Business and Design Software (Pty) Ltd and Another v Van der Velde ([2009] 8 BLLR 746 (LAC); (2009) 30 ILJ 1277 (LAC)) [2009] ZALAC 34; [2009] ZALAC 1 (10 March 2009)

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[2009] ZALAC 34
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Business and Design Software (Pty) Ltd and Another v Van der Velde ([2009] 8 BLLR 746 (LAC); (2009) 30 ILJ 1277 (LAC)) [2009] ZALAC 34; [2009] ZALAC 1 (10 March 2009)
IN THE LABOUR APPEAL COURT OF SOUTH AFRICA
HELD AT JOHANNESBURG
CASE NO.: JA 35/06
In the matter between:
BUSINESS AND DESIGN SOFTWARE
(PTY) LIMITED 1
ST
APPELLANT
NATIONAL GOLF NETWORK
(PTY) LIMITED 2
ND
APPELLANT
and
ERIC VAN DER VELDE RESPONDENT
________________________________________________________________
JUDGMENT
________________________________________________________________
ZONDO JP et JAPPIE JA
Introduction
[1] This is an appeal from a judgment
of Van Niekerk AJ sitting in the Labour Court. The respondent was
dismissed from his employment
as general manager at the end of March
2003. He referred a dispute concerning the fairness of his dismissal
to the Commission
for Conciliation Mediation and Arbitration (“
the
CCMA
”) for
conciliation. When the dispute was unresolved, it was referred to
the Labour Court for adjudication. The Labour Court
had to decide
whether the respondent was dismissed for a reason that rendered the
dismissal automatically unfair as provided for
in section 187 (1) (g)
of the Labour Relations Act 66 of 1995 (the LRA or the Act). Sec
187(1)(g) of the Act is to the effect that
a dismissal for a transfer
of a business as a going concern or a reason connected with the
transfer of a business as a going concern
is automatically unfair.
Background
[2]
The
material facts are largely common cause. The respondent commenced
employment with the first appellant, Business and Design Software

(Pty) Limited, as its general manager in March 1999. At the time Mr
Nico Spence (“
Spence
”)
was the first appellant’s managing director. In April 2001 Spence
sold the business to AST Group Limited. Spence continued
as managing
director until his resignation in April 2002. Spence recommended
that the respondent replace him as the first appellant’s
managing
director. However, the Deputy Chief Executive Officer of AST Group
Limited, Mr Martinus Erasmus, appointed a Mr Paul
Smulders
(“
Smulders
”)
as the managing director of the first appellant in June 2002.
[3] In September 2002 Smulders
advised the respondent that AST Group Ltd was concerned that the
management structure of the first
appellant was ‘
top
heavy
’ and that
the respondent was regarded as ‘
surplus
to requirements
’.
Nothing more, however, came of this. At that stage the first
appellant was experiencing structural difficulties and Smulders
had
recommended that the first appellant restructure its management
structure. However, the first appellant did not proceed with
that
restructuring at this stage.
[4
] At
the end of 2002 and as part of a process of consolidation, AST Group
Ltd as owners of the first appellant sought to dispose
of all its
‘
non-core
’
businesses. The business of the first appellant was regarded as a
‘
non-core
’
business.
[5
] During
or about January 2003 Smulders initiated a management buy-out of the
first appellant’s business from the AST Group.
When this came to
the knowledge of the respondent, he, too, sought permission to bid
for the business of the first appellant.
Such permission was granted
and the respondent put his bid in. On Monday, 24 February 2003, the
respondent was advised that Smulders
had been successful in his bid
and that AST Group Ltd intended selling the business of the first
appellant to National Golf Network
(Pty) Limited, the second
appellant.
[6
] At
the end of February 2003 Smulders brought his brother, Marcelle
Smulders, into the business. The appointment of Marcelle Smulders

raised the issue of the respondent’s role in the business of the
first appellant. At a meeting held on 3 March 2003 Marcelle
Smulders
advised the respondent that he, that is the respondent, had three
options. These were that the respondent could resign
from the first
appellant and possibly be offered what was then the business systems
division of the first appellant or he could
stay on at the first
appellant and face disciplinary action or, alternatively, he could
accept voluntary retrenchment. It is not
clear what the basis for
disciplinary action was going to be. Subsequent to this meeting, the
respondent addressed a ‘
without
prejudice
’ letter
to Smulders and to AST Group Ltd. The “
without
prejudice letter
”
has been referred to by the parties in this litigation without any
objection from either party that it ought not have been referred
to.
In the letter the respondent proposed that he be retrenched on
certain terms and conditions.
[7
] On
7 March 2003, Smulders, acting on behalf of the first appellant,
addressed a letter to the respondent offering him alternative

