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[2014] ZALCJHB 180
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Rural Maintenance (Pty) Ltd and Another v Maluti-A-Phofung Local Municipality and Others (J859/14) [2014] ZALCJHB 180 (21 May 2014)
REPUBLIC
OF SOUTH AFRICA
THE LABOUR COURT
OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Not Reportable
Case no: J859/14
In
the matter between:
RURAL
MAINTENANCE (PTY)
LTD
.............................................................
First
Applicant
RURAL
MAINTENANCE FREE STATE (PTY)
LTD
.................................
Second
Applicant
and
THE
MALUTI-A-PHOFUNG LOCAL
MUNICIPALITY
..............................
First
Respondent
THE
SOUTH AFRICAN MUNICIPAL WORKERS UNION
.................
Second
Respondent
THE
EMPLOYEES WHOSE NAMESE ARE LISTED IN
ANNEXURE “A:
TO THE NOTICE OF MOTION
............
Third
and Further Respondents
Heard:
24 April 2014
Delivered:
21 May 2014
JUDGMENT
TLHOTLHALEMAJE,
AJ
Introduction
:
[1]
The Applicants approached the Court to seek
declaratory relief in the following terms;
1.1
“
With
effect from 1 April 2014, the employment contracts of the Third and
Further Respondents are transferred to the First
Respondent
(The Municipality) in terms of section 197 (2) of the Labour
Relations Act
[1]
(the LRA),
1.2
Directing the Municipality to comply with
the provisions of section 197 in relation to the transfer of the
Third to Further respondents
from the Applicant to the Municipality”
[2]
The application was opposed by the
Municipality. It was not disputed that the matter was indeed urgent.
The Second Respondent recorded
its intention to abide by the Court’s
decision.
Background:
[3]
The First Respondent is a local
municipality situated in the Free State province. Its area of
jurisdiction covers Harrismith, Kestell
and Phutaditjhaba. About 335
784 inhabitants in over 121 095 households and about 597 businesses
within its area of jurisdiction
depend on the Municipality for the
provision of services including electricity. According to the
Applicants, the Municipality is
one of the poorest in South Africa,
and has since its establishment in December 2000, struggled to
provide services to its inhabitants,
including the provision of
electricity.
[4]
The First Applicant (Rural) is a utility
specialist which specialises in assisting
inter
alia
municipalities and local
government structures in the provision of electricity to consumers.
It conducts electricity turn-around
projects through the deployment
of skilled labour, expertise and capital investment. It has a track
record dating back to 1993
when it was an operator for Eskom,
performing first line maintenance and operations for newly
electrified townships. In its
papers, Rural contends that it is
the market leader in Southern Africa in the private operation and
turn-around of struggling municipal
and utility concerns
[5]
The Second Applicant (Rural Free State) is
the administrative arm of Rural, and its wholly owned subsidiary. The
two entities operated
together as a single business unit in relation
to utility management which in this particular matter, involved the
management,
operation, administration and expansion of electricity
distribution networks.
[6]
In 2011, the Municipality looked at the
possibility of Rural taking over the management of its electricity
distribution network,
including the provision of electricity related
services to its ratepayers. This resulted in the conclusion of an
Electricity Management
Contract (“the EMC”) between the
Municipality and Rural on 3 April 2011, which contract was signed by
Mr. L M Ntombela
(“Ntombela”) the Municipal Manager at
the time on its behalf. The objective of the EMC was to provide for
the appointment
of Rural as management and operations service
contractor of the Network for the duration of its term. During that
period, it was
envisaged that Rural would have the sole and exclusive
responsibility for the management, operation, administration,
maintenance
and expansion of the Network, including the revenue
management process, the implementation of a local and regional
electrification
programme and to regulate all matters related to the
project.
