Aviation Union of South Africa and Another v SAA (Pty) Ltd and Others (CCT 08/11) [2011] ZACC 31; 2012 (1) SA 321 (CC); 2012 (2) BCLR 117 (CC); [2012] 3 BLLR 211 (CC); (2011) 32 ILJ 2861 (CC) (24 November 2011)

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[2011] ZACC 31
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Aviation Union of South Africa and Another v SAA (Pty) Ltd and Others (CCT 08/11) [2011] ZACC 31; 2012 (1) SA 321 (CC); 2012 (2) BCLR 117 (CC); [2012] 3 BLLR 211 (CC); (2011) 32 ILJ 2861 (CC) (24 November 2011)

Links to summary

CONSTITUTIONAL COURT OF SOUTH AFRICA
Case CCT 08/11
[2011] ZACC 31
In the matter between:
AVIATION UNION OF SOUTH
AFRICA

First Applicant
SOUTH AFRICAN TRANSPORT AND
ALLIED WORKERS’
UNION

Second Applicant
and
SOUTH AFRICAN AIRWAYS (PTY)
LTD

First Respondent
LGM SOUTH AFRICA FACILITY
MANAGERS AND ENGINEERS (PTY)
LTD

Second Respondent
ALLAN & 204
OTHERS

Third to 207
th
Respondents
Heard on: 11 May 2011
Decided on: 24 November 2011
JUDGMENT
JAFTA J (Moseneke DCJ, Mogoeng J, Mthiyane AJ and Nkabinde J
concurring):
Introduction
[1] This is an application for leave to appeal against the judgment
of the Supreme Court of Appeal
[1]
in terms of which an order granted by the Labour Appeal Court
[2]
was set aside.  The case served before the Labour Appeal Court
as an appeal against the judgment of the Labour Court
[3]
in which an application by Aviation Union of South Africa (Aviation
Union) was dismissed.
[2] The key question raised in this matter is whether upon
termination of an outsourcing agreement between South African Airways

(Pty) Ltd (SAA) and LGM South Africa Facility Managers and Engineers
(Pty) Ltd (LGM), the employees of LGM were transferred together
with
the business in which they were engaged, to a new employer.  The
business that forms the subject matter of these proceedings
is the
entity that provided certain services that were rendered to SAA by
LGM.  The applicants argue that the continued performance
of
these services by either SAA or a third party, after the termination
of the outsourcing agreement, amounts to a transfer as
envisaged in
section 197 of the Labour Relations Act (LRA).
[4]
The provisions of section 197
[3] At common law the acquisition and transfer of a business that was
in operation led to termination of contracts of employment.
If
the new owner wished to continue operating the business with the same
workers, it would have to conclude new employment
agreements with
them.  Section 197 changed this by providing that certain legal
consequences would automatically flow from
a transfer of a business
as a going concern.  One of these consequences is the transfer
of the workforce engaged in the transferred
business.
[4] It must be mentioned at the outset that the proper interpretation
of section 197 is crucial to the determination of the issues
raised.
It is therefore essential to quote the relevant part of the
section.  It 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.”
The parties
[5] The applicants are the Aviation Union and the South African
Transport and Allied Workers’ Union, which joined the
proceedings
in this Court as an applicant.  Both applicants are
trade unions whose members were employees of LGM before the
termination
of the outsourcing agreement between LGM and SAA.  SAA,
LGM and 205 employees of LGM are cited as respondents.
Factual background
[6] SAA provides air transport in this country, throughout Africa and
in other countries across the world.  In the year 2000
it took a
decision to outsource certain of its non-core business in order to
reduce its maintenance costs which were in excess
of R130 million per
annum.  The decision was in line with the strategy of turning
SAA into a profitable entity.  To this
end SAA put its
facilities management operations out to tender.  The tender was
awarded to LGM.
[7] Following the award, LGM and SAA concluded an outsourcing
agreement in terms of which the facilities management operations
were
transferred from SAA to LGM.  The duration of the agreement was
to be ten years, commencing on 1 April 2000 and terminating
on 31
March 2010.  However, SAA retained the option to renew it for a
further five years.
[8] The material terms of the agreement were the following: the
parties agreed that LGM would provide the services for a fee; the

assets and inventory relating to these services were sold to LGM, but
on termination of the agreement SAA would be entitled to
repurchase
them; LGM would be afforded the use of the office space, workshops,
airport aprons, computers and the SAA network at
all designated
airports; upon termination of the agreement SAA would be entitled to
have the services transferred back to it or
to a third party and
obtain assignment of all third party contracts from LGM.
[9] SAA’s employees who were engaged in the performance of the
services concerned were automatically transferred with the
services
to LGM, as contemplated in section 197 of the LRA.  LGM rendered
these services until termination of the agreement
by SAA.
[10] In June 2007 SAA terminated the agreement with effect from 30
September 2007.  This was due to a breach committed by
LGM.  In
August 2007 SAA put out to tender certain of the services performed
by LGM.  Three of those services were excluded
from the tender.
These were services performed in relation to aircraft movement,
trolley maintenance and the manufacture,
repair and maintenance of
Utility Loading Devices.
[11] LGM requested SAA to delay the termination of the outsourcing
agreement until January 2008 on condition that tenders were
not
published.  SAA did not accept this conditional offer to extend
the termination.  When it became clear to LGM that
SAA would not
delay the termination date, it contemplated retrenching the employees
who were engaged in providing services under
the agreement. According
to LGM these employees were going to be redundant.  In September
2007 LGM invited the applicants
to a consultation about the possible
retrenchment of its members.  A consultation is required, as a
preliminary step, by section
189 of the LRA.
[5]
[12] While the consultation process between LGM and the applicants
was underway, the unions were concerned that their members would
lose
their jobs.  On 14 September 2007 Aviation Union sought an
assurance from SAA that upon termination of the outsourcing
agreement
on 30 September 2007, LGM’s employees would be transferred back
to SAA.  SAA’s stance was, however,
that there is no legal
obligation requiring it to take the workers back.
[13] Aviation Union also sought an undertaking from LGM that it would
not terminate the employment of its members, following the

