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[2017] ZALCJHB 34
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Vermaak and Another v Sea Spirit Trading 162 CC t/a Paledi Super Spar and Others (JS964/2015) [2017] ZALCJHB 34; (2017) 38 ILJ 1411 (LC) (31 January 2017)
THE
LABOUR COURT OF SOUTH AFRICA
JOHANNESBURG
Reportable
Case no: JS 964/2015
In the matter between:
CORNELIUS MARTHINUS
VERMAAK
First Applicant
MARLENE DAPHNE
VERMAAK
Second Applicant
and
SEA
SPIRIT TRADING 162 CC t/a PALEDI SUPER SPAR
First Respondent
GREENVILLE
TRADING 543 CC t/a PALEDI TOPS
Second Respondent
THE
SPAR GROUP LIMITED t/a PALEDI SUPER SPAR
Third Respondent
Heard:
3,
4 and 7 November 2016
Delivered:
31 January 2017
Summary:
Transfer of business as a going concern.
The
question is: does the perfection of a notarial bond and consequent
taking of possession of movable property to realise an indebtedness
constitute a transfer of a business as a going concern as
contemplated in section 197 of the LRA.
JUDGMENT
PRINSLOO
J.
Introduction
[1]
The
Applicants approached this Court for relief in terms of section
187(1)(g), read with section 197, of the Labour Relations Act
[1]
(the Act), claiming that they were automatically unfairly dismissed.
[2]
Before I deal with the pleadings, evidence
or merits of the case, I deem it necessary to set out who the
dramatis personae
are.
[3]
The First Applicant (Vermaak) and a
partner, Mr Kasper Steenkamp (Steenkamp) purchased the First and
Second Respondents from the
previous owner, Mr Riaan Claasen, and
they each held 50% members’ interest in the two entities.
[4]
The First Respondent is a close corporation
that traded under the name Paledi Super Spar (Paledi Super Spar) as a
Spar supermarket
at the Twin City Shopping Centre on the R71 between
Polokwane and Tzaneen in the Limpopo province.
[5]
The Second Respondent is also a close
corporation and traded under the name Paledi Tops (Paledi Tops) as a
retail liquor store in
the same shopping centre.
[6]
Vermaak and Steenkamp started to trade as
the owners of the two businesses on 1 November 2013. On the same date
Vermaak was employed
as member / owner and he signed a contract of
employment with Paledi Super Spar wherein his basic salary was set
out as R 55 000
per month. On 26 February 2014 his salary package was
revised and it was increased to R 70 000 per month with effect from 1
March
2014.
[7]
The Second Applicant (Marlene) is Vermaak’s
wife and she was employed as finance manager of Paledi Super Spar
with effect
from 1 November 2013 at a basic salary of R 30 000 per
month. On 26 February 2014 her salary package was revised and it was
increased
to R 40 000 per month with effect from 1 March 2014. At
this point Marlene was the finance manager at Paledi Super Spar and
Paledi
Tops.
[8]
The Third Respondent is Spar Group Limited
(Spar) and it supplied trading stock to Paledi Super Spar and Paledi
Tops. Spar registered
general notarial covering bonds over the
movable property of Paledi Super Spar and Paledi Tops as security for
their indebtedness
for the stock that was supplied to them.
[9]
Subsequently Paledi Super Spar and Paledi
Tops were unable to meet their financial obligations and notified Mr
Freeman, Spar’s
new business development manager, on 24 June
2015 that they would be closing down at the end of June 2015.
[10]
Spar almost immediately approached the High
Court on 25 June 2015 on an urgent basis for an order
inter
alia
to take possession of all the
movable property of Paledi Super Spar and Paledi Tops for the purpose
of perfecting its security in
terms of the general notarial covering
bonds that were registered in November 2013. The order was granted on
30 June 2015 and Spar
took over control of Paledi Super Spar and
Paledi Tops on 1 July 2015.
[11]
The Applicants’ case is that the
business of Paledi Super Spar and Paledi Tops was transferred to Spar
as a going concern
on 1 July 2015 and they were dismissed by Spar on
22 July 2015.
The pleadings and pre-trial minute
[12]
In their statement of case the Applicants
claimed that Paledi Super Spar and Paledi Tops were transferred to
Spar as a going concern
on 1 July 2015 in terms of the order granted
by the High Court on 30 June 2015. All the employees of Paledi Super
Spar and Paledi
Tops, including the Applicants, were transferred and
became the employees of Spar by virtue of the provisions of section
197 of
the Act.
[13]
Spar traded and conducted business under
the name and style of Paledi Super Spar and Paledi Tops.
[14]
The Applicants claim that they were
dismissed by Spar on 22 July 2015 when they were instructed to leave
the premises because they
did not accept Spar’s contracts of
employment. The new contracts of employment contained conditions
materially less favourable
than those on which they were employed by
Paledi Super Spar and Paledi Tops. Their claim is that they were
automatically unfairly
dismissed as provided for in section
187(1)(g), read with section 197, of the Act.
[15]
In response to the Applicants’
statement of case, Spar’s pleaded case is that it does not and
did not trade or conduct
business under the name and style of Paledi
Super Spar and Paledi Tops.
[16]
Spar denied that the business of Paledi
Super Spar or Paledi Tops was transferred as a going concern and that
the employees became
employees of Spar by virtue of section 197 of
the Act. Spar’s case is that it obtained a court order on 30
June 2015 that
inter alia
authorised
it to enter the premises of Paledi Super Spar and Paledi Tops for the
purpose of perfecting the general notarial covering
bond and
directing them to give Spar possession of such movable property and
to carry on the business of Paledi Super Spar and
Paledi Tops
relating to the movable property in the name of and at the expense of
Paledi Super Spar and Paledi Tops.
