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[2011] ZALAC 14
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Hydro Colour Inks (Pty) Ltd v Chemical, Energy, Paper, Printing, Woods And Allied Workers Union (JA48/07, JA77/09) [2011] ZALAC 14; [2011] 7 BLLR 637 (LAC); (2011) 32 ILJ 1625 (LAC) (18 April 2011)
IN THE LABOUR APPEAL COURT OF
SOUTH AFRICA
[HELD AT JOHANNESBURG]
CASE NO: JA48/07
JA77/09
In the matter between:
HYDRO COLOUR INKS (PTY) LTD
…..............................
APPELLANT
AND
CHEMICAL, ENERGY, PAPER,
PRINTING, WOOD AND
ALLIED WORKERS’ UNION
….....................................
RESPONDENT
Coram: Tlaletsi JA, Zondi AJA and
Molemela AJA
JUDGMENT
Tlaletsi JA
Introduction
[1]
This matter concerns two appeals
which have been consolidated. The first appeal is brought by Hydro
Colour Inks (Pty) Ltd against
a judgment of Francis J sitting in the
Labour Court at Johannesburg. Francis J made an order in the
following terms:
The altering of the citation under
case number J5067/00 and JS444/01 from Hydra Colour to Keep Inks SA
(Pty) Ltd is granted;
It is declared that there has been
a transfer of the business of Keep Inks to the second respondent as
a going concern;
It is declared that in terms of
section 197A (2)(a) of the Labour Relations 66 of 1995 (“the
Act”), the second respondent
was substituted in the place of
Keep Inks in the contracts of the respondent’s members who
were retrenched and are referred
to in Annexure “A” to
the respondent’s statement of claim;
The appellant is to comply with
the court order handed down under case number J5067/00; and
The appellant is to pay the costs
of the application.
[2] The second appeal is against the
judgment and order of Molahlehi J sitting in the labour court,
Johannesburg in an application
brought by Chemical, Energy, Paper,
Printing, Wood and Allied Workers’ Union on behalf of its
member, Molefe. The Union (“the
respondent”) sought an
order varying the order of Francis J referred to above for it to
reflect that Molefe is one of the employees
referred to in Annexure
‘A’ in paragraph 1.3 above. Molahlehi J dismissed the
application for variation with costs and
granted leave to appeal in a
subsequent application for leave to appeal brought by the respondent.
[3] During the hearing of the
appeal, counsel’s attention was drawn to the fact that
notwithstanding an incorrect allegation
in the agreed statement of
facts that gives the impression that Molefe was granted an award of
compensation only when he challenged
the fairness of his dismissal,
his name was reflected in Annexure ‘A’ and as such stood
to benefit together with the
rest of the employees whose names appear
in Annexure ‘A’. The fact of the matter is that Molefe
was granted an award
for both compensation and reinstatement. The
confusion arose from the statement of agreed facts in which an
impression was created
that Molefe was granted an award for
compensation only. Strangely, the appellant took a stance that the
respondent was bound by the
incorrect recording in the statement of
agreed facts and contended that Molefe was not entitled to be
reinstated. The effect of this
contention is that an incorrect
recording is capable of rescinding an award which in this case has
been made an order of court. This
contention has no merit. Be that as
it may, in essence the order sought to be varied for Molefe’s
benefit is not against but
in his favour. Both counsel conceded that
in light of what this Court drew to their attention, the application
for variation ought
not to have been instituted. The appeal on this
leg was consequently not pursued further.
[4] The matter that served before
Francis J was based on the agreed statement of facts. The facts
agreed upon were the following:
“
1. The
applicant acts on its own behalf as well as on behalf of the
individuals listed in annexure A to the applicant’s statement
of case (‘the dismissed employees’). The applicant
represented the dismissed members in Labour Court Case Nos J5067 and
JS444/01.
The dismissed employees were
employed by Keep Inks at the time of their dismissals.
At that stage Keep Inks operated
as a Close Corporation with the trading name Hydra Color.
The sole member of Keep Inks was
Gerald Ralph Smail and his son Dwyne Smail managed the business.
Keep Inks produced Inks and
varnish.
