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[2009] ZALCCT 6
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Food And Allied Workers Union v Cold Chain (Pt) Ltd and Another (C565/2009) [2009] ZALCCT 6 (30 September 2009)
IN
THE LABOUR COURT OF SOUTH AFRICA
HELD AT CAPE TOWN
CASE
NO: C 565/2009
In
the matter between:
FOOD
AND ALLIED WORKERS
UNION Applicant
and
THE
COLD CHAIN (PTY)
LTD First
Respondent
FREEZERLINES
(PTY)
LTD Second
Respondent
JUDGMENT
FRANCIS
J
Introduction
1. The applicant brought
an urgent application duly amended for the following relief:
“
1.1
Dispensing with the provisions of the rules relating to times and
manner of service referred to therein
and allowing the matter to be
heard as one of urgency in terms of Rule 8 of the Rules of the above
Honourable Court.
1.2
Ordering that a Rule Nisi be issued calling upon the First and Second
Respondents to appear
and show cause on a date and time to be
determined by this Honourable Court why an Order in the following
terms should not be made:
2.1
The proposed agreement between first and second respondents in terms
of which second respondent
will provide distribution and warehousing
services to the customers of first respondent’s Port Elizabeth
branch is an agreement
to which upon implementation s197 of the
Labour Relations Act would apply.
2.2
Interdicting and restraining the First Respondent from dismissing any
of the Applicant’s
members employed by it for a reason related
to the aforesaid transfer;
2.3
In the extent that the First Respondent has either terminated the
services of Applicant’s
members, that such dismissals be
declared unlawful and void;
Alternatively,
That the
aforementioned relief be made pending the outcome of proceedings to
be referred to this Honourable Court.
2.4
Ordering that the costs of this application be paid by those
Respondents who oppose this
application;
2.5
Ordering that the provisions of rule 2.1,2.2 and 2,3 shall operate
with immediate effect
as an interim Order pending the Order being
made final on the return day of the Rule Nisi”.
2. The
application was opposed by the first respondent. It gave an
undertaking that it would not go on with the dismissals
of the
applicant’s members pending the outcome of this application.
The application was opposed on the grounds that
section 197 of the
Labour Relations Act 66 of 1995 (the Act) is not applicable to the
facts of this matter, the proposed transaction
not being a transfer
of business nor a transfer of a business as a going concern.
The background
facts
3. The
applicant is the Food & Allied Workers Union (FAWU) which brought
this application on behalf of its members who are employed
by the
first respondent, Cold Chain (Pty) Ltd. The second respondent
is Freezerlines (Pty) Ltd.
4. The
first respondent provides outbound supply chain distribution for the
manufacturers of perishable food products to its customers
in the
retail industry. These manufacturers are referred to by first
respondent’s deponent as “principals”.
First
respondent provides sales, merchandising, warehousing,
transport/distribution and debtors administration functions for and
on behalf of its principals. The first respondent has twelve
distribution centres nationwide. This matter concerns
the
operations of its Port Elizabeth branch. The second respondent
has operations in George and Port Elizabeth. First respondent
employs
181 employees nationally. Eighty-seven employees, inclusive of
management employees, are employed at the Port Elizabeth
branch.
5. On
22 June 2009 the first respondent sent a notice in terms of section
189(3) of the Act inviting the applicant to consult about
the
possibility of dismissals based on operational requirements.
The section 189 notice states that the categories of employees
which
may be affected are those employed in transport, warehousing and
administration. The notice advised the applicant that
due to
economic loss, the first respondent was considering the possibility
of outsourcing the transport (distribution) and warehousing
functions
of its Port Elizabeth operations to the second respondent and
contemplated retrenching between 38 and 49 employees as
a consequence
of the outsourcing.
6. The
first facilitation meeting took place under the auspices of the
Commission for Conciliation, Mediation and Arbitration (the
CCMA) on
9 July 2009. The applicant raised the concern that if the
warehousing and distribution functions were to be outsourced
to the
second respondent, this ought to involve a transfer of the employees’
employment contracts to the second respondent
in terms of section 197
of the Act. The first respondent denied that this was the case.
