IN THE LABOUR COURT OF SOUTH AFRICA
(HELD AT CAPE TOWN) REPORTABLE
CASE NO: C264/2005
COSAWU
Applicant
and
ZIKHETHELE TRADE (PTY) LTD First
Respondent
FAIZEL BARDIEN N.O.
In his capacity as Trustee of ZELPY 2178 (PTY) LTD
formerly trading as KHULISA TERMINAL SERVICES
(In liquidation) Second
Respondent
JUDGMENT
MURPHY AJ,
1. This case is concerned with the consequences of a second generation contracting
out transaction involving a change in the provider of an outsourced service in the
Cape Town harbour. The issue for determination is whether such constitutes a
transfer of business within the meaning of section 197 of the Labour Relations Act
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of 1995 (“the LRA”).
2. Section 197(1) of the LRA defines a transfer of business to mean the transfer of
the whole or part of any business, trade, undertaking or service by one employer
(“the old employer”) to another employer (“the new employer”) as a going concern.
Significant consequences flow if a transaction is found to be a transfer of business.
For the purposes of this case the most important are that 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 and 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.
3. In NEHAWU v University of Cape Town and Others (2003) 24 ILJ 95
(CC), the Constitutional Court explained the rationale underlying
section 197 as follows:
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 minimizing the tension and the resultant labour
disputes that often arise from the sale of businesses and impact negatively on economic
development and labour peace. In this sense, section 197 has a dual purpose, it facilitates the
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commercial transactions while at the same time protecting the workers against unfair job losses.
4. From a commercial point of view, therefore, section 197 transfers of business have
the twin advantages of preserving jobs and avoiding the immediate necessity of
paying compulsory severance benefits.
5. The applicant in this matter, a registered trade union, has made an urgent
application for a declaratory order that the first respondent (“Zikhethele”) be
declared to be the employer of the applicant’s 147 members, identified in a list
annexed to the notice of motion marked X, with effect from 1 April 2005, being the
date on which the business of Khulisa Terminal Services (“Khulisa”), now in
provisional liquidation and under the trusteeship of the second respondent,
allegedly was transferred to Zikhethele in terms of section 197 of the LRA.
6. The first respondent, Zikhethele, opposes the application on the merits, but has in
addition raised certain preliminary points and disputed the urgency of the matter. In
order to appreciate the preliminary points fully it is perhaps best first to deal with
the background and peculiar issues of the dispute.
7. The union represented 181 employees of Khulisa working in the Cape Town, Port
Elizabeth and Durban harbours. Khulisa’s principal business was to supply
terminal and stevedoring services to a company known as Fresh Produce
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Terminals (“FPT”) at the three harbours. The services entailed the handling of
fresh products delivered to the harbour by suppliers to be sorted and stored in
different cooling rooms until loaded onto ships for export using cranes and other
loading equipment.
8. Up and until 2000, the individual applicants had been employed directly by FPT,
previously known as International Harbour Services. During this time FPT decided
to outsource the terminal and stevedoring services to outside companies. As part
of a black economic empowerment initiative, FPT was instrumental in the formation
of Signal Hill Manpower Specialists (Pty) Ltd (“Signal Hill”) to which some of its
employees (particularly those based at the Cape Town harbour) were transferred
in terms of section 197 of the LRA. This transfer involved a reduction in the
employees’ remuneration, which was intended to be off set by anticipated benefits
accruing to the workers through a restructuring of ownership involving the
formation of a trust for their benefit. The exact details of this arrangement are not
apparent. But it is clear that disillusionment soon set in and the experiment has not
proven to be an unmitigated success.
9. Signal Hill performed the terminal services and Evening Rainbow (Pty) Ltd
(“Evening Rainbow”) performed the stevedoring services at Cape Town harbour. In
Durban both the terminal and stevedoring services were outsourced to Sizonke
Logistics (Pty) Ltd. The current managing director of both Zikhethele and Khulisa,
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Mr. Nathi Mfundisi, was also managing director of Evening Rainbow.
