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[2015] ZALCJHB 204
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SATAWU and Another v MEC: Gauteng for Roads & Transport and Others (J1142/15) [2015] ZALCJHB 204; (2015) 36 ILJ 3155 (LC) (15 July 2015)
THE LABOUR COURT OF SOUTH AFRICA,
JOHANNESBURG
JUDGMENT
Reportable
Case
No: J 1142/15
In
the matter between:
SATAWU
First Applicant
PUTCO (PTY) LTD
Second Applicant
And
MEC: GAUTENG FOR ROADS &
TRANSPORT
First Respondent
AUTOPAX PASSENGER SERVICES (SOC)
LTD
Second Respondent
MINISTER OF TRANSPORT
TAWUSA
Third Respondent
Fourth Respondent
Heard: 2 July 2015
Delivered: 15 July 2015
Summary:
s
197 of the LRA and changes in service providers
JUDGMENT
WHITCHER
J
Introduction
[1]
The issue in this application is
whether section 197 of the LRA applies to a change in service
providers for the provision of bus
operating services. Autopax (“the
respondent”) opposes the application.
[2]
With
effect from 1 July 2015, Autopax replaced Putco as the bus operator
on eight subsidised bus routes operated by the GDRT. This
further to
the conclusion of a service provision contract between the GDRT
[1]
and Autopax on 29
June 2015 (‘the contract’).
[3]
The
applicants contend that Autopax has taken over from Putco, the
contractual right to perform the services (and government subsidy
linked thereto), the eight sets of bus routes, the existing bus
timetables and fare structure, 25 000 passengers (i.e.
customers)
who use the bus routes on a daily basis, the existing bus
stops and terminals, one of Putco’s bus depots (Putco has
leased
it to Autopax), a workshop (previously leased from a third
party by Putco and now leased from the third party by Autopax) and
some
bus drivers (albeit on fixed-term contracts and lesser terms and
conditions of service). The respondent disputes this contention.
[4]
It
is common cause that Autopax has not taken over from Putco, the
busses used by Putco, certain other assets in the form of diesel
stock, fuel storage tanks and dispensing equipment, a standby plant,
compressor and mobile ticket office, certain premises used
by Putco
situated in Everton and Kathorus and the balance of the affected
employees.
[5]
It
is common cause that the services rendered by Autopax with effect
from 1 July 2015 were rendered on a substantially uninterrupted
basis.
Case
law
[6]
The highest-ranking judgment on
section 197 and outsourcing (or insourcing) is the Constitutional
Court’s judgment in
Aviation
.
[2]
Further to the Constitutional Court’s
judgment in
Aviation
,
the LAC has handed down a trilogy of judgments dealing with section
197 in the context of outsourcing (or insourcing) –
City
Power (LAC)
[3]
(which was upheld on appeal by the
Constitutional Court
[4]
),
Unitrans (LAC)
[5]
(which upheld the judgment of Van Niekerk J in
Unitrans
(LC)
[6]
)
and
MTN
.
[7]
The Constitutional Court’s
judgment in
City Power
,
the judgment of the EAT
[8]
in
Numast
[9]
and the judgment in
Sodexho
(adopted in
Unitrans
)
are also important for present purposes. Predictably each side
emphasized different aspects of these judgments.
The
applicants’ submissions on the case law
[7]
In
City
Power (LAC)
,
having quoted the Constitutional Court’s finding in
UCT
on the meaning of a ‘going concern’,
[10]
Davis JA
found as follows:
‘
In essence
the approach adopted in [
UCT
]
follows that of the European Court of Justice in the application of
the Business Transfer Directive (2001/23/EC)
[11]
which is applicable in the European Union, and
dictates that
a transfer must relate to
an autonomous economic entity
(defined
to mean an organized group of persons and assets facilitating the
pursuit of an economic activity that promotes a specific
objective).
In turn this involves a determination
whether
that entity retains its identity after the transfer; that is, the
transferor must carry on the same or similar activities
with the
personnel and/or the business assets without substantial
interruption
.’
[12]
(Emphasis added.)
[8]
The
applicants refer to this as the ‘economic entity approach’
and state that Davis JA went on in City Power (LAC) to
adopt this
approach in finding:
‘
The
transfer of a going concern does not mean that, upon the termination
of a service contract by one party and a subsequent appointment
of
another service provider, a transfer of the contract …
sufficient to satisfy the requirements of s 197 has been effected.
The
question is whether the activities conducted by a party such as [the
old service provider], constitute a defined set of activities
which
represents an identifiable business undertaking
so that when a termination of an agreement between [the old service
provider] and [the client] takes place, it can be said that
this
set of activities, which constitutes a discrete business undertaking
has now been taken over by another party
.’
[13]
(Emphasis
added.)
[9]
In
Unitrans
(LC)
,
Van Niekerk J held:
‘
In short:
the warehousing service provided by the [old service provider] to
[the client] constituted
an economic
entity
, or, put another way, an
organised grouping of resources. This comprises, at least, the
contractual right to perform
the [warehousing] services, the
assets
owned by [the client]
but used by the
affected employees, the
specific
activities
performed by the affected
employees and
the employees
themselves. This economic entity constitutes a service for the
purposes of s 197(1).’
[14]
(Emphasis added.)