employment with the first appellant as its Administration Manager at
a reduced salary. The respondent was to report to and assist
the
various line managers. This letter further advised the respondent to
limit his discussions with staff members who had earlier
resigned
from the first appellant. It also warned the respondent to ‘
ensure
that all your client responsibilities are handed over to me
immediately
’.
Finally, the letter concluded by stating that it served as a formal
warning that ‘
failure
to rectify the situation will force management to review your
position in BDS [the first appellant]
’.
On the same day, namely, the 7
th
March 2003, the respondent was moved from his office into the general
work area and Marcelle Smulders began to occupy the respondent’s

office.
[8
] On
11 March 2003 the respondent received an e-mail from Mr Steve Strydom
who was the Head of Human Resources at AST Group Ltd.
In the e-mail
Stydom rejected the respondent’s proposal that he be retrenched on
certain terms. Strydom noted that ‘
the
skills you have and the role that you currently perform make you a
valuable employee to AST, BDS and therefore I do not envisage
that
you will be considered for voluntary retrenchment. Voluntary
retrenchment is a management decision
’.
[9
] On
26 March 2003 a meeting was held between the respondent, on the one
hand, and, Strydom, Paul and Marcelle Smulders, on the
other. The
respondent was told that the business was being restructured and that
the position of General Manager was no longer
going to be available
from 1 April 2003. The respondent was then told that, if he did not
accept the position of Administration
Manager, he would be
retrenched.
[10
] On
Friday, 28 March 2003 a further meeting was held between Paul
Smulders and the respondent and he was again advised that, if
he did
not accept the position of Administration Manager, he would be
retrenched. The respondent replied that he was not willing
to accept
the position of Administration Manager. His reasons for his refusal
were that the remuneration offered for that position
was inadequate,
that he would be required to report to persons who had previously
reported to him and that the position was not
one in which he felt
that he could fully utilise his skills. The respondent was then
informed that he was being dismissed and
that he should collect his
payslip on Monday 31 March 2003. The respondent was dismissed with
effect from 31
st
March 2003.
[11
] On
the 3
rd
April 2003 the first and second appellants concluded and signed a
sale agreement in terms of which the first appellant sold its

business to the second appellant as a going concern. The transaction
was described as ‘
a
friendly internal acquisition
’.
Clause 16 of the agreement provided that the employees listed in the
schedule annexed to the agreement would be employed by
the second
appellant in terms of section 197 of the LRA. Their employment would
be on the same terms and conditions, including,
remuneration and
other benefits, as those upon which they had been employed by the
first appellant immediately prior to the ‘
effective
date
’. The
agreement recorded that the effective date of the transaction,
notwithstanding the date upon which the agreement was signed,
was the
1
st
January 2003. The respondent’s name appeared in the schedule of
employees who the agreement said would be employed by the second

appellant. All risks and benefits attaching to the business of the
first appellant would be deemed to have passed to the second

appellant on the effective date. Ownership of the business was
deemed to have passed to the second appellant on the effective
date
provided certain suspensive conditions were fulfilled. It is common
cause that all suspensive conditions were fulfilled on
or by the 3
rd
April 2003.
THE LABOUR COURT
[12
] A
dispute arose between the appellants and the respondent about the
fairness of the respondent’s dismissal. In due course the

respondent referred the dispute to the Labour Court for adjudication.
The Labour Court had to decide whether the dismissal of the

respondent was automatically unfair in that it was for a reason
provided for in section 187 (1) (g) of the LRA. That is to say
a
dismissal that is based on the transfer of a business as a going
concern as contemplated in section 197 or 197 (A) of the LRA
or for a
reason related to such a transfer.
[13
] At
the commencement of the proceedings before the Labour Court, the
first appellant contended that it ought not to have been cited
in the
proceedings as the respondent was not dismissed by it but by the
second appellant. The basis for this contention was that
the
dismissal of the respondent occurred three months after the
‘
effective date
’
(1 January 2003) of the sale of the first appellant’s business to
the second appellant. That is to say, at the date of the