10. The contracts for the rendering of terminal services to FPT at the three harbours
terminated on 31 December 2003 and 28 February 2004. FPT then proposed that
Evening Rainbow, Signal Hill and Sizonke merge to form a single company, which
would provide the total service solution in the three different harbours. This led to
the formation of Khulisa. The managing director of Evening Rainbow, Mfundisi,
become managing director of Khulisa at this point, and Mr. Johan Immelman
became its Operations Director. The idea behind the merger was that a broad
based black economic empowerment company be formed with the shareholding
divided into a 65:35 ratio of managers to employees (the employees shares to be
held in trust) while the profits were to be shared in a 80:20 ratio of employees to
managers.
11. Khulisa then entered into an agreement with FPT. Heads of agreement were
signed, with the idea that a final agreement would be drafted between the parties
at a later stage. As it turned out, a final agreement was never signed because of
an acrimonious dispute regarding the terms of the employee trust, the rights
attached to the employee shares and allegations of impropriety. FPT accordingly
decided to terminate the contract with Khulisa and invited the two factions within
Khulisa, being the managing director, Mfundisi on the one hand, and a faction led
by Immelman on the other, to tender for the services. FPT gave notice of
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cancellation on 16 February 2005 with the intention that the contract with Khulisa
would terminate on 31 March 2005 with the successful bidder taking over from 1
April 2005.
12. Two new companies, being Zikhethele and a shelf company headed by
Immelman, Business Venture Investments No 829 (Pty) Ltd trading as Signal Hill
Operation Services (“Signal Hill II”) tendered for the contract. Most of the Cape
Town employees pledged their support for Immelman’s tender, while the Durban
and Port Elizabeth employees did not express an allegiance either way. At a
meeting held on 27 January 2005, 56 employees of Khulisa signed a declaration
giving their support “to Mr. Immelman and his management team to take us
forward into a better and prosperous future”. The declaration concluded with the
statement: “We wish to break all ties with Mr. Mfundisi and Khulisa Terminal
Services”.
13. On 14 March 2005 FPT formally awarded the contract to the first respondent,
Mfundisi’s company Zikhethele, to be the national service provider in respect of
terminal and stevedoring services to FPT.
14. Shortly afterwards Signal Hill II, being the unsuccessful tendering party, made an
urgent application to the High Court, Cape of Good Hope Provincial Division
seeking to interdict the implementation of the contract, pending an application for
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review of the tender process. FPT, Zikhethele and Khulisa opposed the
application, simultaneously bringing an application in terms of rule 47 of the
Uniform Rules of the High Court for security of costs. Such security has been set at
a R100 000, which amount Signal Hill II, being an off the shelf company, has so far
been unable to pay. In the result the High Court matter has effectively been stayed.
15. On 23 March 2005, Mr. Bernie Beukes, the General Secretary of the Union, wrote
a letter to Mfundisi seeking clarity about whether Khulisa’s employees were to be
retrenched in terms of section 189 of the LRA or whether they would transfer
automatically to Zikhethele and proposed a meeting on 29 March 2005 to discuss
the matter. When he had not received a reply to his letter by 24 March 2005, he
telephoned Mfundisi who, according to Beukes, undertook to send a letter to the
union in which he would disclose all the relevant information requested and
propose a date for the meeting. No response was received to the letter nor was
any meeting held. In his opposing affidavit filed in these proceedings, Mfundisi
contended that his reason for not replying was quite obvious. As he saw it, the
employees were embarking on two contradictory strategies. On the one hand they
were seeking to set aside the contract awarded to Zikhethele, on the other they
were enquiring about the possibility of the transfer of their contracts to Zikhethele.
While allowing for some sense of grievance on the part of Mfundisi, I cannot say
that such justified ignoring the letter. In fairness to the employees he needed to
explain whether he envisioned retrenchments or a transfer, in the event and on the
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assumption that the contract between FPT and Zikhethele would stand as valid.
Not too much turns on his silence for the purpose of determining whether a transfer
of business has indeed taken place.
16. On 1 April 2005, the day on which Zikhethele stepped into the shoes of Khulisa as
service provider, Mfundisi, acting in his capacity as managing director of
Zikhethele, addressed a memorandum to all the employees of Khulisa in Cape
Town advising them that they would be “seconded” to Zikhethele, for the period 1
April 2005 to 11 April 2005. This seems to have been done without prior
consultation or their agreement. The memorandum reads:
“As you aware, Zikhethele Trade 15 (Pty) Ltd t/a Zikhethele Terminal Services
(“Zikhethele) has been nominated as the preferred service provider to Fresh Produce
Terminals (“FPT’) nationally, including Cape Town, effective today, 1 April 2005.