[10]
Having
found that the service provided by the old service provider
constituted an economic entity (made up of various components),
Van Niekerk J went on to consider whether that entity retained
its identity after the transfer, such as to trigger section
197:
‘
To the
extent that the
contractual right
to provide warehousing services now vests in [the new service
provider], the same assets are used to provide those services and
the
activities conducted at [the client’s]
behest are substantially the same
as
those performed by the [old service provider] prior to 1 February,
the business performed by the [old
service provider] has transferred as a going concern
to the new service provider]. To use the language of the warehousing
agreement, the infrastructure that passed to the [old service
provider] when it assumed obligations in terms of the contract
reverted to [the client], and has been made over to [the new service
provider].’
[15]
(Emphasis added.)
[11]
Section
197 was found to apply despite the fact that no physical assets or
employees transferred from the old to the new service
provider, with
the transfer of the right of use of the client’s assets from
the old to the new service provider having been
sufficient to trigger
section 197. As Van Niekerk J put it, although no physical
assets transferred, the ‘comprehensive
right of use of the
infrastructure and the assumption of control over that infrastructure
[were] the key triggers’ to section
197 applying (on the
facts).
[16]
For this, Van Niekerk J relied on two important judgments of the
ECJ.
[17]
[12]
In
Unitrans
(LAC)
,
the LAC upheld the judgment of Van Niekerk J. As appears from
the following passage, the LAC (per Davis JA) again followed
the
economic entity approach:
·
‘
In this case, the service
which was provided was that of warehousing. It was initially provided
to [the client] by [the old service
provider]. As in the case of
Sodhexo
…
the
warehouse operation service
constituted a discrete business
. At the
date of the inception of its agreement with [the client], the [new
service provider]
assumed the right to
use [the client’s] assets and infrastructure
in order to
continue to provide the same
service
to [the client] as had
previously been provided by the [old service provider].’
[18]
(Emphasis added.)
·
‘
The necessary
facilities
were handed over
to the [new service
provider] in a state in which [it] was
able
to carry on the same activity
which had
previously been conducted by [the old service provider]. It performed
these services on the premises of [the client].
It employed [the
client’s] computer system and other equipment and
carried
on the same activity
of
warehousing…This evidence justifies the conclusion that there
was a transfer for a business as a going concern from the
old
employer to the new employer.’
[19]
(Emphasis added.)
·
‘
For all the reasons
set out in this judgment, the
service
provided
by [the old service provider]
and now by [the new service provider] in terms of the warehousing
agreement, which was entered into
between [the old service provider]
and [the client] and
the same service
which is now provided to [the client] by the [new service provider],
constitutes a
business sufficiently
demarcated to justify the conclusion that when this business was
taken over by the [new service provider]
… there was a
transfer of a business as [a] going concern
.’
[20]
(Emphasis added.)
[13]
Earlier
on in its judgment, the LAC confirmed that our courts have been
influenced by the ECJ’s judgments on the Business
Transfer
Directive (and went on to uphold Van Niekerk J’s reliance on
its judgments).
[21]
Davis
JA also made reference to TUPE,
[22]
and with reference to an English law text, explained that, under
TUPE, a SPC
[23]
triggers a business transfer (akin to section 197) and that a SPC
occurs:
‘…
on
a
change
(other than on a one-off or short-term basis or in relation to the
supply of goods) to the
identity
of the person who has the
conduct of
activities
to which an
organised
grouping of employees
has principally
been dedicated for a particular client.’
[24]
(Emphasis added.)
[14]
As
appears from the passages from its judgment quoted above, the LAC
applied section 197 in the manner in which a SPC transfer occurs
under TUPE. This to the extent that the LAC found that where the
service provided by the old service provider constituted an economic
entity (comprising an organised grouping of employees) and where the
new service provider conducts the same activities as the old
service
provider did for the same client, section 197 is triggered.
[15]
In
MTN,
the
LAC (per Davis JA) followed
City
Power (LAC)
,
in finding as follows:
‘
As this
Court remarked in
City Power …
a
court is required to examine the substance of the agreement to
determine whether an entity retains its identity after a transfer
so
that it can be concluded whether the transferor carries on the same
or similar activities with the same personnel and/or business
assets
without substantial interruption. As the court stated:
“
[t]he
question is whether the activities conducted by a party such as first
respondent [i.e. the old service provider] constitute
a defined set
of activities which represents an identifiable business undertaking
so that when a termination of an agreement between first respondent
and appellant takes place, it can be said that this set of
activities, which constitutes a discrete business undertaking has now
been taken over by another party.”’
[25]
(Emphasis added.)
[16]
The
LAC went on to adopt an ‘economic entity’ approach in the
following terms:
‘
Returning to
the law, the application of s197 depends upon a finely grained
analysis of the facts of a particular case. Such an
analysis will
produce an answer to
the key question,
whether in substance a discrete business operation had been
transferred from entity A to B
. …
In my view, the
evidence which was provided to the court
a
quo
justifies an answer that the
second respondent was operating a call centre as a discrete business
.
The fact that it was its only business is hardly material to the
case. In terms of clauses 7 and 8 of the agreement, second respondent
could not, without permission of first respondent, operate a call
centre for another cell phone company. It was therefore not
surprising that, in relation to the running of a call centre business
for a cell phone company, second respondent had but one client.
Outside of a cell phone company, it was possible for second
respondent to create another business.
The
fact that it had but one client and operated a discrete business for
this client should not detract from a conclusion that it
was
operating a call centre business which constituted a discrete
business, sufficient to fall within the scope of s197 of the
LRA
.’
[26]
(Emphasis added.)
[17]
This
judgment is the high water mark of the LAC’s jurisprudence
adopting the economic entity approach. As far as the LAC was
concerned, the fact that the old service provider used to operate a
discrete business (a call centre) and that it was insourced
and then
operated by MTN was enough to trigger section 197. This despite the
fact that there was no transfer of assets from the
old service
provider to MTN and that the bulk of the work done in the call centre
had been done by agents (sourced from a TES by
the old service
provider), who had not transferred to MTN.