termination of the outsourcing agreement.  The letter to LGM
elicited no response.  Faced with the uncertainty over the

employment of its members, Aviation Union launched an application in
the Labour Court for certain declaratory and interdictory
relief
against SAA and LGM.
Litigation history
[14] In the Labour Court, Aviation Union sought an order declaring
that the termination of the outsourcing agreement between SAA
and LGM
constituted a transfer of business, as contemplated in section 197 of
the LRA.  Alternatively, it sought a declarator
to the effect
that the award of tenders and appointment of third parties to provide
the services covered by the agreement, amounted
to a transfer of
business as envisaged in section 197.  In addition, Aviation
Union sought an interdict restraining SAA from
providing or
permitting a third party to provide the services in question.
[15] Against LGM, Aviation Union sought an order declaring that the
dismissal of its members, occasioned by the termination of
the
outsourcing agreement, amounted to a dismissal in breach of section
187(1)(g) of the LRA.  It also sought an interdict
restraining
LGM from dismissing its members.  The relief sought against LGM
was, however, abandoned and consequently it does
not feature in these
proceedings.
[16] The Labour Court considered the issue it was called upon to
decide to be whether section 197 applies to a second outsourcing

agreement.  In its view, the determination of this question
depended on the interpretation of the section.  Relying on
the
definition of the word “transfer”, which it construed
literally, the Labour Court held that the section does not
apply to a
second or subsequent outsourcing agreement because the agreement does
not involve a transfer by an old employer to a
new employer.
[17] The Labour Court held that, for section 197 to apply, the
transfer must be facilitated by an old employer to a new one.  It

found that in a second outsourcing agreement the old employer, which
it regarded as the party that initiated and effected the first

transfer, does not play the same role.  In the light of the
clear wording of the definition, the Court further held, section
197
cannot be construed in a way that makes it apply to a “transfer
‘from’ one employer to another as opposed
to a transfer
by the ‘old’ employer to the ‘new’
employer”.
[6]
[18] Regarding the interdict, the Labour Court held that it lacked
jurisdiction to restrain SAA from itself providing the services
in
question or permitting a third party to do so.  The Court also
held, were the interdict to be issued, it would constitute

interference by the Court in a commercial transaction between private
parties.
[19] On the facts, the Labour Court found that Aviation Union had
failed to establish that a transfer of services from LGM to SAA
would
occur.  Consequently, the application was dismissed.
In the Labour Appeal Court
[20] Dissatisfied with the Labour Court’s judgment, Aviation
Union appealed to the Labour Appeal Court.  In that Court
too
the case turned on the proper interpretation of section 197, in
particular whether the word “by” in the definition
of
“transfer” can be read to include “from”.
[21] The Labour Appeal Court rejected the proposition that the use of
“by” signifies that the transferor has a positive
role to
play in bringing about the transfer.  The Court held that the
wording of section 197 does not support exclusively
the connotation
that the transferor must play an immediate and positive role in
bringing about the transfer.  The Labour Appeal
Court rejected
the literal meaning adopted by the Labour Court.
[22] Instead, the Court preferred an interpretation that would
advance the purpose of job protection, as opposed to an
interpretation
that denies protection to employees affected by a
second outsourcing agreement.  It further held that the literal
interpretation
of the word “by” was subversive of the
protection of employment.  The Court held that a departure from
the literal
meaning of “by” was justified because that
meaning would defeat the very purpose for which section 197 was
enacted.
The Labour Appeal Court concluded that the section
applies to a second outsourcing agreement.
[23] In view of the fact that the application was launched and
determined before termination of the agreement between SAA and LGM,

no facts were placed before the Labour Court on what occurred upon
termination of that agreement.  In the absence of those
facts
the Labour Appeal Court held that a limited declaratory order would
be appropriate.  It granted an order declaring that
section 197
is “capable of application when, at the end of the contract
between SAA and LGM, the services that were provided
by LGM to SAA
are transferred to SAA or are contracted out by SAA to another
party.”
[7]
In the Supreme Court of Appeal
[24] SAA appealed the judgment of the Labour Appeal Court to the
Supreme Court of Appeal.  Challenging the interpretation
of
section 197 by the Labour Appeal Court, SAA contended that that
interpretation was inconsistent with the text of the section.
It
further submitted that the Labour Appeal Court erred in finding on
the facts that there was a transfer of business as
a going concern.
[25] The issue that was presented to the Supreme Court of Appeal for
determination was whether, upon termination of the outsourcing

agreement between SAA and LGM, the services affected by the
termination were transferred as a going concern, within the meaning