Zikhethele has concluded a contract with FPT in this regard.
Business Venture Investments No. 829 (Pty) Ltd t/a Signal Hill Operations Services (SHOS)
launched an application out of the Cape High Court on Tuesday, 29 March 2005 in regard to the
awarding of the service provider contract to Zikhethele. This matter is to be heard on 11 April
2005.
In terms of a court order granted on 31 March 2005, Zikhethele is to continue with providing the
services to FPT nationally including Cape Town, until the matter is heard on 11 April 2005.
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In the interests of total fairness Zikhethele has resolved that all employees of Khulisa Terminal
Services (KTS) will be seconded to Zikhethele for the period 1 April 2005 to 11 April 2005, unless
the matter is resolved sooner, in which event such secondment will persist until that earlier date
only. This is being done merely to accommodate the provisions of the Court Order granted on 31
March 2005 and to ensure that the rights of all parties are properly protected. All employees will
continue to be employed by KTS but will merely be seconded to Zikhethele.
Zikhethele is confident that the application brought by SHOS will be dismissed by the High Court
by or before 11 April 2005. Zikhethele is accordingly still accepting applications for positions with
it. Please be advised that interviews for positions with Zikhethele will be concluded as follows:
1. Managers Friday, 1 April 2005
2. Drivers Monday, 4 April 2005
3. Operational Clerks Tuesday, 5 April 2005”.
17. It is not clear whether the decisionmaking organs of Zikhethele and Khulisa
authorized the secondment or, as I have said, if there was any prior consultation or
agreement with the employees. In his opposing papers Mfundisi maintained that
the secondment was designed to preserve the status quo pending the outcome of
the urgent application to the High Court, and that he was acting in good faith in that
regard.
18. The invitation in the memorandum to the Khulisa employees to apply for positions
with Zikhethele intimates openly that Zikhethele did not foresee an automatic
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transfer of employment in terms of section 197 of the LRA. The applicant claims
that this was different from what transpired in relation to the employees of Khulisa
in Durban and Port Elizabeth, who, it contended, were taken over automatically.
Zikhethele partially disputes this in its opposing affidavit. Without denying that all of
the employees of Khulisa were taken over automatically, it avers that the
employees in Durban and Port Elizabeth were interviewed and appointed to
positions on application. It further asserts that the applicant had no members
among the employees at Durban and Port Elizabeth. Be that as it may, in my
opinion, the crucial point remains that by whatever means all the employees of
Khulisa in Durban and Port Elizabeth transferred to Zikhethele.
19. Despite the terms of the memorandum of 1 April 2005, the secondment continued
until 29 April 2005, resulting in an understandable measure of uncertainty among
Khulisa’s Cape Town employees. On 26 April 2005, it would seem again without
prior notice or consultation, Mfundisi addressed a second memorandum under the
letterhead of Zikhethele to the Khulisa employees advising them that the
secondment would end on 29 April 2005. This memorandum reads:
“On or about 31 March 2005, Zikhethele advised all employees of Khulisa Terminal
Services in Cape Town that they would be seconded to Zikhethele for the period 1 April
2005 to 11 April 2005. the urgent application brought by Business Venture Investments
No 829 (Pty) Ltd trading as Signal Hill Operational Services (SHOS) was due to be heard
on 11 April 2005.
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As it transpired, that application was not heard on 11 April 2005. Instead, an application
in terms of which FPT and Zikhethele required SHOS to provide security was heard on
that date. SHOS was directed by the Court to furnish security for FPT in sum of R100,
000.00 and for Zikhethele in the sum of R100,000.00 and to do so by or before the 22 nd
of April 2005.
Despite the earlier notice limiting your secondment to the 1 April 2005 to 11 April 2005,
Zikhethele permitted such secondment to continue past the date of 11 April 2005. It is no longer
possible for Zikhethele to do so.
Please be advised that all secondment of KTS employees will come to an end at the close of
business on Friday 29 April 2005.
Zikhethele will, from Saturday 30 April 2005, directly employ persons so that Zikhethele may
provide the terminal services as provided for in the Court Order. Many of you have applied for
positions with Zikhethele and have been interviewed. Zikhethele will decide which of you it wishes
to employ from Saturday 30 April 2005. Those of you that Zikhethele decides to employ will be
advised directly concerning such employment”.