In 2003 Keep Inks CC was
converted into a company, Keep Inks SA (Pty) Ltd but continued to
trade under the name Hydra Color.
On 9 September 1999 Keep Inks
dismissed one of the dismissed employees, Molefe. The dismissal was
referred to the Commission for
Conciliation, Mediation and
Arbitration (“CCMA”). The referral reflected the
employer as Hydra Color as the applicant
was unaware that the
employer was incorporated as Keep Inks.
Keep Inks participated in the
CCMA proceedings and did not, at any stage, raise the incorrect
citation.
On 16 October the CCMA issued an
award in terms of which Molefe was found to have been unfairly
dismissed and was awarded compensation.
Keep Inks launched an
application in the Labour Court to review the award under Case No
J5067/00. Keep Inks cited itself as Hydra
Color CC in the
application. As Keep Inks failed to furnish the record the applicant
launched an application in terms of section
158(1)(c) of the Labour
Relations Act No 66 of 1995 (“LRA”) to make the award an
order of Court.
The Labour Court granted the
relief sought in Case No J5067/00 on 5 June 2002.
Keep Inks launched a rescission
application in respect of this order. The correct citation of Keep
Inks was not raised. The application
for rescission was refused on
15 January 2004.
A writ of attachment was issued
in terms of the Court order under J5067/00. Due to the liquidation
of Keep Inks a sale in execution
could not proceed.
On 8 December 2000 the remaining
dismissed employees were dismissed by Keep Inks, ostensibly on the
basis of Keep Inks’ operational
requirements.
The applicant referred a dispute
about this dismissal to the CCMA once again citing Hydro Color as
the employer.
The dispute was eventually
referred to the Labour Court for adjudication under Case No
JS444/01. Default judgment was granted on
5 June 2002 ordering
retrospective reinstatement.
Keep Inks brought an application
to rescind the default judgment. The issue of the incorrect citation
was not raised and the default
judgment was rescinded.
The matter was enrolled for
trial on 2 February 2004, following the conclusion of a pre-trial
minute between the parties in which
it was agreed that the identity
of Keep Inks was Hydra Color.
On 2 February when the trial
roll was called Keep Inks’ attorney indicated that he had no
opposition to default judgment being
taken against Keep Inks. Keep
Inks attorney informed the court that there was no opposition to
default judgment because Keep Inks
faced immanent liquidation.
Default judgment was given.
On 2 February 2004, GR Smail the
sole shareholder of Keep Inks passed a special resolution that the
company be wound up voluntarily
and that the winding up be a
creditors voluntarily winding up. Keep Inks was in the end finally
liquidated.
On 3 February 2004 the Sheriff
served a copy of the order on Keep Inks. Due to its liquidation Keep
Inks did not comply with the
order.
At the time of the liquidation
of Keep Inks G R Smail told Victor Bokaba one of the Keep Inks
employees that alternative jobs would
probably be found for them.
The second respondent operates
from the same premises (at 29 Siemert Road,
Doornfontein,Johannesburg) that Keep Inks did. The second
respondent
concluded a new lease with the landlord of the premises.
The second respondent uses the
same equipment and furnishings that were previously used by Keep
Inks. The second respondent purchased
the equipment from the
liquidators of Keep Inks during May 2005.
The second respondent
manufactures ink and varnish, as Keep Inks once did.
Dwyne Smail managed Keep Inks
and manages the second respondent.
The second respondent employs
all 12 workers who were employed by Keep Inks at the time of its
liquidation. All of these workers
are still doing exactly the same
as they were doing before, and their salaries were not reduced.
Although the second respondent
now employs the workers, their payslips still reflect their
engagement with Keep Inks, reflecting
their uninterrupted service.
The workers are paid their 13
th
cheques on the
anniversary of the date when they started with Keep Inks.
The second respondent has
completed new PAYE and UIF documentation on behalf of these
employees.
The second respondent has, and
Keep Inks had, a branch office at the same address (Unit 2, 24 Ebony
Fields, Springham Park, Durban).
The office in Durban was acquired
from the liquidator by way of a new agreement with the landlord.
