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[2015] ZALCJHB 256
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Field Force Marketing v Distell Limited and Others (J1089/2015) [2015] ZALCJHB 256 (17 July 2015)
REPUBLIC
OF SOUTH AFRICA
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Not
Reportable
Case
no: J1089/2015
In
the matter between:
FIELD FORCE
MARKETING
Applicant
And
DISTELL LIMITED
First Respondent
VMS Group (PTY)
LIMITED t/a IMPERIAL RETAIL Solutions
Second
Respondent
THE PERSONS
WHOSE NAMES ARE LISTED IN ANNEXURE “a” TO THE NOTICE
OF MOTION
Third Respondent
Heard:
25 June 2015
Delivered:
17 July 2015
Summary:
Whether the termination of a service agreement and the subsequent
conclusion of a contract for
the provision of similar services by
another entity constitutes a transfer of a business as a going
concern as contemplated in
section 197 of the LRA.
JUDGMENT
RALEHOKO
AJ
Introduction
[1]
This is an urgent application in which the
applicant, Field Force Marketing (“FFM”) seeks a
declaratory order that section
197 of the Labour Relations Act No 66
of 1995 (“the LRA”) applies to the termination of the
Shelf Stacking Service
Agreement between FFM and the first
respondent, Distell Limited (“Distell”) and the
subsequent conclusion of a contract
between the second respondent,
VMS Group (Pty) Ltd t/a Imperial Retail Solutions (“Imperial”)
and Distell for the provision
of comprehensive merchandising services
beyond the services previously provided by FFM.
[2]
The application is opposed by Imperial
which also disputes the urgency of the application. Distell is not
opposing the application
and will abide the decision of the court. It
has however filed an affidavit clarifying ‘certain operational
issues regarding
the relationship between itself and FFM’.
[3]
The issues for determination are therefore
twofold, (a) whether the matter is urgent and (b) whether section 197
of the LRA applies
to the facts of this case, in which case the
contracts of employment of FFM employees will automatically transfer
to Imperial.
The
facts
[4]
Distell is a brewer and distiller of
alcohol products, which are then bottled and distributed to wholesale
and retail liquor stores
throughout South Africa.
[5]
Since 2004, FFM has provided shelf stackers
to Distell in terms of a verbal service agreement concluded between
them, initially
covering only Gauteng and the North West Province and
was subsequently extended to cover all provinces throughout South
Africa.
[6]
The shelf stackers are designated to
various retail stores which stock Distell products,
inter
alia
, to pack these products on to
dedicated shelves, ensuring that the prices of those products are
correctly labelled, produce reports
on sales of products and stock
availability. The shelf stackers work under the direct control and
supervision of FFM personnel,
who manage them.
[7]
In 2006 FFM and Distell entered into
another service agreement in terms of which FFM would also provide
van assistants in the central
region, being Johannesburg.
[8]
These van assistants report directly to
Distell and travel in Distell delivery vehicles to retail stores
stocking Distell products
where they would be involved in
constructing advertising displays, stands and other marketing
material for Distell products. Van
assistants work under the control
and supervision of Distell personnel.
[9]
In other provinces other than Johannesburg,
Distell made use of its own employees to assist merchandisers and
referred to these
employees as sales assistants. Sales
assistants (according to Distell) and van assistants (according to
FFM) perform the
same duties.
[10]
FFM would invoice Distell for the services
provided by shelf stackers and van assistants supplied by it.
[11]
Shelf stackers and van assistants comprise
90% and 10% respectively of FFM’s workforce. FFM also employs a
National Operations
Manager, a Projects Manager, a National
Operations Director and thirteen supervisors who are responsible for
managing the shelf
stackers.
[12]
Distell never employed shelf stackers.
Prior to 2004, Distell utilised shelf stackers provided by Profill,
Workforce and Kelly who
were taken over by FFM in 2004 when it
concluded the service agreement with Distell.
[13]
Distell was FFM’s sole customer. The
reason for this state of affairs is in dispute, with FFM contending
that this is what
was required by Distell, whereas Distell’s
version is that FFM was precluded from providing services to
Distell’s competitors
but was free to provide its services to
other businesses supplying the same clients that Distell supplied
with its products.
[14]
What is not in dispute is that in early
2014, Distell advised FFM to look for other customers. FFM contends
that it tried securing
alternative business but was unsuccessful.
Without any evidence to the effect that the terms of the service
agreement were at any
stage amended, in my view this suggests that
FFM could have other customers, if it wished.
