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[2012] ZALCJHB 86
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Franmann Services (Pty) Ltd v Simba (Pty) Ltd and Another (J 1978/12) [2012] ZALCJHB 86; [2012] 12 BLLR 1293 (LC); (2013) 34 ILJ 897 (LC) (30 August 2012)
Reportable
REPUBLIC OF SOUTH AFRICA
THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Case no: J 1978/12
In the matter between:
FRANMANN
SERVICES (PTY) LTD
................................................................
Applicant
and
SIMBA
(PTY) LTD
..................................................................................
1
st
Respondent
CAPITAL
OUTSOURCING GROUP (PTY) LTD
...................................
2
nd
Respondent
Heard
: 29 August 2012
Delivered
: 30 August 2012
JUDGMENT
VAN NIEKERK J
Introduction
[1] This is an urgent application in which the applicant seeks an
order declaring that on the termination of an agreement between
the
applicant and the first respondent, the employment contracts of those
of the applicant’s employees currently engaged
in providing
services to the first respondent are transferred in terms of s 197 of
the Labour Relations Act (LRA) to the respondent,
alternatively any
new service provider appointed by the first respondent.
[2] On 10 August 2012, the applicant amended its notice of motion by
seeking leave to join the second respondent in the application.
A
subsequent application for joinder sought to join the South African
Catering, Commercial and Allied Workers’ Union, the
Progressive
General Employees Association of South Africa and the Wood Electrical
and Printing Union, all trade unions. The remaining
respondents in
the joinder application, some 636 employees, are all currently
employed by the applicant pursuant to the contract
between the
applicant and the first respondent. There was no opposition to the
joinder application, nor is it disputed that the
unions and employees
sought to be joined favour the granting of an order in the terms
sought by the applicant. While they have
not sought to be represented
in these proceedings in their own right, on the basis that they all
have an obvious and material interest
in the outcome of these
proceedings, the respondents concerned are joined to the application.
[3] The applicant is a temporary employment service, or labour
broker. Since 2000, the applicant has supplied labour to the first
respondent. The contract between the applicant and the first
respondent is to terminate on 31 August 2012. The first respondent
has appointed the second respondent to provide it with temporary
employment services. As at the date of the hearing of this
application,
the second respondent had only issued a letter of
intent; there is no written agreement between the first and second
respondents
recording the terms on which the second respondent is to
provide services.
[4] Most of the papers filed in these proceedings (some 500 pages)
are not directed at the issue in dispute. The issue to be decided
is
crisp - is s 197 triggered only by the cancellation of an agreement
between a client and a service provider and the subsequent
appointment of a new service provider to perform the same activities?
Of course, the factual background is an essential component
of the
enquiry, since each case must be assessed on its merits, in relation
to the legal test that applies.
[5] Given the fact that the agreement between the applicant and the
first respondent is to terminate on 31 August 2012 and that
the
respective parties desire a degree of certainty on their respective
positions prior to that date, I have had to prepare this
judgment
overnight. My reasons for the order that is reflected below are
necessarily brief.
Applicable legal principles
[6] 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.’
[7] It is now well-established that whether there has been a transfer
of a business as a going concern for the purposes of s 197
is a
matter of fact, to be determined objectively. This necessarily
entails an enquiry into (1) the existence of a transfer by
one
employer to another, (2) whether there was a transfer of a business
(is there an economic entity capable of being transferred?)
and (3)
whether the business is transferred as a going concern (does the
economic entity that is transferred retain its identity
after the
transfer?) (see
Aviation Union of South Africa & another v
South African Airways (Pty) Ltd & others
[2012] 3 BLLR 211
(CC)). If the transfer meets these criteria, 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 transfer
occurs by
operation of law, and irrespective of the wishes or intentions of the
parties.
[8] The
SAA
judgment has also established that there is no
reason in principle why s 197 should not apply to outsourcing
arrangements. Whether
the arrangement is one of an initial
outsourcing from a client to a service provider (a ‘first
generation’ transfer),
from one service provider to another
(‘second’ and further generation transfers) or a
resumption by the client of a
service previously outsourced
(‘insourcing’) is not significant; the same test must be
applied to each transaction,
which must be considered in view of its
unique facts and circumstances.
