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[2013] ZALAC 1
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PE Pack 4100 CC v Sanders and Others (PA 08/10) [2013] ZALAC 1; [2013] 4 BLLR 348 (LAC); (2013) 34 ILJ 1477 (LAC) (22 January 2013)
Reportable
REPUBLIC OF SOUTH AFRICA
IN THE LABOUR APPEAL COURT OF SOUTH
AFRICA, PORT ELIZABETH
Case no: PA 08/10
In the matter between:
PE PACK 4100CC
................................................................................................
Appellant
and
ADAM SANDERS
....................................................................................
First
Respondent
CELL C PROVIDER COMPANY (PTY)
..............................................
Second
Respondent
ADVANCE WORX 119 (PTY) LIMITED
..................................................
Third
Respondent
C WORX 12(PTY) LIMITED
..................................................................
Fourth
Respondent
Heard: 09 November 2012
Delivered: 22 January 2013
Coram Davis JA, Hlophe AJA and
Landman AJA (Landman AJA dissenting)
Summary: Transfer of business as a
going concern by virtue of s 197 of the LRA- whether s 197 of the LRA
applies in a case of franchise
agreements. - no transfer of a
business occurs in franchise agreements –franchise agreements
fall outside the scope of s
197 of the LRA- appeal upheld.
JUDGMENT
DAVIS JA
Introduction
[1] Second respondent is a cell phone
service provider which sells airtime contracts, accessories, pre-paid
starter packs, handsets
and renewals to members of the public. Second
respondent has a business model in terms of which it develops its
business on a franchise
basis. Third and fourth respondents were
franchise operations of the second respondent. Second respondent
cancelled the franchise
agreements with the third and fourth
respondent with effect from 30 April 2010. Second respondent then
concluded a franchise agreement
with the appellant which was
effective from 1 May 2010.
[2] It appears that second respondent
remained the lessee of the business premises in which appellant
conducted its business. The
furniture and fittings on the business
premises remained the property of second respondent. The stock on the
business premises,
which remained the property of the third and
fourth respondents, was not transferred by them to the second
respondent but was removed
from the business premises upon the
cancellation of the franchise agreements.
[3] Pursuant to the
cancellation of the franchise contracts, first respondent was advised
by Mr Brett Barlow, the managing director
of third and fourth
respondents, to enter into consultations with him regarding
retrenchment. First respondent then consulted his
attorney of record,
who approached second respondent, demanding an acknowledgement that
the latter accepts that s 197 of the Labour
Relations Act (‘LRA’)
1
applied to the
first respondent and that his employment contract would automatically
be transferred to the new franchisee. Second
respondent adopted the
attitude that it was not buying back the franchise undertakings from
first respondent’s employers.
In its view, it had merely
terminated the franchise as it was entitled to do in law; hence s 197
was inapplicable.
[4] However, first respondent adopted
the view that appellant was bound by the provisions of s 197 of the
LRA and, that there had
been a transfer of the business from third
and/or fourth respondent to the appellant. Accordingly s 197 of the
LRA afforded protection
to first respondent.
[5] This argument found favour with
the court
a quo
which ordered;
‘
1.
The
takeover of the businesses of the third and fourth respondents by the
second respondent (appellant) is declared to constitute
the transfer
of businesses as going concerns as is contemplated in
s 197
of the
Labour Relations Act no 66 of 1995
as amended.
2.
Second respondent is declared to have automatically taken the
applicant into his/its employ with effect from 1 May 2010 on the
same
terms and conditions as those which applied to his employment with
third and fourth respondents immediately prior to 1 May
2010 as is
contemplated in
s 197
aforesaid.
3.
Second respondent is ordered to pay the applicants costs on the High
Court scale as between party and party.’
It was against this decision that the
appellant approaches this Court after the appellant had successfully
petitioned the Judge
President for leave to appeal.
[6] For completion, it should be noted
that the initial appellant, PE Rack 4100 CC, has been substituted by
Ko W-ENIM Investment
Holdings (Pty) Ltd. The latter is the party with
whom the second respondent concluded franchise agreements in relation
to the franchise
operations in Queenstown and King Williams Town.