[17]
The parties agreed on the issues this Court
has to decide and those are firstly whether the Applicants were
employees of Paledi
Super Spar and Paledi Tops on 30 June 2015 and
when the alleged transfer of the businesses as a going concern to
Spar took place,
secondly whether there was a transfer as a going
concern, thirdly and if so, whether Spar dismissed the Applicants on
22 July 2015
and lastly, if they were dismissed, whether such
dismissal constituted an automatically unfair dismissal as
contemplated in section
187(1)(g) of the Act.
The evidence adduced
[18]
Vermaak testified on behalf of the
Applicants. I do not intend to repeat what is already captured
supra
insofar as Vermaak testified about how
it came about that he started with the business in November 2013.
[19]
He testified that he was employed to manage
the shops, to order stock and to deal with all issues related to
staff, security, meetings
etcetera. His business partner, Steenkamp,
did not have an employment contract as he was a silent partner and
not involved in the
day to day running of the business, as was
Vermaak and for which he was paid a salary.
[20]
Initially Vermaak was paid R 55 000 per
month. He testified that when the business did well he had a
discussion with Steenkamp,
as they had initially agreed that Vermaak
would start on a lower salary, but when the business did well they
agreed on an increase.
On 26 February 2014 his salary package was
revised and increased to R 70 000 per month with effect from 1 March
2014. His wife’s
salary was increased at the same time.
[21]
The shopping mall where Paledi Super Spar
and Paledi Tops traded from was enlarged and Shoprite opened in the
same mall. Vermaak
testified that Paledi Super Spar and Paledi Tops
were hurt by the opening of Shoprite and the business did not do well
after Shoprite
opened in the same mall.
[22]
Paledi Super Spar and Paledi Tops ran into
financial trouble and were in arrears with payments for stock.
Vermaak requested a voluntary
bond perfection and Spar obtained a
court order that authorised the perfecting of Spar’s security
in terms of the general
notarial covering bond. Vermaak referred to
the specific clauses in the court order that authorised and empowered
Spar to carry
on the business of Paledi Super Spar and Paledi Tops in
the name of and at the expense of Paledi Super Spar and Paledi Tops
and
for that purpose, purchase goods and do whatever else Spar deemed
necessary.
[23]
Vermaak testified that on 1 July 2015 Spar
came in and started to run the business of Paledi Super Spar and
Paledi Tops. The Applicants
remained in the shop and fulfilled their
normal functions, but Vermaak had to report to the Spar
representatives on a number of
issues, including on the daily takings
and labour issues. The Applicants requested to remain present at the
stores in a managerial
capacity, pending the conclusion of a
management agreement.
[24]
The Applicants were subsequently handed
‘management agreements’ that purported to be an agreement
between the Spar Group
Limited and the Applicants. The management
agreement drafted for Vermaak, wherein the parties were Spar Group
Limited and Vermaak,
appointed Vermaak as store manager of Paledi
Super Spar for a period of three months, commencing on 1 July 2015
and terminating
on 30 September 2015 at a basic salary of R 30 000
per month. The agreement further stipulated that Spar North Rand
would open
a bank account in the name of Paledi Super Spar and all
monies received by the business, had to be deposited into the said
bank
account and Vermaak had to report to Spar’s senior retail
operations manager on a daily basis on all deposits made into the
bank account and all purchase orders issued and weekly on issues
relating to purchases, sales and stock.
[25]
A similar management agreement was drafted
for Marlene wherein she was appointed as manager of Paledi Tops at
remuneration of R
12 500 per month for a period of 3 months
commencing on 1 July 2015 and terminating on 30 September 2015.
[26]
On 22 July 2015 Spar’s Mr Craig
Records (Records) visited Paledi Super Spar and Paledi Tops and the
Applicants indicated that
the terms of the management agreement were
not acceptable to them as they earned R 70 000 and R 40 000 per month
respectively and
the management contracts they received indicated
that they would be appointed at R 30 000 and R 12 500 per month,
which was far
below what they earned. Furthermore, the contracts were
fixed for a period of three months only. They did not sign the
contracts
and when they rejected the terms, Records told them that
they were dismissed and they no longer worked for Spar. The
Applicants
were told to evacuate the premises immediately as they
were relieved of their duties and their services were no longer
required.
[27]
Vermaak testified that he had eight other
managers in the store who reported to him and the shop manager, but
they stayed on as
employees and carried on with the business as usual
and they are still working at Paledi Super Spar. The other managers’
salaries were paid by Spar. Only the Applicants were told to leave
and to vacate the premises. No other manager was told to leave.
[28]
Spar’s attorney confirmed on 22 July
2015 that as the management contracts were no suitable and accepted
by the Applicants,
no management contract came into existence between
Spar and the Applicant. Further that Spar decided, in terms of the
powers conferred
upon it under the court order obtained on 30 June
2015, to carry on the business itself and that the Applicants had to
vacate the
premises and cease their involvement in the management of
the businesses.
[29]
On 23 July 2015 Spar’s attorneys
wrote another letter to Vermaak wherein his attention was drawn to
the terms of the court
order obtained on 30 June 2015 and
specifically to the fact that Spar was authorised to take possession
of all the movable property
of Paledi Super Spar and Paledi Tops and
that included in the movable property Spar took possession of, were
the businesses of
Paledi Super Spar and Paledi Tops as going
concerns.
