AST Holdings (Pty) Ltd v Roos (JA2/2005) [2007] ZALAC 4; [2007] 10 BLLR 891 (LAC); (2007) 28 ILJ 1988 (LAC) (4 May 2007)

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[2007] ZALAC 4
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AST Holdings (Pty) Ltd v Roos (JA2/2005) [2007] ZALAC 4; [2007] 10 BLLR 891 (LAC); (2007) 28 ILJ 1988 (LAC) (4 May 2007)

IN THE LABOUR APPEAL
COURT OF SOUTH AFRICA
HELD
AT JOHANNESBURG
CASE NO. JA2/2005
In
the matter between:
AST
HOLDINGS (PTY) LTD APPELLANT
and
ANDRE
ROOS RESPONDENT
J U D G M E N T
McCALL
AJA
[1] This is an appeal against part of
the judgment of Tlaletsi AJ in the Labour Court, handed down on 20
October 2004, in an application
brought by the respondent in this
appeal (hereinafter referred to as “the respondent”), against the
appellant.
[2] The respondent had been employed
by the appellant and was dismissed on or about 11 June 2002. He
contended that his dismissal
was both substantively and procedurally
unfair and brought the application in the Court
a
quo
against the appellant
for a declaration to that effect, compensation in accordance with the
provisions of the Labour Relations Act
No. 66 of 1995 (“the Act”)
and costs.
[3] It
was not disputed in the application that the respondent was entitled
to be paid severance pay but there was a dispute regarding
the period
of service which had to be taken into account in calculating the
severance pay due to him.
[4] The respondent’s claim in the
Court
a
quo
was successful and the learned Judge, in addition to making a
declaratory order to the effect that the respondent’s dismissal
was
substantively fair but procedurally unfair, and ordering the
appellant to pay compensation and costs made the following order:-
“3.
The respondent is ordered to pay the applicant severance pay equal
to the applicant’s years of service calculated from 14
December
1970 until the date of dismissal, at the rate of two weeks’
remuneration per each year of completed service totalling
an amount
of R395 002-64. The respondent shall be entitled to deduct any
amount already paid to the applicant as severance pay arising
out of
the present dismissal.”
The appellant sought leave to appeal
only against the aforesaid order relating to severance pay and the
order for costs of the application
in the Court
a
quo
. Leave to appeal was
granted, resulting in this appeal.
[5] In order to understand how the
issue regarding severance pay arose, it is necessary to set out the
background facts which are
largely common cause:-
(i) The respondent had previously been
employed by Iscor Ltd (“Iscor”), having commenced such employment
on 14 December 1970,
and was a manager in the IT Department of Iscor
at the time of the sale referred to below.
(ii) In
terms of a written agreement signed on 31 July 1998 Iscor sold its IT
Division (“ITI”) to the appellant, as a going concern,
with
effect from the effective date.
(iii) The
“effective date” was stated to be the commencement of business on
1 July 1998, notwithstanding the date of signature
of the agreement.
(iv) It
was agreed that all risk and benefit attaching to the ITI business
and the assets sold in terms of the agreement would pass
to the
appellant on the effective date and that Iscor would have no further
responsibilities in regard to the conduct of the ITI
business after
the effective date.
(v) Notwithstanding
the provision regarding the effective date it was provided that the
whole of the agreement, other than certain
specified clauses, would
be subject to the fulfilment of certain “conditions precedent” by
not later than 14 September 1998.
(vi) The
agreement provided that as the appellant was buying the ITI business
as a going concern it would, as from the effective date,
employ all
employees who were employed by the ITI business before the effective
date on the same terms and conditions as those on
which they were
employed by Iscor on 1 July 1998. However, the agreement provided
that this did not preclude the appellant from
“renegotiating, as
from the effective date the terms and conditions of the employees
identified in Appendix 10”, which included
the respondent.
(vii) Although
there is a dispute about the date upon which, and precisely how, the
respondent’s contract of employment was transferred
from Iscor to
the appellant, it is not disputed that the said agreement of sale
resulted in a transfer of part of the business of
Iscor to the
appellant and that the transaction was one which was subject to the
provisions of section 197 of the Act before its
substitution by s.49
of Act 12 of 2002.
(viii) On
21 August 1998 a letter was addressed to former employees of Iscor,
including the respondent, signed jointly by one Van
Zyl and one De
Klerk, on behalf of Advanced Software Technologies Group (“AST”).
The letter began:-
“We
have pleasure in confirming the purchase of Information Technology
from Iscor (ITI) as a going concern, by the Advanced Software
Technologies Group (AST).”
After
describing AST the letter continued:-
“An
important cornerstone of the transaction is the fact that the
continued employment of all ITI staff has been secured, without
any
change to the current conditions of employment. In order to give
effect to the above you will be required to exercise one of
the
following options.”