of section 197, either to SAA or a third party.
[26] Upholding the construction contended for by SAA, the Supreme
Court of Appeal, in a majority judgment,
[8]
held that by interpreting the word “by” to mean “from”
the Labour Appeal Court distorted the plain meaning
of section 197.
The majority further held that the Labour Appeal Court had
erred in finding that a transfer of services had
occurred.  The
appeal was upheld and the order of the Labour Appeal Court was set
aside.
[27] The minority judgment
[9]
held, contrary to the findings of the majority, that since LGM was
contractually obliged to assist SAA in the further transfer
of the
services, the debate whether “by” should be construed to
mean “from” did not arise.  In the
view of the
minority, there was a transfer by an old employer – LGM –
to a new employer – SAA.  Relying
on clause 27 of the
outsourcing agreement between SAA and LGM, the minority held that
upon termination of that agreement, there
must have been a transfer
of services by LGM to SAA.  It further held that it was
unimaginable that SAA could put the same
services to tender if they
were not first transferred to SAA.  The minority found that
there were facts on record which sufficiently
supported the order of
the Labour Appeal Court.
In this Court
[28] As mentioned earlier, the applicants seek leave to appeal
against the majority judgment of the Supreme Court of Appeal.  There

can be no doubt that the matter raises a constitutional issue.  It
concerns the proper interpretation of section 197 of the
LRA, a
statute that was enacted to give effect to the rights in section 23
of the Constitution.  As appears below, section
197 was passed
to advance and regulate the exercise of the right to fair labour
practices, enjoyed by both the employers and the
employees.
[29] Leave may also be granted if it is in the interests of justice
to do so.  The nature of the constitutional issue at stake
and
its importance, constitute considerations in favour of granting
leave.  The case concerns the interpretation of provisions
which
give effect to section 23 of the Constitution.  The
interpretation adopted by the Supreme Court of Appeal limits the

scope of section 197 and excludes from its operation second and
further outsourcing agreements resulting in further transfers of
the
same business.
[30] As the facts of this case show, outsourcing agreements are
usually concluded for a fixed period.  If the interpretation
by
the Supreme Court of Appeal stands, employees who enjoyed protection
afforded by section 197 at the stage of the first outsourcing

agreement would be left with no protection if the same business is
again transferred in terms of a second or further outsourcing

agreement.  This will be the position regardless of whether the
further transfer amounts to a transfer of a particular business
as a
going concern or not.
[31] The importance of determining the proper meaning of section 197
extends beyond the interests of the applicants.  The

interpretation by the Supreme Court of Appeal affects all employees
who are engaged in a business which is further outsourced.
This
is another consideration in favour of granting leave.
[32] Although prospects of success on appeal play an important role
in this enquiry, they are not determinative.
[10]
The divergent views expressed by the Supreme Court of Appeal in
the two judgments and the views expressed in the judgments
of the
Labour Appeal Court show prospects of success.  In these
circumstances I am satisfied that the interests of justice
warrant
the granting of leave.
The issues
[33] As stated earlier the main issue is whether upon termination of
the outsourcing agreement between SAA and LGM, the services
which
were provided by LGM in terms of that agreement, were transferred as
a going concern to SAA or another entity as envisaged
in section 197
of the LRA.  The determination of this issue turns on the
correct meaning of section 197 and the application
of that
construction to the present facts.  I consider the
interpretation issue first.
The proper approach to interpreting section 197
[34] It is important to identify the correct approach to interpreting
provisions of the LRA at the outset.  Section 3 of the
LRA
[11]
obliges any person interpreting the LRA to adopt a construction that
complies with the Constitution and public international law
while at
the same time giving effect to the LRA’s primary objects.
These objects are listed in section 1.
[12]
They include the regulation of and giving effect to the rights
entrenched in section 23 of the Constitution.
[13]
[35] In
National Education Health and Allied Workers Union v
University of Cape Town and Others,
[14]
(
NEHAWU
) this Court had the occasion to interpret section 197.
In that case the correct approach to interpreting the section
was
defined in the following terms:
“The proper approach to the construction of section 197 is to
construe the section as a whole and in the light of its purpose
and
the context in which it appears in the LRA.  In addition, regard
must be had to the declared purpose of the LRA to promote
economic
development, social justice and labour peace.  The purpose of
protecting workers against loss of employment must
be met in
substance as well as in form.  And, as pointed out earlier, it
also serves to facilitate the transfer of businesses.
The
section is found in a chapter that deals with unfair dismissal.
Construed against this background, the section
makes provision
for an exception to the principle that a contract of employment may
not be transferred without the consent of the
workers.  Subsection
(1) says so and it makes it possible to transfer the business on the
basis that the workers will be part
of that transfer.  This will
occur if the business is transferred ‘as a going concern’.”
[15]
[36] Section 197 is located in chapter VIII of the LRA which deals
with dismissals and unfair labour practices.  It promotes
the
right to fair labour practices, guaranteed by section 23 of the
Constitution.  This right is enjoyed by the workers and
the
employers, and consequently the provision serves a dual purpose of
advancing both their interests.  These interests may
sometimes
come into conflict.
[16]
[37] The dual purpose of section 197 was pronounced in
NEHAWU
where this Court said:
“Section 197 strikes at the heart of this tension and 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 resultant labour disputes that
often arise from the sales of businesses
and impact negatively on
economic development and labour peace.  In this sense, section
197 has a dual purpose, it facilitates
the commercial transactions
while at the same time protecting the workers against unfair job
losses.”
[17]
[38] The section achieves its purpose by preserving 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.  Section 197 must be interpreted
against this
background.
The meaning of section 197
[39] The scheme that emerges from the text is that section 197 alters
the common law position flowing from the transfer of business
as a
going concern.  Under the common law a transfer has the effect
of terminating all contracts of employment between the
transferring
employer and the employees of the business.  Section 197 is
designed to keep all contracts of employment extant
and substitute
the new owner of the business for the previous employer under those
contracts.
[40] Section 197(1) defines two key words used in the section.  The
first is “business” which is defined to include
“the
whole or a part of any business, trade, undertaking or service”.
It is apparent from this definition that
the section is
designed to cover every conceivable business.  The second is
“transfer”.  It 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.”
[41] While the first word defines the types of businesses to which
the section applies, the second word defines the act that triggers

