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[2012] ZALCJHB 93
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Grinpal Energy Management Services (Pty) Ltd v City Power Johannesburg (Pty) Ltd and Others (J2022/2012) [2012] ZALCJHB 93; [2013] 1 BLLR 34 (LC); (2013) 34 ILJ 905 (LC) (31 August 2012)
9
REPUBLIC OF SOUTH AFRICA
IN THE LABOUR COURT OF SOUTH
AFRICA, JOHANNESBURG
JUDGMENT
Reportable
Case no: J2022/2012
In
the matter between:
GRINPAL
ENERGY MANAGEMENT SERVICES (PTY)
LIMITED
............................................................................................................
Applicant
and
CITY
POWER JOHANNESBURG (PTY) LIMITED
..............................
First
Respondent
NATIONAL
UNION OF MINEWORKERS
.......................................
Second
Respondent
EMPLOYEES
WHOSE NAMES ARE LISTED IN
ANNEXURE
“A” TO THE NOTICE OF MOTION
.............
Third
to Further Respondents
Heard:
August 17 2012
Handed
down: 31 August 31 2012
Summary:
(application for a declaratory order in terms of section 197(2) of
the LRA)
JUDGMENT
Rabkin-Naicker J
[1] This is an application for
declaratory relief in terms of section 197 of the LRA. It is brought
in the wake of the cancellation
of two service level agreements
concluded between the Applicant (Grinpal) and First Respondent (City
Power).
[2] Grinpal seeks an order declaring
that the employment contracts of the Third and Further Respondents
(the 41 affected employees)
have transferred to City Power in terms
of s197 (2) of the LRA with effect from 1 August 2012. The matter was
brought on an urgent
basis.
Background
[3] Grinpal manufactures, supplies,
installs, operates and maintains smart metering systems and
electrical infrastructure which
it provides primarily to
municipalities and power utility companies. In 2003, it was awarded
the tender to supply a prepaid metering
system to City Power and in
that year a Project was launched in Alexandra Township.
[4] Two service agreements (the last
agreements in the relationship between Grinpal and City Power) are an
issue in this case. These
are an ‘installation’ agreement
and a ‘maintenance’ agreement. These service agreements
were concluded
to govern the manner in which Grinpal supplies,
installs, operates and maintains the medium and low voltage systems,
related infrastructure
and smart metering systems that form the basis
of the Project.
[5] During March 2012, City Power
informed Grinpal that it was cancelling the service agreements having
received information that
Grinpal did not have a valid tax clearance
certificate. Grinpal avers that despite the purported cancellation,
from an operational
and employment, perspective delivery in terms of
the service agreements remained essentially unchanged until 31 July
2012.
[6] The founding papers detail a
number of meetings held between Grinpal and City Power, allege that
arising from these meetings,
there had been a mutual cancellation of
the service agreements, subject to the proviso that such cancellation
would be reduced
to writing and would address certain outstanding
issues. These issues included the question of the ‘take over’
of staff
members. City power has denied that any “mutual
cancellation” agreement has occurred.
[7] It is alleged by Grinpal that as
from the moment of City Power’s “purported cancellation”
of the agreements
during March 2012, City Power had stated its clear
intention that it would take over all of the services rendered by
Grinpal in
terms of the service agreements. There was never any doubt
whatsoever that the Project would continue after termination of the
service agreements. The continued supply of electricity to tens of
thousands of households in Alexandra depends on it. For this
reason
it was necessary to agree to and embark upon an orderly “handover
process” from Grinpal to City Power.
[8] Essentially, City Power’s
case is that the consequences of the termination of the agreements
must be found in the agreement
themselves. The two contracts
envisaged that when they had run their course, the old contractor
exits the scene with all of its
equipment and its employees, and a
new contractor begins rendering the services with its own equipment
and its own employees.
[9] City Power, an organ of state with
the concomitant constitutional and statutory obligations, has, since
the cancellation, had
to make sure arrangements are made to ensure
that the services to people are not interrupted. There is no
“handover process”
taking place but simply the
introduction of interim measures until the usual measures have been
finalized, namely that a new contractor
has been appointed.
Evaluation
[10] The law as regards the reach of
section 197 has been clarified by the judgment of the Constitutional
Court in
Aviation Union of
SA and another v SA Airways (Pty) Ltd and 2 others
1
(the SAA case). In this court Van
Niekerk J observed that the SAA case 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.”
2
[11] The proper approach to the
interpretation of section 197 was considered by the Constitutional
Court in the
NEHAWU
judgment
3
and identified as follows:
“
[52] What lies at the heart of
disputes on transfers of businesses is a clash between, on the one
hand, the employer's interest
in the profitability, efficiency or
survival of the business, or if need be its effective disposal of it,
and the worker's interest
in job security and the right to freely
choose an employer on the other hand. The common law provided little
protection to workers
in these situations. Under common law the sale
of a business, whether as a going concern or not, often resulted in
the loss of
employment. The new owner was under no obligation to
employ the workers. The Industrial Court, acting under the unfair
labour practice
provisions of the 1956 LRA, did however attempt to
remedy the situation. Van Dijkhorst AJA also recognized that under
the common
law 'the employees were the worst off'. They were
confronted with a take-over and lost their employment'. Later the
transferring
employer incurred the statutory obligation to pay
severance benefits. This obligation no doubt had an impact on the
cost of the
sale of businesses. In short, the situation led to the
retrenchment of workers, the payment of severance benefits and
escalated
costs in a way that inhibited commercial transactions. On
the whole, the situation had potential to impact negatively on
economic
development and the promotion of labour peace.