[30]
Vermaak testified that Paledi Super Spar
and Paledi Tops were never closed and never stopped trading. His
testimony was that on
30 June 2015 Spar did a stock take and the
stock was credited back to their account and was deducted from the
amount they owed
Spar. As from 1 July 2015 Spar took over the
operation of Paledi Super Spar and Paledi Tops. Spar opened a new
bank account and
all the money generated by Paledi Super Spar and
Paledi Tops was paid into the bank account opened by Spar.
[31]
Vermaak testified that the Applicants were
paid their salaries until 30 June 2015 and they were not paid for the
22 days in July
2015 that they rendered their services at Paledi
Super Spar and Paledi Tops. The Applicants claim their salaries for
the period
in July 2015 they rendered services but were not paid for,
notice pay and leave.
[32]
In cross-examination Mr van As for the
Third Respondent canvassed the issue of the perfection of the bond
and the transfer of the
business. Vermaak agreed that the notarial
covering bond he signed meant that Spar would provide goods to Paledi
Super Spar and
Paledi Tops and if they could not pay for the goods
provided, Spar would perfect the bond and take over the business to
realise
the debt. Spar could sell off the stock and equipment or the
store as a whole to cover the debt but if the businesses became
profitable
and the debt was paid, Spar could have handed it back to
them to carry on with the business.
In
casu
Spar sold Paledi Super Spar and
Paledi Tops to settle the debt.
[33]
Mr van As put to Vermaak that after 1 July
2015 Spar opened a bank account and all deposits from Paledi Super
Spar and Paledi Tops
were paid into the bank account and that money
was used to settle the indebtedness that arose before 1 July 2015 and
before the
perfection of the notarial bond. Vermaak agreed but stated
that he still had to pay the overdraft as Spar refused to pay that.
[34]
Mr van As put to Vermaak that there was no
transfer as a going concern as Spar simply took possession of Paledi
Super Spar and Paledi
Tops for the purpose of paying off the debt and
not to run the business for themselves. If that was the case, Spar
would have kept
all the money deposited into the bank account and not
used it to pay debt that arose before 1 July 2015. Vermaak disagreed
and
stated that in all the documents the words ‘going concern’
was used and he understood it to be taken over as a going
concern.
The shops continued to trade and all the employees remained there,
except the Applicants.
[35]
Mr van As also put to Vermaak that Paledi
Super Spar and Paledi Tops were in financial distress and that was
the reason why the
notarial bond was perfected and the reality was
that there was no money in the businesses and it was not possible to
pay Vermaak
R 70 000 and Marlene R 40 000 per month, as they earned
at 30 June 2015.
[36]
Mr Craig Freeman (Freeman) testified in his
capacity as Spar’s new business development manager. He
testified that the core
business of the Third Respondent is to sell
and supply stock to Spar retailers. A notarial bond is registered
over the movable
assets of the business as security if the retailer
cannot pay for the stock and the notarial bond would be perfected
when excessive
amounts are due and not paid. He explained that where
a notarial bond registered in favour of Spar is perfected, Spar takes
over
the control of the store, stabilize the business and determine
the indebtedness. Where the store is stabilized and the debts paid,
it is given back to the owner of the store and if this cannot be
done, the business is sold.
[37]
In casu
Spar
took over the control of Paledi Super Spar and Paledi Tops on 1 July
2015. Freeman testified that Spar was in control of the
said
businesses for the period 1 July 2015 until 2 April 2016, but was
unable to get the stores to be profitable and Spar looked
for a
buyer. Vermaak and Steenkamp were also afforded an opportunity to
find a buyer, but they could not. When Paledi Super Spar
and Paledi
Tops were sold in April 2016, there was still a shortfall of R 890
000.
[38]
Freeman testified that Vermaak asked to
remain in the business after Spar took control in July 2015 as he
would have no other means
of income. The salary the Applicants drew
was not sustainable and Spar looked at market related salaries and
offered them such
salaries, which offer the Applicants rejected.
After the Applicants rejected the fixed-term contracts that were
offered to them,
Spar had to put a new store manager in place and
that was done with effect from 22 July 2015, when Spar appointed a
new store manager,
Matthew Human, and the Applicants were requested
to leave the premises. Freeman testified that if Vermaak accepted the
contract
Spar offered to him, he would have remained as the store
manager. No other managers or employees of Paledi Super Spar and
Paledi
Tops were replaced.
[39]
In cross-examination Freeman testified that
after Spar took control of Paledi Super Spar and Paledi Tops, the two
close corporations
(First and Second Respondents) played no further
role in the stores.
The issues this Court has to
decide:
Were the Applicants employees?
[40]
The first issue to be decided is whether
the Applicants were employees of Paledi Super Spar and Paledi Tops on
30 June 2015 and
when the alleged transfer of the businesses as a
going concern to Spar took place on 1 July 2015.
[41]
Vermaak signed a contract of employment
with Paledi Super Spar on 4 December 2013, with effective date being
the commencement of
employment which is recorded as 1 November 2013.
Marlene signed a contract of employment on 1 November 2013 in terms
of which she
was employed as finance manager of Paledi Super Spar
with effect from 1 November 2013. The Applicants’ terms and
conditions
of employment were set out in the said contracts.
[42]
Vermaak testified that he rendered services
as general or store manager and Marlene as the financial manager and
that they were
paid as per the contracts of employment and tax and
UIF had been deducted monthly.