the application of the section.  These definitions are
complementary and their role is to facilitate the achievement of the

purpose for which the section was enacted.
[42] Section 197(2) lists legal consequences that flow from a
transfer of the kind envisaged in the section.  These
consequences
are:
“(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.”
[43] The text of section 197(2) makes it plain that its application
is dependent on the existence of a transfer.  It says
if a
transfer contemplated in the section takes place, the legal
consequences it specifies will be activated.  For the
consequences
to be triggered, a business must be transferred as a
going concern.  Once a transfer of this kind occurs, it
automatically
carries with it all contracts of employment that
existed immediately before the transfer took place.  The basket
of what is
transferred consists of the business and employment
contracts.  This simultaneous transfer of business and contracts
of employment
does not require any declaration by a court.  The
employment contracts are automatically transferred together with the
business.
The person to whom the business is transferred
replaces the employer in terms of those contracts and assumes all
obligations
of the previous employer.  He or she also acquires
the contractual rights of the previous employer.
[44] It must be stressed that the key event which brings section 197
into play is the transfer of business as a going concern.
The
question whether the section applies to a particular case cannot be
determined, as the Supreme Court of Appeal did, with reference
to the
label of the transaction effecting transfer.  The section does
not cite transactions to which it applies.  Nor
does it refer to
any labels.  Instead, its application must always be determined
with reference to three requisites, namely,
business, transfer and
going concern.
Business
[45] As stated earlier the section would apply to any business
provided that the other requirements are met.  The aim is to

cast the net as wide as possible.
Transfer
[46] For the section to apply the business must have changed hands,
whether through a sale or other transaction that places the
business
in question in different hands.  Thus the business must have
moved from one person to the other.  The breadth
of the transfer
contemplated in the section is consistent with the wide scope it is
intended to cover.  Therefore, confining
transfers to those
effected by the old employer is at odds with the clear scheme of the
section.
[47] But whether a transfer as contemplated in section 197 has
occurred or will occur is a factual question.  It must be
determined with reference to the objective facts of each case.
Speaking generally, a termination of a service contract and
a
subsequent award of it to a third party does not, in itself,
constitute a transfer as envisaged in the section.  In those

circumstances, the service provider whose contract has been
terminated loses the contract but retains its business.  The
service provider would be free to offer the same service to other
clients with its workforce still intact.
[48] For a transfer to be established there must be components of the
original business which are passed on to the third party.
These
may be in the form of assets or the taking over of workers who were
assigned to provide the service.  The taking over
of workers may
be occasioned by the fact that the transferred workers possess
particular skills and expertise necessary for providing
the service
or the new owner may require the workers simply because it did not
have the workforce to do the work.  Without
the protection
afforded by section 197, the new owner with no workers may be exposed
to catastrophic consequences, in the event
of the workers declining
its offer of employment.
Going concern
[49] If the transaction in terms of which a business is transferred
specifies that it is or will be transferred as a going concern,
it
would constitute sufficient proof of that fact.  However, this
does not mean that where the transaction is silent on this
issue, a
transfer as a going concern cannot come into existence.  Its
existence may still be established with reference to
objective facts.
[50] The test for determining whether a business was transferred as a
going concern or not was laid down by this Court in
NEHAWU
.
There the Court said:
“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.”
[18]
(Footnote omitted.)
[51] This statement makes it clear that what matters during the
factual inquiry is the substance of the transaction as opposed
to its
form.  In determining that, special attention must be paid to
specific factors which are capable of illuminating the
nature of the
transaction under scrutiny.  The listed factors are not
exhaustive and none of them is decisive of the issue.
[52] Although the definition of business in 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 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 on employment
contracts,
when the ownership of a business changes hands.
[53] Consistent with this approach is the fact that the operation of
the same business by the transferee is in and of itself not

determinative of the question whether a transfer as a going concern
has taken place.  There must be other indicators that
support
the conclusion that when a business passed to the new owner, it was
transferred as a going concern.  These indicators
include
whether assets, employees or customers were taken over by the new
owner.
The interpretation by the Supreme Court of Appeal
[54] Tracking the construction of the section contended for by SAA,
the Supreme Court of Appeal adopted a different approach in
its
interpretation of section 197.  The majority singled out the
word “by” in the definition of “transfer”
and
gave it an isolated literal meaning.  Undue emphasis was placed
on that meaning with little regard to the context in which
the
section appears in the LRA.  No account was taken of the purpose
of the section and the objects of the LRA.
[55] Determining the operation of the section with reference to a
single word is not the correct approach to its interpretation.