[7]
The Applicants’ contention is that
the contract contemplated a transfer of a business (network) in terms
of section 197 of
the LRA. This transfer also entailed the transfer
of employees from the Municipality to Rural. In terms of the EMC,
Rural would
also take over the provision of management, upgrading and
expansion of the electricity supply network within the Municipality’s
jurisdiction. Amongst other provisions of this agreement were
that the contract was to endure for 25 years after which period,
it
was envisaged that the operations would revert back and be
transferred to the Municipality, including various assets utilised
by
Rural in the execution of the EMC.
[8]
The purpose of entering into the EMC was
essentially to turn around the electricity supply means of the
Municipality, which had
over the years been in a dysfunctional
state. This required massive capital investment as well as an
increase in human resources.
The contract was implemented with the
Applicants taking over the electricity operations of the
Municipality, which included receipt
of 16 employees transferred from
the Municipality.
[9]
Rural was advised in writing on 25 January
2013 that its bid had been accepted, and it had immediately started
preparations. The
implementation of the EMC faced its first hurdle
when on 17 May 2013, SAMWU brought an application for an interdict.
Rural and
the Municipality opposed that application. That matter was
ultimately removed from the court roll in the Cape Town Labour Court
on 22 November 2013. SAMWU pursued the same relief against
Rural in the Free State High Court. The second hurdle however
came
about on 2 August 2013 when the Municipality sent a letter to Rural
advising it that it would not abide by and did not consider
itself
bound by the EMC. The Municipality further indicated its intention to
seek relief from the High Court in regard to the EMC.
The
Municipality’s contention in this regard is that the actions of
the then Municipal Manager Mr. Ntombela in concluding
the contract
were
ultra vires,
thus rendering the contract void
ab
initio
.
[10]
The Applicants launched an application to
compel specific performance by the Municipality with the EMC on 12
August 2013. An order
was granted by the Free State High Court
preventing the Municipality from interfering with the implementation
of the EMC pending
the finalisation of the action to be
instituted by the Applicants.
[11]
Rural had acted in terms of the provisions
of the EMC and had taken over the electricity operations of the
Municipality with effect
from 1 September 2013. It took over the
management, administration maintenance and expansion of the Municipal
electricity distribution
network within the boundaries of the
Municipality, including revenue management, the implementation of
regional and local electrification
programme.
[12]
Rural had also taken over 16 employees from
the Municipality. In addition to these employees, Rural had
subsequently employed, trained
and despatched more employees, mostly
from the local community. Before and during the period within which
the contract was implemented,
the Applicants had increased the
workforce to a total of 127 employees, being the affected employees
in the present application.
Other than the employment of new
employees to provide the services required in terms of the EMC, Rural
had also incurred costs
in relation to the purchasing of equipment,
immovable property, materials, vehicles, electrical infrastructure
mapping, software
etc.
[13]
Further in complying with the obligations
imposed by the EMC, Rural had between September 2013 and 31 March
2014, paid the Bulk
Supply Account issued by Eskom; utilised the
existing electricity distribution infrastructure of the Municipality
and invested
over R172m in maintaining, upgrading and managing the
Network. It had also provided all electricity related services to
ratepayers,
remedied consumer complaints, paid the employees’
salaries, trained them, and collected revenue from consumers.
[14]
The Applicants’ contention however is
that during the period 22 August 2013 to 31 March 2014, the
Municipality had acted in
an obstructive manner as it had
continuously breached and repudiated the contract by its conduct. The
Applicants had as a result,
accepted the Municipality’s
repudiation and have since cancelled the contract with effect from 1
April 2014. It was the Applicants’
contention that the
termination of the contract triggered the provisions of section 197
of the LRA.
[15]
Following the acceptance of the repudiation
by the Municipality, Rural had then on 3 April 2014, delivered the
information pack
to Municipality containing the schedule attached to
the notice of motion, the organogram, employment agreements of the
affected
employees, and the proposed section 197 agreement.
[16]
It is further common cause that the
Municipality has offered to accept back the 16 employees that were
initially in its employ.
