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[2011] ZALCJHB 116
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Harsco Metals South Africa (Pty) Ltd and Another v Arcelormittal South Africa Ltd and Others (J2923/11) [2011] ZALCJHB 116; [2012] 4 BLLR 385 (LC); (2012) 33 ILJ 901 (LC) (29 December 2011)
REPUBLIC OF SOUTH AFRICA
Reportable
Of interest to other
judges
THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
CASE NO: J2923/11
In the matter between:
HARSCO
METALS SOUTH AFRICA (PTY) LTD
HARSCO
METALS STEELSERV (PTY) LTD
First Applicant
Second Applicant
And
ARCELORMITTAL
SOUTH AFRICA LIMITED
First Respondent
PHOENIX
SERVICES INTERNATIONAL LLC
Second Respondent
TUBE
CITY IMS SOUTH AFRICA (PTY) LTD
Third Respondent
NATIONAL
UNION OF METALWORKERS OF SOUTH AFRICA
Fourth Respondent
SOLIDARITY
Fifth Respondent
UASA
– THE UNION
Sixth Respondent
SOUTH
AFRICAN EQUITY WORKERS ASSOCIATION
Seventh Respondent
THE
EMPLOYEES WHOSE NAMES ARE LISTED IN ANNEXURE “A” TO
THE NOTICE OF MOTION
Eighth and Further
Respondents
Heard on
: 23 December 2011
Delivered on
: 29 December 2011
Summary: Transfer of part of a business as a going concern for
purposes of s 197 of LRA. Termination of service agreement between
client and contractor; new contractors appointed after tender
process. A transfer of a business as a going concern for the purposes
of s 197 takes place where on the facts, the whole or part of a
business is transferred, as a going concern, from the outgoing
contractor to the new. In this instance, the transfer of assets to
the new contractors and the employment by the new contractors
of the
majority of the outgoing contractor’s employees tilt the
balance in favour of the application of s 197.
judgment
VAN NIEKERK J
Introduction
[1] This is an urgent application in which the applicants seek a
declaratory order to the effect that the transfer of their business
to the second and third respondents on 1 January 2012 is a transfer
of a business as a going concern for the purposes of s 197
of the
Labour Relations Act, 66 of 1995 (‘the LRA’).
[2] The application is opposed by the first and third respondents.
The fourth respondent, the National Union of Metalworkers of
South
Africa (NUMSA), filed an affidavit in effect reserving its rights in
relation to averments made regarding the conduct of
the second and
third respondents in relation to offers of employment made to
individual respondents. This aspect of the application
was not
pursued at the hearing and NUMSA did not appear when the matter was
argued.
[3] It is not disputed that the application is urgent (given that the
date of any transfer for the purposes of s 197 is 1 January
2012), or
that declaratory relief is appropriate should the applicants
succeed.
1
[4] The business that forms the subject of these proceedings
comprises the services performed by the applicants to the first
respondent
(AMSA) in terms of six separate service contracts, two
each in Vanderbijlpark and Newcastle, and one each at Vereeniging and
Saladanha.
The services, in broad terms, comprise slag management and
processing services. The key question raised in these proceedings is
whether on termination of the service agreements between the
applicants and the AMSA and the appointment by AMSA of the second
and
third respondents (to which I shall refer as ‘Phoenix’
and ‘Tube City’ respectively) and the continuation
of the
services by them, triggers the application of s 197. The applicants
contend that it does; AMSA, Phoenix and Tube City contend
that it
does not.
[5] The papers in this application exceed 1200 pages. The application
was argued the day before Christmas Eve, and I undertook
to make a
ruling on the morning of 29 December 2011. What follows are the
necessarily brief reasons for the conclusion to which
I have come.
Factual background
[6] The applicants (to which I shall refer collectively as ‘Harsco’)
conduct business at more than 160 locations world-wide
(13 of these
being in South Africa), in over 30 countries. Harsco provides
services to AMSA in terms of the service agreements,
and in doing so
operates the four sites mentioned above at which it employs a total
of 445 employees; 247 at Vanderbijlpark, 95
at Saldanha, 63 at
Newcastle and 40 at Vereeniging.
Each site is managed by
a site manager.
[7] As mentioned above, Harsco provides AMSA with a
variety of services relating to the management and processing of
slag, a by-product
from the smelting of ore. In essence, during the
iron and steel-making process, impurities are generated (slag) from
which any
residual value is extracted before it is disposed of in an
environmentally friendly way. The services rendered by Harsco include
the processing of slag and waste, the separation and recovery of
metallic content, the upgrading of the recovered metallics, crushing
and screening of de-metallised slag and the sale of recycled slag to
various manufacturers for the production of various products,
including the production of filter media, fertilisers, road making
construction materials, cement, abrasives and roofing granules.
For
this purpose, Harsco operates a number of metal recovery plants, and
crushing and screening plants. These plants have been
established by
Harsco and are operated at Vanderbijlpark, Newcastle and Saldhana,
but not at Vereeniging.
