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[2018] ZALCJHB 177
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Sodexo Southern Africa (Pty) Ltd v Servest (Pty) Ltd and Others (J1598/16) [2018] ZALCJHB 177 (11 May 2018)

IN
THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG
Not
Reportable
Not
of interest to other Judges
Case
No: J1598/16
In
the matter between:
SODEXO
SOUTHERN AFRICA (PTY) LTD
Applicant
and
SERVEST
(PTY) LTD

First

Respondent
MOATSHE
CATERING SERVICES CC
Second

Respondent
COMMERCEZONE

Third

Respondent
MUTICHOICE
SOUTHERN AFRICA
Fourth

Respondent
FEDERAL COUNCIL OF
RETAIL AND ALLIED
Fifth

Respondent
WORKERS
UNION
SOUTH
AFRICAN EQUITY WORKERS

Sixth
Respondent
ASSOCIATION
FAITH
MOROKO AND 26 OTHERS

Seventh to Thirty Third Respondents
TSHIKANI MASHIMBYI AND
Thirty

Fourth to Fifty Third Respondents
19
OTHERS
Heard:
17 October 2017
Delivered:
11 May 2018
Summary:
Application for declaratory order in terms of section 197 of the LRA.
Matter concerning contracts to operate staff restaurants
and coffee
shops at  fourth respondent’s various MNET sites. Right of
use of infrastructure and assumption of control
over infrastructure
triggering application of section 197. Application granted with
costs.
JUDGMENT
BARNES
AJ
Introduction
[1]
This
is an application in terms of section 197 of the Labour Relations
Act
[1]
(“the LRA”)
in terms of which the applicant seeks orders declaring that:
“
1.
It is determined
that the termination of the agreement in terms whereof the
Applicant
provides staff restaurant operations on the MNET sites of the Fourth
Respondent and the conclusion of an agreement for
the provision of
similar services by the First and Second Respondents constitutes a
transfer of an undertaking in terms of section
197 of the LRA;
2.
That the employment contracts of the Seventh to Thirty Third
Respondents transfer
automatically from the Applicant to the First
Respondent on the date of transfer, i.e. 1 March 2016;
3.
That the employment contracts of the Thirty Fourth to Fifth Third
Respondents
transfer automatically from the Applicant to the Second
Respondent on the date of transfer, i.e. 1 March 2016.”
The
Facts
[2]
The fourth respondent is Multichoice Southern Africa.
[3]
The applicant is the local branch of an international catering
company, Sodexo, which enjoyed the contract to operate the staff

restaurants and coffee shops at the fourth respondent’s MNET
sites in Johannesburg and Cape Town for a period of approximately

five years from 2010 to 2015.
[4]
The “fourth respondent’s MNET sites” as described
in the pleadings comprise the following:
[4.1]
The Randburg MNET site which contains the MNET coffee shop, the MNET
restaurant, the Bojangles
restaurant and a storeroom.
[4.2]
The Randburg Multichoice site which contains the Multichoice coffee
shop, Multichoice
restaurant, and a storeroom.
[4.3]
The Randburg MNET Oak Avenue restaurant; and
[4.4]
The Cape Town Multichoice restaurant.
[5]
The staff restaurants and coffee shops are all operated within the
fourth respondent’s premises with the aim of providing

employees of and visitors to the fourth respondent with easy access
to food and drink at somewhat subsidised rates.
[6]
For convenience they will be referred to collectively in this
judgment as “the Multichoice staff restaurants.”
[7]
As to how the Multichoice staff restaurants are operated, it is
common cause on the papers that:
“…
the
Fourth Respondent would make available to the service provider its
existing restaurants, coffee shops, and store rooms and the
service
provider would then be responsible for the purchase, distribution,
preparation and serving of food and drinks provided
on the agreed
menus of the restaurants and coffee shops by means of the utilisation
of the service provider’s own resources
including its own
staff.”
[8]
In November 2015 the applicant
was given notice that its contract to operate the Multichoice staff
restaurants would terminate at
the end of February 2016. The
applicant was invited to tender for the contract again and did so,
unsuccessfully.
[9] In
January 2016, it came to the applicant’s attention that the
contract to operate certain of the Multichoice staff restaurants
had
been awarded to an entity by the name of Olives and Plates Foods 2
(Pty) Ltd (Olives).
[10]
In February 2016, the applicant approached this Court on an urgent
basis for an order declaring that the termination of its
contract to
operate the Multichoice staff restaurants and the conclusion of a
contract with Olives to provide the same service
constituted a
transfer in terms of section 197 of the LRA and that the contracts of
employment of the applicant’s employees
transferred
automatically to Olives as a consequence thereof. The applicant’
s application was successful.
[11]
Subsequent to obtaining judgment against Olives, the applicant
established that the contracts to operate some of the Multichoice

staff restaurants had been awarded, not to Olives, but to the first
and second respondents. The applicant then launched the present