It has however denied liability in respect
of the remaining employees on the basis that it disputes that a
section 197 transfer
has occurred. The new Municipal Manager, Tomo
Taetsane further oppsed the granting of the relief on the following
grounds;
(a)
Rural had accepted the transfer of the 16
employees whose functions related solely to the ‘rendering of
all electricity related
services’ that had been outsourced to
it by the Municipality. It had however thereafter, enlarged its work
force to 127 employees,
grew its business, invested large sums of
money in making its business bigger, better, more efficient and more
profitable. Rural
had however failed to transfer their business as a
going concern when the contract fell through, as they failed to
transfer the
tools necessary to continue with the provision of the
service, including computers, vehicles, stationary, equipment and an
inventory
of all its assets.
(b)
It was accepted that the Municipality had
acquired the obligation to provide electricity to its inhabitants.
However, this did not
imply that the acquisition of an obligation
translated into the acquisition of the business.
(c)
The Municipality had a right to repudiate
the EMC as it was illegal to begin with, and it would accept that the
16 employees that
were transferred under section 197 would be
returned to the Municipality if the contract is illegal and
void
ab initio
. In the same token, the
Municipality contended that the 16 employees never ceased to be its
employees because the contract was
void
ab initio
. The other employees could
not however be accepted as they did not form part of the ‘first
generation transfer’.
Furthermore, some of the employees sought
to be transferred were debt collectors and administrative
functionaries, and it was not
clear to the Municipality as to which
of these employees worked for Rural and which for Rural Free State.
(d)
The relief sought by the Applicants was
unprecedented, and would create fiscal difficulties for the
Municipality, which had a limited
budget to accommodate an additional
111 employees.
(e)
The implementation of section 197 in the
manner suggested by the Applicants would also unintentionally bring
about a transgression
of the separation of powers doctrine, and it
was not for judges to allocate budget for municipalities.
(f)
The Municipality never acquired the
business of the Applicants as a going concern, and furthermore, that
which was transferred by
the Applicants to the Municipality was
insufficient to trigger the operation of section 197.
The validity of
the EMC and evaluation:
[17]
The Municipality’s main contention was that the EMC was
probably the product of an improper relationship between the
erstwhile Municipal Manager, Ntombela (referred to as a ‘rogue’)
[2]
,
and the Applicants. To this end, it was contended that there could be
no talk of the Applicants positively acting in a manner
that causes
the business to be transferred back to the Municipality. In pursuing
this argument further, it was contended that the
‘transfer
back’ would have occurred by operation of the principle
restitution
in integrum
,
and that restitution was the
antithesis
of a positive act. In argument, Adv Hopkins on behalf of the
Municipality submitted that the principles set out in
MEC
for Health, Eastern Cape and Another v Kirkland Investments (Pty) Ltd
[3]
found
no application in this case, and that there was no need on the part
of the Municipality to set aside the offending contract.
[18] The Applicants’
response was that since a transfer was a question of fact and of
‘substance rather than form’,
there was no necessity for
a formal underlying contract. To this end, it was contended that the
alleged invalidity of the original
outsourcing agreement did not
render the admitted transfer back to the Municipality a transfer
other than a section 197 transfer,
and that a valid contractual
arrangement was not a prerequisite for the operation of section 197.
Furthermore, it was argued that
the dispute in this regard was before
another Court for determination, and that this was a matter which
this Court should not be
burdened with.
[19]
In
Nokeng
Tsa Taemane Local Municipality and Another v Metsweding District
Municipality and Others
[4]
,
this court had held that the lack of a contractual link between the
transferor and the transferee is not a necessary pre-condition
for
the application of section 197. This approach is in line with the
purpose of this provision which primarily seeks to protect
employees
whose security of employment and rights are compromised as a result
of business transfers
[5]
.
I am furthermore not persuaded by the argument that the principle
enunciated in
Kirkland
cannot find application in this case, and that it was not necessary
for the Municipality to have set aside the offending contract
to
counter the Applicants’ argument that the validity of the
contract was irrelevant for the purposes of the provisions of
section
197.
