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[2010] ZALCJHB 353
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Chemical Energy Paper Printing Wood And Allied Workers Union obo Members v Hydro Colour Inks (Pty) Ltd and Another (J1346/2010) [2010] ZALCJHB 353 (28 October 2010)
Reportable
and of interest to other Judges
IN
THE LABOUR COURT OF SOUTH AFRICA
(HELD
IN BRAAMFONTEIN)
CASE
NUMBER: J1346/2010
In
the matter between:
CHEMICAL
ENERGY PAPER PRINTING WOOD
AND
ALLIED WORKERS UNION
on
behalf of its
members
APPLICANT
and
HYDRO
COLOUR INKS (PTY)
LTD
1
ST
RESPONDENT
EVERGREEN
COATINGS (PTY)
LTD
2
ND
RESPONDENT
JUDGEMENT
AC BASSON, J
[1]
This is an application for an
order that there has been a transfer of a business of the 1
st
respondent (Hydro Colour Inks (Pty) Ltd – hereinafter also
referred to as “Hydro”) to the 2
nd
respondent (Evergreen Coatings (Pty) Ltd – hereinafter also
referred to as “Evergreen”) as a going concern in
terms
of section 197 of the Labour Relations Act 66 of 1995 (“the
LRA”). Where necessary I will refer to the 1
st
and 2
nd
respondents collectively as “the respondents”.
[2]
The application is opposed by
the respondents primarily on the basis that, according to them,
there has not been a transfer
in terms of section 197 of the
LRA because Hydro seized doing business and Evergreen merely started
a new business. In addition
hereto the respondents argued that the
degree of urgency with which this application has been brought is not
warranted and that
it constitutes an abuse of process to bring an
application of this nature by way of motion. Lastly it was submitted
that there
is a fundamental dispute of fact in the matter which means
it cannot be determined on the papers.
Relevant facts
[3]
The individual applicants were
employed by Hydro since 2004. On 9 April 2010 Mr. Smail
(“Smail”), the owner and
director of Hydro issued a
letter to all customers of Hydro advising them that Evergreen
Coatings (Pty) Ltd would take over the
manufacture of the products of
Hydro and that it would “
offer
you the same service you’ve come to expect from Hydro Colour
Inks
”. The letter
further states that “..
the
new company is taking over the staff and premises of Hydro Colouri
Inks and has purchased the rights to manufacture the exiting
product
range just as Hydro Colour Inks did. So, for you, the customer, all
that will really change is the name on the bucket.
Everything else
stays the same, including your terms of payment. Please note that you
will still be contracted to settle your Hydro
Colour Inks accounts.
We will be forwarding you the new bank details with your next
invoice.
We will be invoicing from the new
company from today. We expect some glitches in the beginning, as it
always the case with change.
But we should be running smoothly in no
time. We appeal to you to work with us in this transition and we
expect greater thinks
in the future and look forward to working with
you for the foreseeable future.”
[4]
When comparing the first and
the second respondent, the following is common cause:
(i)
Evergreen operates from the
same premises as Hydro.
(ii)
Evergreen has the same fax and
telephone numbers as Hydro.
(iii)
Evergreen has the same
employees as Hydro. They do the same work at the same rate of pay and
working the same hours.
(iv)
Evergreen produces the same
products as the Hydro at the same prices.
(v)
There was no interval between
the time Hydro stopped trading and Evergreen started trading.
The Respondents’
version
[5]
According to the respondents’
papers the individuals’ employment in fact terminated on 31 May
2010 because of the serious
financial difficulties suffered by Smail.
Smail therefore decided to close and liquidate the business.
According to the papers,
by the end of the first quarter of 2010,
Hydro was in a state of virtual insolvency. A certain Mr. Zimdahl,
who was a customer
of Hydro, saw an opportunity in the misfortune of
Hydro and decided to establish his own and new business – the
business
of the 2
nd
respondent. After some discussion between Smail and Zimdahl a mutual
agreement was reached between the two. Smail would close the
business
of Hydro and remain in the 1
st
respondent of the next few months in order to consolidate the debts
of the 1
st
respondent, wind it up and then, ultimately liquidate it. Zimdahl
would then start a business
de
novo
in the stead and place
of the business of the 1
st
respondent. In terms of this agreement, Smail then wrote to all of
the customers on 9 April 2010 advising them of the fact that
Hydro
would seize to exist and that a new entrant in the industry
(Evergreen) would take over the manufacture of the products.
According to Smail he informed the staff that a new company namely
Evergreen had been established and that this new company would
be
starting a new business doing what Hydro used to do. Smail informed
the staff that it had been arranged that they could be offered
employment with the new company and that it was up to them to accept
employment or not. If they do not accept employment they would
probably lose their employment as Hydro would ultimately liquidate as
it was no longer trading. Smail further explained to the
staff that
employment with Evergreen would be new employment on the same terms
they had with Hydro but subject to a six months’
probation as
this was what Evergreen wanted.