20. Once more what is noteworthy about this memorandum is the statement that
Zikhethele intended to directly employ persons to provide terminal services and
that it had entertained applications from Khulisa employees who it would advise on
the success of their applications in due course.
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21. On receiving this memorandum Beukes addressed two letters to Mfundisi, one in
his capacity as managing director of Zikhethele and the other in his similar capacity
at Khulisa. The letters essentially advised Mfundisi that the union members had
applied for positions with Zikhethele without prejudice to their rights, as they
believed such applications were unnecessary because their contracts of
employment would transfer automatically to Zikhethele in consequence of the
transfer of the business of Khulisa as a going concern. In the letter addressed to
Mfundisi as managing director of Zikhethele, Beukes sought an undertaking from
him that the Khulisa employees who had not applied for positions at Zikhethele
would be considered to have been automatically transferred, failing which the
union would seek an order from the Labour Court. Mfundisi failed to respond to
both of these letters, and has subsequently taken the view that he did not need to
on account of it being quite obvious, in his opinion, that as far as Zikhethele was
concerned there was no transfer of business to it, and also because of the
contradictory nature of the separate relief sought in the two different jurisdictions.
22. On 26 April 2005 application was made to the High Court to place Khulisa under
provisional liquidation. A provisional liquidation order was granted on 5 May 2005,
returnable on 9 June 2005. From this the applicants infer that through the use of
the tender process and subsequent liquidation of Khulisa, the respondents will be
able to minimize their obligations hoping to avoid the consequences of section 197
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and the obligation for Khulisa to pay retrenchment packages under section 189 of
the LRA. Mfundisi denies this, but fails to provide any information or to give an
undertaking that Khulisa, without the benefit of the FPT contract, is sufficiently in
funds to meet any obligation it may have to pay its employees severance pay and
accumulated leave pay. On the contrary there is an admission on record that
Khulisa is unable to pay its debts.
23. In rebuttal of the allegations against him, Mfundisi offers some explanation and
justification of the approach he has followed. Firstly, of obvious importance he
asserts that of the 147 employees in Annexure X, Zikhethele has employed 104.
There is no evidence however that either the 104 Cape Town employees or the
employees taken on in Durban and Port Elizabeth have been employed on terms
and conditions that are on the whole not less favorable than those on which they
were employed by Khulisa. And it is safe to presume, given the correspondence
and memoranda, that there is no intention on the part of Zikhethele to assume the
obligations of Khulisa, guaranteeing continuity of employment, as would normally
be the case in a transfer of business in terms of section 197 of the LRA. Most
importantly, the fact remains that Zikhethele has employed all of the employees of
Khulisa in Cape Town, Durban and Port Elizabeth with the exception of 43 in Cape
Town who, the apprehension legitimately exists, may or may not be those who
most vociferously backed the Signal Hill II bid.
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24. In fairness to Mfundisi, to his credit, he appears to have made a last ditch attempt
to resolve the differences within Khulisa in Cape Town. Instead of putting aside
their differences for the common good of Khulisa, a significant faction of the
employees had in reality resolved to have nothing further to do with Mfundisi and
then embarked upon a strategy, which has culminated in the litigation before the
High Court. Mfundisi admits acting in his own legitimate interests, pointing out that
in his view the demise of Khulisa came about as a direct result of the actions of the
employees who eventually supported the Signal Hill II bid.
25. Finally, while Mfundisi admits that he was managing director of Zikhethele and
Khulisa, he disputes, “that Zikhethele is operated and controlled” in the same way
that Khulisa was, maintaining that the one company bears no comparison to the
other. Whilst in broad brush the activities of Zikhethele are conceded to be similar
to those of Khulisa, he denies that the economic entity originally situated in Khulisa
was transferred to Zikhethele because, as he sees it, Zikhethele has a completely
novel structure which cannot be compared to Khulisa. There is no evidence or
explanation elaborating on the structure of either. Nor is it denied that Mfundisi was
managing director and had a controlling stake in both companies. Furthermore,
Mfundisi does not dispute that Zikhethele operates from the same premises as
Khulisa in Cape Town, Durban and Port Elizabeth. Even though Zikhethele is
apparently acquiring separate furniture, it still makes use of the same telephone
number, fittings and other equipment previously used by Khulisa. Most importantly,
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while claiming to be contracting with new clients, Zikhethele’s main client and
biggest asset is FPT, as was the case with Khulisa. As far as suppliers are
concerned Zikhethele has made a bald denial that its suppliers are the same as
Khulisa’s, but has offered no substantiation of how they differ.