application.
[12]
This application is opposed only by the second respondent, Moatshe
Catering Services CC, which was awarded the contract to
operate the
fourth respondent’s MNET Oak Avenue restaurant in Randburg.
[13]
The first respondent abides the decision of the Court.
[14]
The issue for determination is whether the termination of the
applicant’s contract to operate the Multichoice staff
restaurants and the conclusion of contracts with the first and second
respondents to provide the same service constitutes the transfer
of a
business as a going concern in terms of section 197 of the LRA.
The
Law
[15]
Section 197(1) and (2) of the LRA provide as follows:
“
Transfer
of contract of employment
(1)
In this section and in section 197A -
(a)
‘
business’
includes the whole or part of any
business, trade, undertaking or service; and
(b)
‘
transfer’
means the transfer of a business by one employer (‘the old
employer’) to another employer (‘the new employer’)

as a going concern.
(2)
If a transfer of a business takes place, unless otherwise agreed in
terms of 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 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 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 wit the old employer.”
[16]
It is by now well established that whether there has been a transfer
of a business as a going concern for purposes of section
197 is a
matter of fact, to be determined objectively. This necessarily
involves an enquiry into (1) the existence of a transfer
from one
employer to another, (2) whether there was a transfer of a business
(is there an economic entity capable of being transferred?)
and (3)
whether the business is transferred as a going concern (does the
economic entity that is transferred retain its identity
after
transfer?).
[2]
[17]
If the transfer meets these criteria, the transferee is substituted
automatically  for the transferor as the employer
of those of
the transferor’s employees engaged in the business on the date
of transfer. The transfer occurs by operation
of law, and
irrespective of the wishes or intentions of the parties.
[3]
[18]
It is also well established that section 197 may apply to outsourcing
arrangements. As this Court noted in the
Simba
judgment:
“
The
SAA judgment has also established that there is no reason in
principle why s 197 should not apply to outsourcing arrangements.

Whether the arrangement is one of an initial outsourcing from a
client to a service provider (a ‘first generation transfer’),

from one service provider to another (‘second’ and
further generation transfers) or a resumption by the client of a

service previously outsourced (‘insourcing’) is not
significant; the same test must be applied to each transaction,
which
must be considered in view of its unique facts and
circumstances.”
[4]
[19] In
relation to the requirement that a business be transferred as a going
concern, the Constitutional Court in
SAA
held as follows:
“
Although
the definition of business in s 197 includes a service, it must be
emphasised that what is capable of being transferred
is the business
that supplies the service rather than the service itself. Were it to
be otherwise, a termination of a service contract
by one party and
the subsequent appointment of another service provider would
constitute a transfer within the contemplation of
the section. That
this is not what the section was designed to achieve is apparent from
its scheme, historical context and its
purpose. The context referred
to here is the alteration of the common law consequences of
employment contracts, when the ownership
of a business changes
hands.”
[5]
[20]
This does not mean, however, that there need be a transfer of assets
in order for there to be a transfer of a business as a
going concern.
The application of section 197 in circumstances where there is a
change in service provider and no assets pass to
the transferee but
the transferee assumes control of the assets, equipment and
infrastructure provided by the client and required
for the rendering
of the service was considered by this Court in
Unitrans
Supply Chain Solutions (Pty) Ltd v Nampak Glass (Pty) Ltd
[6]
(“Unitrans”).
[21]
Unitrans
involved the cancellation of a service agreement and
the appointment of a new contractor who rendered the same service
without
interruption from the same premises using the same
infrastructure as the old contractor. The Court held that in these
circumstances,
the right of use of the infrastructure and the
assumption of control over the infrastructure necessary to provide
the service triggered
the application of section 197.
[22]
The Labour Appeal Court
[7]
upheld the judgment in
Unitrans
and went on to endorse the approach adopted by the European Court of
Justice in
Abler
and Others v Sodexho MM Catering
Gesellschaft
GmbH.
[8]
In
that case, a hospital had appointed a service provider to provide
catering services to its patients and staff. This service was

provided using the hospital’s canteen premises and equipment.
The termination of the old service provider and the appointment
of a
new service provider was, in these circumstances, held to constitute
the transfer of a business as a going concern.
[23]
The LAC, in the
Unitrans
appeal, quoted the following passage
of the judgment of the European Court of Justice:
“
The
national court, in assessing the facts and characterising the
transaction in question, must take into account the types of
undertaking or business concerned. It follows that the degree of
importance to be attached to each criterion for determining whether

or not there has been a transfer within the meaning of Directive
77/187 will necessarily vary according to the activity carried
on, or
indeed the production or operating methods employed in the relevant
undertaking, business or part of a business (references
omitted).
Catering
cannot be regarded as an activity based essentially on manpower since
it requires a significant amount of equipment. In
the main
proceedings, as the Commission points out, the tangible assets needed
for the activity in question - namely the premises,
water and energy
and small and large equipment  (inter alia the appliances needed
for preparing the meals and the dishwashers)
– were taken over
by Sodexho. Moreover, a defining feature of the situation at issue in
the main proceedings is the express
and fundamental obligation to
prepare meals in the hospital kitchen and thus to take over those
tangible assets. The transfer of
the premises and equipment provided
by the hospital, which is indispensable for the preparation and
distribution of meals to the
hospital patients and staff is
sufficient, in the circumstances, to make this a transfer of an
economic entity. It is moreover
clear that, given their captive
status, the new contractor necessarily took on most of the customers
of its predecessor.”
[9]
[24]
The LAC expressed the view that “
the
approach adopted by the European Court of Justice in Sodexho accords
with the approach which has been adopted to s 197 by the