respondent’s dismissal – 31 March 2003, the business was
‘
effectively
’
owned by the second appellant in terms of the sale agreement.
However, it must be pointed out that it is common cause that as
at
the date of the respondent’s dismissal the sale agreement had not
yet been signed and that the only reason why the first appellant

argued that its business was owned by the second appellant as at that
date was because, when, subsequently, the first and second
appellants
signed the sale agreement on 3 April 2003, they fixed the effective
date of the agreement as 1 January 2003 and not
the 3
rd
April when they signed it.
[14
] The
Labour Court held that the ‘
effective
date
’ stipulated
in the agreement was not binding on the respondent. It held that the
transfer of the business for the purposes of
section 197 of the LRA
took place when the sale became unconditional on 4 April 2003. The
Court a quo held that it followed that,
when the respondent was
dismissed at the end of March 2003, he was in the employ of the first
appellant and that the first appellant
had dismissed him prior to the
transfer of the business to the second appellant.
[15
] In
a very thorough judgment the Labour Court held that, when an employee
claims that a dismissal is automatically unfair because
the reason
for the dismissal is a transfer of a business as contemplated by
section 197 of the LRA or is a reason related to such
a transfer, the
employee bears the evidential onus to show the existence of the
dismissal and must show that the underlying transaction
is one that
falls within section 197 of the LRA. It said that this is an
objective inquiry and all relevant facts and circumstances
must be
considered. It further stated that the proximity of the dismissal to
the date of the transfer may be a relevant but not
the determinative
factor in this preliminary enquiry.
[16
] The
Labour Court held that, if an employee succeeds in discharging the
evidential burden to prove dismissal, it is for the employer
to show
that the reason for the dismissal is a reason that is not related to
the transfer of the business as a going concern.
[17
] The
Labour Court found that the respondent had shown that he had been
dismissed by the first appellant and that the transaction
in terms of
which the business of the first appellant was acquired by the second
appellant fell within the ambit of section 197
of the LRA. The
Labour Court came to the conclusion that the respondent had adduced
sufficient evidence to establish on a balance
of probabilities that
his dismissal and the transfer of the first appellant’s business
were causally linked. The Labour Court
pointed out that the
respondent had been dismissed less than a week before the completion
of the transaction that gave rise to
the transfer of the business.
At the time of the respondent’s dismissal, the second appellant was
making the necessary preparations
to assume full ownership and
control of the first appellant’s business.
[18
] With
the Labour Court having come to the aforesaid conclusion, it was now
for the appellants to show that the reason for the respondent’s

dismissal was not the transfer of the business or a reason related to
the transfer. Before the Labour Court the appellants contended
that
the true reason for the respondent’s dismissal was the first
appellant’s operational requirements or reasons that are
related to
the second appellant’s operational requirements.
[19
] After
considering the contentions raised by the appellants, the Labour
Court concluded that the appellants had failed to discharge
the onus
of establishing that the respondent was dismissed for a reason that
was not related to the transfer of the business from
the first
appellant to the second appellant. The Labour Court stated the
following:-
“
If the applicant was indeed
redundant to NGN, and the intention was to replace him with one or
more other employees, to have dismissed
the applicant days prior to
the transfer seem to me, in the absence of additional factors on a
balance of probabilities, an automatically
unfair dismissal.”
The Court accordingly concluded that the respondent’s
dismissal was hit by the provisions of sec 187(1)(g) of the LRA and
was,
therefore, automatically unfair.
[20
] As
the respondent did not seek reinstatement, the Labour Court awarded
him compensation in an amount equivalent to 12 months remuneration