7. On 23 July 2009 the
applicant received a letter from the first respondent recording its
formal position. It referred to
the meeting of 9 July 2009 and
stated that the name of the potential outsource company is
Freezerlines. It stated amongst
others the following:
“
4.
However, these measures did not improve the financial position of the
Company. Thus,
the Company considered the possibility of
outsourcing the warehousing and distribution functions of the Port
Elizabeth distribution
centre. When it became evident that the
possibility of outsourcing the warehousing and distribution functions
of the Port
Elizabeth distribution centre was a viable option, the
Company engaged with Freezerlines to explore the possibility
further.
While exploring the possibility of an outsourcing
arrangement with Freezerlines the Company considered whether or not a
possible
outsourcing arrangement with Freezerlines could amount to a
transfer of a business as a going concern as contemplated in
section
197
of the
Labour Relations Act
(“the LRA”). After
conducting a factual enquiry, it became apparent that the possible
outsourcing arrangement
would not amount to a transfer of a business
as a going concern and that accordingly
section 197
would not apply
to such an arrangement and thus the employees would not automatically
transfer to Freezerlines. At this point
in the Company’s
investigations it became apparent that if the Company were to
outsource to Freezerlines, there was a possibility
of retrenchments.
As such, the Company engaged the Union and potentially affected
employees in a consultation process.
5. During the
discussions with Freezerlines, and once it was clear that
section 197
would not apply to the proposed transaction, the Company consulted
with Freezerlines on the possibility of Freezerlines offering
employment to potentially affected employees, in the event that the
Company were to enter into an outsourcing arrangement with
Freezerlines. Freezerlines informed the Company that if the
Company outsourced to Freezerlines, it would not be a viable
option
for Freezerlines to offer employment to any of the Company’s
employees as Freezerlines employs its own employees and
does not
require additional employees.
6. The Company is of
the view that in the event that its warehousing and distribution
function is outsourced to Freezerlines, it
would be able to reduce
its costs significantly. The proposed outsourcing to
Freezerlines would ensure the financial viability
of the Port
Elizabeth distribution centre.
7. The Company has
suffered huge financial losses at the Port Elizabeth distribution
centre for the past few years. These
losses have increased
significantly in the last year and thus drastic steps need to be
taken to address this problem. The warehousing
and distribution
departments of the Port Elizabeth distribution centre are the most
expensive departments. As I have already
pointed out, the
Company has attempted to address the situation by cutting costs,
trying to secure additional business and cutting
down of the use of
casual employees. However, this has not addressed the situation
and the financial losses suffered by the
Company have increased
significantly, with the result that unless drastic steps are taken,
the Port Elizabeth distribution centre
will be unable to continue to
operate. The Company is of the view that the proposed
outsourcing of the warehousing and distribution
functions is a viable
means to address the financial crisis.
10.
In an attempt to avoid/minimise the number of possible retrenchments,
the Company will once again engage with Freezerlines as
to whether,
in the event that the Company enters into an outsourcing arrangement
with Freezerlines, it has vacancies that could
be offered to
potentially affected employees. I will revert to you on the
outcome of these discussions as soon as possible.”
8. On
29 July 2009 a second facilitation meeting was held. The first
respondent was asked for details about the proposed transaction.
It advised that it was intended that the second respondent would take
over the warehousing and distribution functions of the first
respondent. No assets, contracts or anything else would be
transferred to the second respondent. The warehousing function
would be carried out at the second respondent’s premises and
not the first respondent’s premises. The first
respondent’s vehicles would not be transferred to the second
respondent and the second respondent would use its own vehicles.
The applicant adopted the view that the facilitation process ought to
be suspended whilst the applicant sought a declarator from
this Court
regarding the applicability of section 197 of the Act.
9. The
first respondent’s attorneys in a letter addressed to the
applicant dated 31 July 2009 repeated that the first respondent
was
considering the possibility of outsourcing the warehousing and
distribution function of the Port Elizabeth distribution centre
and
that, as such, there is a possibility that retrenchments may follow.