The first option was to “Accept the
transfer to AST”, in which case two further options became
available, which were particularised
as follows:-
“1.1
Continue the
employment under the same conditions of employment as at Iscor
This will result in you
becoming an employee of AST without any change to your current
conditions of service or your current retirement
fund and medical
scheme membership.
1.2
Accept
the conditions of employment offered by AST
This
will result in your becoming a new employee on the conditions of
service that are offered by AST, as outlined in appendix A enclosed
herewith. The AST conditions of service are in line with those of
the Information Technology (IT) industry and are more flexible
than
Iscor’s.”
(ix) The letter proceeded to give
particulars of the benefits which would accrue by accepting the
conditions of service offered by
AST, which included qualification
for a pre-listing share allocation “at virtually no cost”.
(x) The
second option was described as follows:-
“2.
Decline
the transfer to AST
You
have the option not to transfer to AST. However Iscor sold ITI as a
going concern. In future, IT Services will be provided by
AST in
terms of a service agreement entered into by the two parties. As
Iscor has now effectively divested from ITI individuals
who decide
not to accept the transfer to AST may become redundant and may face
retrenchment.”
(xi) The letter continued:-
“You
have until 18 September 1998 to exercise your option to transfer to
the AST Group. Please confirm your choice by completing
and signing
page 3 of this letter before then.
Having exercised the
option to transfer to the AST Group, you have until 30 October 1998
to decide on the conditions of service that
will be applicable to
you.”
(xii) On 8 September 1998 the
respondent signed an acceptance of an offer to purchase 30 000 shares
in Advanced Software Technologies
Ltd, which was to be listed on the
Johannesburg Stock Exchange on 9 September 1998, at a pre-listing
purchase price of 1 cent per
100 shares. In this document the
respondent purported to confirm,
inter
alia
, that:-
“I
have accepted employment in the AST Group through its subsidiary AST
Holdings (Pty) Ltd (hereinafter collectively referred to
as AST), as
a new employee on the conditions of employment offered by AST.”
(xiii) On 18 September 1998 the
respondent signed the document confirming that he had accepted the
choice of transferring to AST.
(xiv) There
was apparently discussion about the employees’ entitlement to
recognition of their length of service with Iscor and
on 10 October
1998 Van Zyl sent a memorandum to all ex ITI employees which
contained the following:-
“
3
YEARS GUARANTEE RATIONALISATION
The selling of ITI as a
going concern to AST resulted in the termination of employee’s
years of service with ISCOR.
Some
of the employees were uncomfortable with this situation as they are
of the opinion that years of service could be to their benefit
in
case of rationalisation.
Because
of this perceived risk I would like to give every ex ITI employee the
assurance that should they be rationalised within their
first three
years of service at AST, all previous years of service within ISCOR
will be considered as part of their rationalisation
packages.
I
would like to emphasise that this transfer to AST was done to retain
our ITI employees in future and there is no inclination whatsoever
to
reduce the number of our employees or embark on a rationalisation
program.”
(xv) On 30 October 1998 a document
confirming the structuring of the total package offered by AST and
setting out that package was
signed by the respondent under the
words:-
“A
cceptance
of the conditions of employment offered by AST:
I, the undersigned,
hereby confirm my acceptance of the AST conditions of employment.”
(xvi) After retrenchment discussions
had taken place between the appellant and the respondent, the
respondent received a letter dated
11 June 2002 advising that 31 July
2002 would be the effective date of his retrenchment, following which
he was formally retrenched.
[6] The relevant portions of s. 197 of
the Act, before its substitution provided 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
---
(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
the 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.
---
(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. That employment continues
with the new employer as if with the old employer.”
[7] There is no dispute between the
parties that severance pay was payable to the respondent on the basis
of two weeks’ salary for
every year of service. What is in dispute
is the length of service of the respondent which had to be taken into
account in this
calculation. The respondent had been paid severance
pay of R52 898,07, being two weeks salary for every year of service
with the
appellant, calculated from 1 November 1998, being the day
after the respondent’s acceptance of the appellant’s new
conditions
of employment.
[8] The
appellant contends that since the ITI business of Iscor was
transferred to the appellant as a going concern as contemplated
by
section 197 of the Act with effect from 1 July 1998, all employees of
the Iscor IT division, including the respondent, became
employees of
the appellant as from 1 July 1998, automatically, by operation of
law. This meant, argued Mr Snyman for the appellant,
that the
appellant became the employer of the former Iscor employees “as if
it had always been the employer”. He said:-
“Therefore,
when the appellant embarked upon its restructuring exercise to change
the employment conditions of employees, by agreement
with such
employees, to conform to IT conditions of employment on 21 August
1998, the issue of the transfer of undertaking and Section
197 had
come, been implemented, given effect to, and had gone.”