and the appellants were ordered to pay the costs of the action. The
appellants applied for leave to appeal to this Court against
the
order of the Labour Court. The Labour Court granted the appellants
leave to appeal to this Court.
The appeal:
[21
] Before
us Counsel for the appellant submitted that the C
ourt
a quo
erred in
concluding that the respondent had been dismissed prior to the
transfer of the business. He submitted that in so doing,
the
Court
a quo
had
completely negated the clear terms of the sale agreement between the
first and second appellants and had ignored the evidence
relating to
when the effective control of the business passed to the second
appellant. He further submitted that the transfer
of the business
from the first appellant to the second appellant was regulated and
determined by the provisions of the written
agreement of sale between
the first and second appellants in terms of which the effective date
of the agreement was defined as
1 January 2003 notwithstanding the
fact that the date of the signing of the agreement was 4 April 2003.
Counsel for the appellant
submitted that the following points should
be borne in mind:
the business was sold as a going
concern as one indivisible transaction with effect from the
effective date.
all risks and benefits attaching to the business were
deemed in terms of the sale agreement to have passed to the
purchaser from
the effective date.
from the effective date
the purchaser enjoyed all rights and had all the obligations
provided for in the agreement.
with effect from the effective date
the purchaser would, in terms of section 197 of the LRA, take over
the employment of all the
employees employed in the first
appellant’s business on the same terms and conditions of
employment as those which had previously
governed their employment
by the first appellant.
t
he
interim period is defined in the sale agreement as the period
between the effective date and the delivery date, including the

first mentioned date and excluding the last mentioned date.
[22
] The
appellant’s attorney submitted that, although the purchase and sale
agreement was perfected on the 4
th
April 2003 when all the suspensive conditions were fulfilled, the
terms of the contract were such that the second appellant took

transfer of the business, took delivery of the assets, employed the
employees, and accepted all risks, income and liabilities from
the
first appellant with effect from 1 January 2003. The appellants’
argument concluded with the submission that, in the light
of the
above, the proper finding that the Court a quo ought to have made was
that the respondent was in the employ of the second
appellant when he
was dismissed with effect from 31 March 2003. It was submitted that
to conclude otherwise, as the Court a quo
did, would be to ignore the
principles of the common law and to misinterpret the provisions of
section 197 of the LRA.
[23
] the
provisions of 197 (1) and (2) of the LRA provide:-
“
(1) In
this section and in section 197A –
“
business
”
includes the whole or a part of any business, trade, undertaking or
service; and
“
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 sub-section (6) –
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;
all the rights and obligations between the old
employer and an employee at the date of transfer continue in force
as if they had
been rights and obligations between the new employer
and the employee;
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;
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.
”
[24
] As
indicated above, the first appellant’s argument is that, because it
and the second appellant agreed that the effective date
of the
transfer of business was 1 January 2003, that is the date with effect
from which the respondent’s contract of employment
with it was
automatically transferred to the second appellant. This argument was
presented to ensure that the first appellant
escaped liability for
the dismissal of the first respondent because then the respondent
would in law have been dismissed by the
second appellant from its
employ with effect from the 31
st
March. If the argument is rejected and it is held that the transfer
of the contracts of employment occurred when the business was