The fax and phone numbers of the
second respondent and Keep Inks are identical. The second respondent
has a new account with Telkom.
The main suppliers of chemicals
to Hydro Colour Inks are the same as those who supplied chemicals to
Keep Inks previously. The liquidator
of Keep Inks settled all
accounts with Keep Inks suppliers, and the second respondent now
works with these suppliers on a COD basis
only.
GR Smail, who was the sole
director of Keep Inks, is not a director of the second respondent.
Dwyne Smail is the sole director of
the second respondent. The
second respondent is a corporate entity and a legal persona distinct
and separate from Keep Inks. The
second respondent was never a party
to the proceedings under case numbers J5067/00 and JS444/01 and did
not conduct the business
of Keep Inks at the time of such
proceedings.
The logos of Keep Inks and the
second respondent are attached as annexure A.
There is a significant overlap
between the customers of Keep Inks and those of the second
respondent
.”
[5] In addition to the above agreed
facts, it is common cause that the logos of Keep Inks and Hydro
Colour referred to above are as
reflected hereunder. It is only
proper for a better understanding of this issue that the logos be
incorporated in the judgement and
not only a conclusion on whether
they are substantially similar or not.
[6]
The labour court in its judgment recorded that the parties were in
agreement that the court had to decide:
6.1 Whether there was a transfer as
a going concern of the business of Keep Inks to the second
respondent;
6.2 If so, whether the consequences
of such transfer are to be governed by section 197 or 197A of the
Act.
6.3 If the consequences are to be
governed by section 197A of the Act, whether this precludes the
relief sought or any relief at all
being granted to the dismissed
employees.
[7] The labour court after
considering and analysing a number of decisions on the subject, found
that the business of Keeps Inks had
in fact transferred as a going
concern to Hydro Colour Inks (Pty) Ltd and that in terms of section
197A(2)(a) of the Act Hydro Colour
Inks Pty Ltd (Pty) Ltd was
substituted in the place of Keep Inks in the contracts of the union
members who were retrenched.
The Appeal
[8] Before us, the appellant
challenged the correctness of the findings of the court
a quo
.
Mr Snyman who appeared on behalf of the appellant contended in the
main that the labour court erred in finding that there had been
a
transfer of a business as a going concern. He argued that in
considering whether there has been a transfer of a business as a
going
concern, the labour court ought to have taken into account the
distinction between sections 197 and 197A and adopted an approach
that the new owner should not be lightly burdened with the
consequences of failures of the business of the insolvent owner. Mr
Snyman
argued further that the court order re-instating the rest of
the employees was not in existence at the time of the old employer’s
winding up or sequestration and as such there were no contracts of
employment that could automatically transfer to the new employer.
[9] Mr Orr who appeared on behalf of
the respondent contended that the labour court made a correct finding
both on the law and facts
and that there is no basis for interfering
with its order.
The Legal Framework
[10] The relevant provisions of
section 197 read as follows:
(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.”
[11] Section 197A headed “
Transfer
of contract of employment in circumstances of insolvency”
provides that:
“
(1)
This section applies to a transfer of a business-
(a) if the old employer is
insolvent; or
(b) if a scheme of arrangement or
compromise is being entered into to avoid winding-up or sequestration
for reasons of insolvency.
(2) Despite the Insolvency Act,
1936 (Act 24 of 1936), if a transfer of a business takes place in the
circumstances contemplated in
subsection (1), unless otherwise agreed
in terms of section 197 (6)-
(a)
the new employer is
automatically substituted in the place of the old employer in all
contracts of employment in existence immediately
before the old
employer's provisional winding-up or sequestration;
(b)
all the rights and
obligations between the old employer and each employee at the time of
the transfer remain rights and obligations
between the old employer
and each employee;
(c)
anything done
before the transfer by the old employer in respect of each employee
is considered to have been done by the old employer;
(d)
the transfer does
not interrupt the employee's continuity of employment and the
employee's contract of employment continues with the
new employer as
if with the old employer.
(3) Section 197 (3), (4), (5) and
(10) applies to a transfer in terms of this section and any reference
to an agreement in that section
must be read as a reference to an
agreement contemplated in section 197 (6).