He said that it was clear from the
undisputed evidence that all employees, including the respondent,
knew that the acceptance of
appellant’s conditions of employment
and the issue of free shares were subject to all employees agreeing
to become a
new employee
and forfeiting the length of service the employee had with Iscor. Mr
Snyman argued that even the AST length of service from 1 July
1998 to
1 November 1998 was forfeited from the outset together with the Iscor
years of service, by the agreement between the appellant
and
employees on the new conditions of employment, the
quid
pro quo
being the improved
conditions of employment, benefits and free shares. He submitted
that the respondent’s true complaint related
to the share price of
the shares because employees had envisaged a share price in excess
of R10 per share but when retrenchment
ultimately took place in 2002,
the share price was a fraction of this.
[9] In
essence it was, as I understood it, the appellant’s contention that
the ITI business of Iscor was transferred to the appellant
with
effect from 1 July 1998, thereby giving effect to the provisions of
s. 197 of the Act. The result was that the affected Iscor
employees
became employees of the appellant from 1 July 1998 and it was
permissible for the appellant thereafter to enter into an
agreement
with the employees to forfeit their years of service with Iscor in
exchange for the new and better conditions of employment
offered by
the appellant and the issue of shares.
[10] Counsel for the respondent, Mr
Landman, supported the judgment of the Court
a
quo
on two grounds.
[11] The
first ground may be summarised as follows:-
(a) Since the sale of ITI involved the
transfer of part of Iscor’s business as a going concern (
National
Education Health and Allied Workers Union v University of Cape Town
and Others
(2003) 24 ILJ 95
(CC) at 111 (para [56]) (“
Nehawu
”),
s 197 of the Act applied to the transaction.
(b) S 197 does not preclude the
employer involved in a transfer of a business referred to therein
from offering the employees the
choice of continuing to be employed
by the old employer or accepting employment with the new employer on
the same or new terms, when
effecting transfer of the employees’
contracts.
(c) Upon
a proper construction of the evidence, including the documentary
evidence, the transfer of the ITI business did not, as contended
by
the appellant occur on 1 July 1998 and, on the contrary, the transfer
process was still continuing when the memorandum of 10 October
1998
was sent by van Zyl.
(d) Accordingly,
when the respondent, on 30 October 1998, accepted the conditions of
employment offered by the appellant he did so
in the context of a s
197 transfer.
(e) The
transfer of the respondent’s contract of employment was accordingly
subject to the provision in s 197(4) that:-
“A
transfer referred to in sub-section (1) does not interrupt the
employee’s continuity of employment. The employment continues
with
the new employer as if with the old employer”,
(relying on
Foodgro,
a division of Leisure Net Ltd v Keil
(1998) 20 ILJ 2521 (LAC) at para [21.22] (“Foodgro”))
(f) On the basis of
Foodgro
the interruption of the respondent’s continuity of employment was
forbidden by s 197(4).
(g) Accordingly the appellant’s
attempt to alter the date of commencement of the respondent’s
contract of employment was unlawful.
That, in essence, is what the learned
Judge in the Court
a quo
found when he said:-
Having
found that the negotiations relating to forfeiture of the continued
years of service were done within the context of the transfer
Section
197(4) becomes applicable. It prohibits the parties from entering
into an agreement which alters an employee’s continuity
of
employment (Foodgro (supra) at 2529A). This means that the years of
service at ISCOR should have been taken into account when
applicant’s
severance pay was calculated in accordance with the rate which was
the respondent’s policy at the time.”
[12] The second ground relied upon by
the respondent was that on the probabilities, based on the evidence
before the Court
a quo
,
the appellant mistakenly thought that the respondent had lost his
years of service with Iscor upon transfer of the ITI business
as a
going concern in July 1998, and, consequently:-
(a) the appellant could not have
intended that by becoming a “new employee” the respondent would
lose his Iscor years of service;
(b) the respondent was misled at the
time of agreeing to become a new employee into believing that his
years of service had already
been lost and in signing the acceptance
letter of 30 October 1998 he was misled as to the consequences
attached to becoming a “new”
employee and cannot be bound to such
a consequence.
[13] Before the appeal was heard the
respondent’s counsel submitted Supplementary Heads of Argument
raising two issues.