actually transferred as opposed to when it was deemed by the parties
to have been transferred, the respondent would have been in
the first
appellant’s employ when he was dismissed.
[25
] It
seems to me that, when sec 197(2) says
“(i)f
a transfer of a business takes place …
”
it refers to the actual time when the transfer of a business takes
place and not to a time when the transfer is in terms of
the
agreement of sale between the seller of the business and the buyer of
the business deemed to have taken place. In terms of
the Act the
transfer of contracts of employment of employees takes place when the
transfer of a business actually takes place.
The transfer of a
business is a question of fact. However, the transfer of the
contracts of employment, which occurs upon the transfer
of a business
as a going concern, is a question of law. The former occurs as a
matter of fact whereas the latter occurs by operation
of law.
Therefore, when section 197(2)(a) says that
“(i)f
a transfer of a business takes place, unless otherwise agreed in
terms of sub-section (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;”
it does not refer to a time that the
parties agree to deem to be the time when the transfer of the
business took place when that
time is not in fact the actual time
when the transfer of the business took place. There is nothing in the
statute to suggest that
the date of the transfer of the business for
purposes of the Act can be a date other than the date when the
transfer actually happens. If the seller and the buyer agree to deem
a date other than the actual date of the transfer of the business
to
be the date of the transfer of the business, that is an arrangement
between them which does not bind third parties. The Act
is to the
effect that when a business is transferred as a going concern from
one entity to another, by operation of law the contracts
of
employment of employees of the seller are automatically transferred
into the employ of the buyer unless it is otherwise agreed
with the
employees or their representatives.
[26
]
In the light of the above we conclude that the first appellant’s
contention that the date of transfer of the respondent’s
contract
of employment- assuming that there was such a transfer from the first
appellant’s employment to that of the second appellant
- was the
1
st
of January 2003 falls to be rejected. In these circumstances the
finding of the Court a quo on this point must be upheld.
[27
] The
next issue that needs consideration in this matter is whether or not
it can be said that the reason for the respondent’s
dismissal was
“
the transfer or a
reason related to the transfer contemplated in section 197 or section
197A
”of the Act.
The relevance of this question lies in the fact that the respondent’s
case that his dismissal was automatically
unfair is based on section
187(1)(g) of the Act. That provision is to the effect that a
dismissal is automatically unfair if the
employer, in dismissing the
employee, acts contrary to section 5 of the Act or if the reason for
the dismissal is the transfer
of the employer’s business as a going
concern or is reason related to such a transfer. The question that
arises therefore is
whether the reason for the respondent’s
dismissal was the transfer of the first appellant’s business to the
second appellant
or a reason related to such transfer or not. We turn
to that question.
Was the reason for the respondent’s dismissal
the transfer of the first appellant’s business to the second
appellant or a reason
related to such transfer?
[28
] Sec
187(1)(g) of the LRA provides:
“
A dismissal is automatically
unfair if the employer, in dismissing the employee, acts contrary to
section 5 or, if the reason for
the dismissal is a transfer or a
reason related to a transfer, contemplated in section 197 or section
197A.”
The effect of the latter part of sec 187(1)(g) of the
LRA is that, if the reason for a dismissal is the transfer of a
business or
a reason related to such transfer, the dismissal is
automatically unfair. In this matter it was argued on behalf of the
respondent
that the reason for the respondent’s dismissal was the
transfer of the first appellant’s business to the second appellant
or,
at least, that it was a reason related to such transfer of
business. It is, therefore, necessary to consider whether that
contention
is supported by the evidence.
[29
] There
is direct evidence that the reason for the respondent’s dismissal
was either the transfer of the first appellant’s business
to the
second appellant or a reason related to such transfer. However,
before we refer to that evidence, it may be important to
point out
that the sequence of events leading to the respondent’s dismissal
and the effecting of the transfer of the first appellant’s
business
to the second appellant soon after the respondent’s dismissal also
points very strongly to the reason for the respondent’s
dismissal
being either the transfer or a reason related to the transfer. In
this regard the following can be highlighted:
(a) at the end of February 2003, Mr
Paul Smulders brought his brother, Mr Marcelle Smulders, into the
business. Of course this
appointment raised the issue of the
respondent’s role in the business.
(b) on the 3
rd
March 2003, Marcelle Smulders advised the respondent that the latter
had three options. He could resign from the first appellant;
he
could stay on and face disciplinary action or he could be retrenched.
(c) o
n
the 7
th
March 2003 the respondent was moved out of his office and that office
was given to Mr Marcelle Smulders to use.
(d) on the 11
th
March 2003, the respondent was informed via e-mail from Steve Strydom
that he was regarded as being indispensable to the business
and could
not possibly be considered for retrenchment. However, on the 31
st
March 2003 his employment was terminated.
(e)
as at the 28
th
March 2003 the transfer of the business from the first appellant to
the second appellant was imminent.
(f) the respondent was dismissed with
effect from a date that was only three days away from the date of the
transfer of the business.
(g) the respondent was dismissed for
operational requirements notwithstanding that only about two or three
weeks previously Mr Strydom
had said that the respondent was crucial
to the first appellant’s business and was not going to be
retrenched.
[30
] There
can be no doubt that the reason for the respondent’s dismissal was
related to the transfer of the business as contemplated
in section
187(1)(g) of the Act. Support for this can be found in a letter dated
the 27
th
March 2003 from the appellants’ attorneys to the respondent’s
attorney and in part of the evidence given by Smulders. In reply
to a
telefax from the respondent’s attorneys dated 26 March 2003, the
appellant’s attorneys in the letter of the 27
th
March 2003- a week before the transfer of the business- stated that
the sale of the business had impacted on the position of the