[15]
On 17 July 2014 Distell informed FFM that
it would invoke a tender process for the merchandising and shelf
packing service and that
FFM would have to compete with other service
providers for the business.
[16]
On or about 18 July Distell requested FFM
and other interested parties to submit a proposal (“the RFP”)
“
to find alternative proposals to
manage the off consumption merchandising environment and compare it
to the current way of working
”.
In essence, Distell was looking to outsource its merchandising
function and to get an expanded and comprehensive merchandising
service, which includes shelf stacking which was being offered by
FFM, from a service provider who would offer this service in
more
stores across the country. FFM had offered the service in 510 retail
stores and Distell was looking to immediately increase
coverage to
900 stores and ultimately to 30 000 stores. The stated objective
was to improve efficiency.
[17]
Distell invited interested parties to make
submissions dealing with four scenarios. Two of the scenarios were
(a) the taking over
of existing service providers’ staff and
(b) not taking over the staff.
[18]
FFM responded to the RFP, proposing
re-inventing itself and partnering with a third party to provide the
expanded merchandising
service now required by Distell.
[19]
In January 2015 the tender was awarded to
Imperial and in terms of the new service agreement, Imperial took
over 70 Distell personnel
employed in merchandising, effective March
2015.
[20]
In March 2015 FFM was informed that its
submission was unsuccessful and was given verbal notice, followed by
written notification,
of termination of the service agreements
effective 1 June 2015.
[21]
FFM
objected to the short notice of termination of the agreements which
it argued did not afford it an opportunity to give adequate
notice to
its staff in terms of s189A
[1]
of the LRA. FFM also raised the issue that the RFP made reference to
the successful tenderer taking over the existing staff which
was not
mentioned in the notice of termination. As l have stated above, the
RFP referred to four scenarios’, one of which
was the taking
over of the current service providers’ staff.
[22]
Subsequent to engagement on FFM’s
concerns, on 21 April 2015 Distell issued a fresh termination notice,
giving FFM 3 month’s
notice of termination of the service
agreement, with the termination date being 21 July 2015.
[23]
At a meeting held in April 2015, Imperial
indicated that it was prepared to assist FFM with finding alternative
employment for its
employees by considering employing especially
those employees who worked in remote areas. FFM’s version to
the contrary is
not borne out by the facts.
[24]
On 11 May 2015 FFM informed Distell and
Imperial that it had taken legal advice to the effect that the
termination of the agreement
with FFM and the conclusion of the
service agreement between Distell and Imperial triggers the
provisions of section 197 of the
LRA and therefore all FFM employees
will automatically transfer to Imperial effective 21 July 2015. FFM
sought an undertaking from
both Distell and Imperial that FFM
employees would automatically transfer to Imperial effective 21 July
2015.
[25]
Both Distell and Imperial denied that
section 197 applied and refused to furnish the undertakings sought.
[26]
On 1 June 2015 Distell informed its trade
partners that the merchandising function would transfer to Imperial,
which would provide
a full merchandising service across all
consumption channels, including campaign executions, shelf packing
and on shelf availability,
cold space management, stock rotation and
feedback on key drivers for Distell.
[27]
In the meantime Distell, Imperial and FFM
had agreed that from 1 June 2015 until 21 July 2015 when the service
agreement with FFM
will terminate, Imperial and FFM would render a
parallel service to ensure a smooth transition. This agreement was
implemented
and was in place at the time that the application was
argued.
[28]
It is not in dispute that since Distell
started rendering service in terms of its service agreement with
Distell on 1 June 2015,
it has not utilised any aspect of the
existing business of FFM.
[29]
It is also not disputed that Imperial is a
long standing merchandising service provider, which provides
syndicated merchandising
in terms of which a merchandiser can
merchandise a basket of products in one retail store. It is also not
disputed that Imperial
has some 60 customers across the country, has
a workforce, resources and infrastructure which it uses to provide
merchandising
services.
[30]
At the time that the matter was heard,
Imperial had not employed any FFM employees but as indicated above,
had indicated an interest
in employees employed in remote areas, who
would be subjected to Imperial’s recruitment processes.
[31]
FFM challenged Distell and Imperial to
produce a copy of their service agreement, a challenge which was
rejected by both parties.
However Imperial has produced a document
setting out a summary of terms of that agreement. FFM has requested
the court to draw
an adverse inference from Imperial’s failure
to produce the service agreement with Distell.
