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[2011] ZALCJHB 8
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Chemical Energy Papers Printing Wood and Allied Workers Union v Hydro Colour Inks (Pty) Ltd and Another (J1346/2010) [2011] ZALCJHB 8; (2011) 32 ILJ 1677 (LC) (11 February 2011)
Page
11
of
14
J1346/2010
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
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”.
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
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.”
When comparing the first and the
second respondent, the following is common cause:
Evergreen operates from the same
premises as Hydro.
Evergreen has the same fax and
telephone numbers as Hydro.
Evergreen has the same employees as
Hydro. They do the same work at the same rate of pay and working
the same hours.
Evergreen produces the same
products as the Hydro at the same prices.
There was no interval between the
time Hydro stopped trading and Evergreen started trading.
The
Respondents’ version
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
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
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
In essence, the question will be
whether or not the business remains the same but in different hands.
Evaluation
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
review of the case law construing comparable instruments, the Council
Director 77/187/EEC of 14 February 1977 and Transfer of
Undertakings
(Protection of Employment) Regulations 1981, demonstrates that the
question whether there has been a transfer of an
undertaking within
the meaning of the instrument is a question of fact which must be
determined, regard being had to all the circumstances
of the
transaction. It is particularly significant, however, that even
though the instruments themselves do not use the term 'going
concern', yet, the case law construing them interprets the transfer
of a business within the meaning of these instruments in the
context
of a transfer of a business as a going concern. Thus
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.”
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.
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.
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.
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.
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.”
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.
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?
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”.
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.
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.
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.