[8] Harsco has provided the above services for some 40
years. The current service agreements were due to expire on 31 March
2011,
but they were extended to 31 December 2011. Shortly before the
initial expiry of the applicable service agreements in March 2011,
AMSA initiated a tender process in respect of all the operations
mentioned above, but for Vanderbijlpark Slag where the service
agreement with Harsco remains in force. Harsco, Phoenix and Tube
City, all direct competitors in the South African market, were
amongst those who submitted tenders. But for Vanderbijlpark Slag,
Harsco was unsuccessful in its bid to renew its agreements with
AMSA.
Phoenix was awarded the tender in respect of the operations in
Vereeniging, Newcastle Slag and Newcastle; Tube City was awarded
the
tender in respect of the operations in Vanderbijlpark and Saldanha
Bay. As a result, Harsco will cease to provide services
to AMSA at
the above plants, but for the arrangement in relation to the
Vanderbijlpark metal recovery plant and the Newcastle aggregate
plant, where Harsco has been retained to continue business operations
until the end of January 2012 and
April 2012 respectively, to
ensure a seamless transition of those operations to Tube City and
Phoenix at the end of the transitional
period.
[9] In summary, and without doing justice to the myriad of factual
material that is the subject of the affidavits before me, it
seems to
be common cause that the following will transpire further to the
termination of the six contracts of service by AMSA with
effect from
31 December 2011:
Tube City will commence
with its contract of service at Newcastle and Vanderbijlpark, there
being two contracts at each of these
sites, and Phoenix will
commence with contracts at Saladanha and Vereeniging.
Phoenix and Tube City
will perform substantially similar services to those performed by
Harsco, at the same locations.
In Vanderbijlpark and
Newcastle, Harsco will provide retained services for a limited
period, to ensure a smooth handover to the
new contractors.
AMSA will purchase
certain assets from Harsco, some of which it will on-sell to Phoenix
and Tube City, while retaining the balance.
The balance of the
assets will be provided by the incoming service providers, who will
make a total capital investment of some
R500 million.
Harsco has not made
available for purchase their metal recovery and crushing and
screening plants at Newcastle, Vanderbijlpark
and Saldanha, with the
result that they will be decommissioned or otherwise deployed by
Harsco.
Phoenix and Tube City
appear likely to employ some 300 of Harsco’s 445 employees.
Harsco will retain its
head office staff and two site managers, the latter because they are
subject to a restraint of trade in
favour of Harsco.
Further details as to the assets being transferred and the number of
Harsco’s employees engaged by Phoenix and Tube City
appear
below.
The interpretation of s 197
[10] Section 197 (1) provides:
‘
(1)
In this section and in section 197A—
(a)
‘business‘ includes the whole or a part of any business,
trade, undertaking or service; and
(b)
’transfer‘ means the transfer of a business by one
employer (‘the old employer‘) to another employer
(‘the
new employer‘) as a going concern.
(2)
If a transfer of a business takes place, unless otherwise agreed in
terms of subsection (6)—
(a)
the new employer is automatically substituted in the place of the old
employer in respect of all contracts of employment in
existence
immediately before the date of transfer;
(b)
all the rights and obligations between the old employer and an
employee at the time of the transfer continue in force as if
they had
been rights and obligations between the new employer and the
employee;
(c)
anything done before the transfer by or in relation to the old
employer, including the dismissal of an employee or the commission
of
an unfair labour practice or act of unfair discrimination, is
considered to have been done by or in relation to the new employer;
and
(d)
the transfer does not interrupt an employee‘s continuity of
employment, and an employee‘s contract of employment
continues
with the new employer as if with the old employer.’
The judgment of the Constitutional Court in
Aviation Union of
South Africa & another v South African Airways (Pty) Ltd &
others
2
(to which I shall refer as the ‘
SAA
judgment’) has
to some extent clarified the meaning of s 197(1) and the
circumstances in which it will apply. The interpretation
of certain
passages of the
SAA
judgment is central to the determination
of the application or otherwise of s 197 in the present instance.
[11] An understanding of the factual matrix in the
SAA
judgment is of some importance. In that case, SAA terminated an
agreement with a service provider (LGM) in terms of which LGM
provided certain services to SAA. On termination of the agreement the
services would be provided by a new contractor. LGM indicated
to the
unions concerned that it intended to retrench all the workers who
would be rendered redundant by virtue of the termination
of the
services agreement by SAA. The unions approached this court for
declaratory relief to the effect that the termination of
the
agreement and the subsequent provision of those services by a new
contractor is a transfer in terms of section 197 of the LRA.