[18]
From
an overall perspective, the state of our law is well captured by
PAK le Roux in a recent article on outsourcing and
section
197:
[27]
‘
When one
considers the above decisions it seems that most outsourcing
transactions, and the second generation transfers that flow
therefrom, could fall within the ambit of s 197.
The
fact that no assets transfer and that no provision is made for the
transfer of employees is of less importance
.
The Labour Court decision in the
Unitrans
decision found that a going concern transfer could take place where
the right to use (as opposed to ownership of) the “infrastructural
assets” of the client transferred from one contractor to
another.
The emphasis placed on the
activities carried on also support such an approach
.’
(Emphasis added.)
[19]
In
summary, on the line of judgments discussed above, where there is a
change in service providers, section 197 will be triggered
in
circumstances where:
19.1.
the
old service provider was operating a discrete business (i.e. an
economic entity)
vis-à-vis
the client;
19.2.
that
entity retains its identity after the change in service providers,
which will be the case if the new service provider (i) carries
on the
same or similar activities (ii) with the personnel and / or the
business assets used by the old service provider (iii) without
substantial interruption; and
19.3.
business
assets in this context has a wide meaning to include, for example,
the right of use of the client’s assets (for example,
a
warehouse).
[20]
The
judgment of the EAT
[28]
in
Numast
[29]
is important for
present purposes because the facts are broadly analogous to the
present matter. The case involved a change in service
providers in
the transport industry (the provision of ferry services in Scotland)
where there was no transfer of the principal
assets, i.e. the
ferries.
[21]
In
finding that there was, nevertheless, a transfer under TUPE, the EAT
endorsed these findings by the Employment Tribunal:
‘
The
Tribunal found that it was incorrect to say in the present case that
no
significant
assets were transferred
,
even if the ships were not. They found that there was a strong
correlation between the
various
premises and piers
occupied and used respectively by POSF and Northlink at the various
ports. This obviously came about by means of the
termination
of leases or licences which had been granted by the various port or
harbour authorities to POSF, and the subsequent
granting of fresh
leases or licences
for practically the same properties to Northlink. These included
not
merely buildings and yards but berths and piers
.
They held that the numerous
premises
and piers
at the various ports were essential and integral to the operation of
the ferry service, as conducted by POSF and Northlink, and
constituted significant tangible assets which were transferred. They
noted that no such element was present in
Oy
Liikenne
.
Summarising
their findings on the matters other than the transfer of tangible
assets, they attached importance to
the transfer of a significant
intangible asset, namely the government subsidy; to the fact that 90%
of the seafarers previously
working for POSF were taken on by
Northlink; and to the fact that passengers who had used the ferries
in POSF’s time inevitably
transferred to Northlink
(there
being no alternative, other than by air, and none at all if one
wished to bring a car).
All of these factors pointed in the
direction of the transfer of an undertaking
.
As
to the degree of similarity between the activities carried on before
and after the transfer, the Tribunal found on the facts
that there
was a high degree of similarity
.
…
The
Tribunal’s conclusion on this issue was that
an
observer would conclude that the ferry service to the Northern Isles
had continued just as it had done before – no doubt
with a
number of changes and improvements, but basically continuing the same
service. They found that there was retention of identity
with the
business being continued as a going concern
,
and accordingly that the undertaking was transferred to Northlink
within the meaning of TUPE.’
[30]
(Emphasis
added.)
[22]
With
reference to the summary of the law set out above, the applicants
submit that in the first instance, it is clear that Putco
operated a
discrete business (i.e. an economic entity)
vis-à-vis
the GDRT in respect of the affected contracts. This in circumstances
where it assembled an organised grouping of resources and
employees
in order to perform the services under the affected contracts.
[23]
They
further submit that the economic entity retained its identity after
the change in service providers to Autopax, given that
Autopax
carries on the
same
activities
in the same manner, namely the provision of bus operating services on
the eight subsidised bus routes operated by the GDRT, using
ex-Putco
bus drivers, using business assets used by Putco, namely the eight
sets of bus routes, the existing bus time-tables, the
existing fare
structure, the estimated 25 000 passengers who use the bus
routes on a daily basis, the existing bus stops and
terminals and
Putco’s bus depot in Mamelodi and given that the services are
to be rendered on a substantially uninterrupted
basis.
[24]
The
applicants submit that Autopax’s decision to employ ex-Putco
drivers is highly significant, and clearly demonstrates that
the
relevant economic entity retains its identity in the hands of
Autopax. This much is clear from the judgment of the UK Court
of
Appeal in
RCO
,
in which the following was held:
[31]
‘
RCO’s
admitted willingness to take on the workforce by way of re-employment
on its terms and conditions, in preference to
automatic employment on
terms and conditions applicable as a result of a transfer under TUPE,
was
relevant
to the crucial issue of retention of identity
.
The fact that RCO needed a workforce to operate the contract at
Fazakerley; the fact that RCO was willing to re-employ at Fazakerley
the workforce employed at Walton; and the fact that the workforce
would have been taken on by RCO, if they had accepted RCO’s
offer to re-employ them on its terms and conditions:
all
this is relevant evidence pointing to, rather than away from, RCO’s
own recognition of the reality of the continuity of
the entities and
the retention of identity
.’
(Emphasis added.)