The whole section must be read in its proper context.  Reading
section 197 as a whole in the context of where it is located
in the
LRA and paying sufficient attention to its purpose and the objects of
the LRA, reveal that it applies to any transaction
that transfers a
business as a going concern.  It follows that the majority in
the Supreme Court of Appeal erred in holding
that the section does
not apply to second generation outsourcing agreements.
[19]
Remedy
[56] Since I hold that the construction given to section 197 by the
Supreme Court of Appeal is incorrect, I must determine the

appropriate remedy.  In doing so I must first determine what
remedy the Labour Court ought to have granted had it not incorrectly

interpreted the section.  The Labour Court gave it the meaning
that was endorsed by the Supreme Court of Appeal and concluded
that
the section does not apply to the so-called second generation
outsourcing agreements.  In this regard the Labour Court
said:
“Consequently, I am of the view that section 197 only
contemplates first generation outsourcing; in other words, where the

business is transferred by the old employer to the new employer and
not the so-called second generation transfers.”
[20]
[57] The Labour Court declined to consider whether on the evidence
before it, the applicants had made out a case for a declarator.

The order sought was for declaring that the termination of the
agreement between SAA and LGM and the supply of the services which

were provided by LGM, amounted to a transfer of those services as a
going concern as envisaged in section 197 of the LRA.
In the
notice of motion this relief was framed in two parts, the main and
alternative part.  The main part relates to a declaration
that
the termination of the outsourcing agreement and the performance of
the services concerned by SAA constituted a transfer as
a going
concern.  In the alternative, the applicants sought an order
declaring that the award of specified tenders to third
parties
constituted a transfer of business as a going concern.  In
addition, the applicants sought an interdict restraining
SAA from
performing any of the functions which fell under the terminated
agreement unless the business covered by that agreement
was
transferred as a going concern.
[58] Following its interpretation of section 197, the Labour Court
confined its ruling to the question of the interdict.
[21]
The Court held that further suitable relief would be available to the
applicants after the award of the tenders.  This
suggests that
the Court thought of deferring its ruling on whether the section
applied, to a date subsequent to the award of tenders.
But no
formal ruling was made in this regard.  It dismissed the
application with costs.
[59] Having given section 197 a different meaning, the Labour Appeal
Court set aside the order of the Labour Court and replaced
it with
the order set out in paragraph 23.  The Court held that this
order was designed to settle the legal dispute between
the parties
and provide them with a framework within which to arrange their legal
relationships.  The Labour Appeal Court
too did not evaluate the
facts to determine whether a transfer as defined in the section would
have occurred.  The Court held:
“On a purposive construction, section 197 covers the situation
whereby, after SAA cancelled the initial outsourcing agreement,
it
invoked clause 27 of the agreement to compel LGM to implement the
‘hand-over plan’.  The application should
not have
been dismissed in its entirety.  Some declaratory order should
have been granted.”
[22]
The Labour Appeal Court was of the view that a transfer envisaged in
section 197 could take place if SAA, which was a party to
the
cancelled outsourcing agreement, invoked clause 27 of that agreement
to compel LGM, another party to the same agreement, to
implement the
handover plan.  This accords with the general common law
principle that only parties to a contract may enforce
its terms.
[23]
Aviation Union did not seek to enforce the terms of that
agreement.  In fact it abandoned all claims against LGM.
[60] It is apparent from the judgment of the Labour Appeal Court that
it considered the facts placed on record to be inadequate
for
determining whether section 197 applies to the case.  The Court
said:
“Appellants sought a detailed order that would specify the
necessary steps to be taken in terms of s 197 to enforce employee

rights.  However, to do so would require knowledge of events
that took place after October 2007, none of which was contained
in
the evidence placed before this court.  In the circumstances
this court would be ill-advised to frame a detailed order
which would
have legal consequences unbeknown to this court, given the factual
matrix placed before it.”
[24]
[61] And in his concurring judgment Zondo JP added:
“. . . I am of the view that section 197 is capable of
application in a situation such as the one under consideration.

Whether it indeed applied in this case will depend upon what happened
on 1 October 2007.  The application was launched before
that
date and the court a quo dealt with the matter on the basis of papers
which did not cover the events of 1 October 2007.
Although
during the hearing of this appeal I had indicated to the parties that
it could be helpful if they informed us in writing
through the
registrar what happened on 1 October 2007, and they have supplied us
with letters dealing with the situation, upon
reflection I think that
we cannot take such information into account, as we must decide the
appeal on the basis of the same information
that the court a quo had
before it.”
[25]
[62] The Supreme Court of Appeal disposed of the matter on the basis
that section 197 does not apply to a transfer that is not
effected by
the original employer, as is the position in the present case.
The Court held further that there was no evidence
supporting the
proposition that there was a transfer of a business as a going
concern by LGM either to SAA or to another entity.
[26]
[63] The narration of how the other courts dealt with the case shows
that, for different reasons, none of them embarked on a factual