These events occurred after the delivery of the judgment by De Swardt
AJ in the
court
a quo
.
[7] The crisp question for
determination in this dispute is whether
s 197
of the LRA applies in
a case of franchise agreements.
The finding of the court
a quo
[8] Third and fourth respondents owned
and ran franchise operations of second respondent in Queenstown and
King Williams Town. These
stores are now owned and run by the
appellant. The nature of the franchise/franchisee relationship in
terms of the franchise agreement
is that the franchisee conducts
business for its own account and not on or behalf of the franchisor.
[9] The business is made up of three
main components, the franchise agreement with second respondent,
limited assets and a few employees.
According to the papers placed
before the Court, the entire infrastructure, including premises and
furniture and fittings, operating
systems belongs to and is provided
by second respondent.
[10] After analysing the nature of
this business, De Swardt AJ in the court
a quo
found as
follows:
‘
In
the instant case, if one were to take snapshot of the businesses
conducted by the third and fourth respondents before 30 April
2010,
one would find an outlet selling cell phone contracts, and
pay-as-you-go airtime, where customers could bring in their cell
phones for repairs or could enquire about a variety of problems which
they experienced around their use of Cell C’s products.
A
snapshot taken of the businesses on 1 May 2010 or on any day
thereafter, would reveal a similar picture. The businesses remained
located in exactly the same place, the telephone numbers remained the
same, the nature of the business remained the same. The only
visible
difference would ostensibly have been that there were some new faces
behind the counter. Indeed, as Mr Kirchmann pointed
out in argument,
customers who had brought their cell phones in for repair prior to 1
May 2010, would collect these after 1 May
2010 once these had been
repaired. Potential customers who came into either of the shops prior
to 1 May 2010 to enquire about cell
phone contracts, could come back
on, or after, 1 May 2010 to conclude the contract.’
2
[11] On appeal, the issue was whether
the wording of
s 197
can bear the weight of this finding of the court
a quo
.
Section 197
and franchise
agreements
[12] To the extent that it is
relevant,
s 197
provides as follows:
‘
Transfer
of contract of employment
.
– (1) In this section and in
section 197
A
(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 the
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.’
[13] The critical
question is whether a transfer as contemplated in
s 197
(1) (b)
applies in this case, in which case the consequences set out in (2)
would apply. The nature of the business model as outlined
is thus the
key to the resolution of the problem. As Jafta J said in
Aviation
Union of South Africa v SA Airways (Pty) Ltd:
3
‘
But
whether a transfer as contemplated in
section 197
has occurred or
will occur is a factual question. It must be determined with
reference to the objective facts of each case. Speaking
generally, a
termination of a service contract and a subsequent award of it to a
third party does not, in itself, constitute a
transfer as envisaged
in the section. In those circumstances, the service provider who
contract has been terminated loses the contract
but retains its
business. The service provider would be free to offer the same
service to other clients with its workforce still
intact.
For
a transfer to be established there must be components of the original
business which are passed on to the third party. These
may be in the
form of assets or the taking over of works who were assigned to
provide the service.’
[14] As Mr Myburgh, who appeared
together with Mr Hollander on behalf of the appellant, correctly
observed that this
dictum
raises two questions which must be
answered in order to determine the application of the section:
(i) Does the transaction concerned
create rights and obligations that require one entity to transfer
something in favour of/or for
the benefit of another or to another?
(ii) If the answer to (i) is in the
affirmative, does the obligation imposed within the transaction
contemplate a transferor who
has the obligation to effect a transfer
or allow a transfer to happen and a transferee who received the
transfer? If the answer
to this question is in the affirmative, then
the transaction constitutes a transfer for the purposes of
s 197.
[15] In order to
answer these questions, it is useful to reflect, albeit briefly, upon
the nature of a franchise agreement. In a
franchise agreement one
party (the franchisor) grants the other party (the franchisee), in
exchange for remuneration, the right
to conduct a business (franchise
business) within the franchisor’s network for the purposes of
selling certain products on
the franchisee’s behalf and in the
franchisee’s name, and whereby the franchisee has the right and
the obligation to
use the franchisor’s trade name or trademark
and other intellectual property rights, the know-how and the business
method.