[32]
Before dealing with the main issue for
determination, whether Distell’s cancellation of the service
agreements with FFM and
the conclusion of the new service agreement
with Imperial triggers section 197, l will deal with the issue of
urgency which is
in dispute.
Urgency
[33]
FFM launched the present application on 8
June 2015 and the matter was argued on 25 June 2015.
[34]
In its founding affidavit FFM submitted
that the matter is urgent because “
Distell
has cancelled the service level agreement with effect from 20 July
2015 and any declaratory order which may be granted subsequent
to
such cancellation of the service level agreement will unnecessarily
prejudice the applicant and the individual respondents in
that the
individual respondents will no longer work as shelf packers and/or
van assistants after that date nor will FFM be paid
by Distell after
that date
.”
[35]
I have no hesitation in finding that this
allegation does not establish urgency.
[36]
The sequence of events is that FFM received
a fresh notice of termination of the service agreement on 21 April
2015, effective 21
July 2015, without an offer to take over all the
employees. It could have launched the application immediately
thereafter. Instead
it waited until 8 June 2015 and l find that it
failed to act swiftly and delayed in bringing the application.
[37]
The further submission that Distell and
Imperial have not been forthcoming about their contractual
arrangements and that it was
only on 1 June 2015 when Distell issued
a notice to trade partners that FFM had sufficient particulars to
instruct legal representatives
to prepare the application for a
declaratory order on an urgent basis is not persuasive.
[38]
FFM has not specified the information which
it claims was contained in the notice to trade partners of 1 June
2015 which it was
not privy to prior to that date.
[39]
The facts show that FFM was notified in
March 2015 that its proposal had been unsuccessful. In the same month
and again in April
2015 FFM was informed that Imperial had been
awarded the contract with effect from 1 June 2015. FFM was aware of
the services that
it would render to Distell had it been the
successful bidder, that is an expanded merchandising service,
inclusive of shelf packing.
FFM was also aware that as the successful
bidder, Imperial would render those services. As the nature of the
services to be rendered
by Imperial to Distell are well known to FFM,
l do not deem it necessary to draw an adverse inference against
Distell and Imperial
for failing to disclose their service agreement.
The summary provided by Imperial suffices and FFM has not disputed
what is set
out in that summary. For those reasons l find the
applicant’s reliance on the notice of 1 June 2015 to establish
urgency
as opportunistic and l reject it.
[40]
If there was urgency, l find that it was
self created.
[41]
When FFM was informed of the termination of
the service level agreement in March 2015, it indicated that it would
seek legal advice.
On 21 April 2015 FFM was given fresh notice of
termination of the service agreement with effect from 21 July 2015,
thereby giving
it 3 months notice. On 11 May 2015 FFM’s
attorneys wrote to both Distell and Imperial demanding an
undertaking, by 15 May
2015, that FFM employees would transfer to
Imperial with effect from 1 June 2015 (or from 21 July). Therefore as
early as 11 May
2015 FFM had received legal advice that section 197
applied to the transaction.
[42]
When both Distell and Imperial did not meet
the deadline of 15 May 2015, one would have thought FFM would launch
the application
immediately. It did not. Even when Imperial and
Distell refused to give the undertakings on 18 and 27 May 2015
respectively, long
after the deadline had passed, still FFM did not
launch the application. It waited until 8 June. Its version that it
did not have
sufficient information to launch the application and
only obtained this information on 1 June has already been rejected.
[43]
I do not see the relevance of the further
submission that Distell delayed finalising the tender process and l
need not deal with
it.
[44]
The respondents might have been given
sufficient time to file papers and had not argued any prejudice but
again these facts do not
assist FFM in establishing urgency.
[45]
I would strike the matter from the roll for
lack of urgency but in the interest of finality, l deal with the
merits of the matter.
The
parties’ contentions on the merits
[46]
FFM submits section 197 is triggered
because there has been a transfer of a separate, distinguishable and
discreet business, namely
the exclusive rendering of a shelf packing
and merchandising service by FFM for and on behalf of Distell. It
advances the following
reasons for its position:
46.1
the shelf packing and merchandising service
formed part of Distell’s business which was initially
transferred as a going concern
from Distell to FFM and will now be
transferred from FFM to Imperial with effect from 20 July 2015.
46.2
Imperial in fact took over part of the
business on 1 June 2015 when it started rendering the service
parallel to FFM.
46.3
There is no reason in law why Distell’s
merchandising service which has been taken over by Imperial triggers
s197 but not
the shelf packing service being rendered by FFM.
