letters of the 1
st
August 2002 to the affected employees informing them of their
dismissal, first respondent advised the employees that, should they
wish to be ‘re-employed, you are requested to approach the company
taking over the services for a position. Should the company
require
your services prior to 31 August 2002, Rand Airport will allow you to
take up such employment without any reductions to the
pay set out
herein above.’
[40] In that same letter of 1
st
August 2002 to the appellants’ attorneys, Rand Airport – of which
the first respondent seems to be a subsidiary – wrote through
Mr
Wehmeyer as follows:
“
The
aspect of outsourcing was at all stages an option that was discussed
between the parties as an alternative to retrenchment. The
sections
involved are security, what is known as the ‘control room and
garden services which forms (sic) part of the maintenance
department.
On the
21
st
June 2002, Rand Airport indicated that it intend (sic) to outsource
in terms of
section 197.
SAMWU choose (sic) only to respond on the
18
th
July 2002 and apposed (sic) the attended (sic) outsourcing. On 30
July 2002 SAMWU threatened Rand Airport with an urgent application
if
it intended to proceed with the outsourcing.
Pursuant
thereto Rand Airport, having no alternative, decided to terminate the
affected staff services
.”
Later in
the same letter Mr Wehmeyer wrote: “
Should
any of the effected (sic) staff wish to be employed after 31 August
2002 they are to without fail to approach [the third respondent]
who
successfully tendered to provide the security services and Turnkey
Facilities Management (i.e. the second respondent) who was
successful
in tendering for the Garden Services.
”
[41] In that same letter of the 1
st
August 2002 to the appellants’ attorneys Rand Airport also said
that, prior to the union “
objecting in the
manner they did, Rand Airport considered it in the interest of the
employees to outsource
.” Mr Wehmeyer went
on to say in that letter: “
At that point
in time [the third respondent]
were
still fully prepared to enter into an outsourcing agreement with [the
first respondent]. Pursuant to the stance taken by [first
appellant], [the third respondent], nor (sic) Rand Airport, wish to
enter into an outsourcing arrangement/agreement
”.
In the next paragraph of the letter, Mr
Wehmeyer then said:
“
In
these circumstances, the employees are not to be transferred to [the
third respondent] or any other organization.”
Rand Airport intends to terminate services which it attempted to
avoid through negotiations with [the first appellant] since April
2002” (underlining supplied). It would, therefore, seem from that
letter of the first respondent that both the first and the third
respondents were no longer willing to proceed with the outsourcing
plans in the light of the stance taken by first appellant to the
whole matter. I might add that nowhere was it said in the papers that
second respondent adopted the same attitude as the third respondent.
[42] Appellants placed no evidence before this Court to
dispute the statement by first respondent that both it and the third
respondent
changed their mind about the outsourcing plans when they
realized first appellant’s stance towards outsourcing. Admittedly,
while
in one part of its letter of 1
st
August 2002 to appellant’s attorneys, first respondent suggested
that both it and third respondent were no longer willing to go
ahead
with the outsourcing of some of the first respondent’s functions to
third respondent, it said in another part of the letter
that those
employees whom it was dismissing who wanted to be considered for
employment by the second and third respondents after
the 31
st
August had to approach those contractors. Later in the letter it
expressed its stance thus in regard to any employee “
wishing
to tender their services to [the third respondent]:
”
“
Should any union member wish to be employed
by Capital Air or any other organization, they would firstly need to
approach such a company
and enter into a new arrangement with them
”.
The last sentence of that letter read thus: “
In
the light of the fact that Rand Airport intends terminating services,
section 197
is not applicable …..”.
[
43] The
ambiguity in third respondent’s conduct notwithstanding, there is
no doubt that even as late as the 22
nd
August 2002 - which was a week before the 1
st
September - there were strong indications that first and third
respondents had not abandoned plans for third respondent to take over
certain functions from the first respondent. However, this does not
remove the hurdle in appellants’ way, namely, that there is
no
evidence to show that an agreement was concluded between first and
third respondents and the specific statement by the first respondent
that, before the launching of the application in this matter, it and
the third respondent had decided not to proceed with their plans
in
the light of the stance taken by the first appellant towards
outsourcing which statement the appellants never challenged.
[44] On
the papers before the Court I am unable to conclude that as at the
time when the appellants launched the urgent application
which led to
these proceedings, any agreement had been concluded between the first
respondent and the third respondent in terms of
which the third
respondent would take over certain functions from the first
respondent. If I were to say that such an agreement had
been
concluded, I would not be able to spell out what its terms and
conditions were including the duration of the agreement, the
fee that
the first respondent would pay to the third respondent for the
performance of such functions, etc. With regard to the second
respondent all such matters were dealt with in the signed agreement.
From the fact that a draft agreement that was to be signed on
behalf
of the first and third respondents was annexed to the papers albeit
unsigned, an inference can be drawn that the parties intended
to have
a written agreement. That document had not been signed at the time
that the appellants launched the urgent application. The
appellants,
being the party that alleged the existence of an agreement, should
have provided evidence of what the terms and conditions
were of such
agreement. They failed to do so and, in the absence of evidence of
such terms, I am unable to uphold their contention
that the first and
third respondents had concluded an agreement. In my view the fact
that a tender had been awarded is not sufficient
to found an
agreement because, quite clearly, the parties intended to conclude a
written agreement that would spell out their respective
rights and
obligations. They prepared a draft of such agreement but had not as
yet signed it when these proceedings were instituted.
The result
hereof is that I cannot conclude that the two parties did conclude an
outsourcing agreement.
[45] The
conclusion that no outsourcing agreement had been concluded between
the first and third respondents at the time of the launching
of the
urgent application has the result that there could not be any
transfer of business or service as a going concern between the
two
parties in the absence of such an agreement. Accordingly, there could
also not be any transfer of contracts of employment of
employees from
the first respondent to the third respondent.
[46] In
the light of all of the above I am unable to grant the order that the
appellants sought in this matter but can only grant
a differently
formulated order. As to costs I am of the view that it would accord
with the requirements of law and fairness if I
made no order as to
costs.
[47] In
the result I make the following order:-
1. The written agreement concluded between the first and
second respondents which was annexed to the papers in this matter is
an agreement
to which upon implementation
sec 197
of the
Labour
Relations Act, 1995
would apply.
2. The
draft agreement which was prepared for signing by the first and third
respondents which was annexed to the papers in this matter
is an
agreement to which
sec 197
of the
Labour Relations Act, 1995
would
apply if signed and implemented.
3. There
is to be no order as to costs.
Davis AJA
I agree.
Zondo JP
I agree.
Jafta AJA
Appearances:
For the
appellants : Adv. T.J. Bruinders SC
Instructed
by : Cheadle Thompson & Haysom
For the
respondent : Adv P Pauw SC
Instructed
by : Marting Hening Attorneys
Date of
Judgement : 3 December 2004