[20]
In
Kirkland
,
Cameron J addressed the issue of the need of government, and by
implication, municipalities to act in the face of what was perceived
to be invalid administrative actions on the part of its officials in
the following emphatic terms
[6]
;
‘
Can
a decision by a state official, communicated to the subject, and in
reliance on which it acts, be set aside by a court even
when
government has not applied (or counter-applied) for the court to do
so? Differently put, can a court exempt government
from the
burdens and duties of a proper review application, and deprive the
subject of the protections these provide, when it seeks
to disregard
one of its own officials’ decisions? That is the question
the judgment of Jafta J (main judgment) answers.
The answer it
gives is Yes. I disagree. Even where the decision is
defective – as the evidence here suggests
– government
should generally not be exempt from the forms and processes of
review. It should be held to the pain and
duty of proper
process. It must apply formally for a court to set aside the
defective decision, so that the court can properly
consider its
effects on those subject to it.’
[21]
Based on the principles set out in the authorities cited above, I am
not persuaded that the validity or otherwise of the EMC,
or the fact
that the EMC is being challenged in another court has a bearing on
the applicability of the provisions of section 197
in this case. It
was common cause that the matter before the Free State High Court to
challenge the validity of the EMC is to be
heard in October 2014.
Until the EMC is set aside, it engendered legal consequences
[7]
,
including those envisaged in the provisions of section 197 of the
LRA. To this end, it follows that further arguments advanced
on
behalf of the Municiplaity to the effect that as a consequence of the
invalidity of the EMC there could not have been a positive
action on
the part of the Applicants for the purposes of section 197, should
also found not to be sustainable.
The Legal
Framework pertaining to section 197 and Evaluation:
[22] Section 197(1)
provides that:
“
(1)
In this section and in section 197A –
(a)
‘
business’ includes the whole
or 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
sub-section (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 transfer continue in force as if there
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 the new employer;
and
(d) the transfer
does not interrupt and employee’s continuity of employment, and
an employee’s contract of employment
continues with the new
employer as if with the old employer.”
[23]
Whether there has been a transfer of a business as a going concern
for the purposes of section 197 is a matter of fact, to
be determined
objectively. An enquiry in this regard has to be made into
[8]
;
(a)
existence of a transfer by one employer to
another;
(b)
whether there was a transfer of a business;
and
(c)
whether the business is transferred as a
going concern
[24] The purpose of
section 197
‘…
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 minimising 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,
section 197 has a dual purpose; it facilitates the commercial
transactions while at the same time protecting the workers
against
unfair job losses
.’
[9]
[25] Amongst the
consequences that flow from a transfer are that 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. Furthermore, 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.
[26]
Section 197 and section 197A will be applicable where a business is
‘transferred’ from one employer to another
in the sense
that what is transferred must be a business in operation, so that the
business remains the same but in different hands.
In
Schutte
& others v Powerplus Performance (Pty) Ltd & another
[10]
,
this court had accepted that section 197 need not be limited in its
application to conventional transferring transaction. Thus
the
substance of the transaction rather than its form would determine
whether a transfer had taken place or not
[11]
.
Was there a
transfer of the business from the Applicants to the Municipality as a
going concern?
[27] In explaining
the concept of a ‘transfer’, Jafta J in
Aviation Union
stated the following’
“
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”.
[12]
And,
“
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 were 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 it did not have the workforce to
do the work. Without the protection
afforded by section 197, the new
owner with no workers may be exposed to catastrophic consequences, in
the event of the workers
declining its offer of employment”
[13]
.
[28]
As to what constitutes a ‘going concern’ was explained in
NEHAWU
[14]
in the following terms:
“
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.”
(References omitted) 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.(References omitted) 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”.