If s 197
did apply, then the employment contracts would be secured and all the
employees would continue to be employed on the same
terms and
conditions with the new contractor. If s 197 did not apply, the
employees would be retrenched. This court held that s
197 did not
apply as the section requires a transfer “by” the old
employer, which it held, was SAA. As the services
were not
transferred “by” SAA but “from” LGM, the
court held that the section did not apply. The Labour
Appeal Court
3
overturned this decision and held that s 197, interpreted in light of
the purpose of the LRA, did apply. The majority of the Supreme
Court
of Appeal,
4
however, agreed with the interpretation of this court and held that
the section did not apply. The unions then appealed the case
to the
Constitutional Court. The Constitutional Court had to decide the
reach of s 197 and whether the transaction at issue was
subject to
the section, and split six to five.
5
The majority and minority agreed on the first question (the legal
interpretation inquiry) and disagreed on the second question
(the
factual inquiry).
[12] Both the majority and minority judgments record that the purpose
of s 197 is to alter the employment–related consequences
of the
transfer of a business as a going concern at common law, consistent
with the constitutional right to fair labour practices
and in an
effort to safeguard workers’ security of employment and to
facilitate the smooth transfer of the business by guaranteeing
the
employer a workforce to continue the business.
6
Both judgments further reject the contention that the reference in s
197 (1) (b) to the transfer of a business ‘by one employer...
to another employer...’ necessarily excludes the application of
the section to what have been termed ‘second- generation
outsourcing’. They also reject the contention that outsourcing
ought to be treated as a discrete category for the purposes
of s 197.
On the contrary, the majority judgment says the following:
‘
[105]
A further general point must be made. An inquiry whether a
transaction falls under the terms of section 197(1) and (2) would
be
misleading if it focuses solely or mainly on the generation of the
transfer. It has the potential to bring about an incorrect
result. It
does not matter in principle what the generation of the outsourcing
is, or even whether the transaction is concerned
with contracting out
at all. The true inquiry is whether there has been a transfer of a
business as a going concern by the old
employer to the new employer.
That evaluation is complex enough without it being burdened with
questions about the generation of
outsourcing. A transfer of business
may not be covered by section 197 even if it is a first generation
contracting out. On the
other hand, even a fifth generation
outsourcing could be caught by the section if it is in reality the
transfer of a business as
a going concern.’
[13]
The Constitutional
Court further affirmed that whether there has been a transfer of a
business as a going concern by the old employer
to the new employer
is a matter of fact, to be determined objectively, and which
necessarily entails an enquiry into (1) the existence
of a transfer,
(2) whether there was a transfer of a business, and (3) whether the
business is transferred as a going concern.
7
In this regard, the approach adopted by the court in
NEHAWU v
University of Cape Town
8
was affirmed. This in turn requires that there should simultaneously
be a transfer by one employer to another, an economic entity
capable
of being transferred, and that the economic entity retain its
identity after the transfer.
[14] The Constitutional Court split only on the issue of whether on
the facts, there had been a transfer as a going concern. The
majority
found on the basis of the relevant agreements that there had been a
transfer; the minority preferred to remit the matter
to this court to
make a factual finding.
[15] To sum up:
SAA
resolves the debate on whether second (and
further) generation outsourcing may in principle trigger the
provisions of s 197. The
court’s unanimous answer is that they
may. The judgment also affirms that whether an outsourcing attracts
the application
of s 197 is to be determined in the same way as any
other transfer. Section 197 is triggered when on the facts there is a
transfer
by one employer to another, in circumstances where the
transferred entity is the whole or part of a business, and where the
business
(or part of it) is transferred as a going concern. If the
transfer meets these criteria (a matter for objective determination),
the transferee is substituted automatically and by operation of law
for the transferor as the employer of those of the transferor’s
employees engaged in the business on the date of the transfer.
The necessity for a prior transfer
[16] I deal first with the submission made on AMSA’s behalf
that properly construed, the judgment of the Constitutional Court
necessarily requires the scrutiny of the initial transaction to
determine whether there is simply a further contracting out of
services, or the transfer of a business as a going concern. The basis
for the submission lies in paragraphs [106] to [108] of the
judgment,
where the majority record the following:
‘
[106]
The final general observation is that, in determining whether
contracting out amounts to the transfer of a business as a going
concern, the substance of the initial transaction, more specifically
whether what is outsourced is a business as a going concern
rather
than the provision of an outsourced service remains significant
during subsequent transfers. If the outsourcing institution
from the
outset did not offer the service, that service cannot be said to be
part of the business of the transferor. What happens
here is simple
contracting out of the service, nothing more, nothing less.
[107]
There is no transfer of the business as a going concern. The
outsourcee is contracted to provide the service, and becomes
obliged
to do so. And it is the outsourcee‘s responsibility to make
appropriate business infrastructure arrangements. These
may include
securing staff, letting appropriate property for office or other work
space, and acquiring fixed assets, machinery
and implements,
computers, computer networks and the like. Cancellation of the
contract in these circumstances entails only that
the outsourcee
forfeits the contractual right to provide the service. The whole
infrastructure for conducting the business of providing
the
outsourced service would ordinarily remain the property of the
outsourcee. As we shall see, that is not what happened here,
either
when the initial outsourcing contract was concluded between SAA and
LGM, or when SAA cancelled it.