[43]
Mr van As argued that there is no evidence
to show that the Applicants concluded written contracts of employment
with the First
and Second Respondents as the contracts of employment
that were entered into, are between the Applicants and Paledi Super
Spar,
a non-existent legal entity. In my view there is no merit in
this argument as Paledi Super Spar is the First Respondent’s
trading name and it was not disputed that the Applicants rendered
services to Paledi Super Spar. To accept Mr van As’ argument
would be to place form over substance and would be ignoring the
evidence before me and I am not inclined to do that.
[44]
I am satisfied that the Applicants indeed
entered into an employment agreement with the First Respondent and
that they rendered
services and performed duties as general and
finance manager in respect of Paledi Super Spar and Paledi Tops. They
assisted in
the carrying on and conducting of the business of the
First and the Second Respondents and for that they received
remuneration.
[45]
The Applicants were indeed employees of
Paledi Super Spar and Paledi Tops as at 30 June 2015.
[46]
Mr van As further argued that this Court
should draw an adverse inference from Marlene’s failure to
testify and to give evidence
at the trial, when she knew that the
existence of an employment relationship was challenged and she was
present but did not adduce
evidence to prove the employment
relationship.
[47]
In my view there is no merit in this
argument. Vermaak testified about the fact that Marlene was employed
as finance manager and
his evidence was supported by a written
contract of employment, which I accepted was sufficient to establish
the existence of an
employment relationship. Vermaak further
testified about the salient facts Marlene would have testified about,
for instance the
salary that she earned, which was not disputed and I
cannot draw an adverse inference from Marlene’s failure to
testify.
Was there a transfer as a going
concern?
[48]
The Applicants’ case is that the
businesses of the First and the Second Respondents were transferred
to Spar as going concerns
on 1 July 2015 in terms of an order of the
High Court. All employees of Paledi Super Spar and Paledi Tops,
including the Applicants,
became employees of Spar on the date of the
transfer by virtue of the provisions of section 197 of the Act.
[49]
The Third Respondent’s case is that
the High Court order empowered and authorised Spar to perfect a
notarial bond over the
movable assets of Paledi Super Spar and Paledi
Tops and that there was no transfer as a going concern as Spar simply
took possession
of Paledi Super Spar and Paledi Tops for the purpose
to pay off the debt and not to run the business for themselves.
[50]
The question is: does the perfection of a
notarial bond and consequent taking of possession of movable property
to realise an indebtedness
constitute a transfer of a business as a
going concern as contemplated in section 197 of the Act.
[51]
In casu
Spar
perfected a notarial bond and took possession of movable property to
realise an indebtedness, but it did not end there and
that is why the
issue of transfer as contemplated in section 197 of the Act arose.
[52]
Before dealing with the merits of this
case, the general principles applicable to a section 197 transfer
have to be set out.
[53]
Section
197
(1) and
(2) of the Act read 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.”
[54]
The
Constitutional Court in
Aviation
Union of SA and another v SA Airways (Pty) Ltd and others
[2]
(
Aviation
)
held that section 197
must be interpreted against the background that its purpose is to
preserve all contracts of employment between
the workers and the
owner of the business which is transferred as a going concern. In
this way, on the one hand, the workers' employment
is safeguarded
and, on the other, a new owner is guaranteed a workforce to continue
with the operation of the business.
[55]
The question whether or
not there has been a transfer of a business as a going concern
entails an enquiry into (1) the existence
of a business (is there an
economic entity capable of being transferred) (2) whether there was a
transfer of a business and (3)
whether the business is transferred as
a going concern (does the economic entity that is transferred retain
its identity after
the transfer?)
[3]
.
[56]
In summary, section 197 will apply if all conditions are met
and will be triggered with reference to three requisites namely a
business,
transfer and going concern.
The existence of a business
[57]
The first enquiry is whether there is a
‘business’ as defined in section 197(1)(a).
[58]
The Courts have
considered the question of what would constitute a business with
reference to the concept of
an
autonomous economic entity capable of being transferred.
The
Courts found that a transfer of the same services in itself is not
adequate to bring the transaction within the ambit of section
197.
What is transferable in terms of the section is not a service itself
but a business or entity that provided the service concerned.
For a
transfer to trigger the application of the section, it must
constitute a transfer as a going concern.
[4]
[59]
In
City
Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and
others
[5]
(Grinpal)
the
Court held that:
“
..The
question is whether the activities conducted by a party, such as
first respondent, 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.”
[60]
The business conducted by Paledi Super Spar
is that of a Spar supermarket and Paledi Tops is that of a retail
liquor store, which
are identifiable business undertakings and which
constitute autonomous economic entities and a ‘business’
for purposes
of section 197(1)(a).
Transfer as going concern
[61]
Having found that Paledi Super Spar and
Paledi Tops
are businesses for purposes of
section 197(1)(a), the next consideration is whether the business was
transferred and if so, whether
the transfer was as a going concern.
[62]
The
issue of ‘transfer as going concern’ had been considered
by the Courts and
the
test for determining whether a business was transferred as a going
concern or not was laid down by the Constitutional Court
in
National
Education Health and Allied Workers Union v University of Cape
Town
[6]
(NEHAWU)
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 this list of factors is not exhaustive and that none
of them is decisive individually.”
[63]
In
Grinpal
the
Labour Appeal Court held that:
“
..In
essence, the approach adopted in
NEHAWU
follows that of the European Court of Justice in the application
of the Business Transfers 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.”
[64]
In
Unitrans Supply Chain
Solutions (Pty) Ltd v Nampak Glass (Pty) Ltd
[7]
(Unitrans)
the
Court held that:
“
To
the extent that the contractual right to provide warehousing services
now vests in TMS, the same assets are used to provide those
services
and the activities conducted at Nampak’s behest are
substantially the same as those performed by the first applicant
prior to 1 February, the business performed by the first applicant
has transferred as a going concern to TMS.”