Constitutional Court, both in [the SAA judgment] and in its earlier
decision in National Education Health and Allied Workers Union
v
University of Cape Town and Others.”
[10]
[25]
This Court, in its judgment in the earlier application brought by the
applicant against Olives, dealt with facts identical
to those in this
application in the context of the legal principles set out above.
Prinsloo J held as follows:
“
In
casu
,
the Applicant was responsible to purchase, prepare and serve the food
and drinks on the agreed menus at the restaurants and coffee
shops
that are operated within the various premises of Multichoice.
Multichoice provides the existing restaurants, coffee shops
and store
rooms and the service provider is responsible to provide the catering
service by utilising its own resources and staff.”
[11]
“
The
catering service provided at the Multichoice restaurants and coffee
shops is an economic entity and constitutes a service for
purposes of
section 197(1)(a).”
“
In
casu
Olives will perform the catering services previously performed by the
Applicant at the MNET site, using the same infrastructure
owned by
the client and necessary for the purposes of continuing the catering
services.”
[12]
“
In
the circumstances where Olives acquired the right of use of the
infrastructural assets and where it will provide the same service

from the same premises the business was transferred as a going
concern and it falls within the ambit of section 197.”
[13]
[26]
These conclusions are in my view correct. The facts in this matter,
like those in
Olives
, are on all fours with the facts in the
Unitrans
and
Sodexho
matters. They are all cases in
which, while the change in the service provider was not accompanied
by the transfer of assets, the
right of use of the infrastructure
necessary to provide the service and the assumption of control over
that infrastructure triggered
the application of section 197. The
applicant is therefore entitled to the order that it seeks.
[27]
In its papers and in argument before me, the second respondent
contended that some of the individuals cited as the thirty fourth
to
fifty third respondents had ceased their employment with the
applicant prior to the transfer date of 1 March 2016 and that others

were employed by the applicant on fixed term contracts which expired
shortly after the transfer. The second respondent contended
that the
employment contracts of these individuals could not transfer
automatically to it. This is correct in principle. As a matter
of law
it is only the employment contracts of employees employed by the
transferor, at the time of transfer, that transfer to the
transferee
and then only on the terms and conditions of employment which existed
at the transferor. The Order I make below shall
reflect this.
[28]
In my view the requirements of law and fairness dictate that costs
should follow the result.
[29]
I accordingly make the following order:
Order
1.
It is declared that the
termination of the agreement in terms whereof the Applicant provided
staff restaurant operations on the
MNET sites of the Fourth
Respondent (as defined in paragraph 4 of this judgment) and the
conclusion of agreements for the provision
of the same service by the
First and Second Respondent constitutes the transfer of a business as
a going concern in terms of section
197 of the LRA.
2.
In respect of the
contracts to operate the fourth respondent’s staff restaurants
awarded to the first respondent, it is declared
that the employment
contracts of those of the seventh to fifty third respondents who were
employed by the applicant on 1 March
2016 transferred automatically
to the first respondent, on that date, on the same terms and
conditions.
3.
In respect of the
contracts to operate the fourth respondent’s staff restaurants
awarded to the second respondent, it is declared
that the employment
contracts of those of the seventh to fifty third respondents who were
employed by the applicant on 1 March
2016 transferred automatically
to the second respondent, on that date, on the same terms and
conditions.
4.
The second respondent
is to pay the applicant’s costs.
__________________________
Heidi
Barnes
Acting Judge of the
Labour Court
Appearances:
For
the Applicant:

Advocate Nel
Instructed
by:

Lee & McAdam Attorneys
For
the Second Respondent:
Advocate Humphries
Instructed
by:

Bophela & Majozi Attorneys
[1]
Act 66 of
1995 as amended.
[2]
See
Aviation
Union of SA and Another v SA Airways (Pty) Ltd and Others
(2011) 32 ILJ 2861 (CC) (“
SAA
”).
[3]
Franmann
Services (Pty) v Simba (Pty Ltd and Another
(2013)
34 ILJ 897 (LC)
(“Simba”)
[4]
At para 8.
[5]
At para 52.
[6]
(2014) 35
ILJ 2888 (LC).
[7]
Unitrans
Supply Chain Solutions (Pty) Ltd & Another v Nampak Glass (Pty)
Ltd and Others
(2014) 35
ILJ 2888 (LC)
[8]
[2004] IRIR
168 (ECJ).
[9]
At paras 35
and 36.
[10]
At para 26.
[11]
At para 41.
[12]
At para 48.
[13]
At para 49.