[108]
If, on the other hand, the first outsourcing exercise is really a
transfer of part of the business of the outsourcer who has
been
carrying on the business of the provision of the service until
transfer, the question whether the subsequent transfer is merely
the
transfer of the right to provide the outsourced service or the
transfer of a business as a going concern would arise. And that
would
require an analysis of the terms of the transaction that gives rise
to the subsequent event.’
[17] AMSA contends (and I accept this
to be the factual position for the purposes of this application) that
in 1956, a joint venture
was established between Iscor (AMSA’s
predecessor) and Heckett, and housed in a JV named Heckett (South
Africa) (Pty) Ltd.
The JV continued until 2000 (Heckett having in the
interim changed its name to the second applicant) when Iscor sold its
49% shareholding.
The Newcastle contract (concluded in August 1995)
and the Vanderbijlpark contract (concluded in April 1997) came into
existence
while the JV was in existence. On this basis, AMSA contends
that there was never any transfer of a business as a going concern or
otherwise) from AMSA to Harsco or its predecessors in relation to the
services rendered at Newcastle and Vanderbijlpark. In effect,
the
initial transaction was the establishment of the JV in 1956. The JV
did not extend to Saldanha and Vereeniging contracts, and
in respect
of the Newcastle slag dump contract and the Vanderbijlpark contracts
(referred to as ‘GBFS contracts’),
none of these involved
the transfer of a business as a going concern form AMSA to Harsco.
[18] On other words, the initial
transaction comprised a contracting out by AMSA with Harsco in terms
of which the latter would
perform services, and that consistent with
this, Harsco was required to itself to establish the necessary
business infrastructure.
Since the initial transaction did not
involve the transfer of a business as a going concern from AMSA to
Harsco, then the cancellation
of the service contracts in the present
instance is just that – it does not attract the application of
s 197. In short: on
the facts, in respect of each of the six
contracts at issue in these proceedings, there was the simple
contracting out of the services
to Harsco. Harsco became contracted
to provide the services and did so by making proper business
infrastructure arrangements. The
cancellation of the contracts in
these circumstances entails no more than that Harsco forfeits the
contractual right to provide
services and that the whole
infrastructure for providing the services remains the property of
Harsco.
[19] Mr P Pretorius SC, for Harsco,
submitted that this contention was factually and legally incorrect.
At the level of principle,
he argued that if AMSA’s
interpretation of the dictum is applied to all transactions involving
the transfer of a business,
a great deal of uncertainty would result,
and the protective purpose of s 197 might well be undermined. The
dictum must necessarily
be appreciated in its context – Yacoob
J was concerned with the cancellation of a particular outsourcing
contract, and reasoned
that the terms of the initial transaction were
significant, but not determinative. The court was saying no more than
that if SAA
had not originally transferred its business to it would
follow that the mere cancelation of the contract would involve no
transfer;
the contractor (in this case LMG) would simply pack its
bags and move on. Indeed, on the facts, he found that there had been
a
transfer in terms of s 197.
[20] What Yacoob J does not say, and
could never be interpreted to say, is that unless there was a s 197
transfer from an outsourcing
party to the first contractor there
could never be a subsequent transfer from the first contractor to any
second or subsequent
contractor, regardless of the facts and the
nature of the transaction. Such a general rule would be flawed, as
can be seen from
the example, inspired by the
Rand Airport
judgment. ACSA decides to build a new airport. It contracts with
B to provide gardening services. B commences the provision of
services
in circumstances where ACSA has never regarded gardening as
an integral component of its business operation. The contract with B
terminates, and C is appointed to provide the services. It cannot be
suggested, in principle, that there can never be a transfer
from B to
C only on account of the fact that there was no transfer from A to B.
The correct approach, in my view, as recognised
by the Labour Appeal
Court in
Rand Airport
and the Constitutional Court in
NEHAWU
,
is for the court to scrutinise the transaction in question and the
factual circumstances surrounding it to determine whether on
the
applicable test the application of s 197 is triggered. This
interpretation of the majority judgment in SAA is consistent with
the
purpose of s 197, which is to ensure both continuity of employment
within an economic entity irrespective of any change in
ownership,
and to facilitate the smooth transfer of businesses as going
concerns.
[21] In any event, the present
circumstances can be distinguished from the factual circumstances
posited by the example developed
by Yacoob J. On termination of the
service agreements, Harsco is not going to ‘pack its bags and
move on’ in circumstances
where the whole infrastructure for
constructing the business of the outsourced service will remain its
property. Whatever the origin
and history of its provision of the
services to AMSA, Harsco is leaving behind both human and non-human
assets that will be utilised
by the new contractors, Phoenix and Tube
City. The significance of these assets is a matter that is relevant
to the enquiry into
whether there is a transfer of a business as a
going concern, a matter dealt with below. For this reason alone, in
my view, an
assessment of whether the cancellation of the service
agreements and the appointment of Phoenix and Tube City to provide
the services
triggers s 197 is required.