[65]
In summary, to determine
whether a
business was transferred as a going concern a number of factors must
be considered and regard must be had to the substance
and not the
form of the transaction. The factors to be considered are whether
there was a transfer of assets, whether employees
and customers were
taken over, whether the same business is being carried on, whether
the entity retained its identity after the
transfer and carries on
with the same or similar activities without substantial interruption.
[66]
To answer the question whether the
perfection of a notarial bond and consequent taking of possession of
movable property to realise
an indebtedness constitute a transfer of
a business as a going concern as contemplated in section 197 of the
Act, I have to consider
the substance and not the form of the
transaction.
[67]
The perfection of a notarial bond and the
consequent taking of possession of movable property to realise an
indebtedness does not
per se
constitute
a transfer as contemplated in section 197 of the Act. Where movable
property is taken to realise an indebtedness and
the property is sold
for that purpose, there is no transfer of a business as a going
concern.
[68]
However, a consideration of the substance
of such transaction, would require a closer look at other factors.
Ultimately it calls
for an assessment of the objective facts.
[69]
Mr van As submitted that there was no transfer of a business
as Spar did not take possession of the business of
Paledi
Super Spar and Paledi Tops in order to manage it for its own account,
but instead took control of the businesses on a temporary
basis in
order to realise their indebtedness to Spar and Spar did no more than
to act as a creditor to secure indebtedness. Spar
did not take
control of the business for its own account but instead continued to
operate the business for the account of Paledi
Super Spar and Paledi
Tops. The money generated was used to settle the indebtedness that
arose prior to 1 July 2015.
[70]
In my view Spar did more that to act as a
creditor seeking to secure and realise indebtedness to it. If Spar
simply sought to secure
and realise a debt, it could have taken
control over the movable property of Paledi Super Spar and Paledi
Tops and could have sold
or dispose of the moveable property to
realise the debt. Instead, Spar took not only control over the
movable property, but also
of the stores and operated the stores from
1 July 2015 until April 2016, when Spar sold the businesses as going
concerns.
[71]
Mr
van As submitted that the question
in
casu
relating
to the perfection of a notarial bond has not been previously
considered and he referred to
PE
Rack 4100 CC v Sanders and others
[8]
(PE Rack)
where a similar question was considered. In
PE
Rack
the
Labour Appeal Court considered whether a transfer as a going concern
took place where the franchisor terminated a franchise
agreement and
entered into a similar agreement with the new franchisee. The
majority found that it did not constitute a transfer
of a business in
terms of section 197 of the Act.
[72]
In my view
PE
Rack
does not assist Spar for two
reasons. The first and obvious is that the issue
in
casu
does not relate to a franchise
agreement. Even if the question that was considered was similar to
the question this Court has to
consider, it still does not assist
Spar as the facts are different. In
PE
Rack
the second respondent (the
franchisor, Cell C) remained the lessee of the business premises in
which the franchisee conducted business
and the furniture and
fittings on the business premises remained the property of Cell C.
The stock remained the property of the
franchisee and when the
agreement was cancelled, the stock was removed from the business
premises by the franchisee. The Labour
Appeal Court held that the
business was not acquired as a going concern and that:
“
What
effectively had taken place was that the license to operate a
business on behalf of the second respondent had been terminated
by
the latter, insofar as the third and fourth respondents were
concerned. This was not the equivalent situation to that of an
outsourcing agreement. The franchisor continued to hold the core
assets. They remained those of the franchisor, being the second
respondent, both before and after the agreement had been concluded.
There was thus no transfer of infrastructural assets which
would
sustain an argument that there was a transfer of a going concern.
Once the core assets remained intact, that is in the ownership
of the
second respondent as the franchisor, it becomes difficult to see how
a transfer of a business pursuant to s 197(1) has taken
place.“
[9]
[73]
Mr van As submitted that a transfer assumes the permanent
handing over of control and that the intention of the parties is
relevant.
He submitted that the Court should consider whether the
parties intended the transfer of a business.
In casu
Spar took
possession of the businesses without a section 197 transfer taking
place. Spar took possession in order to realise the
debts and to
carry on with the business until it was profitable and could be
handed back to the owners, Vermaak and Steenkamp and
there was never
and intention to transfer the business. This was not a transfer but a
creditor taking control.
[74]
Section 197 will be triggered if a business was transferred as
a going concern. That means that a business in operation is
transferred
to remain the same but in different hands. The sale of a
business is not required by section 197, nor is it required that the
transfer
be a long term or permanent one. In my view the intention of
the parties or the reason why a business is transferred, is
immaterial
and irrelevant and play no role in the objective enquiry
whether a transfer as contemplated in section 197 of the Act has
taken
place.
[75]
If the transfer meets the criteria I already set out, the
provisions of section 197 of the Act would apply and if that is the
case,
the transferee is substituted automatically and by operation of
law for the transferor as the employer of those of the transferor's
employees engaged in the business on the date of the transfer. The
transfer occurs by operation of law and irrespective of the
wishes or
intentions of the parties.
[76]
The real question is thus: did the transfer meet the criteria
to trigger the operation of section 197 of the Act.