The essential elements which characterize a franchise
relationship are: a) granting the right to operate the franchisor’s
method of business, which mainly includes licensing the use of
intellectual property rights and know-how (the business package);
b)
selling certain types of products (distribution contract); c) the
franchisee’s independence: in the franchisee’s
name and
on the franchisee’s behalf; d) (direct or indirect) financial
remuneration for the franchisor.
4
[16] In
Longhorn
Group (Pty) Ltd v The Fedics Group (Pty) Ltd and Another,
5
Zulman J (as he
then was) cited with an approval the following passage:
‘
It
is important for this honourable court to appreciate that in terms of
the franchise agreement the first respondent is not in
the position
of an independent operator. It has to follow detailed instructions as
laid down in the franchise agreement and to
all intents and purposes
operates as a servant or employee of the applicant in regard to the
conduct of the franchise operation.’
[17] This description is relevant to
the present proceedings. When second respondent terminated the
franchise agreements with third
and fourth respondents, it did so in
terms of contractual entitlements which flowed from the nature of the
franchise agreement.
Once second respondent had terminated the
franchise agreement with the third or the fourth respondents, it was
free to enter into
a new franchise agreement which it did with the
appellant. The appellant was now placed in a situation where it had
to follow the
detailed instructions as laid down in the franchise
agreement operating under the control of the second respondent.
[18] In short, appellant had not
acquired the business as a going concern from either third or fourth
respondent. It cannot be said
therefore that components of the
business operated by third or fourth respondent had then been passed
onto the appellant. What
effectively had taken place was that the
license to operate a business on behalf of second respondent had been
terminated by the
latter, insofar as third and fourth respondents
were concerned. This was not the equivalent situation to that of an
outsourcing
agreement. The franchisor continued to hold the core
assets. They remained those of the franchisor, being second
respondent, both
before and after the agreement had been concluded.
There was thus no transfer of infrastructural assets which would
sustain an
argument that there was a transfer of a going concern.
Once the core assets remained intact, that is in the ownership of the
second
respondent as the franchisor, it becomes difficult to see how
a transfer of a business pursuant to
s 197
(1) has taken place.
[19] There was an attempt by the first
respondent to contend that the outsourcing system, in particular the
law relating to second
generation outsourcing, such as occurred in
Aviation Union of SA supra,
was applicable to this case. But
in that case, it was clear that South African Airways (SAA) and the
second respondent had concluded
an outsourcing agreement in terms of
which certain operations of SAA were transferred to second
respondent. It was agreed that
second respondent would provide
defined services for a fee. The assets and inventory relating to
services were sold to second respondent
on termination of the
agreement which provided that SAA would be entitled to repurchase
them.
[20] It was clear that, in terms of
the initial outsourcing agreements,
s 197
applied to the affected
employees. The question arose as to what occurred when SAA cancelled
the agreement with second respondent.
The Constitutional Court held
that it did not matter whether second respondent transferred the
business back to SAA which would
later transfer the business to a
temporary service provider or whether second respondent transferred
the business directly to a
temporary service provider. In either
case, there was a transfer of the business by the old employer to a
new employer.
[21] Great care must be taken before
applying the ‘outsourcing’ jurisprudence to a franchise
operation. The argument
presented to this Court did not take
sufficient account of the specific relationships generated by a
franchise agreement. Tanya
Wokers captures the point thus:
‘
Franchises
are not free to develop their businesses as they see fit. Because
they are buying into the franchisors’ business
model,
franchisors exercise a great deal of control over the way in which
their franchisees do business. This is a very unusual
business
relationship because, although franchisees tend to own the assets of
their businesses, someone else is entitled to tell
them how to
function. This leads to a relationship that is ‘highly intimate
and interdependent’ (see Gillian K Hadfield
“Problematic
Relations: Franchising and the Law of Incomplete Contracts’
(1990) 42
Stanford
LR
877
at 963). It is a primary role of franchisors to protect the interests
of their networks and to develop their brands. Franchisors
therefore
have the right to ensure that they are able to protect those
interests through the terms of their agreements with franchisees.