The respondents’
argument
[6]
The argument on behalf of the
respondents was that the business of the 1
st
respondent was never transferred to the 2
nd
respondent. The 2
nd
respondent acquired no business from the 1
st
respondent – the 2
nd
respondent merely started its own and a new business.
The applicant’s
argument
[7]
On behalf of the applicant it
was argued, with reference to decisions of this court and the
Constitutional Court that whether or
not a transfer as a going
concern had taken place is a factual consideration. The court will in
considering the factual issues,
inter
alia
(because this is by no
means a closed list), take into account the following:
(i) What happened to the goodwill of
the business, the stock in trade, the premises, contacts with clients
or customers, the workforce
and the assets of the business.
(ii) Whether there has been an
interruption to the operation of the business and if so the duration
thereof.
(iii) Whether the same or similar
activities are continued after the transfer.
[1]
[8]
In essence, the question will
be whether or not the business remains the same but in different
hands.
Evaluation
[9]
The
Constitutional Court in
National
Education Health & Allied Workers Union v University of Cape Town
& others
(2003) 24
ILJ
95 (CC) per Ngcobo J, stated the following in respect of what is
meant by a transfer as a going concern:
“
[56]
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.
[57]
There is nothing either in the context or the language of s 197 to
suggest that the phrase 'going concern'
must be given the meaning
assigned to it by the majority. On the contrary, the purpose of the
section and the context in which
that phrase occurs suggests
otherwise.
[58]
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. In this regard I agree
with Zondo JP.”
[10]
For purposes of this judgment,
the following important principles emerge from the decision of the
Constitutional Court:
(i)
What is transferred must be a business in operation so that the
business remains
the same but in different hands.
(ii)
Whether or not the transfer has occurred is a matter of fact which
must be determined
objectively in the light of the circumstances of
each transaction.
(iii)
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.
(iv) Although
there is not an exhaustive list of factors, factors such as
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 will be relevant.
[11]
It is common cause on the facts
that the business of Hydro is now in the hands of Evergreen.
According to Hydro’s own letter
everything will stay the same
and the only thing that will really change is “
the
name on the bucket”
.
In other words, the business of Evergreen is the same business as
that of Hydro. I did not understand the respondents’ case
to be
that they deny that it is the same business. In any event this much
is clear from the letter. What the respondents are saying
is that
Evergreen did not acquire a business from Hydro: the business of
Evergreen is a new business and a separate company. I
am in agreement
with the submission on behalf of the applicant that this argument
does not take the matter any further. There will
always be two
separate entities involved in a section 197 transfer: the one entity
takes over the business of the other entity
as a going concern.
[12]
The fact that Evergreen,
according to the argument, started a new business, also takes the
argument no further. The fact of the
matter is the business remains
exactly the same but only in the hands of another.
[13]
The main
argument on behalf of the respondents therefore appears to be that
the business was never transferred simply because Hydro
came to an
end and Evergreen started out as a new business. Again, if the
substance of this whole process is considered, it is
clear that the
business did in fact transfer. To argue that the old one “
closed
”
and the new one started “
its
own and new business
”
is overly technical. The fact of the matter is: Hydro is now in the
hands of another entity (Evergreen). It carries on as
if nothing had
happened: The same business, the same product, the same premises, the
same client base, the same client numbers:
“
So
for you, the customer, all that will really change is the name on the
bucket. Everything else stays the same, including your
terms of
payment
”
(Letter from Smail to customers). Francis, J in
FAWU
v The Cold Chain
(
Pty
)
Ltd &
Another
[2010]
1 BLLR 49
(LC) held that what should be done in determining
whether or not a transfer has taken place is to take a “
a
snapshot of the entity before the transfer and assessing its
components
”
and comparing the picture with the one of the business after the
transfer “
to
establish whether it is substantially the same business but in
different hands
”.
There is no doubt on the facts of the present case that what was
exchanged is the same business.
[14]
One last point. On behalf of
the respondents it was argued that Evergreen procured nothing from
Hydro: It did not buy the business
nor did it take over the assets
nor did it assume any of its liabilities. This may be so. However, in
my view this fact does not
alter the fact that the business stays the
same but only in the hands of another entity. A case in point is the
decision in
Sanders v Cell C
Provider Company (Pty) Ltd & Others
[2010]
9 BLLR 973
(LC). The applicant was employed as a general manager of a
Cell C franchise. Cell C gave the Cell C franchise (in fact there
were
two) notice that their franchise contracts would terminate. They
were advised to retrench their employees. The applicant’s
attorney requested the first respondent to acknowledge that the
contracts of the franchises’ employees would transfer
automatically
to the new franchise holder when it commenced
operating. Cell C denied that section
197 of the LRA applied because the existing
franchises were
merely being cancelled not bought back from the third and fourth
respondents. After the second respondent commenced
business the
applicant launched an urgent application for an order declaring that
his contract had transferred to the second respondent.
It was argued
that the mere fact that the second respondent will run a business
from the same premises does not mean that there
has been a transfer
of a going concern. The Court held as follows:
“
Whether
one adopts the aforesaid “snapshot” test as formulated by
Francis J, or the concept of an economic entity that
changed hands,
there clearly has been a transfer of the businesses from one
person/entity to another.