[14] The first issue was really an
amplification of the respondent’s contention that the appellant was
wrong in contending that
the ITI business was transferred to the
appellant as a going concern in terms of s 197 of the Act with effect
from 1 July 1998, in
the light of the judgment of van Niekerk AJ in
the recent case of
Van der
Velde v Business & Design Software (Pty) Ltd & Another
(2006) 27 ILJ 1225 (LC) (“
Van
der Velde
”). That
judgment deals with the determination of the date of transfer in a
transaction contemplated by s 197 and, counsel submitted,
supported
the finding of the Court
a
quo
that the options put to
the respondent regarding his choice of employer and, thereafter, his
conditions of employment, had to be
exercised within the context of a
s 197 transfer. On that basis the respondent did not transfer with
all his existing rights intact
and did not enjoy continuity of
employment if he is bound by the terms of the contract relied upon by
the appellant.
[15] The
second issue raised in the respondent’s supplementary heads was the
respondent’s entitlement to severance pay in terms
of
s 41
of the
Basic Conditions of Employment Act, No. 75 of 1997
, as amended (“the
BCEA”).
[16]
S
41(2)
of the BCEA provides for severance pay on dismissal of an
employee for reasons based on operational requirements.
[17 The respondent’s counsel
contended that upon a proper interpretation of the BCEA, the parties
were not able to conclude a contract
which excluded the respondent’s
years of service with Iscor, alternatively, that such an agreement
was of no force and effect inasmuch
as its effect was to reduce the
number of years of service that can be taken into account when
determining severance pay in accordance
with
s 41
of the BCEA. Mr
Landman also relied upon
s 4
of the BCEA. He argued that the only
manner in which one could alter the effect of the provisions of
s 41
was by substituting a term of the contract of employment more
favourable to the employee
(s 4(c))
, which did not apply here. He
also relied on
s 84(1)
of the BCEA and submitted that if it were to
be held that the respondent concluded a “new” contract of
employment with the applicant
in 1998, then
s 84(1)
required the
appellant to take into account for the purposes of determining the
length of the respondent’s employment with the
appellant, for the
purposes of
s 41
of the BCEA, the respondent’s previous period of
employment. This was, so it was argued, because the break between
being an employee
of Iscor and becoming a “new employee” was less
than twelve months.
[18] Since
it was not clear whether the new BCEA of 1997 applied, the parties
were given leave to file additional written heads of
argument, which
they did.
[19] In
his supplementary heads of argument Mr Snyman, for the appellant,
drew attention to the fact that the BCEA of 1997 was assented
to on
26 November 1997, but only came into effect on 1 December 1998 (GN
112 of 1998 in Regulation Gazette No. 6342, Vol. 401 of
GG No. 19453,
dated 13 November 1998).
[20] It
was common cause that the transaction in terms of which the
respondent agreed that he would become a new employee with effect
from 1 November 1998 took place on 30 October 1998. Therefore at the
time when the transaction took place the BCEA 75 of 1997 did
not
apply but the BCEA 3 of 1983 did. The BCEA 3 of 1983 contained no
provision whatsoever relating to severance pay or the calculation
thereof as a minimum statutory basic right of employment.
[21] Mr Snyman submitted that the
respondent’s argument that
s 5
of the BCEA of 1997 applied, which
provides that:
“This
Act or anything done under it takes precedence over any agreement,
whether entered into before or after the commencement of
this Act.”
could not be correct.
To apply s 41 of the BCEA 75 of 1997 retrospectively to 30 October
1998 simply because termination of the respondent’s
employment took
place on 11 June 2002, would be contrary to the presumption against
retrospectivity. When the new BCEA 75 of 1997
came into operation on
1 December 1998, (assuming that it may have introduced s 41 as a
basic right of an employee not susceptible
to contractual change),
the date of employment for the purpose of s 41 had, before the
commencement of s 41, been agreed between
the parties to be 1
November 1998 and this was the date that applied in all respects in
terms of s 41.
[22] To
the extent that the respondent relied on s 84 of the BCEA, that
provision did not apply because:
(a) there was no break of service in
this case, but an agreement to give up years of service;
(b) s
84(2) requires that any payment made or leave granted during a
previous period of employment must be taken into account. In
this
case, if s 84 applied, the shares, increased remuneration and
benefits received by the respondent would have to be taken into
account.
[23] Finally, Mr Snyman contended that
at the time when the transaction was concluded on 30 October 1998 the
issue of severance pay
was embodied in s 196 of the Act 66 of 1995
which was repealed on 1 December 1998 in terms of s 95(5) of the BCEA
75 of 1997. S
196 was not, at the relevant time, a basic condition
of employment. Moreover the Act never contained provisions such as
those in
the BCEA of 1983 and 1997 that an agreement may only exclude
a basic condition of employment to the extent permitted by the BCEA.

Therefore the appellant and the respondent were entitled to agree, in
exchange for certain benefits, that the respondent would become
a new
employee of the appellant without that being prohibited in any way by
the Act.
[24] The
respondent’s counsel replied to the appellant’s supplementary
heads.