It recorded that on 29 July 2009 during a facilitation
meeting at the
CCMA, the applicant informed the first respondent that it was of the
view that the section 189A process should be
suspended as it felt
that its members should be transferred to the outsource company as
part of a section 197 transfer. The
first respondent denied
that the process falls within the ambit of section 197 and viewed the
attempts to suspend the facilitation
process as an endeavour to delay
the finalisation of the process. It intended to go on with the
process and invited the applicant
to participate in the process.
The 60-day period referred to in the Act ends on 22 August 2009 and
an application for
a declarator would be opposed.
10.
The applicant’s attorneys in a letter dated 3 August 2009 to
the first respondent’s attorney stated
inter
alia
that the first respondent had
given notice on 22 June 2009 to the applicant in terms of section
189(3) of the Act of its proposal
to retrench certain of the
applicant’s members employed at the Port Elizabeth operations.
The purported reason for
the proposed retrenchment was the desire to
cut expenses by outsourcing the transport (distribution) and
warehousing functions
of the Cold Chain business to ‘Freezerlines’.
It was anticipated that 38 to 49 employees would be retrenched.
During a subsequent exchange of correspondence during the
facilitation process, it has emerged that the first respondent’s
Port Elizabeth operation employs 87 persons. It would appear
further that the proposed outsourcing and retrenchments would
essentially amount to the Port Elizabeth operation being left with
only management, administration and sales/merchandising staff.
From the details provided of the proposed outsourcing, it would
appear that Freezerlines would perform the warehousing and
distribution
functions previously performed by the first respondent,
who would no longer perform any of these functions at its Port
Elizabeth
operation. In exchange for the transfer of the
operations, Freezerlines will pay the first respondent some form of
‘fee”
on a quasi-rental basis. The applicant has
informed the first respondent of its view that the contemplated
outsourcing constitutes
a transfer for the purposes of section 197 of
the Act, and that the first respondent was not permitted to proceed
with the retrenchments
of its members and that they either abandon
the outsourcing initiatives or effect a transfer within the
stipulations of section
197(2) or section 197(6) of the Act. An
assurance was sought that the first respondent would withdraw its
proposed retrenchments
and thereafter effect any outsourcing that
might take place in terms of section 197 and should such an assurance
not be given this
Court would be approached on an urgent basis for a
declarator. The first respondent was requested to provide
reasons in fact
and in law why the outsourcing does not constitute a
section 197 transfer.
11. On
4 August 2009, the first respondent’s attorneys sent a letter
to the applicant’s attorneys in which it was agreed
that the
60-day period would be extended until 5 September 2009 to enable the
applicant to proceed with this application.
It is envisaged
that 40 jobs, essentially those in warehousing and transport, and 2
in administration, out of a total of 87 would
be affected by the
decision to restructure its operations and use second respondent as a
sub-agent. This amounts to nearly
46% of the posts currently in
the first respondent. The first respondent did not
believe that as a matter of fact or
law the proposed arrangement
constituted a transfer in terms of section 197 of the Act. It
could therefore not accede to
the applicant’s demand. It
reserved the right to expand on the reasons why the proposed
arrangement did not constitute
a transfer in terms of section 197 of
the Act.
12.
The application was filed on 13 August 2009 and set down for a
hearing on 4 September 2009.
The parties
contentions
13.
The applicant contended in its founding papers that a transfer would
indeed take place between the first and second respondents.
It
is apparent from annexure “MT3” which is a schedule of
the number of staff at the first respondent’s Port
Elizabeth
operations that there are 87 employees and that the transfer of
the warehousing and distribution functions would
account for the jobs
between 44 and 54% of the employees. Once the outsourcing and
retrenchments take place, the first respondent
will only be left with
sales, administration and management services. Warehousing and
distribution is a core part of the
first respondent’s business
and is a clear and discreet part of the business. This much is
apparent from the first
respondent’s website. Whilst the
applicant has not had sight of the outsourcing agreement, it
understands that it will
involve no more than the second respondent
providing the warehousing and distribution functions thus far
provided by the first
respondent. There will be no change in
the nature of the services provided, and the second respondent’s
services will
presumably be subject to the direction of the first
respondent’s administration and sales staff. The business
transferred
is thus done so as a going concern. It knows of no
reasons why the outsourcing should not be regarded as a transfer
within the
meaning of section 197 of the Act.