[53] Section 197 strikes at the heart
of this tension and relieves the employers and the workers of some of
the consequences that
the common law visited on them. Its purpose is
to protect the employment of the workers and to facilitate the sale
of businesses
as going concerns by enabling the new employer to take
over the workers as well as other assets in certain circumstances.
The section
aims at minimizing the tension and the resultant labour
disputes that often arise from the sales of businesses and impact
negatively
on economic development and labour peace. In this sense, s
197 has a dual purpose, it facilitates the commercial transactions
while
at the same time protecting the workers against unfair job
losses. “
[12] In
SAMWU
v Rand Airport Management Co (Pty) Ltd & others
4
the Labour Appeal Court approved the
dictionary definition of “service” (included in the
meaning of “business”
in section 197 since the 2002
amendments) as being:
“
.. the provision of a facility
to meet the needs or for the use of a person or person’s
interest or advantage; assistance
or benefit provided to someone by a
person or thing.” The LAC found that the outsourcing of
gardening and security functions
at an airport were businesses within
the statutory definition capable of being transferred in terms of
section 197, despite the
fact that it did not appear that any assets,
goodwill, operational resources or even workforce were to be
transferred.
[13] It was submitted on behalf of
Grinpal that its business (in terms of the contracts with City Power
until 31 July 2012) was
asset and technology intensive with
relatively few employees employed in both skilled and semi- skilled
positions. The business
consists of the installation, rollout and
maintenance of a complete pre-paid electricity network to tens of
thousands of households
in Alexandra. Further, it avers that the
business is identifiable, discrete and has in fact been transferred
to City Power.
[14] City Power in turn submits that
the court must take into account all the relevant facts and
circumstances of this matter and
in particular all the transactions
between the parties. The initial transactions between the parties, it
was submitted are decisive.
Reliance was placed on the SAA case in
which the majority stated:
“
[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.”
[15] In
Harsco
,
the court dealt with the submission that the judgment in SAA
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. In that
matter the initial transaction comprised a contracting out by the
respondent company with Harsco in terms of which the latter would
perform services, and that consistent with that, Harsco was required
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.
5
[15] In as far as the “initial
transaction” dictum in SAA is concerned; Van Niekerk J had this
to say in
Harsco
:
“
[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 recognized by the Labour Appeal
Court in Rand Airport and the Constitutional Court in NEHAWU,
is for
the court to scrutinize 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.”
[16] Indeed, in dealing with this
issue, Yacoob J referred to circumstances in which: “The whole
infrastructure for conducting
the business of providing the
outsourced service would ordinarily remain the property of the
outsourcee.”
6
It was submitted on behalf of City
Power that in a contract that includes the installation of pre-paid
meters, cancellation will
always require a degree of cooperation
between the old service provider and the new service provider. This
would include confirmation
that the installations are in working
order and that they can be accessed by the new contractor. I note
that in its answering papers,
City Power avers that in this case:
“City Power is required to make interim arrangements pending
the appointment of a new
service provider. The new arrangement may
well require some involvement of City Power in a holding operation.”
[17] In my judgment, on the facts and
circumstances of this case, the infrastructure for conducting the
business in question does
not remain in the hands of Grinpal, the
outsourcee. It is, albeit temporarily, in the hands of the original
outsourcer, City Power.
The ‘holding operation” that City
Power itself avers it is involved in, cannot be immune to the
operation of section
197. This is the case, notwithstanding the
reasons for the cancellation of the contract with Grinpal.
[18] Mr Soni, on behalf of City Power
urged the court to consider the impact of the declaratory order
sought on organs of state
in general, who are subject to a myriad of
regulations in respect of
inter
alia
tendering for
services. I did not understand these submissions to be suggesting
that organs of state
qua
employers can be exempt from the
operation of section 197 of the LRA. In my judgment, in entering into
contracts with service providers
such bodies must, as other employers
do, make the necessary provision for the
ex
lege
eventualities of
section 197. This approach necessarily takes into account the purpose
of the section as referred to above.
[18] In all the particular
circumstances of this case, I therefore find that a transfer in terms
of section 197 of the LRA has indeed
taken place, and make the
following order:
Order
It is declared that with effect from
August 01, 2012, the employment contracts of the employees listed in
annexure “A”
to the Notice of Motion were transferred to
the First Respondent in terms of section 197(2) of the LRA 66 of
1995;
The First Respondent is directed to
comply with the provisions of section 197 in relation to the said
employees;
First Respondent to pay the costs of
this application.
______________
Rabkin-Naicker
J
Judge
of the Labour Court
Appearances:
On behalf of applicant: Adv. Ais
Redding SC with GA Fourie
Instructed by: Webber Wentzel
Attorneys
On behalf of First Respondent: Adv V.
Soni SC Instructed by: Hewu Attorneys
1
(2011)
32 ILJ 2861 (CC)
2
Harsco
Metals SA (Pty)Ltd & another v Arcelormittal SA Ltd & others
(2012) 33 ILJ 901 (LC)
3
(2003)24
ILJ 95(CC)
4
(2005)
26 ILJ 67 (LAC)
5
At
paragraph 18
6
At
paragraph 107