46.4
A snapshot of the service performed by FFM
essentially includes the shelf packing and van assistant services to
be rendered by Imperial.
46.5
Distell remains the owner of the liquor
products throughout the shelf packing process.
46.6
The RFP contemplated the transfer of FFM
employees to the new service provider.
[47]
Mr
Van As for FFM argued that the Labour Appeal Court has recently
blurred the distinction between businesses that are largely employee
reliant and businesses that are largely asset reliant. He relied on
two decisions of the Labour Appeal Court in
TMS
Group Industrial Services (Pty) Ltd t/a Vericon v Unitrans Supply
Chain Solutions (Pty) Ltd and Others
[2]
and
Communication
Workers Union and Others v Mobile Telephone Networks (Pty) Ltd and
Another
[3]
and a decision of the Labour Court in
Harsco
Metals SAP Ltd v Arcelormittal SA and Others
[4]
and argued that the key question is “
whether
in substance a discrete business operation had been transferred from
Entity A to Entity B
.”
[48]
He argued that the business consisting of
the provision of shelf packers and van assistants, which is largely
employee reliant,
which FFM rendered to Distell, is a discrete
business operation clearly forming part of Distell’s
merchandising function
and capable of being transferred in terms of
section 197 of the LRA.
[49]
He further argued that the distinction
between Distells’ merchandising employees who have been
transferred to Imperial in
terms of section 197 of the LRA and
employees of FFM is artificial because all these employees
constituted a “
blend of insourced
and outsourced merchandising teams that have executed Distell’s
brand visibility, product availability,
pricing and promotional
strategies
”.
[50]
Finally in oral argument, Mr Van As gave a
hypothetical example of the University of Cape Town (UCT) deciding
that it now requires
a single service provider to provide a basket of
all services currently being provided by various service providers
(cleaning,
gardening, security etc) and to take over all cashiers who
have concluded employment contracts with UCT but can choose whether
or not to take over the employees of the existing service providers
whose service agreements will now be terminated. He argued that
bearing in mind that the Constitutional Court has stated that section
197 is to be construed as a whole and in light of its primary
purpose
which is to save jobs, and bearing in mind the primary purpose of the
LRA to promote economic development, social justice
and labour peace,
he argued that undoubtedly that scenario would trigger the provisions
of s197 of the LRA and that the contracts
of employment of all the
employees of the service providers will have to transfer
automatically to the new service provider.
[51]
On the other hand Mr Snyman for Imperial
argued that this case is about an outsourced service where there is
simply a “change
in service provider” from FFM to
Imperial, without anything being transferred. He argued that
something more is required
for section 197 to apply and that on the
facts of the case, ‘something more’ is absent and
therefore section 197 does
not apply.
The
Law
[52]
Section 197 provides as follows:
(1)
In this section and in
section
197A
—
(a)
‘business’ includes the whole or a part of any business,
trade, undertaking or service; and
(b)
‘transfer’ means the transfer of a business by one
employer (‘the old employer’) to another employer
(‘the
new employer’) as a going concern.
(2)
If a transfer of a business takes place, unless otherwise agreed in
terms of
subsection
(6)
—
(a)
the new employer is automatically substituted in the place of the old
employer in respect of all contracts of employment in
existence
immediately before the date of transfer;
(b)
all the rights and obligations between the old employer and an
employee at the time of the transfer continue in force as if
they had
been rights and obligations between the new employer and the
employee;
(c)
anything done before the transfer by or in relation to the old
employer, including the dismissal of an employee or the commission
of
an unfair labour practice or act of unfair discrimination, is
considered to have been done by or in relation to the new employer;
and
(d)
the transfer does not interrupt an employee’s continuity of
employment, and an employee’s contract of employment
continues
with the new employer as if with the old employer.
[53]
Section
197 is therefore triggered when (a) there is a transfer, (b) of a
business (or part of a business of a service) and (c)
as a going
concern.
[5]
[54]
The section changed the common law position
that the acquisition and transfer of a business led to termination of
contracts of employment
and that the new employer would have to
conclude new employment contracts with the affected employees if he
wished to continue
operating the business with the same workers.
Section 197 now provides for the automatic transfer of the contracts
of employment
to the new employer, provided the requirements of
section 197, as set out above, are met.
[55]
The
question whether there is a transfer of a business as a going concern
is one to be determined with reference to the objective
facts of each
case.