14. The first respondent
denied that the proposed transaction will result in the transfer of a
business, part of a business, trade,
undertaking or service as a
going concern. The Port Elizabeth distribution centre will
continue to provide sales/order taking,
merchandising and debtors’
administration services directly for its principals. The
warehousing and transport services
will be provided by the second
respondent as sub-agent of the first respondent. There is no
written outsourcing agreement
between the first and second
respondent. Section 197 does not apply to its decision to
appoint the second respondent as a
sub-agent to render these
functions since there will be no transfer of a part of a business as
a going concern. These services
will continue being rendered to
first respondent’s principals, the only difference being that
first respondent will not be
doing so directly as the principals
agent, but instead through the sub-agency of second respondent, and
second respondent will
supply the necessary equipment, employees and
facilities to do so. The first respondent simply wishes to
restructure its
operations in an economically viable and more
efficient manner, using the service of a sub-agent to render the
requisite services
while remaining liable to its principals in terms
of various agency agreements with them. The second respondent
will henceforth
provide the warehousing and distribution functions,
from its own premises, using its own vehicles, for and on behalf of
the first
respondent, as its sub-agent. There is in the
circumstances no transfer of any business entity or service as a
going concern.
The warehousing and distribution services will
not retain their identities and will thus not be the same business
services but
in different hands. Second respondent’s service
model is different to that of first respondent, hence the fact that
it can
render the services more efficiently and cost effectively.
The rendering of the services as a combined service will also be
entirely different and increase the aforementioned benefits.
The warehousing and distribution function of both first and
second
respondents are not autonomous stand alone entities - there is no
warehousing or distribution division with its own assets,
the assets
belong to first respondent and will not transfer to the second
respondent. The contracts with the principals and
with the
customers, first respondent’s name and goodwill and stock-in
trade, all belong to the first respondent and will
remain with the
first respondent following the conclusion of the transaction.
In addition to this, neither these functions
can be separated out nor
can they continue to operate should first respondent cease to
operate. The first respondent is contractually
bound to its
principals to provide a total service and whether it does so itself
or through its sub-agents, it remains liable to
the principals.
In the circumstances the warehousing and distribution functions of
the first respondent do not constitute
separate economic entities
capable of separate transfer as a going concern and the appointment
of second respondent to render such
services as a sub-agent of first
respondent will not constitute the transfer of a business or a
service as a going concern for
the purposes of section 197 of the
Act.
Analysis of the
facts and arguments raised
15.
The only issue to be decided by this Court is whether the proposed
agreement between the first and second respondents in terms
of which
the second respondent will provide distribution and warehousing
services to the customers of first respondent’s
Port Elizabeth
branch to be an agreement to which, upon implementation, section 197
of the Act would apply. The respondent
opposed the application
on the grounds that section 197 finds no application on the facts of
this matter, the proposed transaction
not being a transfer of a
business nor a transfer of a business as a going concern.
16. Section 197 of the
Act provides 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 the transfer;
(b)
all the rights and obligations between the old employer and an
employee at the time
of the transfer continue in force as is 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.
(6)
(a)
An agreement
contemplated in subsection (2) must be in writing and concluded
between - (i) either the old employer, the new employer,
or the old
and new employers acting jointly, on the one hand; and (ii) the
appropriate person or body referred to in s189(1), on
the other.”
17. The leading case
dealing with the concept of transfer as a going concern is
National
Education Health & Allied Workers Union vs University of Cape
Town & Others
(2003) 24 ILJ 95 CC where the test is set out
as follows:
“
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 the 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 none of
them is decisive individually. They
must be considered in the overall assessment and therefore should not
be considered in
isolation”.