[25] In
Nehawu
the Constitutional Court dealt with the proper approach to the
construction of s 197 of the Act and came to this conclusion in para
[64]:
“Reading
the section as a whole, and, in particular, having regard to the fact
that all the rights and obligations flowing from
employment with the
transferring employer are transferred to the new employer in the case
of a solvent business; that in the case
of an insolvent business the
contracts of employment are transferred; the transfer of business
does not interrupt the workers’
continuity of employment; the
inference that the transferee employee takes over the workers and
that the transferee employer is,
by operation of law, substituted in
the place of the transferor employer is irresistible. It follows by
necessary implication.”
[26] The Constitutional Court was not
required to and did not, as pointed out by counsel for the
respondent, consider the question
of whether the old and/or
prospective new employer is/are entitled to offer the employees the
choice of continuing to be employed
by the old employer or accepting
employment on the same or new terms with the new employer when
effecting the transfer of the business,
trade or undertaking in
question. Counsel for the respondent pointed out that in the case of
Fourie and Others v Iscor
Ltd
(2000) 21 ILJ 2018 (LC)
at 2032, para [8.15], (“
Fourie
”)
a case dealing with the very agreement of sale under consideration in
this case, Damant AJ referred to the fact that neither
party had
argued that the kind of arrangement contemplated by the agreement,
which gave employees a choice of continuing to be employed
elsewhere
within Iscor was not permissible in terms of s 197, but made no
finding in that regard.
[27] I agree that there is nothing in
s 197 of the Act which would preclude the employers from offering an
employee the choice of
transferring to the new employer or staying
with the old employer and that the giving of such a choice to an
employee would not detract
from the purpose of s 197. Indeed,
the reference in s 197(1) to the employee’s consent contemplates
that the employee may
be consulted regarding the transfer of his
contract of employment from one employer to another although, as
observed by Damant AJ
in
Fourie
in para [8.14], Iscor could have compelled the employees to transfer
against their consent in cases falling within s 197(1)(a), that
is to
say in the case of a transfer of the business as a going concern.
[28] There is also nothing in s 197
which would preclude the new employer and the employee from agreeing
to a variation or alteration
of the employee’s rights and
obligations under his contract of employment with the old employer
when the transfer takes place.
The words “unless otherwise agreed”
in s 197(2)(a) contemplate such an agreement. That does not mean,
however, that the new
employer and the employee may agree that, upon
transfer of the contract of employment, the employee will forfeit
his/her period of
service with the old employer. That issue was
dealt with in
Foodgro
.
In that case Froneman DJP said, in para [25]:-
“Under
s 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 of the employment contract,
express
provision was made in s 197(4) that the transfer of the employment
contract would not interrupt that continuity. There is
no provision
in it, similar to s 197(2), which allows the parties to alter an
employee’s continuity of employment by agreement.”
[29] In the same case Conradie JA
said, in para [32]:-
“Section 197(2)(a)
permits the employee and the new employer to modify the terms of the
existing employment contract. They may,
as I read the section, do
this by renegotiating its terms regulating their future relationship
and also by adjusting rights and obligations
which had at the time of
transfer already accrued. Although the old contract may suffer so
many modifications that it survives only
in skeletal form, its
survival is not unimportant. It provides the continuity of
employment of which subsection (4) speaks. Some
incidents of the old
contract would be unalterable. One of them is the date of its
commencement. That is a historical fact which
cannot be altered by
agreement. Any benefits which the law attaches to that commencement
date could similarly not be changed. One
of the benefits which the
law attaches to the commencement of an employment contract is, of
course, severance benefits upon retrenchment
(s 196 of the Act).”
[30] Mr Snyman endeavoured to
distinguish
Foodgro
on the facts. Firstly he argued that in
Foodgro
the employer sought to replace the existing employment contract of
the employee at the exact time and as part of actually giving
effect
to the transfer of the undertaking, with a new employment contract.
He said the simple choice offered to the employee was
either to
accept the new contract of employment or actually face dismissal.
That was not the case in the matter before this Court.
Mr Snyman’s
submission is incorrect as it appears from para [1] of the report in
Foodgro
that on 1 January 1997 the business was acquired as a going concern
by the appellant and that only on 23 January 1997 did the employee
sign a letter of appointment setting out the terms and conditions of
her employment with the new employer. The second ground of
distinction relied upon by Mr Snyman was that in the case of
Foodgro
there was a contemplated retrenchment at the time of the transfer of
the undertaking. There is no indication in the report that
there
was a contemplation of retrenchment at the time of the transfer of
the undertaking and it appears from the report that it was
only on 30
May that Foodgro informed the employee that her services would be
terminated on 30 June due to operational needs.