enquiry to determine whether the applicants established that the
business in which they were engaged was to be transferred as a
going
concern.  In my view the Labour Court erred in dismissing the
application without making a ruling on the claim for a
declarator
because it was possible that its construction of section 197 could be
declared incorrect on appeal.  There was
a strong prospect that
another court might give the section a different meaning.  In
two previous decisions the Labour Court
had given a different meaning
to the section.
[27]
[64] But assuming that it is open to this Court to grant relief on
the claim for a declarator, for the reasons that follow I am
not
convinced that this is an appropriate option.  A declarator
would have to be based on the facts as they were presented
to the
Labour Court at the time it heard the matter.  In my view those
facts are insufficient to support the finding that
the termination of
the agreement between SAA and LGM, coupled with the performance of
the relevant services by SAA, would constitute
a transfer of business
as a going concern.  Equally the facts do not adequately show
that the award of any of the tenders
would constitute a transfer
envisaged in section 197.
[65] Despite the fact that the terminated agreement entitled SAA to
repurchase the assets that were transferred to LGM there is
no
evidence showing that it had intended to do so.  The evidence
indicates that SAA had asked LGM to prepare a handover plan.
Details
of what the plan must contain are not spelt out.  But even if
the plan was intended to effect transfer it would
not be sufficient
proof of a transfer as a going concern.  This is so because LGM
also tendered for the services and if it
were to be the successful
tenderer there would be no transfer of the assets or indeed the
business itself.
[66] Moreover, the outsourcing agreement between SAA and LGM did not
oblige the latter to effect any transfer of assets purely
upon
termination.  Clause 27 of the outsourcing agreement stipulates
that SAA is entitled, and not obliged, to purchase all
assets and
inventory belonging to LGM which were dedicated to providing the
affected services.
[28]
The same clause provides that in the event of SAA requiring
LGM’s assistance in transferring certain services to it
or a
third party, SAA and LGM may agree in writing upon a period within
which such assistance may be offered.
[29]
However the clause makes it plain that whatever period to which
the parties may agree, will end on the termination date.
[67] Properly construed, the termination clause did not entitle SAA
to demand a handover plan from LGM.  It required the parties
to
agree to the terms and period of the assistance required.  Those
terms would include fixed assets and inventory which SAA
would
purchase from LGM.  The parties’ agreement would have to
be reduced into writing.  Lastly, if the agreement
existed, the
period within which assistance was offered would have ended on 30
September 2007.
[68] The only obligation clause 27 imposed upon SAA and LGM is that
upon termination, both parties must “surrender any information

pertaining to the scope of work belonging to the other party.”
[30]
Everything else was subject to the parties’ agreement.
There is no evidence showing that an agreement contemplated
in
clause 27 was concluded by SAA and LGM.
[69] But even if the clause obliged LGM to transfer the business in
question to a third party, this would fall short of establishing
that
a transfer of the business as a going concern will take place.  It
would still be open to the successful tenderer to
reject the proposed
transfer because the tender conditions did not impose upon the
successful tenderer the obligation to receive
transfer.  And
since none of the tenderers, barring LGM, was a party to the
agreement between LGM and SAA there would be no
contractual
obligation on them to accept the transfer.  In those
circumstances the rejection would prevent the transfer from
taking
place.
[70] However, it is true that the services in question are necessary
for the proper operation of SAA’s core business.
All
parties accept that the services were not going to be discontinued.
Consequently one of two options were to occur after
the termination
of the outsourcing agreement, either SAA would perform the services
itself or appoint another party to do so.  The
other party
includes LGM because it tendered for the same services.  In
either case, the performance of the same service would
continue.
[71] If this were to happen, in my view it would not sufficiently
show that there was a transfer as a going concern.  It would

show that the same services continue to be supplied but that in
itself is not adequate to bring the transaction within the ambit
of
section 197.  It must be recalled that 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.
[72] In the founding affidavit the applicants claim that a transfer
as a going concern would occur.  They allege:
“SAA will either have to provide the services in the cancelled
Outsourcing Agreement itself, as it did prior to the Outsourcing

Agreement of 2000, or it will have to engage one or more service
providers to manage and provide those services to it, with effect

from 1 October 2007.
In either of the events . . . part or all of the services or
undertaking will be transferred from LGM to one or more other parties

as a going concern by virtue of the provisions of section 197.”
[73] Although SAA admitted that the services would be provided by the
successful tenderer, it however disputed that this would
constitute a
transfer of the business as a going concern.  The deponent to
its affidavit said that SAA would continue with
the tender process,
and that the successful bidder would commence rendering the
services.  The affidavit accordingly denied
that the services or
undertakings would be transferred from LGM to any other party by
virtue of the provisions of section 197.
SAA contended that
Aviation Union had failed to establish that any of the services
concerned were transferred as a going concern.
[74] The phrase “going concern” has been construed to
include not only that the business has changed hands but that
it is
exactly the same business that continues to operate.  We are
told that to determine this fact one must look at various
factors,
none of which is decisive.
[31]
These factors include whether or not the same business is being
carried on by the party who received it.  Therefore,
proof of
the fact that performance of the same services was to continue,
albeit under different hands, does not establish a transfer
as a
going concern.  Something more is required.
[75] Another consideration that militates against the granting of
relief on the papers, as they presently stand, is that the order

sought in this Court will not cover the events that occurred after
the date on which the outsourcing agreement was terminated.

There is simply no evidence on what happened except the fact that an
interim service provider was appointed whilst the tenders
were being
considered by SAA.
[76] An order that leaves out of account what eventually happened
will not bring finality to the dispute.  It will be incapable
of
being executed.  Speedy resolution is a distinctive feature of
adjudication in labour relations disputes.
[32]
That process has already taken long in this case.  It should not
be extended by fresh litigation aimed at bringing the
dispute to its
final resolution.  The Labour Appeal Court should have remitted
the matter to the Labour Court, instead of
issuing an order that
depended on facts yet to be established.  The order, not being
an interdict, is indeed unusual.
[77] In the circumstances, the matter must be remitted to the Labour
Court for it to deal with the case in the light of this judgment.