26. In the light of these arrangements, the applicants contend that the business in
question has remained exactly the same except for the fact that it is in different
hands and operating under a different name. Hence, it is submitted that the
economic entity comprising the business in Khulisa has been transferred to
Zikhethele as a going concern with the result that the contracts of employment with
Khulisa have been automatically transferred in terms section 197 to Zikhethele.
27. As far as I have been able to ascertain this is the first instance in which the Labour
Court has been called upon to pronounce on second generation contractingout.
Second generation contractingout typically occurs in circumstances, such as the
present, where a company has outsourced services to a contractor and when the
initial contract comes to an end puts the opportunity to provide the service out to
tender, whereupon the original contractor is unsuccessful in its bid to secure the
contract for an additional term.
28. Although the matter was not pertinently argued before me, a compelling
argument can be made, based on the express language in section 197 of the
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LRA, that the requirement in section 197(1)(b) that a transfer of business be
by one employer to another precludes its application to second
generation contractingout, because in such arrangements nothing is
transferred by the old employer to the new employer. Hence, second
generation contractingout is effectively exempted from the application
of section 197. (See M Wallis Section 197 is the Medium. What is the
Message? (2000) 21 ILJ 1 @ 4). In the present case the submission
would be that the business transferred to Zikhethele as a going
concern was not at the instance of Khulisa but rather FPT, who was
never the old employer of the applicant’s members. On the other hand,
this court has held on another occasion that the lack of a contractual
link between the transferor and the transferee is not a necessary pre
condition for the application of section 197 Nokeng Tsa Taemane
Local Municipality and Another v Metsweding District Municipality and
Others (2003) 24 ILJ 2179 (LC) @ 2183.
29. Likewise, I am persuaded that a less literal and more purposive approach is
justified in the context of section 197. As stated earlier, the section is intended
to protect employees whose security of employment and rights are in jeopardy
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as a result of business transfers. A mechanical application of the literal
meaning of the word “ by” in section 197(1)(b) would lead to the anomaly
that workers transferred as part of first generation contracting out
would be protected whereas those in a second generation scheme
would not be, when both are equally needful and deserving of the
protection. The possibility for abuse and circumvention of the statutory
protections by unscrupulous employers is easy to imagine. As in this
case, the danger exists that the employees might not only lose their
continuity of employment but also their severance benefits, for the
reason that the old employer having lost its business to the new
employer lacks the means to pay its debts. Accordingly, I am in
agreement with Todd et al, Business Transfers and Employment
Rights in South Africa (Butterworths, 2004) @ 27, that section 197(1)
(b) might be better interpreted to apply to transfers “ from” one
employer to another, as opposed to only those effected “ by” the old
employer. A pragmatic interpretation of this kind allows a finding that a
business in actual fact can be transferred by the old employer in such
circumstances, but that the transfer occurs in two phases: in the first
the business is handed back to the outsourcer and in the second it is
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awarded to the new employer. Importantly this interpretation will be in
conformity with the prescriptions of section 39(2) of the Constitution
obliging courts when interpreting legislation to promote the spirit,
purport and objectives of the Bill of Rights. By affording the same
protection to employees affected by first and second generation
contractingout arrangements, courts will promote the spirit and
advance the purport of equal treatment and fair labour practices.
30. The European law and practice on the topic is especially instructive. In
Dines v Initial Services [1994] IRLR 336, the UK Court of Appeal was
seized with facts resembling those of the present case in many
aspects. The applicants in that case were employees of Initial
Services, which undertook cleaning work at a hospital pursuant to a
fixed term outsourcing contract. As a result of competitive tendering,
when the contract expired the new contract went to a new provider Pall
Mall. Reversing the decision of the Employment Appeal Tribunal, the
Court of Appeal held that there had been a transfer of an undertaking.