[25]
The
applicants submit that even though there has been no transfer of the
primary assets (i.e. the busses), certain other assets
in the form of
diesel stock, fuel storage tanks and dispensing equipment, a standby
plant, compressor and mobile ticket office,
certain premises used by
Putco situated in Everton and Kathorus and only some of the employees
were taken over, this is not a bar
to section 197 applying. This is
clear from,
inter
alia
,
Unitrans
(LAC)
and
Numast
.
Findings
[26]
Two
factual elements are necessary to trigger section 197 of the LRA.
The first is that there has been a transfer of business.
The
second is that the transfer of business was as a ‘going
concern’.
[27]
It
is now trite that there does not necessarily have to be evidence of a
direct transfer of business, such as through a sale, between
a
transferor and a transferee for section 197 to apply. In
Aviation,
the Constitutional Court held:
‘
For
the section to apply the business must have changed hands, whether
through a sale or other transaction that places the business
in
question in different hands. Thus, the business must have moved from
one person to the other. The breadth of the transfer contemplated
in
the section is consistent with the wide scope it is intended to
cover. Therefore, confining transfers to those effected by the
old
employer is at odds with the clear scheme of the section’
[32]
.
[28]
While
the ways by which a business may change hands and still be covered by
section 197 may be broad in scope, ‘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’
[33]
.
[29]
Dealing
with the termination of service contracts awarded to a third party,
the court stated:
‘
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.
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.
[34]
[30]
The
respondents’ first challenge is that there can have been no
transfer of business at all. Putco has simply surrendered
a permit
and terminated a contract with the GDRT to transport passengers on a
subsidized basis in certain areas. As Putco will
continue providing
commuter services in other areas within Gauteng, the business, or
part of Putco’s business in providing
subsidized commuter
services, is not being transferred.
[31]
Put
differently, the respondents suggest that Autopax it will be
appointed to render a commuter service, and not to continue with
the
business that Putco was engaged in.
[32]
I
am unpersuaded by this argument. Section 197 envisages the
transfer of a ‘part of a business’. In my view,
a
part could be a geographically defined part. It is no argument
against the fact that a transfer of a part of a business
has occurred
that the transferor continues to trade in the same industry but
having vacated a particular area of trade.
[33]
The
nature of the vacation of an area of trade is also relevant.
Putco is not, in any meaningful sense, free to offer the
same service
to other clients in the area in question. This business has,
albeit indirectly and broadly speaking, passed
on to Autopax.
[34]
The
common business activity performed by Autopax and Putco in a specific
geographical area, with merely a date on a contract separating
them,
indicates to me that sufficient components of Putco’s business
passed to Autopax for this to constitute a transfer
of a business, as
defined.
[35]
The
real issue at stake here, however, is whether there was a transfer of
a business as a going concern sufficient to trigger section
197.
[36]
In
Aviation
,
this is a second, separate question:
‘
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.
Consistent
with this approach is the fact that the operation of the same
business by the transferee is in and of itself not determinative
of
the question whether a transfer as a going concern has taken place.
There must be other indicators that support the conclusion
that when
a business passed to the new owner, it was transferred as a going
concern. These indicators include whether assets, employees
or
customers were taken over by the new owner.’
[37]
The
constitutional court cited with approval the view expressed in
NEHAWU
v University of Cape Town
[35]
that, in deciding
whether a business has been transferred as a going concern, the
substance of the transaction trumps its form.
[38]
The
court in
NEHAWU
also specified that the transfer of intangible assets are just as
relevant as the transfer of more obvious physical assets in
determining disputes of this nature. Naturally, the list of
factors is not exhaustive and none of them is individually decisive.
The court repeated the well-established evidentiary maxim that
factors tending to indicate a transfer of business as a going concern
must all be considered in an overall assessment and not in isolation.
[39]
The
LAC in
MTN
(supra)
recently underscored the importance of delving into the facts of each
particular case:
Returning
to the law, the application of section 197 depends upon a finely
grained analysis of the facts of a particular case. Such
an analysis
will produce an answer to the key question, whether in substance a
discrete business operation had been transferred
from entity A to B’.
[40]
In
City
Power
,
the LAC considered the meaning of the term ‘going concern’.
It found that:
‘
In
essence the approach adopted in [
NEHAWU
]
follows that of the European Court of Justice in the application of
the Business Transfer Directive (2001/23/EC) which is applicable
in
the European Union, and dictates that a transfer must relate to an
autonomous
economic entity
(defined to mean an organized group of persons and assets
facilitating the pursuit of an economic activity that promotes a
specific
objective). In turn this involves a determination whether
that entity retains its identity after the transfer; that is, the
transferor
must carry on the same or similar activities with the
personnel and / or the business assets without substantial
interruption.’
[36]
(Emphasis
added.)
[41]
The
‘autonomous economic entity’ test the applicants’
proposed this court apply adds a little depth to the definition
of a
‘going concern’ set out in
Aviation
.
For a business to be transferred as a going concern there must be
components - whether assets, employees or customers - constituting
an
autonomous economic entity that are transferred from the original
employer and retain their identity in the new employer.
[42]
I
was also referred to
Numast
[37]
where a new service
provider operated from the same ‘premises and piers’ at
various ports as an old service provider.
These were held, by
the United Kingdom equivalent of our LAC, to be essential and
integral to the operation of the ferry service
and thus constituted
significant tangible assets which were transferred.
[43]
As
it turns out, I do not need to rely on
Numast
to develop our law on the transferability of intangible assets and
the retention of the identity of a business after transfer.