The
fact that the stock or goodwill did not find its way to the new
owner, does not in my view detract from the fact that the businesses
changed hands as going concerns, nor does the fact that all of the
employees’ employment contracts have not been transferred
.
[2]
Employment contracts were clearly not transferred, because the second
respondent (and Cell C for that matter) laboured under the
mistaken
impression that third and fourth respondents had to retrench the
employees. On an overall conspectus of the prevailing
facts and
circumstances, there appears to have been a seamless change of
proprietor in respect of the
Cell
C
outlets concerned.
It is clear that on a
literal interpretation of section
197 there has not been any transfer of a business from the third
or fourth
respondents to the second respondent.
The franchise
agreements pertaining to the third and fourth respondents were simply
terminated and a new franchise agreement was
concluded, or is in the
process of being concluded, with the second respondent.
It
is equally clear that if a literal interpretation were to be adopted,
the purpose of section
197, to the extent that it is aimed
at safeguarding the jobs of
employees, would be defeated. The employees who had been employed by
third and fourth respondents would
fall to be retrenched. Moreover,
not only would the second respondent be able to avoid the provisions
of
section
197
,
but any franchisee would be able to jettison troublesome workers with
impunity, or would be able to place a successor in title
in a
position to “cherry pick” employees. To borrow a phrase
from Zondo JP, a franchise arrangement would provide the
perfect
“vehicle on which to load the workers and a place where to dump
them” if an employer wished to sell his business
as a going
concern to someone else (see Aviation Union of SA obo Barnes, supra,
at 2892D). Such an interpretation would neither
give effect to the
right to fair labour practices which has been enshrined in the
Constitution nor would it accord with the aims
and objects of the
Act.”
[15]
I am in agreement with the
statement by the court that the fact that stock or goodwill did not
find its way to the new owner does
not detract from the fact that the
business changed hands as a going concern. It is furthermore clear
from this decision that the
mere fact that one business (the first
franchise) came to an end and was replaced by another business, also
does not detract from
the fact that there was a transfer as
contemplated by section 197 of the LRA. To hold otherwise would
defeat the objects of this
section which is to guard against the
termination of the employment of employees where a business changes
hands.
[16]
In the event I am satisfied
that there was a transfer as a going concern as contemplated by
section 197 of the LRA. The whole purpose
of 197 is to protect
workers against the loss of employment in the event of a transfer.
Is this application an abuse
of process?
[17]
On behalf of the respondents it
was also argued that it is inappropriate to raise this point in
motion proceedings and as a matter
of urgency. In fact, the
respondents argued that this amounted to an “abuse of process”.
[18]
I am in agreement with the
submission that there is nothing in either the Rules of this court or
the LRA which prohibits an applicant
from approaching this court with
an application of this nature. Of course a party who decides on
motion proceedings runs the risk
of having an irresolvable conflict
of fact on the papers.
[19]
I am not persuaded that this
application constitutes an abuse of process. This dispute (which is
whether or not there was a transfer
as a going concern) is capable of
being decided now. There may be a dispute of fact relating to the
manner in which the new contracts
has been concluded but is, in my
view, irrelevant in determining the issue before this court. There
is, in my view, no reason why
employees must wait until they are
dismissed by their employer before they approach this court in
respect of whether or not there
was a transfer.
[20]
In the event the following
order is made:
“
1.
The First Respondent transferred its business to the Second
Respondent as a going concern
in terms of
section 197
of the
Labour
Relations Act 66 of 1995
.
2.
The employment contracts entered into between the individuals listed
in Annexure A
and the second respondent are void and of no force and
effect.
3.
The second respondent is substituted in the place of the first
respondent in respect
of the employment contracts previously
concluded between the individuals listed in Annexure A and the first
respondent in accordance
with the provisions of
section 197(2)(a)
of
the
Labour Relations Act 66 of 1995
.
4.
The first and second respondents are ordered to pay the costs of this
application jointly
and severally, the one paying the other to be
absolved.”
AC
BASSON, J
Date
of judgment:
11 February
2011
Date
of proceedings:
28 October
2010
For
the Applicant:
Adv C Orr
instructed by Cheadle Thompson and Haysom
For
the Respondent:
Mr S Snyman
of Snyman Attorneys.
[1]
National
Education Health & Allied Workers Union v University of Cape
Town & others
(2002)
23
ILJ
306
(LAC) Zondo JP stated the following with regard to the phrase “a
going concern”, as it appeared in
section
197
of
the Act prior to the amendment of 2002: ”[64] Furthermore I am
of the view that the question of whether in a particular
case a
business has been transferred as a going concern is a matter for
objective determination. This does not mean that the
intentions of
the parties are irrelevant but it does mean that the say-so of the
parties cannot be conclusive. In my view there
are a number of
factors that are relevant in determining whether or not a business
has been transferred as a going concern. These
may include what will
happen to the goodwill of the business, the 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 and others. I do not think
that the absence of any one of these will on its own mean that the
transfer of the
business has not been one as a going concern.”
[2]
Court’s emphasis.