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[2017] ZALCJHB 310
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Imvula Quality Protection and Others v University of South Africa (J435/17) [2017] ZALCJHB 310; [2017] 11 BLLR 1139 (LC); (2017) 38 ILJ 2763 (LC) (31 August 2017)
REPUBLIC
OF SOUTH AFRICA
THE
LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
JUDGMENT
Reportable
C
ase
no: J 435/17
In
the matter between:
IMVULA
QUALITY PROTECTION
First
Applicant
PERSONS
LISTED IN ANNEX A
Second to further Applicants
RED
ALERT TSS (PTY)
LTD
First Intervening Applicant
PERSONS
LISTED IN ANNEX B
Second to further Intervening Applicants
and
UNIVERSITY
OF SOUTH
AFRICA
Respondent
Heard
:
1
August 2017
Delivered
:
31 August 2017
Summary:
Application of s 197 to insourcing of security services. Insourcing
limited to the making of offers of
employment to certain of the
outgoing contractors’ employees. In terms of a ‘shared
services’ model, client’s
role after termination limited
to employment, client not taking transfer of any business
infrastructure. Third party to be appointed
to provide management and
infrastructure for security services. Held that there is no
‘business’ that is the subject
of any transfer and that s
197 thus not applicable.
JUDGMENT
VAN
NIEKERK J
Introduction
[1]
The respondent, the University of South Africa (UNISA), is one of the
largest universities in South Africa and one of the largest
distance
education institutions in the world. During 2015 and 2016, UNISA (and
other South African universities) were the subject
of protests and
sustained pressure by student formations and trade unions. What
is known as the ‘Fees must Fall’
campaign articulated a
number of demands, one of which was that UNISA ‘insource’
functions that had previously been
outsourced to private service
providers. In response to this demand, UNISA concluded an agreement
with the representatives of various
interest groups in terms of which
it agreed to partially insource the security function. The agreement
provided, in broad terms,
that 70% of the budget spend on security
would be allocated to wages, and that 30% would be allocated to the
appointment of a service
provider. As a consequence, agreements with
the first applicant and first intervening applicant (two of the three
service providers
contracted to provide security services to UNISA)
were terminated.
[1]
For
convenience, I shall refer to the first applicant as ‘iMvula’
and the first intervening applicant as ‘Red
Alert’.
[2]
iMvula and Red Alert contend that the termination of the agreements
and UNISA’s offers of employment made to their security
staff
constitutes a transfer of a business as a going concern for the
purposes of s 197 of the Labour Relations Act (LRA). The
order they
seek is that all of their employees assigned in terms of their
contracts with UNISA be declared employees of UNISA from
the
termination date, on the same terms, and without loss of service.
While UNISA does not dispute making offers to some members
of the
applicants’ employees, it contends that given the nature of the
transaction, s 197 does not apply since there is no
transfer of a
business as a going concern.
Relevant
legal principles
[3]
Section 197 (1) provides:
‘
(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.’
[4]
Section 197 has a dual purpose; it does more than protect workers
against job losses. Although the avoidance of job losses consequent
on the transfer of a business as a going concern is an important
principle on which the protections contained in s 197 are founded,
it
is not the only one. Job losses in themselves do not trigger the
application of s 197.
[2]
In
National
Health and Allied Workers Union v University of Cape Town &
others
(2003)
24
ILJ
95 (CC)
(to which I shall refer as ‘
NEHAWU
’),
the Constitutional Court said the following:
[52]
What lies at the heart of disputes on transfers of businesses is a
clash between, on the one
hand, the employer’s interest in the
profitability efficiency or survival of the business, or if need be
its effect is of
disposal of it, and the workers interest in job
security and the right to freely choose an employer on the other
hand…
[53]
Section 197 …. relieves the employers and the workers of some
of the consequences that
the common law visited on them. Its purpose
is to protect the employment of the workers and to facilitate the
sale of businesses
as going concerns by enabling the new employer to
take over the workers as well as other assets in certain
circumstances. The section
aims at minimising the tension and the
result labour disputes that often arise from the sales of businesses
and impact negatively
on economic development and labour peace. In
this sense, s 197 has a dual purpose, it facilitates the commercial
transactions while
at the same time protecting workers against job
losses.