respondent. In paragraph 6 of the letter the following is stated:
“
Where
the sale transaction however does have an impact on your client’s
employment is that, after the same was concluded, Smulders,
as the
managing director, was of the view that the post of general manager
and managing director were a duplication. From a structural
and
economic point of view, this is an issue of operational requirements
which surely is within our client’s prerogative….
”
In the same paragraph of the letter
it is stated:
“
As your client’s position
as general manger had become redundant, our client then consulted
with your client as to alternatives.
Your client was offered the
alternative position as administration manager, with an accompanying
remuneration package. Your client
undertook to consider this
alternative.
”
[31
] In
par 32 of their joint response to the respondent’s statement of
claim filed in the Labour Court the appellants stated that
“
the
[respondent] was transferred to the Second Respondent on the same
terms
” This was
factually incorrect but Mr Smulders conceded under cross –
examination that, after 27 February 2003 he dealt with
the business
as if it had been transferred already and as if he and his brother
already owned it even though the actual transfer
had not yet
occurred. In par 33.1 of their reply to the respondent’s statement
of claim, the appellants stated that “
the
[respondent’s] services was (sic) terminated due the operational
requirements of the [second appellant].
”
In par 33.2 the appellants said: “
upon
the transfer of the business as an undertaking the employment between
the [respondent] and the first [appellant] ceased to
exist.
”
In par 33.3 it is effectively stated that the second appellant was
acting in the interests of its business when it embarked
upon a
restructuring exercise. In par 39.2 the appellants stated that “
(t)he
the reason the [respondent] was dismissed was due to the Second
[appellant’s] operational requirements. It is therefore
submitted
that the Second [appellant] company does not have a General Manager
position
available
for the
[respondent]
and would be seriously prejudiced should the Honourable Court award
the requested relief
”
(underlining supplied).
[32
] Under
cross – examination it was put to the respondent that the reason
why his employment was terminated was that he could not
transfer to
the second appellant in the position of the General Manager and he
was not prepared to accept the position of Administration
Manager
and, had he been prepared to accept that position, his contract of
employment would have transferred to the second appellant.
It was
also put to the respondent that he could have avoided his
retrenchment by accepting the alternative position. Under cross
–
examination Mr Paul Smulders conceded that, when the respondent was
dismissed, the conclusion of the agreement of the sale
of the
business was in its final stages.
In
his evidence Smulders stated the following in regard to the
respondent “
coming
across
” to the
second appellant upon transfer of the business
:
“We said to Mr Van der Velde, both in speaking and in writing, that
we had difficulties with him coming across as general manager,
and we
even proposed an alternative thing”.
It
is common cause that when the respondent refused the proposed
alternative position, he was told on the 28
th
of March 2003, that his employment was terminated with effect from
the 31
st
of March 2003
.
[33
] The
evidence referred to above reveals that the appellants’ case was
that as from about the 27
th
February Mr Smulders and his brother operated the business of the
first appellant as if it had already been transferred into the
second
appellant. That was wrong because as a matter of law the first
appellant’s business remained with the first appellant
until the
4
th
April. It was dangerous that the Smulders brothers operated the first
appellant’s business on the basis that it had already been

transferred to the second appellant when it had not been transferred.
This was dangerous because certain things which can be done
of a
business as a going concern after the transfer cannot be done before
the transfer. An example of this is that in terms of
sec 197(1) of
the Act the services of an employee cannot, without the agreement of
the employee’s representative contemplated
in sec 189 of the Act,
be terminated prior to or at the time of the transfer of the business
as a going concern and, therefore,
the transfer of the contracts of
employment of an employee on the basis that the operational
requirements of the purchaser of the
business or transfer of the
business dictate the termination of such services whereas after the
transfer the purchaser of the business
can dismiss any employee for
operational requirements where the requisite operational requirements
can be proved and the right
procedure is followed.
[34
] In
this case the evidence referred to above also reveals that the
appellants’ case was that the operational requirements relied
upon
to dismiss the respondent were those of the second appellant. As at
the 28
th
March when the respondent was informed that he was dismissed and as
at the 31
st
March when his dismissal took effect, his dismissal for operational
requirements could not be justified on the basis of the second

appellant’s operational requirements because he was not employed by
the second appellant but by the first appellant. This
notwithstanding,
the fact that the appellants said that the
respondent was dismissed for the second appellant’s operational
requirements is significant
in that it provides the link between the
transfer of the first appellant’s business to the second appellant
and the respondent’s
dismissal. In the absence of the transfer of
the first appellant’s business to the second appellant, the second
appellant’s
operational requirements could have nothing to do with
the respondent’s continued employment or dismissal. It provides a
basis
for the conclusion that the respondent’s dismissal was for a
reason that is related to the transfer of the first appellant’s