The fact that another company takes over the provision of certain
services as a result of competitive tendering does not mean that the
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first business or undertaking necessarily comes to an end. The Court
of Appeal accepted that the transfer of the undertaking had taken place
in two phases: the first being the handing back of the cleaning services
to the hospital authority and the second phase being the grant to Pall
Mall of the cleaning services on the day after the original contract
terminated, which were operated by essentially the same labour force.
31. The European Court on similar but by no means identical facts reached a
different conclusion in Ayse Suzen [1997] IRLR 255. The applicant was
a school cleaner whose employer’s school cleaning contract came to
an end. Other contractors were appointed and she was dismissed. She
sought a declaration that her dismissal was ineffective on grounds that
she had been automatically transferred in terms of EEC Directive
77/187. The Court held that whilst the lack of any contractual link
between alleged transferor and alleged transferee may point to the
absence of a transfer within the meaning of the Directive it is certainly
not conclusive. The Court however held further:
“The mere fact that the service provided by the old and the new awardees of a contract is
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similar does not therefore support a conclusion that an economic entity has been
transferred. An entity cannot be reduced to the activity entrusted to it. Its identity also
emerges from other factors, such as its workforce, its management staff, the way in
which its work is organized, its operating methods or indeed, where appropriate, the
operational resources available to it.
The mere loss of a sales contract to a competitor cannot therefore by itself indicate the existence
of a transfer within the meaning of the Directive. In those circumstances the service undertaking
previously entrusted with the contract does not, on losing a customer, thereby cease to exist, and
a business or part of a business belonging to it cannot be considered to have been transferred to
the new awardee of the contract”.
32. The European Court then concluded that there would be no transfer of business “if
there is no concomitant transfer from one undertaking to the other of significant
tangible or intangible assets or taking over by the new employer of a major port of
the workforce, in terms of their numbers and skills, assigned by his predecessor to
the performance of the contract”.
33.The UK Court of Appeal considered and applied Ayse Suzen in Bitts v
Brintel Helicopters Ltd [1997] IRLR 361 (CA) also finding that there had
been no transfer of an undertaking where what was in fact transferred
was of a limited nature. In that case Brintel Helicopters provided
helicopter services to and from oil rigs in the North Sea for Shell (UK).
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This was done through three separate contracts, covering different
sectors. When the contracts expired they were put out to tender. KLM
successfully tendered for the contract run out of Beccles in Norfolk.
None of Brintel’s employees based at Beccles were taken on by KLM,
nor did it take over any equipment and ultimately conducted its
operation out of Norwich Airport rather than from the base previously
used in Beccles. The only assets transferred to KLM consisted of the
right to land on oil rigs and the use of oil rig facilities. A transfer of such
a limited part of the undertaking could not lead to the conclusion, the
Court felt, that the Brintel Beccles undertaking was transferred so that
it retained its identity in the hands of KLM. This distinguished it from
the situation in Dines which involved a labourintensive undertaking in
which the staff combined to engage in a particular activity which
continued or resumed with substantially the same staff after the
transfer, so that the undertaking transferred retained its identity in the
hands of the transferee.
34. In short, the European courts tell us this in relation to second generation
contractingout. The absence of a contractual link between the old and the
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new employer is not decisive, hence a two phased transaction can indeed
constitute a transfer. Secondly, the decisive criterion for determining whether
there has been a transfer of an undertaking (read “business”) is whether, after
the alleged transfer, the undertaking has retained its identity, so that
employment in the undertaking is continued or resumed in the different hands
of the transferee. In order to determine whether there has been a retention of
identity it is necessary to examine all the facts relating both to the identity of
the undertaking and the relevant transaction and assess their cumulative effect,
looking at the substance, not at the form, of the arrangements. The mode or
method of transfer is immaterial. The emphasis is on a comparison between
the actual activities of and actual employment situation in an undertaking
before and after the alleged transfer. Kelman v Care Contract Services
[1995] ICR 260. What seems to be critical is the transfer of
responsibility for the operation of the undertaking. Mummery J’s
conclusion in Kelman offers a salutary guideline. He said:
“The theme running through all the recent cases is the necessity of viewing the situation
from an employment perspective, not from a perspective conditioned by principles of
property, company or insolvency law. The crucial question is whether, taking a realistic
view of the activities in which the employees are employed, there exists an economic
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entity which, despite changes, remains identifiable, though not necessarily identical, after
the alleged transfer”.