[3]
[5]
The Constitutional Court has considered the provisions of s 197 on at
least four occasions.
[4]
While
the judgments have not always been unanimous, the principles to be
applied are well-established. First, it is clear that
for s 197 to be
triggered, three discrete requirements must simultaneously be met.
These are a transfer, of the whole or part of
a business (defined to
include a ‘service’), as a going concern. A transfer is
defined to mean ‘the transfer
of a business by one employer
(‘the old employer’) to another employer (‘the new
employer’) as a going
concern. A ‘business’ is
defined in s 197(1) (a) to include a ‘service’. This does
not mean that the latter
should be viewed as a discrete entity; on
the contrary, what is capable of being transferred is the business
that supplies the
service and not the service itself.
[5]
Whether there is a transfer as a going concern remains to be
determined by the approach formulated in
NEHAWU
where Ngcobo J said the following:
In
deciding whether a business has been transferred as a going concern,
regard must be had to the substance are 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
employee,
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 was to factors is not exhaustive and that none
of them is decisive individually.
[6]
The label attached to a transaction is irrelevant. Whether a
transaction is described as ‘outsourcing’ or
‘insourcing’,
and whether the in-or outsourcing is an
initial transaction or one extending to any number of ‘generations’,
is of
no consequence. More specifically, the use of terms such as
insourcing and outsourcing are not in themselves indicative of a
transfer
as a going concern. Whether there has been a transfer of a
business as a going concern by the old employer to the new employer
is a matter of fact, to be determined objectively, and which as I
have indicated, necessarily entails an enquiry into (1) the existence
of a transfer, (2) whether there was a transfer of a business, and
(3) whether the business is transferred as a going concern.
[7]
In relation specifically to a change in service provider, the
termination of a service contract or the appointment of a new
service
provider does not in itself trigger the application of s 197. The
application of the section remains regulated by the above
principles.
Further, cases decided under the European Acquired Rights Directive
or the TUPE Regulations and similar regulatory
measures may be
instructive and provide guidance (as do any comparable foreign
instruments and case law), but they are not to be
uncritically
applied.
[6]
The court must
remain guided by the principles established by our domestic courts,
having regard to the wording and the purpose
of s 197.
Factual
background
[8]
The material facts are not in dispute. On 5 May 2015, the
applicant concluded an agreement with UNISA for the provision
of
security services at certain of UNISA’s campuses in Gauteng.
The services to be rendered were defined in clause 1 of annexure
‘A”
to the agreement to include the following:
The
Services will include, but not be limited to the following:
1.1
The Service Provider shall provide the
University with high level access control, security and patrol
services in order to protect
a and secure the University’s
staff, students, visitors, property and reputation.
1.2
The Service Provider shall provide a sufficient number of on-site
properly pre-trained, efficient and competent
employees and
supervisors/managers (herein collectively referred to as its
‘personnel’) in order to provide the required
Services.
The number and qualifications of personnel as well as the time and
premises with the services must be rendered or set
out in Annexure
“B” attached hereto.
[9]
From 1 June 2015, iMvula provided UNISA with security services in
terms of the agreement. Pursuant to the agreement, iMvula
placed some
200 security officers on a daily basis at various sites throughout
Gauteng, in return for which it is paid a monthly
contract fee. The
terms of the agreement provide that the agreement would subsist for a
period of five years, subject in terms
of clause 9.2 of the
agreement, to UNISA’s right to terminate the agreement ‘out
of convenience’ after 12 months
by giving one calendar month’s
written notice. The contract between UNISA and Red Alert is cast in
virtually identical terms.
[10]
During February 2016, being some eight months into the five year
agreement, UNISA advised iMvula and other security service
providers,
including Red Alert that it was contemplating insourcing the security
functions.