[29] In this case,
the Municipality accepted that it had acquired the obligation to
provide electricity to its inhabitants. In this
regard, it can be
accepted that the business transferred was the purchase of
electricity from Eskom as bulk supplier, the provision
of electricity
and related services to ratepayers, and most importantly, the entire
infrastructure to run the entire electricity
network, including
transmission and distribution. That infrastructure as pointed out in
the Applicants’ replying affidavit
included substations,
switchgears, transformers, power lines, pre-paid vending systems,
metering equipment etc. This infrastucture,
which was transferred to
the Applicants in a dilapidated state in 2011 was returned back to
the Municipality in a improved and
functional state in April 2014.
Furthermore, it should be accepted that the business transferred,
will continue to serve and service
the same clients that the
Applicants used to service, being the inhabitants that fall under the
jurisidiction of the Municipality.
Thus the return of the
infrastructure would enable the Municipality to continue from where
the Applicants left off in providing
the service in question.
[30] In my view, the
only issue in this case is whether the failure to transfer anciliary
tangible and non-tangible assets such
as computers, vehicles and
other equipment to continue the service it used to render, negates
the operation of the provisions of
section 197.
[31] ‘Business’
in section 197 (1) (a) is defined to ‘include the whole or part
of that business, trade, undertaking
or service’. In this case,
it was not in dispute that what was being transferred back to the
Municipality was the business
of providing a service in the form of
electricity to its inhabitants. In this regard,
(a)
The entire business relating to the
provision of all electricity related services to inhabitants of the
Municipality has been transferred
back to it. The network and capital
assests have been returned to the Municipality, and are now under its
control and possession.
The entire electricity distribution
infrastructure, together with additions and improvements thereto,
have been handed to
it.
(b)
The same business which was conducted by
the Applicants during the period 1 September 2013 until 1 April 2014
was now being conducted
by the Municipality, which has the same
clients and was providing the same services. It was the same business
in different hands.
[32]
The Municipality in denying that a transfer had taken place had
implored the Court to adopt a ‘snapshot’ approach
as was
the case in
FAWU
v The Cold Chain (Pty) Ltd & another
[15]
,
and also in
CEPPAWU
v Hydro Colour Inks & another
[16]
.
In accordance with this approach, a ‘snapshot’ of the
entity before the transfer should be made to assess its
components, and to compare this picture to the one taken of the
business after the transfer, to establish whether it is substantially
the same business but in different hands.
[33] In applying
this approach to the facts of this case, it was contended that the
founding affidavit did not take a snapshot of
Rural immediately
before it was purportedly transferred to the Municipality, and merely
explained how it had incurred expenditure
in the acquisition of
various assets in the operation of its business. In regard to what
the snapshot looked like after the transfer
to the Municipality, it
was contended that Rural has not created an inventory of the assets
that were transferred to the Municipality,
and that it has not
transferred all of the assets, tangible and intangible to the
Municipality. It was argued that Rural had merely
given the
Municipality’s infrastructure back to it with whatever
improvements may have been done. In this regard, it was
argued that
this was not the same thing as transferring “all of the assets
used by the transferor in the operation of its
business as a going
concern”. It was conceded that the Municipality could carry on
trading to some extent as it could provide
electricity to residents
because it had acquired the infrastructure from the Applicants to do
so. In other respects however, it
was contended that the Municipality
could not trade as it did not acquire all of the assets needed to
operate business as it was
being operated before.
[34] It was further
argued that the Applicants expected the Municipality to acquire the
employment contracts in circumstances where
it was unclear from their
papers which component of the business the employees were working in.
In the Municipality’s view,
the Applicants sought to ‘dump’
the employees onto it without transferring the concomitant tools that
the employees
would have used whilst operating the Applicants’
business. Furthermore, it was submitted that it was difficult to
decipher
which of the employees could be linked to the assets that
were transferred as opposed to those that were not transferred.
[35] The
Municipality held the view that its contentions further found support
in
Aviation Union
, where it was accepted that the outsourcing
of a ‘service’ fell within the definition of a ‘business’
as
contemplated by section 191 (1). Jafta J has however cautioned
that section 197 was only triggered when ‘the business that
supplied the service’ was transferred and not the service
itself’.