[31] I see no reason to distinguish
Foodgro
or to disagree with the Court’s finding therein that the date of
commencement of the contract of employment may not, upon a transfer
in terms of s 197 of the Act, be altered by agreement. Accordingly,
if the appellant sought to obtain the respondent’s agreement
to the
forfeiture by him of his period of service with Iscor within the
context of the transfer of the respondent’s contract of
employment
in terms of s 197 of the Act, an agreement resulting from that
attempt would be unlawful and contrary to the express provisions
of s
197(4) regarding continuity of employment.
[32] In
van
der Velde (supra)
the
parties requested the Labour Court to make a preliminary ruling
determining the effective date of the transfer of a business
for the
purposes of s 197 of the Act. The agreement in question provided for
a transfer of contracts of employment on a date that
preceded the
signature of the agreement and provided for the fulfilment of certain
suspensive conditions. There was no dispute that
the transaction in
question was one that was affected by s 197 of the Act as substituted
by s 49 of Act No. 12 of 2002. That section,
like its predecessor,
deals with the transfer of contracts of employment pursuant to the
transfer of a business by one employer to
another employer as a going
concern. The suspensive conditions in the agreement in question were
fulfilled by 4 April 2003. The
applicant was notified on 28 March
that he had been retrenched. He contended that he was employed by
the old employer until 4 April
2003 when the suspensive conditions
were fulfilled whereas the respondents contended that the transfer of
the applicant’s contract
of employment took place on 1 January 2003
which was the effective date of the agreement signed on 3 April 2003.
The agreement provided
in a clause dealing with employment related
issues that from the effective date the new employer would take over
the employment of
all employers employed in their business as at the
effective date, ie. 1 January 2003. The names of these employees
were listed
in an annexure to the agreement and included the
applicant’s name. The clause in question also provided that the
employees listed
in the schedule would be employed by the new
employer during the interim period, in terms of s 197 of the
Act, on the same terms
and conditions including remuneration and
other benefits as those upon which they were employed by the seller
immediately prior to
the effective date. The employees listed in the
schedule were not parties to the sale agreement and their consent to
the transfer
of their employment contracts was not sought. Van
Niekerk AJ commented that regrettably the Act provides no guidance as
to when
a transfer can be said to have taken place nor did the issue
seem to have been considered previously by the Labour Court. Van
Niekerk
AJ held at 1231 para [20]:-
“For the reasons that
follow, and having regard to the purpose of s 197, it is my view that
in the present instance the date on
which a transfer for the purposes
of the s 197 took place was the date on which the sale of the
business became unconditional and
NGN assumed full control of the
business bundle that is the subject of the transfer. In other words,
the date of transfer for the
purposes of s 197 cannot be a date
earlier than what might be termed the date of closure, the date on
which the transferee employer
takes final and unconditional control
and responsibility for the transferred business. This is not a date
that can be made retrospective
or postponed by the will of the
transferor and transferee employers, and it is a date to be
determined objectively, and in the absence
of any variation agreement
with the parties defined by s 197(6)(a), regardless of what has been
agreed by the employer parties.”
Although I am not sure that I agree
with the expression “final and unconditional control” I agree
with the remainder of this passage.
[33] Van Niekerk AJ proceeded to give
three detailed reasons for his finding, with which I respectfully
agree. Under the first reason
he said at 1232 para [21]:-
“There
is a sense of chronology in s 197 – the transfer of the business
occurs, immediately followed by the substitution of the
transferee
employer in relation to all contracts of employment in force on that
date. To permit employer parties to manipulate the
provisions of s
197 by effectively ceding employment contracts with retrospective
effect to a date preceding the date of the completion
of the
transaction and the assumption of physical control of the business is
inconsistent with the logic and structure of the section.”
[34] After
analysing the facts, van Niekerk AJ concluded at 1233 para [25]:-
“All
of the factual circumstances therefore point to a consummated
assumption of control of the business by NGN and closure of the
transaction, after the sale of the business became unconditional on 4
April 2003.”
[35] It is important to bear in mind
that, in applying the provisions of s 197of the Act, a distinction is
to be made between the
transfer of the business as a going concern
and the transfer of the employee’s contract of employment.
[36] The
agreement in the present case was signed on 31 July 1998 but the
effective date was agreed to be the commencement of business
on 1
July 1998. Although clause 19.1 of the agreement provides that the
purchaser shall, as from the effective date, employ all
employees who
were employed by the ITI business before the effective date, and
whose names are listed in appendix 10, it is clear
that, practically,
neither the respondent’s contract of employment nor the ITI
business could have been transferred retrospectively
from the
effective date of 1 July 1998. The appellant’s insistence that the
transfer of the ITI business and the commencement
of the respondent’s
new employment with the appellant took place on 1 July 1998 is
therefore incorrect.