[11]
During October 2016, UNISA had signed an agreement with what were
described as stakeholders represented in a multi-stakeholder
task
team on insourcing. The key elements of the agreement were that 910
of a total of 1413 outsourced staff members would be insourced
as
part of UNISA’s permanent staff complement and that the current
contracts of all service providers would be terminated
as soon as
practically possible. The business model referred to is one of
‘shared services’. In terms of this model,
UNISA will not
incur any costs greater than those already applied to outsourcing.
The shared services model contemplates that while
the majority of
staff engaged in the rendering of security services will be employed
by UNISA, security services would continue
to be provided by
outsourced service providers, as far as possible using staff employed
directly by UNISA.
[12]
On 18 November 2016, UNISA addressed a letter to iMvula in which it
stated the following:
1. This
serves to inform you that in terms of clause 9.2 of the
above-mentioned agreement Unisa care with gives
notice of termination
of the agreement to be effective from 31 March 2007 teen.
2. The
aforementioned decision has been taken in light of issues encountered
by a number of universities concerning
the outsourcing of services.
[13]
During the course of December 2016 and January 2017, there was a
flurry of correspondence between the first applicant and UNISA.
The
first applicant had received information that its employees were
being approached directly and offered employment by UNISA.
UNISA does
not dispute that it handed application forms to iMvula and Red Alert
employees or that it implemented a vetting process
in terms of which
UNISA would determine which security officers they wished to employ.
Pursuant to the agreement on insourcing,
UNISA intends to create 544
positions for security staff. At the time the papers in this
application were filed, there was uncertainty
as to precisely how
many of iMvula and Red Alert’s employees UNISA would employ.
The answering affidavit indicates that the
figure may be in the
region of two-thirds of the security officers currently deployed to
various sites throughout Gauteng in terms
of the service agreements.
It is clear that some of the applicant’s staff engaged in the
provision of services to UNISA will
not be offered employment
directly by UNISA. The papers do not disclose precisely how many
iMvula and Red Alert employees were
successfully recruited by UNISA,
but it is not in dispute that UNISA intends to employ the majority of
them.
[14]
Much of the correspondence concerned averments to the effect that
UNISA was in breach of the agreement, that it was acting
in bad faith
and that it was abusing confidential information pertaining to
iMvula’s employees. Whether UNISA acted in breach
of its
contract when it gave notice to terminate the contract with the
effect from 31 March 2017 (a matter that remains in dispute)
and
whether UNISA has deliberately devised a scheme in an attempt to
avoid the consequences of section 197 (which is denied) is
not
relevant to the present application. If the insourcing of security
services in the manner in which it has occurred in the present
instance triggers s 197, these are consequences in law. The
automatic substitution of one employer for another then
applies,
regardless of the motives, intentions or preferences of the employer
parties and any affected employees.
[15]
It is not disputed that on termination of the contract with iMvula
and Red Alert at the end of March 2017, UNISA did not take
transfer
of any assets or other business infrastructure necessary to perform
security services, nor are any of iMvula or Red Alert’s
operating methods to be transferred to UNISA.
[16]
The essential differences between the existing and the shared
services model are also not disputed. In terms of the 2015
agreements,
iMvula and Red Alert provide high level access control,
security and patrol services, pre-trained employees and supervisors
and
managers to provide the services, high level monitoring systems,
risk analysis relating to all aspects of the services,
recommendations
on any technological developments that might reduce
UNISA’s risk, job descriptions and post instructions for all
staff, the
training management and supervision of its staff, the
provision of security vehicles, mobile phones, radios and raincoats
to the
staff.
[17]
In contrast, the new service provider to be in engaged in terms of
the shared services model will provide equipment and infrastructure,
and in particular, torches, radios, guard tracking and monitoring
equipment, registers, vehicles and staff uniforms. UNISA will
manage
the human resources required for the service. Of some significance is
the fact that none of the equipment that will be supplied
by the new
service provider either belongs to or is currently owned by iMvula
and Red Alert. The new service provider will also
provide UNISA with
managers and supervisors, employed by the service provider, to manage
the security service. To the extent that
the human resources
allocated by UNISA are insufficient to provide effective security,
the service provider will be required to
provide any risk mitigation
measures to make the service effective.