[36] The Applicants
on the other hand conceded that they had retained certain peripheral
assets used in the conduct of the business
such as vehicles,
computers, administrative equipment and the like. It was however
contended on that it was not essential to a
section 197 transfer for
all the assets of the business to be transferred. The comprehensive
right of use of the infrastructure
and the assumption of control over
the infrastructure are ‘key triggers’ for the operation
of section 197. To this
end, it was argued that where the transferee
of the business was permitted or resumes the right of use of
infrastructural assets
necessary for the continuation of the relevant
service, a transfer will take place.
[37]
Craig Bosch
[17]
holds the view
that the test for a transfer as a going concern is an objective one
and view the approach in
NEHAWU
[18]
as amounting to taking a ‘snapshot’. It is however
suggested that in order to avoid technicalities and to ensure a
wider
scope of the application for section 197, it is sufficient that the
business remains
substantially
the same in the hands of the transferee.
[38] In my view, a
consideration of whether what has been transferred in this case is a
business in operation, and whether the business
that was transferred
by the Applicants remains the same but in the hands of the
Municipality, must take the following factors
into account;
38.1 Section 81 of
the Municipal Systems Act 2000 provides that:
“
(1)
If a municipal service is provided through a service delivery
agreement in terms of section 76 (b), the municipality remains
responsible for ensuring that that service is provided to the local
community in terms of the provisions of this Act, and accordingly,
must-
(d) must ensure
continuity of the service if the service provider is placed under
judicial management, becomes insolvent, is liquidated
or is for any
reason unable to continue performing its functions in terms of the
service delivery agreement; and
(e) must where
applicable, take over the municipal service, including all assets,
when the service delivery agreement expires or
is terminated”
38.2 The business of
supply of electricity to consumers within the jurisidiction of the
Municipality comprised principally the infrastructure
required to
transmit and distribute electricity supplied by Eskom to consumers,
and the equipment used to facilitate the collection
of revenue. This
part of the business, which is the core for successful service
delivery (of electricity) has been transferred
back to the
Municipality. At least, in view of the repudiation of the EMC, the
provisions of the Municipal systems Act as indicated
above become
applicable.
38.3 When the EMC
was concluded and the 16 employees were transferred to Rural, the
intention was to at all times, to continue to
maintain and service
the electricity network so that inhabitants can enjoy that service.
For the purposes of compliance with the
EMC, it could not have been
expected of the Applicants to service that contract with those few
employees. It could not have been
expected of the Applicants to
service the EMC without taking the measures it took in relation to
the buying of equipment and general
assets necessary to fully service
that agreement.
38.4 Despite the
Municipality’s contentions that it is not responsible for the
other 111 employees, it has not indicated in
its papers as to how it
envisages to continue to provide the same service as previously
provided by the Applicants without the
employees required to do so.
In my view, there is no sense in accepting back the transfer of the
huge infrastructure network when
there would be no employees to
maintain and service it. That infrastructure was revamped at a huge
cost to the rate payers, and
it would be senseless to have it
deteriorate back to where it was prior to 2011, simply on account of
lack of human resources to
maintain it. To this end, the Municipality
needs the relevant employees to conduct the relevant electricity
supply services. I
did not understand it to be in dispute that these
employees were properly trained in this regard and that they have the
necessary
expertise to do so. The Applicants’ concerns in that
the Municipality may ‘cherry-pick’ certain employees and
thereby avoid its obligations in terms of section 197 of the LRA is
not misplaced
.
[39]
In
addressing the nature of business to be transferred for the purposes
of section 197, the
Honourable
Van
Niekerk J in
Harsco
Metals SA (Pty)Ltd & another v Arcelormittal SA Ltd & others
[19]
had the following to say;
“
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
(citation
omitted) 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.”