Is there a transfer?
[22] Section 197 (1) defines a transfer to mean ‘the transfer
of a business by one employer (‘the old employer’)
to
another employer (‘the new employer’) as a going
concern’.
[23] In regard to the meaning of transfer,
in paragraphs
47 and 48 of the judgment of the minority in
SAA
,
in discussing what is contemplated by ‘transfer’, said
the following:
"[47] 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 whose 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.
[48] 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 workers who are assigned to provide the
service. The taking over of workers
may be occasioned by the fact
that the transferred workers possess particular skills and expertise
necessary for providing the
service or the new owner may require the
workers simply because he did not have the workforce to do the work.
Without the protection
afforded by s 197, the new owner with no
workers may be exposed to catastrophic consequences, in the event of
the workers declining
its offer of employment."
[24] In
COSAWU v Zikhethele Trade (Pty) Ltd
,
9
Murphy AJ, following the EAT in
Dines v Initial Services
,
10
held that the absence of a contractual link (as there is in the
present instance) between the old and the new employers was not
decisive. Further, in a situation where one contractor succeeds
another, s 197 is not automatically applicable, but nor is it the
case that its application is necessarily excluded. What is more
significant than the mode of transfer is whether what is transferred
is a business in operation that remains the same but in different
hands.
11
In the present instance, none of the parties contends that the
absence of any contractual nexus between Harsco on the one hand
and
Phoenix and Tube City on the other hand is decisive, or even
significant. It is not disputed that there are components of Harsco’s
business that are to be passed on to Phoenix and Tube City. As I have
mentioned, at least some of the Harsco’s assets will
transfer,
as will the majority of Harsco’s employees. There is therefore
a ‘transfer’ for the purposes of s 197.
Is there the transfer of a business?
[25] Section 197 (1) defines a ‘business’ to include ‘the
whole or any part of a business, trade or undertaking,
or service.
The definition is broad, but it requires the court to subject the
entity that is the subject of a transfer to scrutiny.
In doing so,
the courts have drawn on the jurisprudence developed by the European
Court of Justice in applying EU Directives on
the Transfer of
Undertakings, and adopted the concept of an ‘economic entity’,
defined as an organised grouping of
persons and assets facilitating
the exercise of an economic activity which pursues a specific
objective’.
12
This formulation suggests that there may be a distinction, especially
in the case of a labour-intensive business, between an ‘economic
entity’ and an ‘activity’; the latter comprising
only the provision of services under a specific contract.
[26] The ‘economic entity’ test is more easily applied
where a substantial business, with its assets and employees,
is the
subject of the transfer. At the other end of the spectrum is the
business that comprises only the provision of services.
In those
instances, the ECJ has recognised the requirement laid down in
Spijkers
13
to have regard to the transfer of the business's tangible assets may
be unrealistic. Businesses engaged in this type of activity
may in
fact have no assets, or have only assets whose importance is
negligible in relation to the overall conduct of their activities.
Hence the caution in
Suzen
that an entity cannot be reduced to
the activity entrusted to it. In the United Kingdom, this problem has
been largely resolved
by the incorporation of Regulation 3 (1) –
(2) of TUPE 2006, and the addition of a ‘service provision
change’
within the broader definition of a relevant transfer.
In effect, this provides that if immediately before the service
provision
change, there is an organised grouping of employees which
has as its principal purpose the carrying out of activities on behalf
of the client and where the client intends that the activities will,
following the service provision change, be carried out by
the
transferee.
[27] Useful as these authorities are, in South Africa, in relation to
the definition of a ‘business’ for the purposes
of s 197,
the judgment of the Labour Appeal Court in
SAMWU v Rand Airport
Management Co Ltd
14
remains the authority by which I am bound. In that case, the court
concluded that the outsourcing of gardening and security functions
at
an airport management by the employer were businesses capable of
being transferred in terms of s 197, despite that fact that
it did
not appear that any assets, goodwill, operational resources or
workforce were to be transferred. No distinction was drawn
between a
business that is largely employee-reliant, as opposed to an
asset-reliant business. Nor was it suggested that in the
former,
greater weight ought to be attached to the number of employees
transferring as opposed to the latter instance, in which
the number
of assets transferring might attract greater weight. If, as in that
case, a grouping of relatively unskilled employees
and the work they
perform, with no assets appearing to be the subject of any transfer,
comprises a ‘business’ for the
purposes of s 197, then it
is difficult to conceive, in the context of an outsourcing
transaction, of an economic entity that would
not be capable of
transfer in terms of the section.
[28] For these reasons, I am satisfied that there is an economic
entity capable of being transferred, in the form of Harsco’s
business operations conducted pursuant to the six service agreements
concluded with AMSA.
Is there the transfer of a business as a going concern?
[29] Section 197 does not define what is meant by a transfer of a
business ‘as a going concern’. The South African
courts
have drawn inspiration from the ECJ. In
NEHAWU v University of
Cape Town
,
15
Ngcobo J stated:
“
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 should therefore not be considered in isolation.”