(4) Section 197 (5) applies to a
collective agreement or arbitration binding on the employer
immediately before the employer's provisional
winding-up or
sequestration. *
(5) Section 197 (7), (8) and (9)
does not apply to a transfer in accordance with this section
.”
(My emphasis).
[12] The meaning and effect of
section 197 has been a subject of legal debate and judicial
interpretation. The now authoritative and
applicable interpretation
is that enunciated in the minority judgment of Zondo JP in
National
Education Health and Allied Workers Union v University of Cape Town
and Others 2002 23 ILJ 306 (LAC)
as well as the subsequent
decision of the Constitutional Court on appeal in the same matter,
National Education Health and Allied Workers Union v University of
Cape Town Others
(2003) 24 ILJ 95 (CC)
. The principles
enunciated in these authorities may be summarised as hereunder:
(i) Since the phrase “going
concern” is not defined in the Act, it must be given its
ordinary meaning unless the context
indicates otherwise;
(ii) What is transferred must be a
business in operation so that the business remains the same but in
different hands;
(iii) A determination of whether a
business has been transferred as a going concern is a matter of
objective determination in the
light of the circumstances of each
transaction;
(iv) 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,
(v) There are a number of factors
that are relevant in determining whether or not a business has been
transferred as going concern,
such as, but not limited to: what will
happen to the goodwill of the business, stock-in-trade, the premises
of the business, contracts
with clients or customers, the workforce,
the assets of the business, the debts of the business, whether there
has been 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.
(vi) All the factors referred to
above are not exhaustive and none of them is decisive individually.
(vii) These factors must all be
considered in the overall assessment and should therefore not be
considered in isolation.
See also
SA Municipal Workers
Union and Others v Rand Airport Management Co (PTY) LTD and Others
(2005) 26 ILJ 67 (LAC)
,
Ponties Panel Beaters Partnership v
National Union of Metal Workers of South Africa and Others
( case
no: JA 43/06)[2008] 12 (2 September 2008)
[13] The parties in this matter have
accepted that Keep Inks was insolvent and for that purpose section
197A of the Act would apply.
The authorities that I have referred to
above dealt with a situation where section 197 was applicable. In my
view the same principles
would apply in determining whether a
business has been transferred as a going concern for the purposes of
section 197A, save for
the consequences of such transfer.
Furthermore, section 197 (1) quoted above, defines the words
“business” and “transfer”
as having the
meaning in both sections 197 and 197A. There is no indication in the
Act that the two words in the same section were
intended to have
different meanings depending on the circumstances.
[14] In light of the above, it is in
my view apposite to determine first whether there has been a transfer
of business as a going
concern from Keep Inks to Hydro Colour (Pty)
Ltd. In the event of a finding that there was no transfer of business
as a going concern,
then it would be the end of the enquiry. A
finding to the contrary would then require a determination of the
consequences of such
a transfer in terms of section 197A.
Was there a transfer in terms of
section 197?
[15] The following facts extracted
from the statement of agreed facts play an important role in an
answer to this question.
15.1 The appellant operates from the
same premise as Keep Inks albeit in terms of a new lease agreement.
The appellant uses the same
equipment and furnishings as Keeps Inks and ownership of these
items was acquired by the appellant
from the liquidators of keeps
Ink;
The appellant manufactures ink and
vanish as Keep Ink did;
Dwayne Smail who manages Keeps Ink
is now managing the appellant;
The appellant has and Keep Inks
had a branch office at the same address (unit 2, 24 Ebony Fields,
Springham Park, Durban). The
Durban office was acquired from the
liquidators by way of a new agreement with the landlord.
The fax and phone numbers of the
appellant and Keeps Inks are identical.
The appellant employs all 12
workers who were employed by Keeps Inks at the time of the
liquidation. The employees are still doing
exactly the same work
they were doing before, and their salaries have remained the same;
Although it is now the appellant
who has employed these workers, their payslips still reflect their
date of engagement with Keeps
Inks reflecting their uninterrupted
service.