[77]
In casu
the
following is undisputed:
77.1. Vermaak and his
partner, Kasper Steenkamp purchased Paledi Super Spar and Paledi Tops
from the previous owner,
Mr Riaan Claasen;
77.2. Spar took control
over Paledi Super Spar and Paledi Tops on 1 July 2015, after it
obtained a court order on 30
June 2015;
77.3. The court order of
30 June 2015 authorised and empowered Spar to enter upon the premises
of Paledi Super Spar
and Paledi Tops and to take possession of all
movable property for the purpose of perfecting Spar’s security
in terms of
a notarial covering bond and to retain possession of the
movable property as security for the debts of Paledi Super Spar and
Paledi
Tops for so long as Spar deemed fit. Spar was also authorised
to carry on the business of Paledi Super Spar and Paledi Tops in the
name of and at the expense of Paledi Super Spar and Paledi Tops and
for that purpose to purchase goods and do whatever else Spar
deems
necessary;
77.4.
After 30 June 2015 when Spar took control over Paledi Super Spar and
Paledi Tops, the stores did not close but
continued to trade under
the same name and from the same premises;
77.5.
Except for the Applicants, all the employees of Paledi Super Spar and
Paledi Tops remained employed after Spar
took control of the said
stores on 1 July 2015;
77.6.
Spar appointed a store manager after 22
July 2015 and he reported to Spar and carried out instructions from
Spar;
77.7.
In April 2016 Spar sold Paledi Super Spar
and Paledi Tops and disposed of the said businesses as going
concerns.
[78]
Vermaak and Steenkamp purchased Paledi
Super Spar and Paledi Tops from the previous owner, Mr Riaan Claasen.
Unlike
PE Rack
Spar
was never the owner or lessee of the business premises in which
Paledi Super Spar and Paledi Tops conducted business. The furniture
and fittings on the business premises never belonged to Spar. Spar
had a notarial bond registered as security for the goods or
stock it
supplied to Paledi Super Spar and Paledi Tops. Yet, when the notarial
bond was perfected, Spar took over control of the
stores, continued
to trade under the same name and from the same premises with the same
employees, except the Applicants, and even
appointed its own store
manager to run the show. I have difficulty to accept that in doing
all this, Spar did not more than to
act as a creditor to secure
indebtedness, as submitted by Mr van As.
[79]
I alluded to the
factors to be
considered and based on the evidence that was adduced, I am convinced
that
in casu
there was a transfer of assets as Spar has taken
over two stores with whatever furniture, fittings or infrastructure
they had. All
the employees of
Paledi Super Spar
and Paledi Tops, except the Applicants
were taken over and the
same business with the same or similar activities carried on without
any interruption and retained its
identity after 1 July 2015.
[80]
In my view there was indeed a transfer of
the business of Paledi Super Spar and Paledi Tops from the First and
Second Respondents
to the Third Respondent and such transfer took
place on 1 July 2015.
Did Spar dismiss the Applicants
[81]
Having found that the Applicants were
employees and that the business of Paledi Super Spar and Paledi Tops
transferred to Spar on
1 July 2015 as a going concern, it follows
that the Applicants became employees of Spar with effect from the
date of the transfer
by virtue of the provisions of section 197 of
the Act.
[82]
The question is whether they were dismissed
by Spar on 22 July 2015 when they were told to vacate the premises
and that their presence
was no longer required.
[83]
The evidence was that on 22 July 2015
Records visited Paledi Super Spar and Paledi Tops and the Applicants
indicated that the terms
of the management agreement were not
acceptable to them as they would be appointed at a monthly
remuneration far below what they
earned and only for a fixed period
of three months. Records told them that they were dismissed and they
no longer work for Spar.
The Applicants were told to evacuate the
premises immediately as they were relieved of their duties and their
services were no
longer required.
[84]
Spar’s attorney confirmed on 22 July
2015 that as the management contracts were not suitable and accepted
by the Applicants,
no management contract came into existence between
Spar and the Applicants. Further that Spar elected, in terms of the
powers conferred
upon it under the Court order obtained on 30 June
2015, to carry on the business itself and that the Applicants had to
vacate the
premises and cease their involvement in the management of
the businesses.
[85]
On 23 July 2015 Spar’s attorneys
wrote another letter to Vermaak wherein his attention was drawn to
the terms of the Court
order obtained on 30 June 2015 and
specifically to the fact that Spar was authorised to take possession
of all the movable property
of Paledi Super Spar and Paledi Tops and
that included in the movable property Spar took possession of, were
the businesses of
Paledi Super Spar and Paledi Tops as going
concerns. The letter also confirmed that Spar was authorised to do
whatever it deemed
necessary and that it was vested with the right to
manage the business and as such has appointed managers to run the
businesses.
It was re-iterated that the Applicants’ presence at
the businesses was not required and that they remained employed by
Paledi
Super Spar and Paledi Tops and any claims they may have for
salary or otherwise, are claims against the First and the Second
Respondents.
[86]
Freeman testified that Vermaak asked to
remain in the business after Spar took control in July 2015 as he
would have no other means
of income. After the Applicants rejected
the fixed-term contracts that were offered to them, Spar had to put a
new store manager
in place and that was done with effect from 22 July
2015, when the Applicants were requested to leave the premises.
[87]
I have no doubt that telling an employee
that his or her presence at the work place is no longer required,
requesting an employee
to leave the premises and subsequent
non-payment of the employee’s salary, can be nothing else but a
termination of the employment
relationship, thus dismissal.
Did the Applicants’ dismissal
constituted an automatically unfair dismissal as contemplated in
section 187(1)(g) of the Act
[88]
In casu
the transfer
of the business
of Paledi Super Spar and Paledi Tops from the First and Second
Respondents to the Third Respondent
meets the criteria and the
provisions of section 197 of the Act apply. The First and Second
Respondents are substituted automatically
and by operation of law for
Spar as the employer of those employees engaged in the business of
Paledi Super Spar and Paledi Tops
on 1 July
2015.