16
Both the majority and minority judgments in
SAA
affirm this
approach.
17
[30] In
NEHAWU
, the Constitutional Court decided whether as a
matter of principle, s 197 applied to outsourcing. It held that it
did, but declined
to make a finding on the facts, referring the
matter back to the LAC for decision. There is consequently no
guidance on what weight
must be attached to the factors identified by
the court as relevant, or put another way, when the tipping point is
reached that
determines whether a business is transferred as a going
concern.
18
[31] In relation to weighting of the factors to be considered (which
is really the essence of the present dispute), the only authority
that I was able to locate is the judgment by Murphy J in
COSAWU v
Zikhethele Trade (Pty) Ltd
.
19
Murphy J adopted a principled view on what comprised a transfer of a
business as a going concern. and concluded after a review
of the
relevant European law, following the ECJ, that the decisive criterion
for determining the existence of a business is whether,
after the
transfer, the undertaking has retained its identity. Murphy J went on
to say:
In order to determine whether
there has been a retention of identity is necessary to examine all
the facts relating both to the
identity of the undertaking and the
relevant transaction and assess their cumulative effect, looking at
the substance, not at the
form, of the arrangements. The mode or
method of transfer is immaterial. The emphasis is on a comparison
between the actual activities
of and actual employment situation in
an undertaking before and after the alleged transfer (
Kelman v
Care Contract Services Ltd
[1995] ICR 260
(EAT). What seems to be
critical is the transfer of responsibility for the operation of the
undertaking. Mummery J’s conclusion
in
Kelman
offers a
salutary guideline. He said:
“
The
theme running through all the recent cases is the necessity of
viewing the situation from an employment perspective, not from
a
perspective conditioned by the principles of property, company or
insolvency law. The crucial question is whether, taking a realistic
view of the activities in which the employees are employed, there
exists an economic entity which, despite changes, remains
identifiable,
though not necessarily identical, after the alleged
transfer.”
20
[32] I can think of no basis to depart from this approach, other than
to say that a primary consideration, in my view, is the nature
of the
business. This will in most instances provide some useful indication
of the weight to be attached particularly to the transfer
of assets
and whether any workers are taken over by the new employer, and if
so, the number and significance of each. Thus, in
Schmidt
, the
ECJ held that 'the absence of (tangible) assets (does not preclude)
the existence of a
transfer'.
It went on
to state, in its judgment in
Süzen
, that 'where in
particular an economic entity is able, in certain sectors, to
function without any significant tangible or intangible
assets, the
maintenance of its identity following the transaction affecting it
cannot, logically, depend on the transfer of such
assets'. That does
not mean that in every case involving a transfer of contracted-out
services the assets become irrelevant, but
they would be less
relevant than a case where the services concerned were labour
intensive. Conversely, where the activities carried
on by the service
provider require the use of substantial plant and equipment and
cannot be regarded as essentially labour intensive,
the absence of a
transfer of those assets will lead to the conclusion that the entity
transferred does not retain its identity.
What is clear though, and
relevant to the present case to the extent that certain assets will
be sold to AMSA and ultimately made
available to Phoenix and Tube
City (see below) , the fact that any assets used in the activities of
the business or undertaking
concerned are made available by the
contracting authority to the original service provider, and are
subsequently made available
by the contracting authority to the
transferee as part of the arrangements for the transfer, need not
prevent the transfer being
a transfer in terms of s 197 (see
Abler
& others v Sodhexho MM Catering GmbH
).
21
[33] I begin the assessment with this matters that are common cause.
As I have mentioned, it is not disputed that the majority
of Harsco’s
workers engaged in the business are to be taken over by Phoenix and
Tube City. The figures are set out above
– some 300 of Harsco’s
445 employees (roughly 70% will transfer. Mr Myburgh SC, who appeared
for AMSA, urged me to
adopt a qualitative approach and to consider
that Harsco will retain key members of management, in particular the
two site managers
restrained from transferring to Phoenix. I am not
persuaded that the functions of the site managers are such that the
fact of the
intention to retain them overrides the consideration of
some 70% of Harsco’s employees assuming employment with Phoenix
and
Harsco. This is not to deny the existence of any need for
operational management, or its importance, but it seems to me that
from
the available figures that the operation of the physical
infrastructure by skilled and semi-skilled employees is a significant
component of the business operation that cannot be ignored for the
purposes of determining the existence of a transfer of a business
as
a going concern.
[34] In so far as any transfer of customers is concerned, it is
common cause that the only recipient of services in terms of the
service agreements is AMSA, and that post-transfer, AMSA will remain
the sole recipient of services. It is also common cause that
Phoenix
and Tube City will perform substantially similar services to those
preformed by Harsco, at the same locations at which
Harsco performed
the services. In my view, this is a strong indication of the
continuation of a discrete economic entity in different
hands.