Franchisors usually dictate the location of franchisees’
businesses, how the franchisees are to advertise or what selling
methods they must adopt. The appearance of their premises, what
products can be bought and sold, book-keeping methods, hours of
business, qualification and appearance of staff, prices and so on.
’
6
In the present case, no such transfer
of infrastructure took place. The franchisor continued to control the
process. The franchisee
operated at the behest of the franchisor and
accordingly, when the franchise agreement was terminated and a new
agreement was entered
into with the appellant, no transfer of a
business as a going concern had taken as was the case in
Aviation
Union
,
supra
.
[22] In support of its argument that
s
197
of the LRA was applicable, first respondent referred this Court
to a decision of the European Court of Justice in
Carlito Abler
and others v Sodexho MM Catering Gesellschaft GmBH
[2004] IRLR
168
which had been referred to by Van Niekerk J in
Fransman
Services (Pty) Ltd v Simba (Pty) Ltd and Another
(unreported
Labour Court case J1978/12, delivered on 30 August 2012). That case
concerned a catering company which held a contract
for the management
of catering services in a hospital. The question arose as to whether
employees who had worked for another catering
company, which had
previously supplied the same services under a contract which had been
terminated by the hospital, were now entitled
to benefits similar to
those set out in
s 197
of the LRA and which finds its European
equivalent in Directive 77/187 of the EEC of 14 February 1977.
[23] The hospital authority employed a
catering undertaking to supply meals and beverages to patients and
hospital staff at a price
based on a day of catering per person. To
that end it made available to the catering undertaking, water and
energy as well as its
premises, including the hospital kitchen
together with the necessary equipment. The argument for the employer
of the first contracting
company was that the Directive applied to a
situation in which a contracting authority, which awarded a contract
for the management
of catering services in the hospital to one
contractor, then terminated the contract and concluded another
contract for the supply
of the same services with a second
contractor, in circumstances where the second contractor employed a
substantial part of assets
previously used by the first contractor
and subsequently made available to it by the hospital authority and
where, the second contractor
refused to take on employees of first
contractor. The Court upheld this argument, finding that the
Directive must be interpreted
to apply to this form of transfer of
undertaking.
[24] In my view, this case is far
closer to the facts of
Aviation Union,
supra
than to a
franchise agreement which has inherently different rights. A change
in franchisees is conceptually different to the facts
of
Sodexho
and produces a different result. The franchise agreement gives rise,
in effect, to a joint venture (JV) business between the franchisor
and franchisee. In terms thereof, there is a
quid pro quo
for
the right to carry on the franchise business and the concomitant use
of the franchisor’s assets by the franchisee (including,
in
this matter, an entitlement to occupy the premises leased by the
franchisor) in the form of a franchise fee and/or a share of
the
profits. Upon the termination of this franchise agreement, the JV
business dissolves, with the franchisor retaining the assets.
The
franchisee’s right to carry on the franchise business comes to
an end and concomitantly the business of the franchisee
come to an
end.
[25] When the new franchise agreement
was concluded, this gave rise to a new JV business between the
franchisor and the new franchisee,
independent of the first JV
agreement or business, with the use of the assets (including the use
of the premises leased by the
franchisor) being made available to the
new franchisee as a
quid pro quo
or a franchise fee / share of
the profits.
In the case of the change in
franchisees, (a) there is no client (or middle entity) in the
franchising context – it being
bilateral and not a tripartite
relationship; (b) while the franchisor makes the use of assets
available to the new franchisee,
it does so after the first JV
business is dissolved and as part of the formation of an entirely new
and independent business with
the new franchisee; and (c) there is no
transfer of the use of the assets from the old to the new franchisee;
instead the use of
the assets is housed in an entirely new and
independent business.
[26] The only important similarity
between
Sodexho
and this case is that certain of the
infrastructure are employed by the second contractor and franchise.
However, in the franchise
agreement, the entire infrastructure
remains under the control of the franchisor. Although it may be used
by the franchisee, the
latter operates at the behest of the
franchisor pursuant to a new agreement. It cannot therefore be said
that what was referred
to in the European Court was a franchise
agreement. Accordingly this decision is not authority in respect of
the application of
s 197
of the LRA to franchise agreements in
general or the facts in the present dispute, in particular.