[40] In line with
the above authorities, it follows that the Municipality’s
contentions that there could not have been a transfer
on the basis
that other assets belonging to the Applicant were not transferred
cannot be sustainable. A lack of transfer
of other assets, both
tangible and intangible is not determinative of whether a transfer
has taken place or not. To nick-pick as
to what should or needs to be
transferred might in my view lead to an abuse and blatant
circumvention of the provisions of section
197.
[41] The
Municipality despite lamenting the fact that such outstanding assets
have not been transferred back, has not indicated
how this would
prevent it from continuing to provide the service in question. It
follows that having taken over the business of
providing electricty,
the Municipality must also make its own arrangements in respect of
the facilitation of that service. In the
same vein, it is also not
clear from its papers as to how the Municipality proposes to continue
providing the service in question
with the infrastructure that was
transferred without these employees.
[42] A transfer of a
business, including a service as in this case will comprise of more
than one feature, inclusive of employees,
the service to be provided
and the equipment to be utilised in providing that service once
transferred. What is of importance however
is the effect of that
transfer, and whether what has been transferred remains the same or
substantially the same after the transfer.
In this case, and in the
light of what has been stated elsewhere in this judgment in regard to
what has been transferred, I am
satisfied that the business of
providing a service to the local inhabitants, as previously in the
hands of the Applicants and now
transferred to the Municipality,
remains the same, and to this end, it is cocnluded that there has
been a transfer of a business
as going concern as contemplated in
section 197.
[43] The
Municipality had also raised concerns about the effect of the order
sought by the Applicants on the basis that firstly,
such an order
violated the constitutional principle of separation of powers, and
linked to that, that such an order would place
further strains on its
budget.
[44]
In answering the above concerns, one must not lose sight of the
primary purpose of the provisions of section 197, which as
stated in
NEHAWU
,
is to promote economic development, social justice and labour
peace.
[20]
In the first
instance, when the EMC was concluded, it must have been a matter that
was budgetted for. To this end, it must have
been anticipated by the
Municipality that more employees would be employed to service that
contract, and surely that must have
been an item catered for in the
contract. Since that contract was cancelled, I did not understand
that the allocated budget in
respect of that contract was to be
diverted somewhere else more important than the provision of the
service in question. Secondly,
the provsions of the Municipal Systems
Act obliges the Municipality to render the service in question, and
it cannot be expected
of it to do so with less than the employees
that the Applicants had employed to provide the same service.
[45] In view of the
purpose of section 197, it could not have been envisaged that within
the public service, budgetary constraints
would prevail over the
employees’ rights to fair labour practices as contemplated in
section 23 of the Constitution. To this
end, the arguments
surrounding the budget of the Municipality cannot be a consideration
for the purposes of section 197 where it
is found to be operative.
The argument that with such an order the court would be
trampling on policy considerations and
the Municipality’s
rights to govern its own affairs cannot prevail. The same conclusions
need to be made in regards to the
question of separation of powers.
[46] The role of the
courts under our Constitution is to protect the Constitution, and in
particular individual fundamental rights.
In asserting this function,
there may be perceptions that the courts may have offended the
constitutional principle of separation
of powers. In making orders
that have the effect of protecting fundamental rights, the court has
remained sensible to the legitimate
constitutional interests of the
Municipality as against its constitutional obligations, and the
constitutional rights of employees
and its inhabitants. This
case is about the fundamental rights of the employees affected by the
transfer. The right to fair
labour practices is one of those
individual fundamental rights that this court is called upon to
protect at all times. In this
regard, when this court interprets and
applies the provisions of section 197 insofar as they may be
applicable and operative within
a municipality, it cannot be seen to
be crossing that line when in doing so, it merely does what is
required of it constitutionally.
[47]
The doctrine of separation of powers is of great importance in our
democracy and a legal attack of such a nature requires meaningful
presentation of facts and properly considered legal arguments
[21]
.
It thus is not sufficient for the Municipality as in this case, to
simply allege that in granting the order sought, the court
will cross
the line of separation of powers.