[35] It is common cause that there are no intangible assets (in the
form particularly of intellectual property) that is the subject
of
the transfer. Harsco will retain its goodwill, intellectual property
and patents and its operational methodology. The factor
that has
generated more disputes (and paper) than any other in these
proceedings is that of the tangible assets to be transferred.
I
accept for present purposes the averments made by AMSA. In essence
these are that Harsco has not made available for purchase
the
recovery plants and the screening and processing plants that it has
not made available for purchase. The total value of the
plants is
some R8.6 million. Although this is said to comprise only 3% of the
value of assets at Vanderbijlpark, it comprises 18%
of the value of
assets at Saldanha and 49% of the value of assets at Newcastle. In
answer to the contention that the failure to
make these plants
available is incompatible with Harsco’s claim that there is a
transfer of a business as a going concern,
Harsco contends that, for
various reasons, the plants will in any event be decommissioned. In
the result, the new service providers
are required to commission new
plants.
[36] In relation to movable assets, there is a dispute of fact on the
papers, and I accept for present purposes the figures and
calculation
thereon produced by AMSA. These reveal that Harsco has 283 assets
(units) deployed at AMSA, their NBV being R133.6
million. Of these,
AMSA has made 161 (57%) available for purchase. OF the units that
Harsco will retain, AMSA regards 14.2% as
critical to the operation
of the services. (This figure includes the recovery plants, and the
crushing and screening plants referred
to above.) Of the 161 units
made available by Harsco, AMSA will purchase 92 (57%) of them at a
NBV of R71.7 million. This equates
to 32.5% of the assets deployed by
Harsco at AMSA by number, and 54% of the total NBV of all Harsco’s
assets. Of the 92 assets
that ASMSA will purchase, it will retain 30.
Phoenix will acquire 16 and Tube City will acquire 46. In total, 62
of Harsco’s
assets out of an overall total of 283 (22% by
number, and 33% of the total NBV of all Harsco’s assets), will
be taken over
by the incoming service providers.
[37] The fact that Phoenix and Tube City will not take transfer of
the plants is an important factor, but not in itself an overriding
one. The assets that the new service providers will acquire from
Harsco are not entirely insignificant. It seems to me, following
Spijkers
,
Dines
and
Cosawu
, that the factual
circumstances particularly to be taken into account in determining
whether the conditions for a transfer of whole
or part of a business
as a going concern for the purposes of s 197 are met are primarily
the degree of similarity of the activity
carried on before and after
the transfer and the type of undertaking concerned, and the question
whether or not the majority of
the employees are to be taken over by
the new employers. In the present case, the service contracts
concluded between AMSA on the
one hand and Phoenix and Tube City on
the other hand require the new service providers to perform
substantially similar services
to those performed by Harsco, at the
same locations, broadly using the same operational methods. Viewed
from an employment perspective,
the majority of Harsco’s’
employees will work for Phoenix or Tube City. It makes no difference,
in my view, that offers
of employment were made by Phoenix and Tube
City and accepted by Harsco’s employees, as opposed to
agreement on any transfer
of employment. What is relevant is whether
any of Harsco’s employees will be employed by Phoenix and Tube
City after the
termination date, and if so, the number of employees.
I wish to emphasise that the similarity of the services to be
provided to
be provided by Phoenix and Tube City is not in itself
determinative, nor is the fact that on the transfer date, they will
employ
the majority of Harsco’s employees. Viewed cumulatively
though, and taking into account that in the present instance, both
of
these criteria are met and that on the transfer date, substantially
the same services will be provided from the same locations,
and
viewed through the lens of the actual activities of and the
employment situation in the undertaking before and after the
transfer,
to use the words of Mummery J in
Kelman
, there
exists an economic entity which, despite changes, remains
identifiable, though not necessarily identical, after the transfer.
[38] It remained open to Phoenix and Tube City to employ none of
Harsco’s employees, and to decline to take transfer of any
or
of Harsco’s assets. In this event, my conclusion would have
been different, and there would I think have been no more
than the
termination of one contract and the beginning of another. But that is
not what is to occur.
[39] For the above reasons, I am persuaded that the entity that
comprises Harsco’s business operations performed in terms
of
the service agreements with AMSA will continue as a discrete economic
entity in the hands of Phoenix and Tube City on termination
of the
service agreements between Harsco and AMS, and that for the purposes
of s 197, there is a transfer of a business as a going
concern.