[27] In my view, there was no transfer
of a business which falls within the scope of
s 197
of the LRA. The
appeal therefore succeeds and the following order is made:
1. The judgment of the court
a quo
is set aside and substituted with the following order:
1.1 The application is dismissed with
costs.
2 The first respondent is ordered to
pay the appellant’s cost of this appeal.
_____________
Davis JA
Hlophe AJA concurred
Dissenting judgment
LANDMAN AJA
[28] I have had the privilege of
reading the draft of the majority judgment. I agree with my brother
Davis JA that the crisp question
in this appeal, is whether
s 197
of
the LRA applies in a case of franchise agreements. I regret that I
differ from him as regards the answer to this question.
[29] What must
first be established is whether the old franchisee operated a
business as contemplated by s 197 of the Labour Relations
Act 66 of
1995 (the LRA)
7
.
Section 197(1)(a) provides that a ‘“business”
includes the whole or a part of any business, trade, undertaking
or
service.’
The
business must be transferred as a going concern. See section
197(1)(b). The Constitutional Court in
NEHAWU
v University of Cape Town
8
had cause to
consider the meaning of
“
going
concern” and had this to say:
‘
The
phrase “going concern” is not defined in the LRA. It must
therefore be given its ordinary meaning unless the context
indicates
otherwise. What is transferred must be a business in operation “so
that the business remains the same but in different
hands.”
Whether that has occurred is a matter of fact which must be
determined objectively in the light of the circumstances
of each
transaction. In deciding whether a business has been transferred as a
going concern, regard must be had to the substance
and not the form
of the transaction. A number of factors will be relevant to the
question whether a transfer of a business as a
going concern has
occurred, such as the transfer or otherwise of assets both tangible
and intangible, whether or not workers are
taken over by the new
employer, whether customers are transferred and whether or not the
same business is being carried on by the
new employer. What must be
stressed is that this list of factors is not exhaustive and that none
of them is decisive individually.
They must all be considered in the
overall assessment and therefore should not be considered in
isolation.
The
fact that the seller and the purchaser of the business have not
agreed on the transfer of the workforce as part of the transaction
does not disqualify the transaction from being a transfer of a
business as a going concern within the meaning of s 197. Each
transaction
must be considered on its own merit, regard being had to
the circumstances of the transaction in question. Only then can a
determination
be made as to whether the transaction constitutes the
transfer of a business as a going concern.’ [footnotes omitted]
[30] Before considering whether a
business was transferred as a going concern, I need to set out some
of the terms and conditions
and operating circumstances of the
franchise in question and to add to discussion by my brother Davis JA
of the nature of a franchise
agreement.
[31] The following has been culled
from the papers regarding the franchise operations of the second
respondent. The description
of the parties has been altered.
On the termination date,
the old franchisee would only remove items from the premises which
belonged to it and would leave the
store in a good condition;
The old franchisee will
assist in a 'handover and transition process".
The lease agreements for
the premises from which the old franchisees run their businesses are
held in the name of the franchisor
which sub-lets the premises to
the old franchisees. No notice of termination of the lease
agreements has been given. An inference
is made that it is intended
to run some business from those premises.
The leased premises had
earlier in the year undergone a major revamp costing in the region
of R800 000.00 for each premises.
The old franchisees have
been requested to transfer Telkom landlines into the name of the
franchisor.
The businesses have to
continue. If they were not to continue, the franchisor would lose
market share to other cell phone operators.
There would be no
business to deal with the ongoing queries and customer issues that
the old franchisors deal with on a daily
basis. If nobody performed
such functions, the result would be extremely frustrated and
dissatisfied customers and the adverse
publicity that would flow
from such a lack of service would be intolerable for a business such
as that of the franchisor.
Franchisees country-wide
received essentially the same notice of termination and have been
told to not disclose information.
The franchisor has
terminated the franchise agreements of the old franchisees on due
notice and is in the process of concluding
a new franchise agreement
with the new franchisee. The new franchise agreement will contain
standard terms and conditions.