[6]
[56]
In
my view and as l will demonstrate below, most of the questions raised
in this case can be answered with reference to the judgment
of the
Constitutional Court in
Aviation
Union of South Africa and another v South African Airways (Pty) Ltd
and Others
[7]
,
which
FFM did not refer to either in its written heads of argument or in
oral argument. For purposes of this judgment though, l
do not deem it
necessary to summarise the facts of that case. I will simply refer to
relevant portions of that judgment setting
out the legal principles
which ought to be applied in answering the vexed question of whether
section 197 applies in the present
case.
Evaluation
(a)
Transfer
[57]
Section 197(1)(b) defines a transfer as
‘the transfer of a business by one employer (“the old
employer”) to another
employer (“the new employer”)
as a going concern.
[58]
In
Aviation
Union
,
[8]
supra
the court stated as follows:
[113]
...
We must ask these questions in the inquiry whether a
transaction in issue contemplates a transfer of business by the old
employer
to the new employer.
Does the transaction
concerned create rights and obligations that require one entity to
transfer something in favour or for the
benefit of another or to
another
?
If so, does the obligation imposed
within a transaction, fairly read, contemplate a transferor who has
the obligation to effect
a transfer or allow a transfer to happen,
and a transferee who receives the transfer?
If the answer
to both these questions is in the affirmative, then the transaction
contemplates transfer by the transferor to the
transferee. Provided
that this transfer is that of a business as a going concern, for
purposes of section 197, the transferee is
the new employer and the
transferor the old. The transaction attracts the section and the
workers will enjoy its protection. (my
emphasis)
[59]
On the facts of the present matter, in my
view both questions which must be asked to determine whether there
has been or whether
there will be a transfer have to be answered in
the negative.
[60]
The cancellation of the service agreement
between FFM and Distell and the conclusion of a service agreement
between Distell and
Imperial does not create rights and obligations
that require FFM to transfer something in favour of or for the
benefit of Imperial.
FFM has no obligation to effect or to allow a
transfer to happen and Imperial is not the recipient of anything
being transferred
from FFM.
[61]
Imperial has started rendering the service
in terms of the service agreement with Distell with effect from 1
June 2015, parallel
to FFM. Nothing was transferred from FFM to
Imperial prior to or on that date, to enable Imperial to render the
service. Imperial
has come on board with its own business and has
rendered a service parallel to FFM without needing anything from FFM.
[62]
Even on 21 July 2015 when the contract with
FFM terminates, nothing will move from FFM to Imperial. FFM is not
required to transfer
anything for the benefit of Imperial and
Imperial does not require anything from FFM. There will be no move of
any assets, employees,
infrastructure or anything associated with the
business of FFM to Imperial. In other words, no components of the
business of FFM
will pass on to Imperial on 21 July 2015.
[63]
It must be remembered that it is not in
dispute that Imperial is a long standing merchandising service
provider which has its own
business and operations.
[64]
In
Aviation
Union
, supra the minority judgment
stated as follows:
[46]
…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 intact.
[47]
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.
[65]
As l have stated above, there are no
components of the business of FFM which will be transferred to
Imperial.
[66]
Cancellation of the service agreements
between FFM and Distell and the conclusion of a service agreement
between Distell and Imperial
simply means that FFM loses the right to
provide the services it had provided in terms of the service
agreements and, as the court
found in
Aviation
Union
, there is no transfer of a
business as a going concern but simple contracting out.
[67]
FFM retains its business and remains free
to offer that service to another service provider, using its current
workforce. That FFM
has retained its business is further evidenced by
the fact that since 1 June 2015 it has rendered a service parallel to
Imperial.
[68]
Even if Imperial decides to employ FFM
employees to work in remote areas as it has indicated, that is its
choice. It has no obligation
to employ any of these employees. In any
event the facts are that Imperial has not employed any of FFM’s
employees.
[69]
In
Aviation
Union,
supra the court also stated
as follows:
[52]
Although the definition of business in section 197(1) includes a
service, it must be emphasized
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
... (my emphasis)
[70]
As l have found, no business was
transferred to Imperial on 1 June 2015 and no business will be
transferred to Imperial on 21 July
2015. FFM has retained its
business. Rather this is a case of a change in service provider, from
FFM to Imperial. A change in service
provider, without more, does not
trigger section 197.
[71]
In
Swanepoel
and Others
v
Leica
Geosystems AG & others
,
[9]
the court described a similar situation as simply the failure of the
business of one competitor (in this case FFM) in an identifiable
market, leaving the other (in this case Imperial) to take over the
contract. This change in service provider without more does
not
trigger the provisions of section 197 of the LRA.