It is desirable for the parties to seek leave from that Court to lead
further evidence, encompassing what occurred to the business
after
the termination of the outsourcing agreement.  The Labour Appeal
Court offered
this opportunity to the parties but they chose improper means of
placing evidence before the Court.
[78] For these reasons I would uphold the appeal and remit the case
to the Labour Court.
YACOOB J (Ngcobo CJ, Cameron J, Froneman J, Khampepe J and Van der
Westhuizen J concurring):
Introduction
[79] This application for leave to appeal requires us to determine
the reach of section 197(1) and (2) of the Labour Relations
Act
(LRA)
[33]
and decide whether the transaction at issue is subject to the
section.  The case involves the correct interpretation of this

section.  In brief section 197(1) and (2) provide for the
transfer of employees from the old employer to the new one, if a

business is transferred as a going concern from the former to the
latter.
[80] I have had the benefit of reading the judgment of my colleague
Jafta J.  I agree with the conclusion that leave to appeal

should be granted and have nothing to add on this aspect.
[81] There is no debate that section 197 “applies to any
transaction that transfers a business as a going concern”,
[34]
and that the majority judgment in the Supreme Court of Appeal erred
in holding that “the section does not apply to second

generation outsourcing agreements.”
[35]
However, this judgment adopts a somewhat different approach to this
question.  This judgment holds broadly that a permissible

meaning of the word “by” inevitably leads to the
construction of the section favoured by the Labour Appeal Court
(LAC),
and that it is unnecessary to equate the word “by”
with “from” and conclude that a transfer from one person

or entity to another suffices for purposes of section 197.
[82] I cannot agree with Jafta J that a transfer must already have
taken place in this case before the applicants are entitled
to any
relief, nor with the conclusion that the evidence does not justify
relief being accorded to the applicants in this Court.
There is
therefore no need to refer the matter back to the Labour Court for
further consideration and the interests of justice
require the appeal
to be finalised here.
[83] This case has its origins in and is primarily concerned with a
written agreement entered into between SAA
[36]
and LGM
[37]
which admittedly transferred that part of SAA’s business
concerned with facilities management operations, and represented
by
the
Infrastructure and Support Services
departments,
to LGM.  But the transfer of the facilities
management operations business was not to be permanent, in other
words the ownership
of the business was not to be transferred.
LGM acquired the right to conduct the business for ten years
[38]
with the possibility of renewal for further five year periods.
Consequent upon this transfer of business, SAA’s employees

followed the business to LGM in accordance with section 197(1) and
(2).  Of importance for the purposes of this case is the
fact
that SAA had the right to cancel the agreement by which the business
was transferred to LGM as a going concern if, amongst
other things,
there was a material change in LGM’s ownership.
[84] The agreement must be read against the background of an
agreement that had previously been entered into between SAA and three

trade unions.
[39]
That agreement made it plain that a transfer of business from LGM to
SAA was contemplated.  The agreement between LGM
and SAA,
entered into shortly afterwards, is concerned with what may be called
the “nuts and bolts” of the transfer
of business
considered in the earlier agreement.
[85] LGM became entitled to conduct the business of rendering the
service concerned to SAA for a fee.  SAA sold to LGM the
fixed
assets and certain other items concerned with the business of
rendering the service and LGM became obliged to sell them back
to SAA
at reasonable market prices on termination of the agreement.
LGM acquired the right to use office space, workshops,
the airport
apron, computers and computer networks belonging to SAA at all
airports for the purpose of the conduct of the business
of providing
the service.  Certain property used for the conduct of the
business concerned was also let by SAA to LGM.
Finally, LGM
became obliged, on the termination of the agreement, to transfer its
right to provide the service to SAA either to
SAA or a third party
nominated by it.
[86] The agreement was cancelled on account of a material change in
the ownership of LGM.  The cancellation was to take effect
on 30
September 2007.  SAA required LGM to develop a hand-over plan to
give effect to the cancellation.  The workers
employed by LGM
feared that the cancellation of the contract would result in them
losing their jobs.  The first applicant,
one of the employees’
trade unions,
[40]
wrote to SAA seeking an assurance that the affected workers would be
transferred to SAA when the cancellation took effect.
SAA
replied in the negative, contending that it was not obliged in law to
do so.
[87] Before I present a short account of the decisions of the three
courts that have already considered this case, it is appropriate
to
inform the reader that all these cases were concerned mainly with the
meaning of the word “by” in the section, in
the context
that the section was applicable only in the event of the transfer of
a business as a going concern
by
an old employer to a new
one.  All the previous decisions of courts in this case
concerned themselves in one way or another
with a statement in
COSAWU
:
[41]
“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 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. . . . I am in agreement
with Todd et al
Business Transfers and Employment Rights in South
Africa
. . . 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.”
[42]
In the Labour Court
[88] Aviation Union applied to the Labour Court for certain
declaratory and interdictory relief aimed at ensuring that the
workers
would not lose their jobs consequent upon the cancellation.
The second applicant (Transport Union)
[43]
was joined as a respondent
[44]
in the application.  Aviation Union relied on section 197(1) and
(2), and argued that the implementation of the cancellation
of the
agreement would amount to a transfer of business by the old employer
to the new employer within the ambit of these provisions.
[89] SAA admitted that the agreement had been cancelled and indicated
that most of the services that had been provided by LGM in
terms of
the contract had been put out to tender, that the tender process
would not be completed by 30 September 2007, and that
an interim
service provider was to render these services from 1 October 2007
until a service provider(s) was appointed by the tender
process.
SAA urged before the Labour Court that section 197 was not engaged on
these facts because, so the argument ran,
there would be no transfer
of business by the old employer to the new employer.  It seems
to have been accepted before the
Labour Court that there would be a
transfer of business but in any event the focus of the inquiry in
that Court was not whether
there would be a transfer of a business as
a going concern.  The focus of the argument in that Court was
that any transfer
of business that might occur was not a transfer by
an old employer to a new one.
[90] The Labour Court
[45]
saw the case before it as one concerned with what has been dubbed
“second generation” contracting out, and delineated
the
issue to be decided in these terms:
“The so-called ‘second generation contracting out’
takes place where there is a change in the provider of an
outsourced
service. In other words, the ‘old’ employer remains the
client (in other words, the employer, who initially
contracted the
service out to the ‘new employer’, now becomes the
outgoing service provider) but the service is removed
from the (first
or outgoing) service provider and contracted out to another (the
second or incoming) service provider.  The
question which arises
is whether there can be a section 197 transfer between the
unsuccessful outgoing contractor and the successful
incoming
contractor.  Put differently, the question which arises is
whether this ‘second outsourcing’ constitutes
a transfer
as contemplated by section 197 of the LRA.”
[46]
[91] The Labour Court was of the view that section 197 unambiguously
covered only those transfers “between two very specific