The workers are paid their 13
th
cheque on the anniversary of the date when they started with Keep
Inks;
The appellant completed new Pay As
You Earn (PAYE) and Unemployment Insurance Fund (UIF) documentation
on behalf of these employees
and they, according to the bundle of
documents which is part of the record, began contributing to the
UIF on 1 March 2004;
The main suppliers of chemicals to
the appellant are the same as those who supplied chemicals to Keep
Inks previously. The liquidators
of Keep Inks settled all account
with Keep Inks suppliers, and the appellant now works with these
suppliers on a Cash on Delivery
(COD) basis only;
There is a significant overlap
between the customers of Keep Inks and those of the appellant;
GR Smail, who was the sole
director of Keep Inks, is not a director of the appellant. Dwayne
Smail is the sole director of second
respondent. The appellant is a
corporate entity with legal
persona
distinct and separate
from Keep Inks. The appellant was never a party to the proceedings
under case numbers J5067/00 and JS 4444/01
and did not conduct the
business of Keep Inks at the time of such proceedings.
The trading name of Keep Inks was
“
Hydra Color”
. The trading name of the appellant
is “
Hydra Colour”
.
The logos of the two entities as
they appear at paragraph 5 above are substantially similar.
[16] When one considers all the
above factors, and regard being had to the authorities referred to
above, there can only be one conclusion
to be reached, that is that
Keep Inks business was transferred to the appellant as a going
concern. It is the same business but in
different hands. It is not a
matter of the appellant picking up “bits and pieces” of a
dying business for himself to
start a new business. Such a finding
would not be a reasonable one given the extent of the overlap between
the two entities. Furthermore,
it is a fact that the employees’
salaries were paid by appellant as early as 1 March 2004 when a
resolution to wind up the
business was taken on 2 February 2004.
These employees are doing the same work that they did for Keep Inks.
The finding of the Labour
court that the business of Keep Inks was
transferred as a going concern to the appellant is therefore correct.
The question that
remains to be considered is the legal consequences
of such a transfer as a going concern.
Consequences of the transfer
[17] I have already mentioned that
the fact that Keep Inks is insolvent is common cause. Section 197A in
so far as it states that
the new employer is automatically
substituted in the place of the old employer in all contracts of
employment in existence immediately
before the old employer’s
winding up or sequestration finds application. It must be emphasised
that the automatic substitution
only relates to all “
contracts
of employment”
in existence immediately before the old
employer’s winding up or sequestration. This means that the new
employer takes no responsibility
for the actions of the old employer.
By way of an example, any wrongful dismissal by the old employer
remains a matter for the old
employer.
[18]
In casu
, at the time of
Keep Inks’ winding up, both Molefe and the other retrenched
employees had already obtained orders of reinstatement
against Keep
Inks. The effect of reinstatement order is to restore the contract of
employment. For as long as Keep Inks did not obtain
any order setting
aside the reinstatement orders, these employees remained its
employees as at or immediately before its winding
up. The
consequences of this finding is that the appellant having stepped
into the proverbial shoes of Keep Inks is bound to remunerate
Molefe
and the rest of the employees reflected in Annexure “A”
to the respondent’s statement of claim, salaries
from the 1
March 2004. There is no obligation on the appellant to take over
other corresponding rights and obligations. This was
also not the
case that the respondent pursued.
[19] In the result, the appeal
should fail and the order of the labour court should stand and be
interpreted to include Molefe as
one of the employees as reflected in
“Annexure A” of the respondent’s statement of
claim. It would be according
to the requirements of the law and
fairness that cost of the appeal against the judgment of Francis J be
borne by the appellant on
appeal. There shall be no order as to costs
on appeal against the judgment of Molahlehi J.
Order
[20] In the result, the following
order is made:
The appeal against the judgment and
order of Francis J is dismissed with costs.
No order as to costs in the appeal
against the judgment and order of Molahlehi J.
__________________
Tlaletsi JA
I agree.
__________________
Zondi AJA
I agree.
________________
Molemela AJA
Appearances:
For the Appellant: Mr S Snyman
Snyman Attorneys
For first Respondent: Adv C Orr
Instructed by: Cheadle Thompson &
Haysom
Date of Judgment: 18 April 2011