[10]
[72]
The
other indication that there is no transfer is the fact that FFM
itself is uncertain of the date of transfer, on which the rights
and
obligations between FFM and the employees will move to Imperial. This
is a relevant question in the inquiry.
[11]
[73]
In its correspondences to Distell and
Imperial prior to launching this application, it suggested that the
date of transfer was 1
June 2015 when Imperial commenced rendering
services in terms of its service agreement with Distell. But that
cannot be because
subsequent to 1 June 2015 FFM has been invoicing
Distell for the services rendered by its employees to Distell and it
will continue
to do so until 20 July 2015.
[74]
In this application, FFM contends that the
transfer will take place on 21 July 2015, which is the termination
date of its contract
with Distell. But as l have indicated above,
nothing will transfer on that date. On 21 July 2015 FFM simply loses
the contractual
right to render the service.
[75]
l
have considered the authorities
[12]
relied upon by FFM for its submission that the key question is
“
whether
in substance a discrete business operation had been transferred from
Entity A to Entity B”
and
found that on the facts, l accept that FFM has a discrete business
operation, which is indeed capable of being transferred.
However
neither this discrete business nor its components have been
transferred from FFM to Imperial. This is what distinguishes
the
authorities relied upon by FFM which l will now deal with.
[76]
In
Communication
Workers Union,
the fact that at the
outset MTN offered the call centre service which it now sought to in
source (and therefore a component of MTN’s
business) after
cancelling the service agreement with Interaction Call Centre, the
fact that MTN’s assets and infrastructure
were used by
Interaction to provide the call centre service and would transfer
back to MTN and the fact that a number of employees
rendering the
call centre service in question had been offered employment by MTN
subsequent to the cancellation of the agreement
with Interaction Call
Centre,
inter alia,
pointed towards a transfer of a business as a going concern. In the
present matter none of these factors are present.
[77]
Similarly in
TMS
Group Industrial Services
the court
found that section 197 applied because the new service provider
provided the warehousing service from the same premises
previously
used by the old service provider, using the outsourcer’s
computer systems and other equipment. Clearly something
had been
transferred from the old service provider to the new service provider
and section 197 had been triggered. In the present
case nothing has
been transferred.
[78]
Finally
in
Harsco
Metals SA
,
the court found that section 197 applied because Harsco, the old
service provider, was ‘leaving behind both human and non-human
assets that will be utilised by the new contractors’.
[13]
In the present matter FFM is not leaving behind anything that will be
utilised by Imperial. FFM will in fact ‘pack its bags
and move
on’. There is therefore no transfer of a business.
[79]
FFM’s initial stance in March 2015 to
embark on retrenchments as contemplated in section 189 when it was
informed of the cancellation
of the service agreement was correct.
This case fell outside of the scheme contemplated in section 197 of
the LRA. That this was
known to FFM is evidenced by the fact that FFM
specifically demanded 3 month’s notice of termination of the
service level
agreements to enable it to consult with the employees
as contemplated in section 189. It is unfortunate that it abandoned
that
plan based on legal advice which it received, which in my
judgment is incorrect.
[80]
Even though the application must fail on
account of having failed to satisfy the requirement of a transfer, l
nevertheless proceed
to deal with the requirements of a ‘business’
and ‘going concern’.
(b)
Business
[81]
Section 197(1)(a) defines a business to
include ‘the whole or any part of any business, trade,
undertaking or service’.
[82]
That FFM has a business, in the form of an
organised grouping of persons and assets facilitating the exercise of
an economic activity
which pursues a specific objective is not in
dispute.
[83]
What is also not in dispute is that the
services which will now be rendered by Imperial, though they include
a component of the
services previously offered by FFM, they are much
broader in scope than what FFM offered in terms of its service
agreement with
Distell.
[84]
The point of departure is that FFM regards
this business as forming part of Distell’s merchandising
function and therefore
Distell’s business. The argument is that
it is Distell’s business which has now been outsourced to
Imperial, thereby
triggering the provisions of section 197 of the
LRA.
[85]
Writing for the majority in
Aviation
Union
, Yacoob J held as follows:
106
‘
The final general
observation
is that,
in determining
whether contracting out amounts to the transfer of a business as a
going concern, the substance of the initial transaction,
more
specifically whether what is outsourced is a business as a going
concern rather than the provision of an outsourced service
remains
significant during subsequent transfers.