Analysis
[18]
In essence, the court is required to determine whether UNISA’s
termination of its contracts with iMvula and Red Alert
and its
decision to employ the majority of their employees engaged on the
contract, constitutes the transfer of a business as a
going concern
for the purposes of s 197.
[19]
It is common cause that the insourcing exercise does not extend to
UNISA taking over or otherwise assuming any responsibility
for
the full business bundle, including infrastructure, assets, know-how,
technology and the like. Stripped to its essentials,
the case
presented by iMvula and Red Alert is that the provision of security
guards is a service and thus a business (if not in
whole then at
least in part), and that the result of the insourcing will be the
continuation of that service.
[20]
The Constitutional Court has identified two situations within the
realm of outsourcing and insourcing with a clear distinction
between
the two. In the first, where s 197 does not apply, the outgoing
service provider forfeits the right to provide services,
whether by
way of the cancellation of a contract or otherwise, but does not
transfer its business. In this instance, the right
to provide the
outsourced service may transfer, but no business is transferred as a
going concern. In Aviation
Union,
[7]
the court said the following:
Although
the definition of business in this section 197 (1) includes a
service, it must be emphasised that what is capable of being
transferred is the business that supplies the service, and not the
service itself. Were it to be otherwise, a termination of a
service
contract by one party and its subsequent appointment of another
service provider would constitute a transfer with in the
contemplation of this section. That is not what this section was
designed to achieve is apparent from its scheme, historical context
and purpose.
[21]
The second situation arises when on the termination of a service
contract, when the service is either insourced or a different
service
provider is appointed, the business that supplies the service,
including its business infrastructure, is transferred from
the
outgoing service provider either back to its erstwhile client or to
the new service provider, as a going concern. In these
circumstances,
a transfer occurs as contemplated by s 197.
[22]
The distinction is one that has its roots in the definition of a
‘business’ in s 197(1). While that definition
includes a
service, it should be emphasised that it is the business that
supplies the service that is capable of being transferred,
not the
business itself.
[8]
[22]
In the present instance, even if I accept that the requirement of a
transfer has been satisfied, I am not persuaded that iMvula
and Red
Alert have established that there has been any transfer of a
business. In other words, the termination of the contract
between
UNISA on the one hand and iMvula and Red Alert on the other hand,
falls into the first category referred to above.
[23]
At best for iMvula and Red Alert, UNISA will become the employer of
the majority of the employees previously engaged by them
to work at
the same site, performing the same work. However, as the principles
reflected above indicate, it does not necessarily
follow that iMvula
or Red Alert have transferred a business to UNISA. Although it is not
impossible for a transfer only of employees
to constitute the
transfer of a business for the purposes of s 197, the requirement of
the existence of a business must be met.
It makes no difference that
the nature of the business is the provision of a service, the
business that supplies the service must
be transferred.
[24]
The present case is to be distinguished on the facts from
Aviation
Union
. In that instance (also a dispute about insourcing in which
the application of s 197 was upheld), it was common cause that on
termination
of the outsourcing agreement the fixed assets, inventory
and the like would transfer from the service provider to the client
on
insourcing, or to a new service provider in terms of any new
outsourcing agreement. This is not the case here – there is no
transfer of assets, corporeal or incorporeal, nor is UNISA taking
over any existing infrastructure consequent on the termination
of the
service agreements and the offers of employment that it has made.
[25]
Counsel for the applicant also relied on
SAMWU & others v Rand
Airport Management Co (Pty) Ltd (
2005) 26
ILJ
67 (LAC) in
support of the submission that the taking over of employees was in
itself sufficient to trigger s 197.