[89]
For Spar to comply with the provisions of
section
197(2), it had to employ the transferred employees on terms and
conditions that were not less favourable to the employees
than those
on which they were previously employed.
[90]
It is common cause that Spar handed
‘management agreements’ to the Applicants wherein Vermaak
was appointed as store
manager of Paledi Super Spar for a period of
three months, commencing on 1 July 2015 and terminating on 30
September 2015 at a
basic salary of R 30 000 per month. Marlene was
appointed as manager of Paledi Tops at remuneration of R 12 500 per
month for a
period of 3 months also commencing on 1 July 2015 and
terminating on 30 September 2015.
[91]
On 22 July 2015 when the Applicants
indicated that the terms of the management agreement were not
acceptable to them as they earned
R 70 000 and R 40 000 per month
respectively and the management contracts they received indicated
that they would be appointed
at R 30 000 and R 12 500 per month,
which was far below what they earned. The contracts were also fixed
for a period of three months
only.
[92]
The Applicants did not sign the contracts
and when they rejected the terms, they were told that they were
dismissed and they no
longer work for Spar.
[93]
It is evident that
Spar failed to
comply with the provisions of
section 197(2) and
(3) when it offered the Applicants contracts on terms and conditions
that were less favourable to them. The fact
that Spar effected the
Applicants contracts of employment is further indicative that as
section 197 transfer indeed took place.
[94]
When the Applicants rejected the less
favourable terms and conditions, they were told to evacuate the
premises immediately as they
were relieved of their duties and their
services were no longer required.
[95]
Section 187(1)(g) of the Act provides that
a dismissal is automatically unfair if the reason for dismissal is a
transfer or reason
related to a transfer contemplated in section 197.
[96]
In
Van
der Velde v Business and Design Software (Pty) Ltd
[10]
(
Van der Velde)
the
Court formulated a test in instances where automatic unfair dismissal
is alleged and held that :
“
In
summary, and in an attempt to crystallize these views and to
formulate a test that properly balances employer H and worker
interests, the legal position when an applicant claims that a
dismissal is automatically unfair because the reason for dismissal
was a transfer in terms of s 197 or a reason related to it, is this:
•
The
applicant must prove the existence of a dismissal and establish that
the underlying transaction is one that falls within the
ambit of s
197.
•
The
applicant must adduce some credible evidence that shows that the
dismissal is causally connected to the transfer. This is an
objective
enquiry, to be conducted by reference to all of the relevant facts
and circumstances. The proximity of the dismissal
to the date
of the transfer is a relevant but not determinative factor in this
preliminary enquiry.
•
If
the applicant succeeds in discharging these evidentiary burdens, the
employer must establish the true reason for dismissal, being
a reason
that is not automatically unfair.
•
When
the employer relies on a fair reason related to its operational
requirements (or indeed any other potentially fair reason)
as the
true reason for dismissal, the court must apply the two-stage test of
factual and legal causation to determine whether the
true reason for
dismissal was the transfer itself, or a reason related to the
employer's operational requirements.
•
The
test for factual causation is a 'but for' test - would the dismissal
have taken place but for the transfer?
•
If
the test for factual causation is satisfied, the test for legal
causation must be applied. Here, the court must determine whether
the
transfer is the main, dominant, proximate or most likely cause of the
C dismissal. This is an objective enquiry.
The employer's
motive for the dismissal, and how long before or after the transfer
the employee was dismissed, are relevant but
not determinative
factors.”
[97]
Mr van As argued that should this Court
find that Spar indeed dismissed the Applicants, the Court should find
that their dismissal
was not because of the section 197 transfer, but
rather because they were not prepared to work for Spar on a fixed
-term contract
and at a lower salary. This argument is not
sustainable in view of the provisions of section 197(2) and (3),
which Spar failed
to comply with when it offered the Applicants
contracts on less favourable terms, which the Applicants rejected.
[98]
I am satisfied that the Applicants
discharged the evidentiary burden, as set out in
Van
der Velde.
It remains for Spar to
establish the true reason for dismissal.
[99]
Mr van As further argued that Paledi Super
Spar and Paledi Tops could not afford to pay the Applicants their
previous salaries and
that the Applicants’ dismissals were as a
result of operational reasons and not as a result of the transfer of
the business.
This is so, Mr van As submitted, because Spar was
prepared to offer fixed-term employment at a lower salary.
He further argued that the finances were managed from Spar’s
head office and there was no longer a need for a finance manager.
[100]
W
hen
the employer relies on a fair reason related to its operational
requirements as the true reason for dismissal, I must apply
the
two-stage test of factual and legal causation to determine whether
the true reason for dismissal was the transfer itself, or
a reason
related to the employer's operational requirements.
[101]
The test for factual
causation is a 'but for' test - would the dismissal have taken place
but for the transfer?
[102]
If the test for
factual causation is satisfied, the test for legal causation must be
applied. Here, the court must determine whether
the transfer is the
main, dominant, proximate or most likely cause of the dismissal. This
is an objective enquiry. The employer's
motive for the dismissal is
relevant.
[103]
Mr Stemmet submitted
that the Applicants were dismissed after a transfer had taken place
and even if they were not dismissed as
a result of the transfer, they
were dismissed for a reason related to the transfer namely
affordability.
[104]
Mr Stemmet argued
that the Applicants were dismissed in an attempt by Spar to avoid its
obligation of employing the Applicants on
their existing terms and
conditions.