If the outsourcing institution
from the outset did not offer the service, that service cannot be
said to be part of the business
of the transferor.
What happens here is simple contracting out of the service, nothing
more, nothing less.(my emphasis)
107
There is no transfer of the
business as a going concern. The outsourcee is contracted to provide
the service, and becomes obliged
to do so. And it is the outsourcee’s
responsibility to make appropriate business infrastructure
arrangements. These may include
securing staff, letting appropriate
property for office or other work space, and acquiring fixed assets,
machinery and implements,
computers, computer networks and the like.
Cancellation of the contract
in these circumstances entails only that the outsourcee forfeits the
contractual right to provide the
service. The whole infrastructure
for conducting the business of providing the outsourced service would
ordinarily remain the property
of the outsourcee
.’
(my emphasis)
[86]
The facts simply do not establish what FFM
contends, that the services rendered by FFM to Distell since 2004
form part of Distell’s
merchandising function. At no
point did Distell have shelf stackers. There was never an initial
insourcing of shelf stackers
by Distell. On FFM’s own version,
Profill, Workforce and Kelly provided shelf stackers to Distell prior
to 2004. Thereafter
Distell contracted FFM to provide shelf stackers.
[87]
If from the outset Distell did not offer
the shelf stacking service, it cannot be said that shelf stacking is
part of the business
of Distell. What was outsourced was the
provision of a shelf stacking service, which was not part of
Distell’s business.
[88]
Whilst
the fact that Distell did not at any point have shelf stackers is not
decisive, it is a significant factor.
[14]
[89]
When FFM was awarded the contract
in
2004
to provide a service, no business was
transferred from Distell to FFM. FFM had to establish its own
operations, infrastructure and
personnel to be able to provide the
service. It might have taken over some employees from Profill,
Workforce and Kelly but the
taking over of some employees on its own
does not trigger the application of section 197. FFM chose to employ
those employees.
There was no obligation on it to employ them.
[90]
l find that the business in question is
that of FFM, an economic entity which is capable of being
transferred. However in this case
there are no facts to substantiate
the allegation that this business has been transferred or will
transfer to Imperial on any date.
As l have found above, FFM retains
its business which it can continue to operate after 21 July 2015 if
it finds another customer.
[91]
The fact that Imperial will now also offer
shelf stacking, a component of the business of FFM is irrelevant. It
does so as a competitor
of FFM, which is permissible and does not
trigger section 197.
[92]
What distinguishes Distell’s
merchandising employees who have been transferred to Imperial in
terms of section 197 from FFM’s
shelf stackers is the fact
that, unlike shelf stacking, merchandising formed part of Distell’s
business. That part of Distell’s
business was transferred to
Imperial and hence section 197 was triggered.
[93]
Furthermore, whilst this on its own is not
determinative but certainly significant, the service agreement
between Distell and Imperial
required the transfer of Distell’s
merchandising employees to Imperial. There was no similar provision
in respect of the
employees of FFM.
[94]
In conclusion on this aspect, l find that
FFM has a separate, distinguishable and discrete business capable of
being transferred.
However on the facts of this case, that business
has not been transferred to Imperial. FFM retains its business and
can provide
the same service of shelf stacking and van assistants to
another customer after 21 July 2015.
(c)
Going concern
[95]
In
National
Education Health and Allied Workers Union v University of Cape Town
and Others
[15]
the court set out the test for determining whether a business has
been transferred as a going concern as follows:
‘
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 the list of factors is not exhaustive and that none
of them is decisive individually.’
[96]
In
Aviation
Union
,
supra
the court stated as follows:
[16]
‘
The
phrase “going concern” has been construed to include not
only that the business has changed hands but that it is
exactly the
same business that continues to operate.
[97]
In
FAWU
v The Cold Chain
(
Pty
)
Ltd
& Another
[17]
the court held that what should be done in determining whether or not
a transfer has taken place is to take a “
a
snapshot of the entity before the transfer and assessing its
components
”
and comparing the picture with the one of the business after the
transfer “
to
establish whether it is substantially the same business but in
different hands
”.
[18]
[98]
In the present matter, after 21 July 2015
FFM retains its business of shelf stacking which it can offer to any
customer that it
finds. That business will not been transferred to
Imperial. Imperial has its own business, of merchandising, which it
has operated
long before being awarded the tender by Distell. It is
simply taking over a contract from FFM, which has lost the right to
provide
a service to Distell.