The new franchisee will
be effectively sub-leasing premises and fittings from the franchisor
who remains the owner of the fittings
and the lessee of such
premises.
The new franchises
intends to enter into a new licensing agreement with the franchisor
in terms of which the new franchisee will
be entitled to procure new
customers and facilitate the conclusion of airtime contracts between
the franchisor and the new customers.
The business of the old
franchisees, namely the procuring of new customers and facilitation
of the conclusion of airtime contracts
between the franchisor and
the new customers and the earning of ongoing airtime commission on
such contracts, ended when the
franchisor terminated its franchise
agreements with the old franchisees.
The old franchisees have
removed all their possessions and stock from the premises and
therefore there has been no transfer of
stock or movable property
from the old franchisees to the new franchisee.
The franchisor paid
ongoing airtime commission to the old franchisees during the
subsistence of the franchise agreements. The
old franchisees’
entitlement to ongoing airtime commission ended when the franchise
agreements terminated. Therefore the
franchisor will not be paying
any ongoing airtime commission earned on such airtime contracts to
either the new or the old franchisees.
[32] A franchise is intended to bring
customers under the impression that they are dealing with the
franchisor. To facilitate this,
there are a good number of
contractual provisions in a franchise agreement which all serve to
compel the franchisee to conduct
its activities in a very specific
manner. It is unnecessary to set them out.
[33] The business of the old
franchisee, in this appeal, consists in utilising the brand of the
franchisor, its get-up, business
model, obeying its rules of
business, working in premises supplied by it, dealing with its
customers, repairing or acting as a
channel for repairs of its
products, dealing with complaints about the products, retaining
customer data and collecting funds,
and selling exclusively the
franchisor’s products.
[34] What is important is that this
illusion that the business is operated by the franchisor must be
maintained also on termination
of the franchise. Once the contract is
terminated, it is desirable that the customers return to the same
premises, where they will
find the same brand, the same get-up, their
contracts, the same goods and method of doing business.
[35] I return to the question at hand
and consider the major incidents of the alleged transfer in the light
of
NEHAWU
and
Spijkers Gebroeders Benedik Abbatoir v Alfred
Benedik en Zonen
[1986] 2 CMLR 296
(ECJ) on which it is based.
[36] I arrive at the following:
The type of business involved. A
franchise is involved in this appeal. A franchise has its own
peculiar framework.
Whether there was a transfer of
tangible assets: Nothing tangible was transferred save that by
vacating the premises belonging
to the franchisor and returning the
keys it may be said that there was a transfer of possession of the
premises back to the franchisor
(for transmission to the new
franchisee).
Whether there was a transfer of
intangible assets? The illusion and all that compiled the illusion
was transferred as above.
Whether the franchisee’s staff
was transferred? There was no agreement involving the employees; nor
was there a need for
one. No express agreement. But some employees
went over to the new franchisee.
Whether the customers were
transferred? The customer’s account and their patronage would
be linked to the brand and shop
or premises and when the franchise
is terminated it could be said that they are transferred to the
franchisor. Certainly they
cannot be taken away by the franchisee.
The duration of any interruption to
the business activity? Here there was a minimal interruption which
fits the nature of a franchise.
In addition one must ask what the
franchisee took away. The answer appears to be stock and not much
else. Certainly not the right
to trade with the brand name and get
up.
[37] It is necessary to elaborate on
some issues. It is not essential that the assets of the “old
employer,” here the
old franchisee should belong to that
employer for purposes of a transfer. See
Carlito Abler and others
v Sodexho MM Catering Gesellschaft GmBH
[2004] IRLR 168.
[38] The question
whether the old franchisee takes anything away so as to be able to
continue its business requires further comment.
This aspect is
important. Jafta JA in
Aviation
Union of South Africa v SA Airways (Pty) Ltd
9
says:
‘
Speaking
generally, a termination of a service contract and a subsequent award
of it to a third party does not, in itself, constitute
a transfer as
envisaged in the section. In those circumstances, the service
provider who contract has been terminated loses the
contract but
retains its business. The service provider would be free to offer the
same service to other clients with its workforce
still intact.’