[37] Moreover,
in terms of clause 4, the agreement was subject to a number of
conditions precedent which had to be filled by not later
than 14
September 1998. There was a provision that if they were not, and
fulfilment thereof was not waived or extended, the agreement
would be
of no further force and effect. Although the evidence did not reveal
when the conditions precedent were fulfilled, it is
clear from the
nature of the conditions that some of them, at least, could not have
been fulfilled as at the date of signature of
the agreement. For
example, clause 4.1.1.1 provided that 90% of the parties set out in
appendix A should sign a service and restraint
of trade and
confidentiality agreement in terms of which they would be employed by
the purchaser for a period of three years “from
the delivery date”.
[38] Furthermore,
it is clear from the appellant’s conduct in relation to the
employees after the date of signature of the agreement
that the
appellant did not regard the contracts of employment as having been
transferred retrospectively from 1 July 1998 or, indeed,
from the
date of signature of the agreement on 31 July 1998. The facts I
refer to are the following:-
(a) Whilst the letter of 21 August
recorded that “the continued employment of all ITI staff has been
secured, without any change
of the current conditions of employment”
it proceeded to explain that in order to give effect to this, the
employee concerned would
be required to exercise one of the options
referred to earlier in this judgment. In this regard I am of the
view that the finding
of the Court
a
quo
that “Acceptance of
the conditions is part of giving effect to the transfer to the
respondent”, was correct.
(b) Other
indications in the letter of 21 August 1998 that the appellant did
not regard the employee concerned as having been employed
by the
appellant with effect from 1 July 1998 were the following:-
(i) The words “You
will
be required
to exercise one
of the following options” – the future tense implied that this
had not yet happened.
(ii) The
first option was to “Accept the transfer to AST”, which implied
that transfer had not yet taken place.
(iii) The
election to continue employment under the same conditions of
employment as at Iscor “will result in your becoming an employee
of
AST”, showed that this had not yet happened.
(iv) The
provision that the acceptance of the conditions of employment offered
by AST “will result in your becoming a new employee
(of AST)”,
implied that this would only occur after acceptance of the conditions
of employment.
(v) The
giving of the option of declining the transfer to AST again showed
that the appellant did not regard the transfer of employment
as
having taken place.
(vi) The
employee was given “until 18 September 1998 to exercise your option
to transfer to the AST group”, which again showed
that this had not
yet occurred.
(vii) Having
exercised the option to transfer to the AST group the employee still
had until 30 October 1998 to decide on the conditions
of service that
would be applicable to him/her, which again showed that this had not
yet been finalised.
[39] Counsel for the respondent
submitted that logic dictated that in the interim period between the
date of signature of the sale
agreement and acceptance by the
employee of transfer to AST, the employee was an employee of Iscor.
I agree. That follows from
the giving of the option to decline the
transfer to AST, resulting in the employee remaining in the employ of
Iscor and risking the
possibility of retrenchment. Furthermore, that
the appellant itself regarded the respondent as having been employed
by Iscor until
the day after he accepted the conditions of
employment, namely 30 October 1998, appears from the fact that the
retrenchment calculation
sheet prepared by the appellant shows that
his period of service with the appellant commenced on 1 November
1998, the day after he
accepted the new conditions of employment.
[40] The fact that it was not
contemplated by the appellant that the contract of employment of the
former ITI employees would be transferred
to the appellant unless and
until they exercised the option to so transfer, is another factor
indicating that the business was not
transferred as a going concern
as at the effective date. The employees were obviously an integral
part of the business acquired
by the appellant from Iscor and the
evidence was that the majority of employees did accept the transfer
to the appellant. This supports
the finding of the Court
a
quo
that “the
negotiations relating to forfeiture of the continued years of service
were done within the context of the transfer”.
[41] It
does appear from the evidence that the respondent knew, when he
accepted the AST conditions of service, that the appellant
sought to
conclude a new contract of employment with the Iscor employees and
accepted transfer to AST on that basis. It is apparent,
however,
that the appellant’s management misconceived the legal position
relating both to the transfer of the contracts of employment
and to
the forfeiture of the employees’ years of service with Iscor. That
much is apparent from the memorandum signed by van Zyl
dated 10
October 1998 which says that: “the selling of ITI as a going
concern to AST resulted in the termination of employees’
years of
service with ISCOR”.
[42] This
misconception also emerges from the e-mail (referred to in the
judgment in the Court
a quo
)
sent by Miss Olivier, the Group Human Resources Manager, to the Human
Resources Team, dated 4 June 2002, in which she said:-
“Hi
all, Apparently there is an uncertainty in some areas. I would like
to confirm the following. Employees previously employed
by ISCOR,
that worked for ITI, and formed part of the AST/ITI merger did not
transfer with their service years. If you plan to retrench
any such
individual, the transfer date to AST must be considered as date of
employment and not the employment date within ISCOR.”