[99]
It cannot be said that on 21 July 2015
FFM’s business will be in Imperial’s hands. The facts
show that Imperial is in
fact a different business which is in
competition with FFM but utilises syndicated merchandising, which FFM
does not subscribe
to. Even the scope of services that will be
offered by Imperial is much wider than the services previously
offered by FFM. Imperial
offers a merchandising service which
includes shelf stacking, whilst FFM only offers a shelf stacking
service and van assistants,
which are components of merchandising.
FFM conceded it would have to re-invent itself and partner with
another entity to offer
the services now required by Distell.
[100]
After 21 July 2015, a new contractor with a
different business will be on the scene. It is not a case of the same
business in different
hands. On this leg, FFM’s application
must also fail.
[101]
Turning
then to the hypothetical example of the UCT scenario that Mr Van As
referred to in oral argument, the simple answer to the
question is
that ‘
the
application of s197 depends upon a finely grained analysis of the
facts of a particular case
.’
[19]
The three questions that ought to be asked are whether (a) there is a
transfer (b) of a business (c) as a going concern. Section
197 will
be triggered if these three requirements are met. It is simply
impossible to answer these three questions using the hypothetical
example of Mr Van As.
Other
issues
[102]
When the application was filed on 8 June
2015, the second respondent was cited as Imperial Retail Services
(Pty) Ltd whereas the
correct citation should have been VMS Group
(Pty) Ltd t/a Imperial Retails Solutions. An application to correct
the citation was
brought and not opposed by any of the respondents.
It is granted.
Costs
[103]
Both parties submitted that costs must
follow the result. I see no reason to depart from an agreed stance.
Order
[104]
In the premises l make the following order.
104.1
The citation of the second respondent is
amended to read VMS Group (Pty) Ltd t/a Imperial Retails Solutions.
104.2
the termination of the service contract
between the applicant and the first respondent and the subsequent
award of the service contract
for expanded merchandising services to
second respondent does not constitute a transfer of a business as a
going concern as contemplated
in section 197 of the LRA.
104.3
The contracts of employment of the
applicant’s employees will not automatically transfer to second
respondent on 21 July 2015.
104.4
The applicant is ordered to pay the second
respondent’s costs.
_______________________
Ralehoko
AJ
Appearances
For
the Applicant:
Advocate M J Van As
Instructed
by:
Brian Bleazard Attorney
For
the Second Respondent: Mr
Sean Snyman of Snyman Attorneys
[1]
This section deals with the large-scale dismissal of employees for
an employer’s operational requirements.
[2]
[2014]
10 BLLR 974 (LAC).
[3]
[2015]
JOL 33385 (LAC).
[4]
(2012)
33 ILJ 901 (LC) at para 27.
[5]
City
Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and
Others
(2015) 36 ILJ 1423 (CC) at para 35.
[6]
Transport
and Allied Workers Union of SA v Transnet (Pty) Ltd and Others
(2014) 35 ILJ 526 (LC) at para 16 and
Swanepoel
and Others v Leica Geosystems AG and Others
(2014) 35 ILJ 2877 (LC) at para 25.
[7]
(2011)
32 ILJ 2861 (CC)
[8]
See
also
PE
Rack 4100 CC v Sanders and Others
(2013) 34 ILJ 1477 (LAC).
[9]
(2014)
35 ILJ 2877 (LC) a
t
para 27.
[10]
See also
Crossroads
Distribution (Pty) Ltd t/a Jowells Transport v Clover SA (Pty) Ltd
and Others
[2008] 6 BLLR 565
(LC) and
Franmann
Services (Pty) Ltd v Simba (Pty) Ltd and Another
(2013) 34 ILJ 897 (LC).
[11]
Swanepoel
and Others
v
Leica
Geosystems AG & others
,
supra
para 24.
[12]
Paragraph
47 above.
[13]
At
para 21.
[14]
Harsco
Metals SA
supra
at para 19 and 20
[15]
(2003) 24 ILJ 95 (CC) at para 56.
[16]
At para 71.
[17]
[2010] 1 BLLR 49
(LC)
at
para 18.
[18]
See
also
Chemical
Energy Paper Printing Wood and Allied Workers Union on behalf of
Members v Hydro Colour (Pty) Ltd and Ano
(2011) 32 ILJ 1677 (LC) at para 13.
[19]
Communication
Workers Union v Mobile Telephone Networks & Others
Unreported
DA10/2013
[2015] ZALAC 8
(21 April 2015].