These issues are exhaustively covered in domestic jurisprudence. What
is particularly edifying in
Numast
,
however, was the connection implied between how integral to the
operation of the
new
business
the components that are transferred from the old business need to be,
for the transfer to be as a going concern. The more integral
the
transferred business components or assets are to the new service
provider, the more significant these are in establishing that
a
business was transferred as a going concern.
[44]
It
stands to reason. In the sale of a business, the transfer of
premises which the new owners do not need to use and will
or can
easily replace, has less significance in establishing that the
transfer of a business as a going concern has happened than
if the
premises were integral to its further operations.
[45]
It
is now time to look closely at the substantiation the applicants
provide for the claim that there was a transfer of business
as a
going concern between Putco and Autopax. They contend that the
following transfers between the relevant companies have occurred:
the
contractual right to perform the services (and government subsidy
linked thereto); the eight sets of bus routes; the existing
bus
timetables; the existing fare structure; the 25 000 passengers
(i.e. customers) who use the bus routes on a daily basis;
the
existing bus stops and terminals; Putco’s bus depot in
Mamelodi; a workshop previously rented from a third party by Putco
and now rented by Autopax and some Putco bus drivers (albeit on
fixed-term contracts and lesser terms and conditions of service).
[46]
Helpfully,
the applicants summarise what has
not
been taken over. This includes: the buses used by Putco to
service the 8 routes; assets such as diesel stock, fuel storage
tanks
and dispensing equipment, a standby plant, compressor and mobile
ticket office; premises used by Putco situated in Everton
and
Kathorus and the balance of the affected employees.
[47]
It
is common cause that there will be no interruption in the service
between the time Putco stops the service and Autopax provides
it.
[48]
The
second list is an important one. It not only contains the type
of things that make up the rump of what is classically
transferred
between businesses when the transfer is of a going concern. It is
also a list that starkly exposes the relative tenuousness
of the
links between Putco and Autopax’s businesses set out in the
applicants’ first list.
[49]
As
it turns out, Autopax also disputes the factual accuracy of most of
the things the applicants say were transferred from the original
service provider. Before assessing how significant it is that certain
assets or components were taken over by the new service provider
so
as to establish whether the transfer was as a going concern, these
factual disputes must be resolved.
[50]
As
difficult as it is to do on the papers, determining these factual
disputes also disposes of certain of the applicants’
arguments.
Logically, if an asset or business component cannot be said to be
transferred between businesses, directly or via a
common client, then
the presence of such a competent in the business of the new service
provider does establish an identity with
the old. There must be
some other reason for any similarity in operations; such as the use
of common raw material or infrastructure,
compliance with the same
law or regulation, or a response to the same market forces.
Transfer
of a right to provide a service
[51]
Turning
to specifics, the applicants submit that, properly construed, the
permit to undertake the same service now being provided
by Autopax,
was an asset in the hands of Putco. The fact that there was no
transfer of a permit between Putco and Autopx, but that
Autopax
acquired a permit from the regulating body (a third party) does not
detract from this. In this case what has been transferred
is a
component of Putco’s business which enabled it to perform the
self-same services now being rendered by Autopax.
[52]
I
accept that Putco has given up both its contractual right to provide
the service, and the permits necessary to enable it to do
so.
Autopax has further not taken these over in any legal sense. It
is not going to use any residual time remaining
on old permits.
It has concluded a new agreement with the GDRT and will be issued
with new permits. Nevertheless, in substance,
there has been a
transfer of a right by a common ‘client’ to perform a
general service once performed by the old company
to a new service
provider. Putco has moreover vacated the area from a business
point of view, and the service will be uninterrupted.
Further
to this, a key and identical feature of both contracts is that the
businesses receive a government subsidy to run their
operations.
These features strengthen the idea that a discrete part of a business
has, in substance, been ceded to Autopax.
Bus
routes and timetables and fare
[53]
The
applicants contend that these items facilitate the business and are
thus part of the income producing component of the business.
The
respondent contends that bus routes are established for the
convenience of commuters and all subsidised operators are required
to
use them. I am mindful of the fact that even intangible assets may be
relevant in determining whether a transfer of business
as a going
concern has occurred. However, on the face of it, a bus route
on public roads, determined by a third party, does
not seem to be a
component of the original business taken over by Autopax.
[54]
The
same goes for bus timetables. I accept the respondent’s
argument that departure times are determined by demand,
the route
length and operational factors, such as traffic. None of these
belong to Putco or Autopax. By analogy, the opening
and closing times
of a new restaurant are hardly assets obtained from the old
restaurant. In my view, the fact that bus timetables
are the
same is not, in the circumstances of this case, a reliable indicator
supporting the conclusion that a business has passed
to the new
service provider
as
a going concern
.
The sameness is a function of features extraneous to the transfer.
[55]
The
respondent states that the fare structure is predetermined, based on
the subsidy. They are also not Putco’s fares. There
is nothing
before me to gainsay this. I can see how a confidential price
list or discounting structure may constitute a component
of a
business transferred to a successor. However, the price at
which an original owner of a garage sold petrol is hardly
transferred
to the new owner if he sells fuel at the same price. Common
regulations affect certain prices.
25000
Passengers
[56]
It
is tempting to see the 25000 passengers who use the bus services as a
set of individual clients transferred between businesses.
However, it is also true that no passengers are required to make use
of the bus service. No averment was made that there are existing
ticket contracts in place which Autopax must honour. Rather, as
contended by the respondent, it stands to reason that some
passengers
use the service on some days but not on all days. New commuters may
use the service and existing ones leave the service
because of
changes in jobs, circumstances and location. The predictable 25000
commuters who decide on any given day to use the
bus service are no
more capable of being taken over by the new business as the
predictable 10 customers who decide on any given
day to buy a
cigarette from a corner shop.