18.
Section 197 of the Act is designed to protect workers. The
central test is an objective one and regard must be had to
the
substance of the transaction rather than the form. All the
relevant factors in the particular circumstances of the case
must be
taken into account. What this amounts to is taking a snapshot
of the entity before the transfer and assessing its
components.
That picture is then compared with the one of the business after the
transfer to establish whether it is substantially
the same business
but in different hands. There is obviously not an inflexible
test to decide whether a business or service
is a going concern. Each
transaction is to be considered on its own merits, regard being had
to the circumstances of the particular
transaction.
19. In
Schatz v
Elliott International (Pty) Ltd & Another
(2008) 29 ILJ 2286
(LC) Van Niekerk AJ (as he then was) examined the nature of the
underlying transaction which would trigger the
operation of section
197. He held at paragraph 37 that the following conditions
should be satisfied:
19.1
there is a transfer by one employer to another;
19.3
the transferred entity must be the whole or part of the business; and
19.3
the business must be transferred as a going concern.
20.
The interpretation of section 197 of the Act cannot be affected by a
court applying its mind to whether the proposed transaction
would
remain commercially viable if section 197 were to be applicable.
It might follow that the second respondent if the
application is
granted may need to engage the applicant in a restructuring
exercise. If this were to occur, the section 189
exercise would
be found in its proper place.
21. In
the present matter this Court is concerned with what is being
contemplated and not with what has in fact happened.
The
applicant in essence contends that the nature of the transaction
contemplated should involve the transfer of their jobs to
the second
respondent and as their jobs are being transferred to the second
respondent so too should they. Their jobs should
follow the
part of the business or the service that is being transferred.
22.
The first question is whether the subject of the transfer is a
business or service as defined. If the answer is in the
affirmative then the next question is whether the nature of the
contemplated transaction will involve the transfer of that business
as a going concern.
23. It
is clear from the first respondent’s version that the first and
second respondents both fall within the Imperial Group
and as such
are sister companies. The first respondent procures perishable
food from manufacturers or their principals.
Part of its
business then provided outbound warehousing and transportation for
its principals to their customers in the retail
industry.
Another part of its business provides merchandising, sale
representative and a debtor’s administration services
to first
respondent’s principals. The second respondent performs
essentially the same functions albeit on behalf of
different
principals. Under the proposed transaction first respondent
will cease to operate a distribution and warehousing
function and it
will pay the second respondent to perform these functions on its
behalf. The deal will be structured in this
way because the
first respondent has a contractual obligation to provide a national
service to its customers or principals.
The first respondent
may use what it calls sub-agents to assist it when this would be
desirable.
24. It
is clear from the papers filed that the first respondent’s
distribution/transport and warehousing functions form a
significant
part of the first respondent’s business. From a Group
perspective the Group is seeking to leverage economies
of scale by
transferring a part of first respondent’s business to the
second respondent. The transaction does not take
the form of a
conventional sale of a business but is submitted that a conventional
sale is not required for the protections afforded
by section 197 of
the Act to employees to become applicable.
25.
There is no doubt that the first respondent could, nationally at
least, have sold its Port Elizabeth based warehouse and transport
business to second respondent. Had it done so then the
customers, assets and workforce would have constituted a business
as
defined. Does ‘the package’ which is now
contemplated cease to be a business because first respondent intends
to hold onto its trucks, the contract with its customers, for which
it has no choice and retrench the employees who were employed
in this
part of the business? The decision in
SAMWU
& Others v Rand Airport Management Company (Pty) Ltd &
Others
(2005) 26 ILJ (LAC) makes it clear that the term ‘business’
in section 197 carries a far wider meaning than the
ordinary
dictionary definition. The Court
a
quo
had held that the gardening
services were merely an activity and they would merely be such in the
hands of Turnkey. Referring
to the dictionary definition of the
word ‘service’ the LAC pointed out that ‘service’
includes the provision
of ‘assistance or benefit provided to
someone’ and ‘an act of helping or benefiting another’.