Relief
[40] In so far as the relief sought by Harsco is concerned, prayer 2
of the notice of motion contemplates a declaratory order in
terms of
which the engagement of Phoenix and Tube City to conduct business
operations for and on behalf of AMSA in place of Harsco
is a transfer
of a business as a going concern in terms of s 197. For the above
reasons, I intend to grant an order on that basis,
but making clear
that it is the termination of the service agreements and te
appointment of Phoenix and Tube City to provide the
services that
triggers the application of s 197. Prayer 3 of the notice of motion
contemplates a declaratory order to the effect
that the termination
of the agreements between Harsco and AMSA obliges Harsco to transfer
the relevant business as a going concern
within the meaning of s 197
(1) and (2). I see no need for such an order. If s 197 is applicable
in the present circumstances,
it follows that Phoenix and Tube City
are substituted, automatically and by operation of law, as the
employers of all those persons
engaged in the business that is the
subject of the transfer. In other words, on the date of transfer,
Tube City is substituted
for Harsco as the employer of those
employees engaged in terms of the service contracts in respect of
Newcastle and Vanderbijlpark
as at the date of the transfer, and
Phoenix is substituted for Harsco as the employer of those employees
engaged in terms of the
service contracts at Vereeniging and Saldanha
as at the date of the transfer.
22
It
follows from the provisions of s 197 (2) that all rights and
obligation as between Harsco and the affected employees at the time
of the transfer continue in force as if they had been rights and
obligations as between the employees and Phoenix and Tube City
respectively. Finally, there is no reason why costs should not follow
the result, and why the costs of two counsel should not be
included.
I make the following order:
It is declared that the
cancellation of service agreements concluded between the Applicants
and the First Respondent and engagement
of the Second and Third
Respondents by the First Respondent to conduct business operations
for and on behalf of the First Respondent
in the place and stead of
the First and Second Applicants at the First Respondent’s
plants in Saldanha, Vanderbijlpark,
Vereeniging and Newcastle,
amounts to the transfer of a business as a going concern for the
purposes of
s 197
of the
Labour Relations Act, 66 of 1995
.
The First and Third
Respondents are to pay the costs of these proceedings, jointly and
severally, the one paying the pother to
be absolved, such costs to
include the costs of two counsel.
_______________________
André van Niekerk
Judge
APPEARANCES
For the Applicants: Adv PJ Pretorius SC, with Adv I De Vos,
instructed by Edward Nathan Sonnenbergs
For the First Respondent: Adv AT Myburgh SC, with Adv F Boda,
instructed by DLA Cliffe Dekker Hofmeyr
For the Third Respondent: Adv GC Pretorius SC, with Adv HE Mkhawane,
instructed by Bowman Gilfillan
1
In
Aviation Union of South Africa & another v South African
Airways (Pty) Ltd & others
(case CCT 08/11,
[2011] ZACC 31
24 November 2011), the Constitutional Court held that a dispute as
to whether or not a specific transaction triggers the application
of
s 197
and whether as a consequence the new employer is substituted
for the old as the employer of the affected employees is a
justiciable
dispute, and one that the parties are entitled to have
determined, even if the agreements concerned have not yet been
implemented
(see paragraphs [115] and [116] of the judgment).
2
CCT
08/11,
[2011] ZACC 31
24 November 2011,
3
Aviation
Union of South Africa and Others v South African Airways (Pty) Ltd
And Others
2010 (4) SA 604
(LAC)
4
South
African Airways (Pty) Ltd v Aviation Union of South Africa and
Others
2011 (3) SA 148
(SCA)
5
AUSA
(above) at para 79
6
Paragraph
[38] of the judgment.
7
See
paragraph [44]
8
[2003]
5 BLLR 409
(CC).
9
[2005]
9 BLLR 924
(LC)
10
[1994]
IRLR 336
(EAT)
11
At
paragraphs [34] and [35] of the judgment.
12
Suzen
v Zehnacker Gebaudereinigung GmbH Krankenhausservice
[1997] IRLR
225.
13
Spijkers
Gebroeders Bendik Abbatoir CVv Alfred Benedik en Zonen
[1986[ 2
CMLR 296
14
[2007] ZALC 93
;
[2005]
3 BLLR 241
(LAC).
15
[2003]
5 BLLR 409
(CC)
16
At
para 56 of the
NEHAWU
judgment. This formulation is drawn
almost word for word from
Spijkers Gebroeders Bendik Abbatoir CVv
Alfred Benedik en Zonen
[1986[ 2 CMLR 296
and the later judgment
of the ECJ in
Suzen v Zehnacker Gebaudereinigung GmbH
Krankenhausservice
[1997] IRLR 225.
See also
Cheeseman v R
Brewer Contracts Ltd
[2001] IRLR
17
See
paragraphs [50] and [111].
18
The
idea of a ‘tipping point’ is Clive Thompson’s –
see Freund, Le Roux and Thompson
Current Labour Law 2010
at p
76.
19
Supra
20
At
paragraphs [34] and [35].
21
[2004]
IRLR 168.
22
The
principle of assignment applies to determine to which of the new
contractors who will assume the relevant activities Harsco’s
employees should transfer. See
Botzen v Rotterdamsche Drooggdok
Maatschappij BV
[1985] ECR 519
, applied in
Duncan Web Offset
(Maidstone) Ltd v Cooper
[1985] IRLR 633
(EAT). In relation to
employees subject to restraint, this is not a bar to the transferee
employer, having assumed all employment-related
rights and
obligations, from becoming entitled to enforce the restraint against
its competitors.