[57]
Having
said that, it is possible, in the most general terms, to take over a
base of potential customers, especially in circumstances
where demand
for a service is high, there are few alternatives for customers, the
transferor exits the scene completely and there
is little or no
interruption in service. I am therefore satisfied that Putco’s
general customer base was transferred
to Autopax.
Use
of bus stops and terminals
[58]
In
deciding the issue of the use of the same bus stops and terminals, I
am aware of the ruling in
Unitrans
which dealt with a warehouse service and where this court found
section 197 applied despite the fact that no physical assets or
employees transferred from the old to the new service provider.
Of significance in that case was the transfer of the right
of use of
the client’s assets (the same warehouse, equipment, forklifts,
computers, printers, IT systems, furniture used
by the old service
provider in terms of the warehousing agreement) from the old to the
new service provider. This was sufficient
to trigger
section 197. Van Niekerk J held that, although no physical
assets transferred, the ‘comprehensive right of
use of the
infrastructure and the assumption of control over that infrastructure
necessary for the purposes of continuing the relevant
services [were]
the key triggers’ to section 197 applying (on the facts).
[38]
[59]
The
LAC confirmed this approach:
‘
The
necessary facilities were handed over to the [new service provider]
in a state in which [it] was able to carry on the same activity
which
had previously been conducted by [the old service provider]. It
performed these services on the premises of [the client].
It employed
[the client’s] computer system and other equipment and carried
on the same activity of warehousing… This
evidence justifies
the conclusion that there was a transfer for a business as a going
concern from the old employer to the new
employer.’
[39]
[60]
In
reply, the respondent states that the municipality approves the
location of bus stops and terminals. They do not belong to Putco
or
the GDRT and thus cannot be taken over. Factually, there is
nothing before me gainsaying this.
[61]
The
respondent goes on to then argue that the fact that neither the old
service provider nor the ‘client’ owns the asset
in
question distinguishes this case from
Unitrans
.
I disagree. Looking at substance and not form, although bus
stops and terminals are assets not owned by the ‘client’,
they do strike me as infrastructure, over which the GDRT can,
practically, assign right of use. Autopax can thus gain a
measure of delegated operational control and use over these
facilities, like Putco earlier had.
Mamelodi
depot
[62]
Based
on
Unitrans
the
depot is obviously part of the necessary infrastructure previously
used by Putco to render the service in question and Putco
has
assigned the right of use to Autopax. The respondents, however,
argued that in any event the taking over of a single depot
out of
eight routes carries little, if any weight, in the overall
assessment. I return to this issue later on.
Use
of some former drivers
[63]
Autopax
admits using some former drivers of Putco, but contends that this was
merely to top up an already existing resource of drivers
of Autopax.
I note here that in an agreement referred to by the parties as the
HOA, Autopax agrees to ensure that 75% of its employees
who are to
work on the contract will be drawn from the Putco employees who had
worked on the 8 routes in question (albeit on fixed-term
contracts
and lesser terms and conditions of service). However the agreement is
conditional on a legal finding that s 197 applies
in this case and
the applicants in any event dispute the validity of the agreement.
Going
Concern
[64]
As
set out in
NEHAWU
,
the factors tending to indicate a transfer of business as a going
concern must all be considered in an overall assessment and
not in
isolation. I might add that, in this assessment, assets that
were not transferred may speak as loudly as those that
were.
[65]
On
my analysis, the only assets or components actually transferred
between the businesses are the contractual right to perform the
business, a general customer base, the right of use of bus stops and
terminals, the right to use one depot out of many and the
use of some
former drivers of Putco to top up Autopax’s existing
resources. It is not a long list.
[66]
For
any of the transferred business components to assume significance in
establishing the second question of whether the transfer
of business
was as a going concern, these components should be integral to the
operations of Autopax.
[67]
In
a highly regulated industry, taking over the contractual right to
provide a service is a necessary but, on its own, nebulous
factor as
far as establishing that a
going
concern
has been transferred. The same goes for receipt of a government
subsidy. More detail is needed on how the new service
provider
will carry on its business, so to speak, on top of the contractual
right it has gained. In this case, features such
as the use of
the same bus stops and terminals, which tend to establish identity,
compete with features such as that Autopax will
use its own busses
and mostly its own depots, workshops and employees. The latter
features tend to suggest the business transfer
was not of ‘a
going concern’.
[68]
Taking
over some drivers to top up Autopax’s existing resources is not
an impressive factor in establishing a transfer of
business as a
going concern. The rump of Autopax’s drivers are from its
existing staff. Sourcing additional drivers
from the ranks of
former Putco employees seems more a matter of convenience than need.
[69]
I
have found that the use of the bus stops and terminals are components
of the business of the old service provider taken over by
the new.
However, it is worth mentioning that in
Unitrans,
a transfer of a business as a going concern was found to have
occurred not solely because the client’s warehouse was
available
to both old and new service providers in operating their
businesses. The LAC additionally noted that:
‘
Appellant
was
required
to make use
of the same equipment and IT systems that were previously employed by
first respondent including forklifts, computers, printers,
a computer
system as well as other assets such as furniture.’ (Emphasis
added)
[70]
It
thus made sense, when warehousing work was transferred to a new
service provider, to talk of a “business sufficiently
demarcated to justify the conclusion that when this business was
taken over by the [new service provider] … there was a
transfer of a business as [a] going concern”.’