35. Our own law, I believe, is not much different. For the reasons already
explained, I accept that the two phase transaction intrinsic to second
generation contracting out does indeed constitute a “ transfer” as
contemplated by section 197 of the LRA. As in European law, the
mode or method of transfer is less important. The crux of the
determination is whether what is transferred is “a business in operation
so that the business remains the same but in different hands”
NEHAWU v University of Cape Town @ 119E. The Constitutional
Court held that whether such has occurred is a matter of fact to be
determined objectively in the light of the circumstances of each
transaction. Also in line with European law, in deciding whether a
business has been transferred as a going concern, courts must have
regard to the substance and not the form of the transaction. In this
respect the Constitutional Court observed (@ 119G120B):
“A number of factors will be relevant to the question whether a transfer of business as a
going concern has occurred, such as the transfer or otherwise of assets both tangible
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and intangible, whether or not workers are taken over by the new employer, whether
customers are transferred and whether or not the same business is being carried on by
the new employer. What must be stressed is that this list of factors is not exhaustive and
that none of them is decisive individually. They must all be considered in the overall
assessment and therefore should not be considered in isolation”.
36. Returning to the facts and circumstances of the case at hand, I am persuaded that
there are significant features present that indicate there has been a transfer of
business as a going concern from Khulisa to Zikhethele. My conclusion is informed
in part by the history of outsourcing that has taken place since 2000, the unhappy
events leading to the failure of the black economic empowerment initiative in the
Cape Town harbour and the unsuccessful bid by a faction of the Cape Town
employees. The incorporeal service provider contract originating in FPT has found
its way through various corporate arrangements until it reached Zikhethele in
almost identical form. The rights and duties involved have undergone
metamorphosis to a degree, but contractually the same job needs to be done by
the same employees at the same locale using the same operational methods.
Viewing the situation first and foremost from an employment perspective, it is of
utmost importance that by far the majority of employees of Khulisa have been
taken over by Zikhethele in the three harbours. Limiting consideration of this factor
to what has happened in Cape Town, the majority of employees there now work for
Zikhethele. Added to that, Mfundisi has a controlling stake and is the managing
director of both the new and the old employer. The premises, fittings and
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equipment employed by Khulisa are now at the disposal of Zikhethele. At least
some of the suppliers of the two companies appear to be the same and there is no
doubt at all that FPT is the main client with the terminal and stevedoring services
contract being the substantial incorporeal asset. The reality is that without that
asset Khulisa can no longer pay its debts and has been forced into liquidation.
That Zikhethele is in pursuit of new clients is of little significance, especially in view
of the fact that such clients were in any event most likely in Mfundisi’s sights as
managing director of Khulisa.
37. Accordingly, on a narrow comparison between the actual activities and actual
employment situation in the two companies before and after FPT’s award of the
tender to Zikhethele, the business as a going concern has retained its identity to a
sufficient degree as to constitute a transfer of business. To the extent that the
respondent has denied the allegation that the shareholding is substantially the
same without disclosing the actual nature of the shareholding, I do not consider
such denial as presenting a dispute of fact sufficiently material to justify a referral
to oral evidence. The papers disclose that Mfundisi is the controlling shareholder
and managing director in both companies. That, viewed from the employment law
perspective, is enough to find that the business in question has retained its identity.
38. Taking a broader view, although strictly speaking perhaps not necessary on the
facts of this case, it is acceptable to attach weight to the policy argument that a
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finding adverse to the applicants would leave them not only without continuity of
employment but with no severance pay because Khulisa cannot pay its debts. That
would be so despite the fact that the principal players continue to operate a
profitable stevedoring business in the Cape Town harbour, carrying on in more or
less exactly the same way as has been done for many years, but only under the
rubric of different contractual and corporate arrangements; making the admonition
to apply a perspective not conditioned by the principles of property, company or
insolvency law all the more salutary.