This
being the case the security and gardening services were clearly
a ‘business’ within the meaning of section 197.
Even if the transport and warehousing functions to be transferred
from first to second respondent do not constitute part of first
respondent’s business within the meaning of section 197, they
certainly fall within the realm of a service. The services
which were previously being supplied by the first respondent to its
Port Elizabeth customer base will, should the transaction go
ahead,
will be provided by second respondent.
26.
The next question that is to be decided is whether there will be a
transfer as a going concern. In
NEHAWU
,
the Constitutional Court, referring to the jurisprudence of the
European Court of Justice, said that this leg of the test is best
summarised by asking whether there has been a transfer of an economic
entity that retains its identity after the transfer has taken
place.
This would be indicated
inter alia
by the fact that the operation was actually continued or resumed by
the new employer, with the same or similar activity; whether
or not
tangible assets, such as buildings and movable property, are
transferred; the value of its intangible assets at the time
of the
transfer; whether or not the majority of its employees are taken over
by the new employer; whether or not its customers
are transferred;
the degree of similarity between the activities carried on before and
after the transfer; and the period, for
which those activities were
suspended. The Court stressed that this list of factors was not
an exhaustive list and that none
of them was decisive individually.
27. I
share the views expressed in
Aviation
Union of South Africa and Others v SAA (Pty) Ltd and Others
[2007] ZALC 66
;
(2008) 1 BLLR 20
(LC) where it was held that in interpreting section
197 preference should be given to a more liberal interpretation
rather than
a conservative or narrow interpretation. The
interpretation applied to section 197 should lean in favour of
protecting the
rights of employees who may be affected by the often
harsh effects of a transfer as a going concern. The minority
judgment
in
NEHAWU v University of Cape
Town and Others
(2002) 23 ILJ 306 (LAC)
after referring to the European Court of Justice jurisprudence, that
the purpose of provision such as this
is to ensure the continuity of
existing employment relationships in a framework of an economic
entity, irrespective of a change
of owner.
28.
Applying the yardstick referred to above it is my finding that what
is being contemplated is the transfer of a business as a
going
concern. The nature of the business operations that will
continue to be done is virtually identical whether they are
performed
by the first or second respondent. Although a deal has been
structured on the premise that first respondent nationally
retains
its customers in effect these customers are being taken over by
second respondent. In either where intangibles
such as
goodwill and customers are located appears to be of no great
significance as the ultimate shareholder of both businesses
is the
same in each case. But for the decision not to transfer the
employees the majority of the employees would have been
taken over by
the second respondent. The fact that the trucks are not being
transferred over is not important as there will
be no suspension at
all of the economic activities as second respondent apparently does
not require these additional trucks to
provide a full service to the
customers that it will inherit.
29. It
is clear from the facts placed before me and the arguments presented
that what is being contemplated is the transfer of a
business or
service as a going concern.
30.
The application stands to be granted.
31. I
do not believe that this is a matter where costs should follow the
result. The parties do have an ongoing relationship.
32. In
the circumstances I make the following order:
32.1
The proposed agreement between the first and second respondents in
terms of which second respondent
will provide distribution and
warehousing services to the customers of first respondent’s
Port Elizabeth branch is an agreement
to which upon implementaion
section 197 of the Act would apply.
32.2
The first respondent is interdicted and restrained from dismissing
any of the applicant’s members
employed by it for reason
related to the aforesaid transfer.
32.3
There is no order as to costs.
________________________
FRANCIS
J
JUDGE
OF THE LABOUR COURT OF SOUTH AFRICA
FOR
THE APPLICANT
: CS
KAHANOVITZ INSTRUCTED BY CHEADLE THOMPSON & HAYSOM
FOR FIRST
RESPONDENT
: RGL
STELZNER INSTRUCTED BY VAN DER WESTHUIZEN VOS & HORN INC
DATE
OF HEARING
:
8
SEPTEMBER 2009
DATE OF
JUDGMENT
: 30
SEPTEMBER 2009