[40]
[71]
We
do not know for sure what the result would have been in
Unitrans
if the transferrable asset was the right to use the client’s
warehouse and little else. What is evident is that the
court in
Unitrans
had a lot more to go on, such as the required use of the same
equipment and computer systems, in reaching its conclusion that the
business was transferred from one service provider to another as a
going concern. I would suggest that the use of the same
equipment and computer system weighed heavily in the court’s
assessment as well as the fact that this was required by the
client.
The transfer of these components was integral to the new service
provider’s future operations.
[72]
A
few significant factual features distinguish
Numast
from the present matter. The bus stops are, in my view, not
akin to the numerous “premises and piers” at various
ports which the court in
Numast
found
were “integral to the operation of the ferry service, as
conducted by [both service providers].” The use
of each
individual pier to upload passengers and cargo was granted after a
formal licence application to a separate authority.
Berths were
similarly allocated. This is not, as I understand it, the
situation with bus stops and terminals.
[73]
It
also stands to reason that, as sites where customers (and cargo) are
loaded, piers are far fewer, more exclusive and limited
real estate
than the sides of roads. If, for some reason, any of the
individual bus stops were not available to Autopax,
I would imagine
that new bus stops could be erected and new terminals found with much
greater ease than obtaining new piers or
berths at ports. I am
not suggesting that a bus stop can properly be erected anywhere along
a road. I make the observation,
which I believe is obvious,
that a subsidised commuter bus service in South Africa stands in a
qualitatively different relationship
to the sites where its customers
get on or alight than a Scottish provider of subsidized commuter,
cargo and livestock transport.
Taking over particular bus stops
seems far less integral to the operation of a bus service. It
thus follows that the significance
of these assets being transferred
in
casu
is less indicative of a transfer of a business as a going concern
having occurred than in
Numast
.
[74]
As
an aside, I note the considerable effort expended in
Numast,
in trying to distinguish, not entirely convincingly, the facts of
that matter from the European Court of Justice’s decision
in
Oy
Liikenne v Pekka Liskojärvi.
[41]
The latter court
held that "in a sector such as scheduled public transport by
bus, where the tangible assets contribute significantly
to the
performance of the activity, the absence of a transfer to a
significant extent from the old to the new contractor of such
assets,
which are necessary for the proper functioning of the entity, must
lead to the conclusion that the entity does not retain
its identity.
Consequently, in a situation such as that in the main proceedings,
Directive 77/187 does not apply in the absence
of a transfer of
significant tangible assets from the old to the new contractor.”
Translated into South African terms,
the highest court in Europe
found that a transfer of a public transport business as a going
concern could not be inferred in the
absence of the transfer of major
assets.
[75]
The
court in
Numast
did
affirm that the absence of a transfer of vehicles was a significant
feature tending to weigh against a transfer as a going concern
having
occurred.
[76]
In
my view, considered as a set, the components of the original business
that were transferred to the new service provider, Autopax,
are too
meagre and fragmented to support the conclusion that the transfer of
business was as a ‘going concern’.
The portion of
the original business that they represent is largely subsumed by the
components, assets and staff that the new service
provider brings to
the business.
[77]
In
the language of
City
Power
and
Unitrans
,
the activities of Putco that were transferred to Autopax do not
constitute a discrete, autonomous, demarcated and identifiable
business undertaking, thus a going concern.
Deemed
Transfer
[78]
In
the event that I find, as I have, that no transfer of business as a
going concern occurred, the applicants invite me to infer
that the
GDRT and Autopax deliberately evaded the operation of section 197 by
failing to agree to take over Putco’s workers.
In such a
circumstance and following foreign law, the court was urged in effect
to deem that a transfer of business did actually
occur.
[79]
The
legal principle they would like this court to develop can be
summarised as follows: if there was a deliberate decision not to
take
on staff with the objective of evading the application of section
197, then this is a relevant consideration in determining
that there
was indeed a transfer of an undertaking as a going concern.
[80]
The
foreign case law and domestic legal authority cited is certainly
interesting. I am not sure this development is necessary but
I am
loathe to be dismissive of attempts to develop our law with reference
to principles in operation in other jurisdictions.
However, for
reasons stated below, it is unnecessary to go down this path in any
further detail in the present case.
[81]
The
applicants found their allegation that the GDRT and Autopax sought to
evade their section 197 obligations on the interpretation
of a
statute. They claim that the NLTA
[42]
provides two
options to the GDRT, as represented by the MEC, upon the cessation of
the contract with the existing service provider:
[43]
(i)
the
GDRT is able to conclude a further negotiated contract with the
existing service provider (i.e. extend that contract); or
(ii)
the
GDRT must run a tender process (compliant with section 217 of the
Constitution and the PFMA
[44]
),
whereupon it is able to conclude a contract with the new service
provider in accordance with the model tender contract promulgated
in
terms of the NLTA (‘the model contract’).
[82]
Clause
28.1 of the model contract stipulates that ‘subject to section
197 … the [new] operator must source the required
employees
from the operator of the previous contract and guarantee the jobs of
those employees.’
[83]
The
applicants submit that the words ‘subject to section 197’
do not detract from these express obligations, which equates
to the
section being operative and obligatory.
[84]
As
such, the applicants argue that the GDRT and Autopax, by agreeing to
effectively insource the services, contrary to the provisions
of the
NLTA and section 217 of the Constitution, are attempting to avoid and
frustrate the application of section 197.
[85]
That
is not the way I interpret the relevant clause. I agree with the
respondents’ submission that whether or not the new
operator
must source employees from the outgoing one is subject to whether or
not section 197 of the LRA applies. I have found
that it does not.