[43] The probabilities are that the
respondent was misled into signing his acceptance of the transfer and
of the new conditions of
employment. Even if he did agree to the
transfer of his contract of employment on the basis that he was
entering into a new contract,
he did so acting under the mistaken
belief, induced by the representation of van Zyl in the memorandum of
10 October 1998, that his
years of service had terminated as a result
of the sale of ITI to the appellant. I accordingly agree with the
submission by counsel
for the respondent that, quite apart from the
legal effect of s 197(4) of the Act, the respondent ought not to
forfeit his years
of service with Iscor on the basis that he agreed
to do so, or that he waived his right to continuity of service in
terms of s 197(4)
of the Act.
[44] The
conclusions to which I have come make it unnecessary to determine the
issues relating to the BCEA. I will, however, express
my views with
regard thereto.
[45] The
Basic Conditions of Employment Act in
operation at the time when the
respondent was retrenched with effect from 31 July 2002 and became
entitled to severance pay was the
Basic Conditions of Employment Act
No. 75 of 1997
.
[46] That
Act provides, in s 1, that “basic condition of employment” means
a provision of this Act or sectoral determination that
stipulates a
minimum term or condition of employment”.
[47] S
4 of the BCEA provides”-
“4.
Inclusion
of provisions in contracts of employment
.
–
A basic condition of
employment constitutes a term of any contract of employment except to
the extent that –
(a)
any other law provides a term that is more favourable to the
employee;
(b)
a basic condition of employment has been replaced, varied or
excluded in accordance with the provisions of this Act; or
(c)
a term of the contract of employment is more favourable to the
employee than the basic condition of employment.”
S 5 provides:-
“5.
This
Act not affected by agreements
.
–
This Act or anything
done under it takes precedence over any agreement, whether entered
into before or after the commencement of
this Act.”
[48] S 41(2) of the BCEA provides:-
“(2)
An employer must pay an employee who is dismissed for reasons based
on the employer’s operational requirements or whose
contract of
employment terminates or is terminated in terms of s 38 of the
Insolvency Act, 1936 (Act No. 24 of 1936) severance pay
equal to at
least one week’s remuneration for each completed year of continuous
service with that employer, calculated in accordance
with s 35.”
This provision, providing as it does
for the minimum severance pay payable on dismissal for reasons based
on the employer’s operational
requirements, is a basic condition of
employment as defined in the Act and accordingly constitutes a term
of every contract of employment
in terms of s 4, unless one of the
exceptions provided for in that section applies.
[49] The only exception which could
apply in this case is that provided for in s 4(c) namely, if a term
of employment is more favourable
to the employee than the basic
condition of employment. I agree with Mr Landman that the exception
must, in this case, be interpreted
to mean a term relating to the
payment of severance pay which is more favourable than that contained
in s 41(2).
[50] On the basis of
Foodgro
the date upon which the “continuous service with that employer”
commenced is a historical fact that cannot be altered by agreement
and s 197(4) of the Act has the result that where a business is
transferred as a going concern, employment with the old employer
is
deemed to be employment by the new employer. Accordingly, for the
purposes of s 41(2) of the BCEA, the respondent’s “continuous
service” commenced in December 1970 and not on 1 November 1998.
[51] I do not consider that s 84(1) of
the BCEA assists in determining the length of service in a case in
which there is a transfer
of a contract of employment from one
employer to the other pursuant to a transfer of the business as a
going concern. It deals with
determining the length of an employee’s
employment with an employer where there is a break in the employment
with the
same employer
of less than one year. It has nothing to do with the transfer of a
contract of employment from one employer to another employer.
[52] The appeal must fail, having
regard to my finding that the Court
a
quo
was correct in
determining that s 197(4) of the Act prohibits the parties from
entering into an agreement which alters an employee’s
continuity of
employment, and that the respondent’s years of service with Iscor
should have been taken into account when the respondent’s
severance
pay was calculated.
[53] I
can see no reason why the respondent, having successfully opposed the
appeal, should not be entitled to his costs of appeal.
[54] The
appeal is dismissed with costs.
……………………………………
..
McCALL AJA
I
agree : ………………………………………
ZONDO JP
I
agree : ………………………………………
KRUGER AJA
Appeal
heard on :
Attorney
for the appellant : Mr A. Landman
Instructed
by : Hugo and Ngwenya Attorneys
Counsel
for the respondent : Mr S. Snyman
of
Snyman’s Attorneys
Judgment handed down on : 4 May 2007