[9] The
SAA
judgment concerned the termination of a contract
in terms of which certain services previously conducted by SAA were
outsourced
to a service provider, and where the terms of the contract
regulated the reversion of services to SAA or an alternative service
provider. In paragraphs [47] and [48] of the judgment, in discussing
what is contemplated by ‘transfer’, Jafta J said
the
following:
1
[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
(own
emphasis).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…’
[10] in relation to the requirement that a business be transferred as
a going concern, Japhta J referred to the multi-factoral
test
established in
National Education Health & Allied Workers
Union v University of Cape Town & others
(2003) 24
ILJ
95
(CC) and emphasised that what matters during the factual enquiry is
its substance rather than its form (see paragraph [51] of
the
judgment). At paragraph [52] of the judgment, Japhta J said the
following:
‘
Although
the definition of business in section 197(1) includes a service, it
must be emphasised that what is capable of being transferred
is the
business that supplies the service and not the service itself. Were
it to be otherwise, a termination of a service contract
by one party
and its subsequent appointment of another service provider would
constitute a transfer within the contemplation of
the section. That
this is not what the section was designed to achieve is apparent from
its scheme, historical context and its
purpose. The context referred
to here is the alteration of the common law consequences on
employment contracts, when the ownership
of a business changes
hands.’
[11] This point is reinforced in paragraph [75] of the judgment in
relation to the ‘going concern’ requirement:
The phrase ‘going concern’
has been construed to include not only that the business has changed
hands but that it is
exactly the same business that continues to
operate. We are told that to determine this fact one must look at
various factors,
none of which is decisive. These factors include
whether or not the same business is being carried on by the party who
received
it. Therefore, proof of the fact that performance of the
same service was to continue, albeit under different hands, does not
establish
a transfer as a going concern. Something more is required.'
[12] In other words, the test for determining whether a business
(including a service) has been transferred as a going concern
must
incorporate all of the components of the transferring entity to
determine whether that entity is essentially the same after
the
transfer. This is an enquiry that extends beyond the function being
provided (see Craig Bosch ‘Section 197 of the Labour
Relations
Act: The Next Generation’ in
Labour Law into the Future:
Essays in Honour of D’Arcy du Toit
(Juta Cape Town) at p.
185). This formulation broadly reflects the jurisprudence of the
European Court of Justice. The general rule
remains that in
Süzen
v Zehnacker Gebauderenigung GmbH Krankenhausservice
[1997] IRLR
255
where the court held that the mere fact that the service of the
old and the new awardees of a contract is similar does not support
the conclusion that an economic entity has been transferred. –
‘an entity cannot be reduced to the activity entrusted
to it’.
The high water mark for the applicant is
Carlito Abler v Sodhexo
MM Catering Gesellschaft GmbH
[2004] IRLR 168
, a case that
concerned a change in service providers contracted to provide
catering at a hospital. The court held that there was
a relevant
transfer in circumstances where the new contractor utilised
substantial parts of the assets (the hospital kitchen and
its
equipment) previously used by the outgoing contractor but owned by
the client. In effect, there was the transfer of a licence
to use the
client’s facilities. The present case is not analogous. The
applicant supplies only labour – it does not
provide a service
that requires the use of the first respondent’s infrastructure,
at least not in the sense that it is afforded
control over that
infrastructure for the purpose of providing the contracted service.
Analysis
[13] Unlike
SAA,
in the present instance, there is no formal
agreement between the first and second respondents relating to the
consequences of
the termination of the agreement between the
applicant and the first respondent, or the appointment of any
alternative service
provider. The first respondent has issued a
letter of intent to the second respondent in terms of which the
second respondent will
be appointed to provide temporary employment
to the first respondent. The terms on which the second respondent
will provide the
services and any similarity between those terms and
the service provided by the applicant remain unclear at this stage.
[14] Adv. Pretorius SC, who with Adv. Fourie appeared for the
applicant, urged me to accept that that the applicant’s
business
is in itself an economic entity capable of being transferred
in terms of s 197. In the alternative, it was submitted that
regardless
of the nature of the applicant’s business, the added
factors of access to the tools of production, the fact that the
services
were to be provided to the same client and the like, had the
consequence that s 197 will be triggered. In the further alternative,
the applicant submits that on balance, it is more probable that a
significant part of the workforce will be taken over by the second
respondent and that the application of s 197 will be triggered on
that basis.
[15] The first argument (i.e. that the nature of the applicant’s
business is such that it is
per se
an economic entity capable
of transfer) is met by the Constitutional Court’s
interpretation of s 197. That conclusion, as
I have indicated, is
that generally speaking, the termination of a contract between a
client and service provider is not in itself
a transfer of a business
as a going concern. What is of particular importance in the present
case is the fact that the applicant
is to discontinue business and
that it is for this reason that the contract between the applicant
and the first respondent is to
terminate. It is not disputed that the
sole director of the applicant wishes to discontinue business as a
temporary employment
service, that this was the primary reason for
the termination of the contract between the applicant and the first
respondent, and
that the applicant did not submit a tender for the
contract that was ultimately awarded to the second respondent. In
other words,
to the extent that the
SAA
judgment draws a
distinction between a business and the service provided by that
business, in this instance, the applicant’s
business will
terminate and will thus not be capable of being continued. The fact
that the service provided to the first respondent
will as of 1
September be provided by the second applicant is in itself of no
consequence.