business to the second appellant.
[35
] The
evidence referred to above also reveals that the appellant’s case
was that the second appellant did not have available for
the
respondent the position that he occupied in the first appellant. It
is not permissible in terms of sec 197 that an employee
be dismissed
prior to the transfer of a business as a going concern and,
therefore, not go across to the new employer on the basis
that that
is what the operational requirements of the new employer dictate. For
that to happen there would have to been an agreement
of the
employee’s representative as contemplated in sec 189. That was the
thrust of the minority decision in NEHAWU & others
v University
of Cape Town (2002) 23 ILJ 306 (LAC) in this Court which was
confirmed on appeal by the Constitutional Court in NEHAWU
v
University of Cape Town (2003) 24 ILJ 95 (CC).
[36
]
Smulders, who was wearing two hats, one for the first appellant and
the other for the second appellant, operated on the basis
that the
transfer of the business of the appellant to the second appellant had
already occurred. Under cross-examination he said:-
“
Well, my comment is simply as
I’ve testified, that my brother, who was from the second
[appellant] was involved in all these discussions
with Mr Van der
Velde. So in our minds we were working as if he had been transferred
to us and it was our responsibility. We had
to find this new position
because his old position didn’t exist. We had to negotiate with him
about what his role was going to
be, and in terms of the sale
contract we couldn’t do that without involving ASI. It is as simple
as that.”
This evidence by Sm
ulders
reveals part of the appellants’ problem. They could not dismiss the
respondent to prevent him from being transferred into
the employ of
the second appellant upon the transfer of the business but they could
dismiss him for operational requirements after
the transfer if a fair
reason existed and they followed a fair procedure. Sec 197 would be
completely undermined if an employer
who is about to sell a business
to another would, prior to the transfer of the business and without
the employee’s consent, be
entitled to dismiss for the transferee’s
operational requirements employees whose contracts would otherwise
transfer to the new
employer upon the transfer of the business as a
going concern.
[37
] We
am also of the view that, when the appellants’ attorneys pointed in
the letter of the 27
th
March to the respondent’s attorney, where the sale transaction had
impacted upon the respondent, they indicated in the clearest
terms
possible that the reason for the then imminent dismissal of the
respondent was a reason related to the transfer of the business.
The
appellants’ attitude was that there would be no position for the
respondent in the second appellant once the transfer of
the business,
and thus the transfer of the contracts of employment, had
occurred and, therefore, he should either agree
to a different and
lower position or face retrenchment. The fact of the matter is that
the transfer of the business as a going
concern had not yet occurred
but was about to occur. In terms of sec 197 it is impermissible for
the old employer to dismiss an
employee because of or for a reason
related to a transfer of a business as a going concern. This case is
no different to a situation
where a person who is about to buy a
business as a going concern from another says to the seller: “
reduce
your staff complement before I can buy your business otherwise I will
not buy it”
and
the seller goes ahead and does exactly that. It is a dismissal to
facilitate the transfer of the business as a going concern.
Such a
dismissal is hit by the provisions of sec 187 (1) (g) of the Act and
is automatically unfair. The Court a qouo’s conclusion
to this
effect was not correct.
Compensation
[
38] Sec
194
(3) of the Act governs the amount of compensation that the Labour
Court may award to an employee whose dismissal has been found
to be
automatically unfair. Sec 194 (3) provides: “
The
compensation awarded to an employee where dismissal is automatically
unfair must be just and equitable in all the circumstances,
but not
more than the equivalent of 24 months remuneration calculated at the
employee’s rate of remuneration at the date of dismissal.
”
[
39] In
the appellant’s heads of argument it was argued on behalf of the
appellants that in the event of compensation being awarded
to the
respondent, such compensation should be limited to three months’
remuneration. In support of this submission the Court’s
attention
was drawn to the following factors which appear in the appellant’s
heads of argument:
(a)
the
appellant was offered an alternative position which he refused;
(b)
the
respondent started his business immediately upon leaving the first
appellant’s employment and in that business the respondent
earned
what he would have earned in the alternative position offerd to him
by Smulders.
(c)
the
respondent sought to compete with the appellants immediately after
leaving the business on the basis of information that he
obtained
whilst employed at the business of the first appellant and;
(d)
the
respondent’s hands are not entirely clean in the matter.
[40
] It
is common cause that the alternative position offered to the
respondent was lower than that which he held prior to his dismissal