[48]
I fail to appreciate how it would be acceptable for this court to
make any such findings pertaining to the applicability of
section 197
within the private sector, and not so, within the public sector on
account of
inter
alia
,
budgetary constraints or the fear that the court may have offended
the principles of separation of powers. Once a distinction
has to be
made as to when and how these provisions should be applied and
interpreted, depending on whether it is within the public
or private
sector, it would create an inequitous and untenable position. In my
view, it cannot be said that the court crosses a
line when it makes
an order that employees previously employed to ensure delivery of a
service to about 121 095 households and
597 businesses should
continue to be employed, in order for the Municipality to continue to
provide that service. Such an order
in my view, and more pertinently
in this case, would be appropriate, and serves a dual purpose of
protecting the individual employees’
fundamental rights under
section 23 (1) of the Constitution, and also of those of the
inhabitants of the Municipality under section
152 (1) (b) of the
Constitution
[22]
.
Co
sts:
[49] It is trite
that this court will make an order of costs, having had regard to
considerations of law and fairness. Having taken
these factors into
account, and the circumstances of this application, I conclude that
any adverse cost order would be inappropriate.
Order:
i.
It is declared that with effect from 1
April 2014, the employment contracts of the employees listed in
annexure “A”
of the Applicants’ Notice of Motion
are transferred to Maluti-A-Phofung Local Municipality (The
Municipality) in terms of
section 197 (2) of the Labour Relations
Act.
ii.
The Municipality is directed to comply with
the provisions of section 197 in relation to the transfer of the
employees as mentioned
above.
iii.
There is no order as to costs.
____________________
TLHOTLHALEMAJE, AJ
Acting
Judge of the Labour Court of South Africa
APPEARANCES:
For the Applicant:
Adv. Paul Pretorius SC with Adv. Andrew Snider
Instructed by :
Webber Wentzel
For the First
Respondent: Adv. Kevin Hopkins with Adv. Sandra Freese
Instructed
by: Majavu Inc
[1]
Act
55 of 1996
[2]
At
para 11.1 of the answering affidavit
[3]
(77/13)
[2014] ZACC 6
[4]
(2003)
24 ILJ 2179 (LC) at 2183
[5]
See
COSAWU
v Zikhethele Trade (Pty) Ltd & Another
[2005] 9 BLLR 924 (LC).
[6]
At
para 64 of the majority judgment
[7]
Oudekraal
Estates (Pty) Ltd v City of Cape Town and Others
[2004] ZASCA 48
;
2004 (6) SA 222
(SCA). (See also para 102 of
Kirkland
,
and the authorities cited therein).
[8]
Aviation
Union of South Africa & another v South African Airways (Pty)
Ltd & others
[2012] 3 BLLR 211 (CC).
[9]
NEHAWU
v University of Cape Town & others
(2003) 24 ILJ 95 (CC) at para 53
[10]
(1999)
20 ILJ 655 (LC) at 671
[11]
NEHAWU
at para 56
[12]
At
para 47
[13]
At
para 48
[14]
At
para 56
[15]
2010
(1) BLLR 49 (LC)
[16]
2011
(32) ILJ 1677 (LC)
[17]
In
Chapter 2: The Applicability of Section 197: Business Transfers and
Employment Rights in South Africa Todd, Chris and du Toit
D’Arcy
and Bosch, Craig Business Transfers and Employment Rights (2004)
LexisNexis, Butterworths, Durban at p49
[18]
Ibid
at para 56
[19]
(2012)
33 ILJ 901 (LC) at para 29
[20]
at
para 62
[21]
Member
For The Executive Committee-Department of Local Government and
Housing-Gauteng Province v Kolombea Mirriam Hlompho
CASE NO: 9509/2011 (ZAGPJHC/2011 - South Gauteng High Court)
[22]
Objects
of local government
152
(1) The objects of local government are-
(a)
…..
(b)
to ensure the provision of services to communities in a sustainable
manner