[16] The second argument (i.e. that there is a sufficiently
significant business bundle that is the subject of a transfer) is
similarly not persuasive. The fact that any of the second
respondent’s employees may be engaged on the same production
line
to performing the same tasks does not in itself trigger s 197.
On the papers before me, it is not disputed that the second
respondent
has no intention of acquiring or taking of any of the
corporeal and warning incorporeal assets of the applicant, and that
it has
no intention to utilise any processes instituted by the
applicant or of acquiring any of the applicant’s rights or
obligations
as against the first respondent. On that basis, in the
light particularly of there being no assets, tangible or intangible,
goodwill
and the like that is to be transferred, and in the absence
of any specific evidence relating to the use of any of the first
respondent’s
assets or infrastructure, there is no transfer as
a going concern.
[16] In so far as any intention by the second respondent to employ
any of the applicant’s employees is concerned, I am unable
to
find, on the evidence before me, that it is more probable than not
that either the first or the second respondents, or both,
will make
offers of employment to the applicant’s employees after 31
August. Although the second respondent in particular
has been
equivocal as to its future intentions regarding the employment of any
of the applicant’s employees, that is not
sufficient in itself
to warrant a finding that it intends to do so. This is an issue best
dealt with in terms of an express statement
(which I record in
paragraph [18] below) to the effect that in the event of any material
change in the circumstances that currently
pertain, this judgment
will not preclude any of the parties from exercising any right that
may be acquired by virtue of those changed
circumstances.
[17] In short: In my view, there will be no transfer of a business as
a going concern for the purposes of s 197 only on account
of the
termination of the contract between the applicant and the first
respondent on 31 August, and the appointment of the second
respondent
to provide the same or a similar service. This is a case where, in
the words of Yacoob J, an outsourcee is contracted
to provide a
service, and becomes obliged to do so in circumstances where it is
the outsourcee’s responsibility to make appropriate
business
infrastructure arrangements, and in particular, the securing of
staff. In relation to the applicant, cancellation of the
contract
between it and the first respondent entails only that the applicant’s
contractual right to provide the service terminates
will be forfeited
in circumstances in which the whole infrastructure for conducting the
business of providing temporary labour
will ordinarily remain the
applicant’s property. (see the
SAA
judgment at paragraph
[107].
[18] I wish to emphasise that my decision is predicated on the facts
as determined on the papers before me. Subsequent events,
either in
the form of the terms of any contract ultimately concluded between
the first and second respondents, or any offer of
employment to those
the applicant’s employees currently employed at the first
respondent’s plant, may well have the
consequence of a
different result. This judgment does not close the door to any later
proceedings initiated on this or some other
appropriate basis.
[19] Finally, in relation to costs, there is no reason why costs
should not follow the result. In so far as the costs of the
postponements
on 16 August and 23 August are concerned, a reasonable
request was made for an adjournment to of the application to 23
August 2012.
This was refused by the applicant. The first respondent
then brought a formal application for a postponement, which was
unsuccessfully
opposed. In these circumstances, and in the exercise
of the discretion conferred on me by s 162 of the Act, the applicant
ought
to be liable for the costs of the postponement on 16 August
2012. In relation to 23 August 2012, since the postponement was
occasioned
by the prospect of a settlement, there ought to be no
order as to costs.
[20] The first respondent submits that the costs of two counsel are
warranted. I agree; the matter was sufficient complex to justify
an
order to that effect.
For the above reasons, I make the following order:
1. The application is dismissed.
2. The applicant is to pay the costs of these proceedings, including
the wasted costs of the postponement on 16 August 2012, but
excluding
the costs of the postponement on 23 August 2012, such costs to
include the costs of two counsel.
André van Niekerk
Judge of the Labour Court
Representation
For the applicant: Adv. P Pretorius SC, with Adv. G Fourie,
instructed by Blake Bester
For the first respondent: Adv. E van Graan SC, with Adv. H Mkhawane,
instructed by Cowan Harper
For the second respondent: Adv. I. Pillay, instructed by McGregor
Erasmus.
1
Although
this is a reference to the judgment of the minority, the court was
split only in respect of the remedy to be granted.
On the meaning of
s 197, the majority and minority judgments come to similar
conclusions.