39. Finally, and perhaps also in the realm of policy considerations, counsel for the
respondent has made much of the strong preference expressed by the Cape Town
workers not to work for Mfundisi. Can the automatic consequences of a transfer of
business be countenanced in the circumstances? In the hurly burly of business
and life in the docks, I can see no reason why not. Clearly some of the applicants’
members would have preferred to have seen Signal Hill II win the bid. The reality is
that it lost. No fair labour policy can allow termination of employment to be visited
on the employees simply for playing the wrong hand in a competitive tender
process. All of the Cape Town employees have tendered their services to
Zikhethele. Should they breach their duty of good faith to Zikhethele through
subsequent acts of disloyalty or insubordination, they can be appropriately
disciplined. At the time of the bid they owed no duty to Zikhethele. Moreover,
during the period of “secondment” (itself an indicator of the blurred corporate
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identities) the Cape Town employees performed loyally without demur.
40. In the premises I am satisfied on the facts and in the circumstances of this case
that a transfer of a business took place in two phases when FPT cancelled the
contract with Khulisa with effect from 31 March 2005 and then granted the contract
to Zikhethele with effect from 1 April 2005. As a consequence, Zikhethele was
automatically substituted in the place of Khulisa in respect of all contracts of
employment in existence on 31 March 2005 and all the rights and obligations
between Khulisa and its employees continue in force as if they had been rights and
obligations between Zikhethele and the employees. Accordingly, the applicant is
entitled to the declaratory order it seeks.
41. The matter, however, does not end there. As mentioned at the outset, the
respondent has raised four points in limine . I have left them to last
because in the final analysis they are without merit.
42. The first point is that the application should be dismissed because the applicant
neglected to join both individuals appointed as the liquidators of Khulisa, having
elected to join only Mr. Faizel Bardien and not the second Mr. Jurgen Steenkamp.
The applicant has subsequently applied to join Mr. Steenkamp which application
has not been opposed, and should therefore be granted. Given that one of the joint
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liquidators was indeed joined I consider the nonjoinder to be immaterial. In any
event no relief is sought against the liquidators and they are joined merely because
they are likely to have some interest in the outcome.
43. The second point is that there has been a nonjoinder of FPT. I agree with counsel
for the applicant that FPT has no direct or substantial interest in the outcome of
this application. Any interest it may have, albeit potentially of financial import, is of
an indirect nature. Although the employees of Zikhethele will work on its premises,
the outsourcing arrangements do not grant it any say in who may or may not be
employed by Zikhethele.
44. The third point in limine is that the application should be stayed
pending the outcome of the review proceedings brought by Signal Hill
II in the High Court. Even though the separate applications envisage
relief which is potentially contradictory, until set aside the contract
between FPT and Zikhethele should be presumed to be valid. Viewed
from an employment perspective that valid contract is part and parcel
of a transfer of business. Should it be declared invalid it may be
necessary to effect another transfer of business to the eventual
successful bidder. Such speculative scenarios ought not operate to
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deny the applicant’s members the security to which they are entitled in
employment law under section 197 of the LRA.
45. The fourth preliminary point submits that the matter is not urgent or that the
urgency that exists is of the applicant’s own making. FPT awarded the contract to
Zikhethele on 14 March 2005, but the applicant only launched these proceedings
on 11 May 2005. I am satisfied that the matter only became urgent on 3 May 2005
when Zikhethele barred the employees entrance to the premises a few days after
the secondment had ended. They brought the application within the week
thereafter. Urgency is justified because the declarator needs to be made sooner
rather than later in order to avoid any disruption or threat to industrial peace which
may be caused by the employment by Zikhethele of substitute labour. Hence, I am
persuaded that the matter is one of urgency.
46. Although the applicant has been put to perhaps avoidable expense, the
complicated history attending this transfer and the ongoing relationship between
the parties militate against an award of costs.
47. Accordingly, I make the following orders:
a. The first respondent is declared to be the employer of the applicant’s
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members in Cape Town, identified in the list marked X annexed to the
Notice of Motion, with effect from 1 April 2005.
b. It is further declared that, within the meaning of section 197(2) of the
LRA, all the rights and obligations between Khulisa and the
abovementioned members of the applicant at 31 March 2005 continue in
force as if they had been rights and obligations between the first
respondent and the abovementioned members of the applicant.
c. There is no order as to costs.
_________
Murphy AJ,
Date of hearing: 23 May 2005
Date of judgment: 31 May 2005
Applicants’ Representative: Adv C Hinds instructed by Hofmeyr Herbstein &
Gihwala Attorneys
Respondents’ Representative: Adv G O van Niekerk SC instructed by Craig
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Mundell Inc
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