[39] To answer this question one must
hark back to the nature of a franchise and the relationship of a
franchisee to a franchisor.
[40] The nature of the relationship
between a franchisor and franchisee has been recently the subject of
scrutiny in several American
judgments. The franchisor has been held
vicariously liable for the wrongful acts of the franchisee in the
course of the franchise
business. See
Patterson v Domino’s
Pizza
2012 Cal. App. LEXIS 753. I need not to decide and I do not
decide this appeal on the basis of such a relationship.
[41] In addition, the question of a
restraint must loom large in this appeal. What does the old franchise
carry away? Can he continue
another business after termination of the
franchise? The old franchisee cannot continue doing what it was doing
prior to the termination
of the franchisee. To continue he would have
to obtain a franchise with another brand or operate independently ie
differently to
the way it operated before as a franchisee. This
distinguishes it from the situation with which Jafta J was dealing.
[42] This leads me to conclude that a
stable economic entity changes hands when a franchise is terminated.
It reverts to the franchisor.
[43] Was there a transfer from the old
employer to the new employer? It could be said that there has been no
such transfer because
the franchisor does not intend operating the
shop. The franchisor intends extending a franchise to a new
franchisee. In this case,
taking into account the nature and
modus
operandi
of a franchise, it may be said that the franchisor
intendeds to seamlessly transfer the operation of the shop to the new
franchisee.
The old franchisee knows that this will happen and so
does the new franchisee. In these circumstances, there has been
transfer
of an undertaking, albeit an indirect one, from the old
franchisee (old employer) to the new franchisee (new employer). The
franchisor
fulfils the role of a self interested conduit been the old
and new franchisees.
[44] In my view, the construction of
the matter which I have proposed embraces the twin aims of section
197 of the LRA as expressed
by Ngcobo J (as he then was) in
NEHAWU
.
He said:
‘
(b)
The true meaning of s 197
The
proper approach to the construction of s 197 is to construe the
section as a whole and in the light of its purpose and the context
in
which it appears in the LRA. In addition, regard must be had to the
declared purpose of the LRA to promote economic development,
social
justice and labour peace. The purpose of protecting workers against
loss of employment must be met in substance as well
as in form. And,
as pointed out earlier, it also serves to facilitate the transfer of
businesses. The section is found in a chapter
that deals with unfair
dismissal. Construed against this background, the section makes
provision for an exception to the principle
that a contract of
employment may not be transferred without the consent of the workers.
Subsection (1) says so and it makes it
possible to transfer the
business on the basis that the workers will be part of that transfer.
This will occur if the business
is transferred “as a going
concern”.’
10
[45]
In the case of the transfer on the termination of a franchise,
it is possible to harmonise both goals. The employees who are the
face of the business remain in place as a result to the seamless
transfer and with it the job security of the employees is protected.
The construction which I have placed on the matter does not impair
the respective rights of the parties save in the way that s
197
intends.
[46] I would dismiss the appeal with
costs.
______________
AA
Landman
Acting
Judge of the Labour Appeal Court
APPEARANCES:
FOR THE APPELLANT: Adv AT Myburgh SC
and Adv L Hollander
Instructed by Petersen Hertog and
Associates
FOR THE FIRST RESPONDENT: Mr Kirchmann
of Kirchmanns Inc
1
66
of 1995.
2
Sanders
v Cell C Provider Company (Pty) Ltd and Others
[2010] 9 BLLR 973
(LC) at 978G-979A..
3
2012
(2) BCLR 117
(CC) at paras 47 – 48.
4
Hesselink
et al
The
Commercial Agency, Franchise and Distribution Contracts
(2006) at 230
.
5
1995
(3) SA (WLD) 836 at 843B.
6
Tanya
Wokers ‘The franchise relationship and the problem of
encroachment:
Silent Pond
Investments CC v Woolworths (Pty) Ltd
’
(2008)
20
South African Mercantile Law Journal
402 at 404)
7
66
of 1995.
8
2003
(3) SA 1
(CC) at paras 56 and 58.
9
2012
(2) BCLR 117
(CC) at para 47.
10
NEHAWU
at para 62.