from the first appellant. The alternative position in fact amounted
to a demotion with a reduced salary. At any rate there is
serious
doubt that an employer who dismisses an employee for a reason that is
related to a transfer, for example, that the employee
refuses to
accept a lower position than the one which he should still hold as he
“
crosses over
”
to the new employer, is entitled to use the employee’s refusal to
accept that lower position can rely on such refusal to say
that the
employee should not be awarded the full compensation that he or she
would otherwise have been entitled to be awarded.
After his
dismissal, the respondent found himself in financial difficulties.
He testified that he had to restructure his personal
finances. He
had to sell some of his shares to meet his liabilities. Whilst
working for the first appellant, the respondent earned
R 6600 000.00
per annum. After his dismissal and during 1994 his total income for
the year was R337 750.00. In 2005 he earned
a total income of
R517,500. It is apparent that, after his dismissal, the respondent
found himself in financial difficulty.
[4
1] In
the Court below the Court noted that in terms of sec 194 (3) it had
power to order the appellants to pay the respondent compensation
up
to a maximum of 24 months remuneration. It said that the respondent
provided details of the income that he earned after his
dismissal.
The Court below pointed out that the respondent’s earnings were not
significantly less than the amounts he earned
while employed by the
first appellant. The Court a quo refused to take into account an
amount of R 5 000.00 per month which the
respondent also got which
related to his expenses. The Court also had regard to the fact that
any dismissal that is automatically
unfair is a serious breach of
those rights. The Court a quo ultimately said that it believed that
an amount equivalent to twelve
months remuneration would be just and
equitable in all the circumstances.
[42
] During
oral argument Counsel for the appellants did not present any argument
on the issue of compensation. As already amended
earlier, sec 194 (3)
of the Act provides that the amount of compensation which the Labour
Court awards in respect of a dismissal
that is automatically unfair
dismissal must be “
just
and equitable.”
A decision on the amount of compensation particularly, where the
statute provides that such amount should just and equitable is
a
decision that falls within the so-called “
narrow”
discretion of the
Court. Neither in his heads of argument nor in his oral argument did
Counsel for the appellant submit that there
is present in this case
any of the limited grounds upon which a Court of Appeal may interfere
on appeal with the exercise of a
narrow discretion by a Court of
first instance. In this regard we are referring to such grounds as
those to be found in cases
such as Ex parte Neethling & others
1951 (4) SA 331
(A), Knox D’ Archy Ltd & others v Jameson &
others
[1996] ZASCA 58
;
1996 (4) SA 348
(A), Benson v SA Mutual Life Assurance
Society
1986 (1) SA 776
(A), Hix Networking Technologies v System
publishers (pty)
(1997) SA 391
(A), Shepstone & Wylie &
others v Geyser NO
1998 (3) SA 1036
(SCA); Benson v SA Mutual Life
Assurance Society
1996 (1) SA 776
(A) at 7811, National Coalition for
Guy and Lesbian Equality v Minister of Affairs
2000 (2) SA 1
(CC).
Indeed, we are of the view that there are no grounds in law to
interfere with the exercise by the Court below of its discretion
in
this regard. It must be borne in mind that in awarding the
respondent compensation equivalent to twelve months remuneration

constituted the halving of the amount of compensation that the Court
could have awarded.
[43
]
In light of the above and all circumstances of the case we are of
the view the amount of compensation awarded by the Court below
is
just and equitable. Accordingly, the appeal must fail.
[44
] With
regard to costs we are of the view that the requirements of the law
and fairness dictate that the appellants should pay the
respondent’s
cost of the appeal.
ZONDO JP
JAPPIE
JA
I agree.
___________________
TLALETSI AJA
APPEARANCES:
For the Appellants: Mr S. Snyman
Instructed by: Snyman Attorneys
For the Respondent: Mr A. I. Redding
SC
Instructed by: Brian Bleazard Attorneys
Date of Judgment
: 10
March 2009