[105]
I am satisfied that
the Applicants were dismissed after a section 197 transfer took place
and that the transfer is the most likely
cause of the dismissal. If I
am wrong on this and the transfer is not the main cause of the
dismissal, I am satisfied that the
Applicants were dismissed for a
reason related to the transfer. The
Applicants’
dismissal was automatically unfair in terms of the provisions of
section 187(1)(g), read with section 197 of the
Act.
[106]
Mr van As submitted that if the Applicants
were indeed employees and dismissed by Spar for operational reasons,
they are not entitled
to relief as their claim does not relate to
dismissal for operational reasons.
[107]
In my view there is no merit in this
argument. If Spar was unable to pay the Applicants the salaries they
earned at the date of
transfer or if it was of the view that their
salaries were not sustainable in view of the financial position of
the business, or
if they no longer needed the positions occupied by
the Applicants, Spar could have terminated their services for
operational reasons
and should have embarked on a section 189
retrenchment process.
[108]
Spar did not embark on a section 189
process and cannot now claim that the Applicants have no case before
this Court because they
did not pursue a claim for unfair
retrenchment. To accept such an argument would be to deprive
the Applicants of the remedy
they have and pursued in this matter in
accordance with the applicable provisions of the Act.
Relief:
[109]
Having found that the Applicants’ dismissal was
automatically unfair in terms of the provisions of section 187(1)(g),
read
with section 197 of the Act, the remaining issue to be
considered is the relief to be granted.
[110]
The Applicants seeks
compensation. Mr
Stemmet argued that the Applicants should be compensated in an amount
equivalent to twelve months’ remuneration.
Mr van As on the
other hand argued that they should not be awarded more than three
months’ remuneration as compensation.
[111]
Section 194(3) of the Act provides for the
awarding of compensation to an employee whose dismissal is
automatically unfair and for
such compensation to be just and
equitable in all the circumstances. The Applicants are entitled to
compensation for the automatic
unfairness of their dismissal.
[112]
In my view and with due consideration of
all the circumstances, the Applicants are entitled to twelve months’
remuneration
calculated at the rate of their remuneration on the date
of dismissal as just and equitable compensation.
[113]
Mr van As conceded that the Applicants are
in principle entitled to the statutory monies that they claim. The
precise relief claimed
as statutory monies had been agreed upon by
the parties in the pre-trial minute and I accept the calculations as
per the pre-trial
minute as agreed to and correct
[114]
The parties left the issue of costs in the
hands of this Court.
Costs
[115]
Costs should be considered against the
provisions of section 162 of the Act and according to the
requirements of the law and fairness.
[116]
The requirement of law has been interpreted
to mean that the costs would follow the result.
[117]
In considering fairness, this Court has
held that the conduct of the parties should be taken into account and
that
mala fide
,
unreasonableness and frivolousness are factors justifying the
imposition of a costs order. Another factor to be considered is
whether there is an ongoing relationship that would survive after the
dispute had been resolved by the Court. If so, a costs order
may
damage the ongoing relationship.
[118]
I have considered the fact that there is no
ongoing relationship that may be damaged by a cost order and in my
view there is no
reason to deviate from the general rule that costs
should follow the result.
[119]
In the premises, I make the following order:
Order
1.
The Applicants’ dismissal is
automatically unfair;
2.
The First Applicant is awarded compensation
equivalent to 12 (twelve) months’ salary, calculated at the
rate of remuneration
on date of dismissal (R 70 000 x 12) in a sum of
R 840 000;
3.
The First Applicant is to be paid
outstanding remuneration for July 2015 (R 70 000 per month x 22 days)
in a sum of R 49 677,42;
4.
The First Applicant is to be paid notice
pay in a sum of R 64 665,12;
5.
The First Applicant is to be paid leave pay
(R 2 666,66 x 23 days) in a sum of R 61 333,33;
6.
The Second Applicant is awarded
compensation equivalent to 12 (twelve) months’ salary,
calculated at the rate of remuneration
on date of dismissal (R 40 000
x 12) in a sum of R 480 000;
7.
The Second Applicant is to be paid
outstanding remuneration for July 2015 (R 40 000 per month x 22 days)
in a sum of R 28 387,10;
8.
The Second Applicant is to be paid notice
pay in a sum of R 36 951,50;
9.
The Second Applicant is to be paid leave
pay (R 1 435,89 x 16 days) in a sum of R 22 974,36;
10.
The Third Respondent is to pay the costs.
11.
The Respondents are jointly and severally
liable to pay the Applicants as per paragraphs 2 – 9 of this
order, the one paying
the other to be absolved.
_____________________
Connie
Prinsloo
Judge
of the Labour Court
Appearances:
For
the Applicants:
Mr J Stemmet of Stemmet
and Osman Attorneys
For
the Third Respondent: Advocate M van As
Instructed
by:
Moss Marsh and Georgiev Attorneys
[1]
Act 66 of 1995.
[2]
(2011) 32 ILJ 2861 (CC).
[3]
See
Franmann Services (Pty)
Ltd v Simba (Pty) Ltd and another
(2013) 34 ILJ 897 (LC). (‘Simba’)
[4]
Aviation
Union of SA and another v SA Airways (Pty) Ltd and others (Aviation)
(2011) 32 ILJ 2861
(CC) at para 71.
[5]
(2014) 35 ILJ 2757 (LAC). (Grinpal) at para 24
[6]
(2003) 24 ILJ 95 (CC) at para 56
[7]
(2014) 35 ILJ 2888 (LC) at para 30.
[8]
(2013) 34 ILJ 1477 (LAC).
[9]
At para 18
[10]
(2006)
27 ILJ 1738 (LC) at 1148
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