The model contract does not purport to make section 197 applicable.
Conclusion
[86]
I
find that in this case there has been no transfer of a business as a
going concern and that section 197 of the LRA does not apply
to the
change in service providers. I do not think it appropriate to award
costs, considering the nature of the applicants (a union)
and the
importance of the case.
Order
[87]
The
application is dismissed with no order as to costs.
_______________________
B Whitcher
Judge of the Labour Court of South Africa
APPEARANCES:
FOR THE APPLICANTS: A Myburgh SC and M
Jennings
instructed by
Bowman Gilfillan Attorneys
FOR THE RESPONDENTS: Mr Maserumule of Maserumule Inc
[1]
Gauteng
Department of Roads and Transport.
[2]
Aviation
Union of SA & another v SA Airways (Pty) Ltd & others
(2011) 32
ILJ
2861 (CC).
[3]
City
Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd &
others
(2014)
35
ILJ
2757 (LAC) (‘
City
Power (LAC)
’).
[4]
City
Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd &
others
(2015) 36
ILJ
1423 (CC) (‘
City
Power (CC)’
).
[5]
TMS
Group Industrial Services (Pty) Ltd t/a Vericon v Unitrans Supply
Chain Solutions (Pty) Ltd & others
(2015) 36
ILJ
197 (LAC) (‘
Unitrans
(LAC)
’).
[6]
Unitrans
Supply Chain Solutions (Pty) Ltd & another v Nampak Glass (Pty)
Ltd & others
(2014) 35
ILJ
2888 (LC) (‘
Unitrans
(LC)
’).
[7]
Communication
Workers Union and Others v Mobile Telephone Networks (Pty) Ltd and
Another
(DA10/13)
[2015] ZALAC 8
(21 April 2015) (‘
MTN’
).
[8]
Employment
Appeal Tribunal. The EAT is the UK equivalent of our LAC.
[9]
Numast
and another v P&O Scottish Ferries and another
[2005]
ICR 1270 (EAT).
[10]
NEHAWU
v University of Cape Town
(2003)
24
ILJ
95 (CC) (‘
UCT’
)
at para 56 (cited with approval in
SAA
at para 50): ‘In deciding whether a business has been
transferred as a going concern, regard must be had to the substance
and not the form of the transaction. A 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.’
[11]
The
key provision is article 1(1)(b) of the Business Transfer Directive,
which provides that ‘there is a transfer within
the meaning of
this Directive where there is a
transfer
of an economic entity which retains its identity
,
meaning an organised grouping of resources which has the objective
of pursuing an economic activity, whether or not that activity
is
central or ancillary’ (emphasis added). The two key judgments
by the ECJ on this issue are
Spijkers
v Gebroerders Benedik Abattoir
[1986] ECR 1119
(ECJ) and
Suzen
v Zehnacker Gebäudereinigung GmbH Krankenhausservice
[1997]
IRLR 255 (ECJ).
[12]
City
Power (LAC)
at para 23.
[13]
City
Power (LAC)
at para 24.
[14]
Unitrans
(LC)
at para 29.
[15]
Unitrans
(LC)
at para 30.
[16]
Unitrans
(LC)
at para 30.
[17]
Carlito
Abler v Sodhexo MN Catering Gesellshaft GmbH
[2005]
IRLR 168
(ECJ) (in finding that a transfer of a right of use can
trigger section 197); and
Allen
& others Amalgamated Construction Co Ltd
[2000] IRLR 119
(ECJ) (in finding that a transfer of physical assets
is not necessarily required in order for section 197 to apply).
[18]
Unitrans
(LAC)
at para 30.
[19]
Unitrans
(LAC)
at para 32.
[20]
Unitrans
(LAC)
at para 36.
[21]
Unitrans
(LAC)
at para 21.
[22]
Transfer
of Undertakings (Protection of Employment) Regulations 2006. TUPE
implemented into UK law the requirements of the Business
Transfer
Directive.
[23]
Service
provision change.
[24]
Unitrans
(LAC)
at para 22, quoting Wynn-Evans
The
Law of TUPE Transfers
(2013) at 60-61.
[25]
MTN
at para 13.
[26]
MTN
at
paras 20-21.
[27]
PAK
le Roux ‘Outsourcing and s 197 of the LRA’ 2015 (24) 7
Contemporary
Labour Law
61 at 70.
[28]
Employment
Appeal Tribunal. The EAT is the UK equivalent of our LAC.
[29]
Numast
and another v P&O Scottish Ferries and another
[2005]
ICR 1270 (EAT).
[30]
Numast
at paras 29-31 and 33.
[31]
RCO
Support Services v Unison
[2002] EWCA Civ 464
;
[2002] IRLR 401
(CA) at para 32. .
[32]
[2012] 3 BLLR 211(CC)
at para 46
[33]
Aviation
,
supra
[34]
Aviation
, supra,
at para 47 and 48
[35]
(2003) 24
ILJ
95 (CC) at para 56.
[36]
City
Power (LAC)
at para 23.
[37]
Numast
and another v P&O Scottish Ferries and another
[2005]
ICR 1270 (EAT).
[38]
Unitrans
(LC)
at para 30 and 31.
[39]
Unitrans
(LAC)
at para 32.
[40]
Unitrans
(LAC)
at para 36.
[41]
[2001] All ER (EC) 544
at para 42
[42]
National
Land Transport Act 5 of 2009
.
[43]
Section
42
of the NLTA. RA: p 263, para 5; p 273, paras 16-20; p 277,
paras 31-32.
[44]
Public
Finance Management Act 29 of 1999
.