In
Harsco
Metals SA (Pty) Ltd v Arcelormittal SA Ltd & others
(2012) 33
ILJ
901 (CC), in relation to the requirement that there be a
transfer of a business, the court said the following:
…
In relation to
the definition of a ‘business ‘for the purposes of s 197,
the judgment of the Labour Appeal Court in
SAMWU
& others v Rand Airport Management Co (Pty) Ltd
remains the authority by which I am bound. In that case, the court
concluded that the outsourcing of gardening and security functions
at
an airport managed by the employer will business is capable of being
transferred in terms of s 197, despite the fact that it
did not
appear that any assets, goodwill, operational resources or workforce
were to be transferred. A distinction was drawn between
a business
that is largely employee reliant, as opposed to an asset reliant
business. Nor was it suggested that in the former,
greater weight or
to be attached to the number of employees transferring as opposed to
the net instance in which the number of
assets transferring might
attract lighter weight. If, as in that case, a grouping of relatively
unskilled employees and the work
they perform, with no assets
appearing to be the subject of any transfer, comprises a ‘business
for the purposes of s 197,
then it is difficult to conceive, in the
context of an outsourcing transaction, of an economic entity that
would not be capable
of transfer in terms of the section.
[9]
[25]
That statement was made prior to the decisions by the Constitutional
Court in
Aviation Union
and
Rural Maintenance
. To the
extent that the Labour Appeal Court in
Rand Airport
relied
primarily on the inclusion of the word ‘service’ in the
definition of ‘business’ to conclude that
because they
were services, the gardening and security functions comprised a
business capable of being transferred, it is now clear
that s 197
requires a determination of the existence of a business that supplies
the service – the existence of the service
cannot in itself
trigger the application of s 197. The Constitutional Court’s
judgments require this court to avoid confusing
form and substance –
the relevant enquiry is into the existence or otherwise of a discrete
economic entity in the form of
the variety of components that go to
make up a business, including assets, goodwill, workforce, management
staff and the manner
in which the business is organised and
performed, the operational resources available to the business, and
the like. In other words,
the single component of the statutory
definition of business (i.e. a service) ought not to elevate what was
intended to be illustrative
to a determinative level.
[26]
The economic entities that comprise iMvula and Red Alert comprise
business infrastructures, management, assets and operational
resources, know-how, and the staff deployed at UNISA and elsewhere.
It is only some of those staff deployed at UNISA who are the
subject
of any transfer. iMvula and Red Alert retain all of the other
components that go to make up their respective businesses.
They will
be free to offer their services to other clients, and to deploy those
employees not engaged by UNISA on other sites,
should posts be
available. The true position therefore is that the contracts for the
provision of services concluded between UNISA
and iMvula and Red
Alert respectively have come to an end, and that no part of the
infrastructure for the conducting of the business
of providing a
security service is to be transferred to UNISA. In those
circumstances, UNISA’s decision to insource in terms
of the
shared services model and the offers of employment consequently made
to some of iMvula and Red Alert’s staff does
not trigger s 197.
The application falls to be dismissed.
[27]
Finally, neither party disputed that costs ought properly to follow
the result.
I
make the following order:
1. The
application is dismissed, with costs.
_______________________
André
van Niekerk
Judge
APPEARANCES
First
Applicant: Adv. Boda SC, with him Adv. R Itzkin instructed by Stein
Scop Inc.
Intervening
Applicants: Adv. HM Viljoen, instructed by Ramsay Webber Inc.
First
Respondent
: Mr C Todd, Bowman Gilfillan
Inc.
[1]
On 8 June 2017, the court granted an order permitting one of the
other security services contracted by UNISA, Red Alert TSS (Pty)
Ltd
and those of its employees engaged to provide those services, leave
to intervene in these proceedings.
[2]
Where
there is no s 197 transfer, employees whose work security is
prejudiced by the relevant transaction will inevitably be protected
by the provisions of s 189 and 189A.
[3]
At
paragraph 56.
[4]
NEHAWU
(supra),
Aviation
Union of SA v SA Airways (Pty) Ltd & others
[2012] 3 BLLR 211
(CC);
City
Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and
others
2015 (6) BCLR 660
(CC), and
Rural
Maintenance and others v Maluti-a-Phofung Local Municipality
[2017] 3 BLLR 258 (CC).
[5]
See
Aviation
Union
at para 52, and
Rural
Maintenance
at para 30.
[6]
Rural
Maintenance
at
para 26.
[7]
Supra
[8]
Rural
Maintenance
at
paragraph [30].
[9]
At
paragraph 27.