entities.”
[47]
The Court concluded:
“
Consequently, I am of the view that section
197 only contemplates first generation outsourcing; in other words,
where the business
is transferred by the old employer to the new
employer and not the so-called second generation transfers.”
[48]
[92] The Labour Court expressly disagreed with the
COSAWU
finding that the word “by” in section 197(1) should be
read as “from”, and that the section should apply
to all
transfers of business from the old employer to the new employer.
[49]
The application by Aviation Union was dismissed with costs.
In the Labour Appeal Court
[93] Aviation Union’s appeal to the Labour Appeal Court was
successful.
[50]
The Court declared that—
“
section 197
of the
Labour Relations Act 66 of 1995
is capable
of application when, at the end of the contract between SAA and LGM
SA, the services that were provided by LGM SA to
SAA are transferred
to SAA or are contracted out by SAA to another party.”
[51]
[94] There were however two separate judgments in the Labour Appeal
Court.  One was a unanimous judgment (the Labour Appeal

Court),
[52]
while the second, signed only by Zondo JP, was written for purposes
of emphasis and amplification.  The Labour Appeal Court
reasoned
that the word “by” has multiple meanings, and that a
permissible meaning covers the situation that would arise
consequent
upon the cancellation: LGM would be obliged to transfer the business
either to SAA or to another service provider.
In either event
the transfer would be one by the old employer to the new one.
The Court also held that, even if the word
“by” required
a positive act by the old employer (which it did not), the “requisite
positive action was taken
when the initial agreement was concluded
between SAA and LGM”.
[53]
In the Supreme Court of Appeal
[95] The Supreme Court of Appeal upheld SAA’s appeal against
the decision of the Labour Appeal Court.
[54]
In the understanding of the Supreme Court of Appeal, the Labour
Appeal Court “adopted the approach in
COSAWU
”
.
[55]
The Court conveyed its approval of the criticism of the
COSAWU
reasoning by Wallis,
[56]
saying:
“As Wallis observed of this reasoning, interpreting ‘by’
to mean ‘from’ changes the meaning of the
definition, and
there was no justification for the court’s changing the words
that the legislature had used after consideration
and debate
.”
[57]
(Footnote omitted.)
[96]
The
judgment
then concluded that this approach, adopted by the
Labour Appeal Court “
is not consonant with
the approach of the Constitutional Court and this court, and the
disregard of the words used by the legislature
on the basis of a
general ‘fairness’ principle leads not only to
uncertainty, but also to a failure to observe the
doctrine of
separation of powers.”
[58]
[97] The Court described the conclusion of the Labour Appeal Court in
the following terms:
“
Thus the court below held that a literal
interpretation of the word ‘by’ in
section 197
was
subversive of the very purpose of the section, and found that a
purposive construction of the section was warranted.”
[59]
[98] The Supreme Court of Appeal firmly rejected the approach of the
majority in the Labour Appeal Court in the following words:
“
And even if we accepted that such abuse is
possible, that is no reason to distort the plain meaning of the
section.  We accordingly
conclude that the Labour Appeal Court
erred in adopting an approach, to the interpretation of
section 197
,
which is at odds with the ordinary meaning of the words chosen by the
legislature.  By interpreting the word ‘by’
to mean
‘from’, the court impermissibly distorted the meaning of
the word.”
[60]
[99]
The Supreme
Court of Appeal did not address the reasoning of the Labour Appeal
Court that even if
section 197
required a positive act by the
transferor, LGM’s act in concluding the agreement was
sufficiently positive conduct to comply
with this requirement.
In this Court
[100]
The
contentions of the parties in the three Courts that have considered
this case were again advanced in this Court with relatively
minor
differences in emphasis and approach.  The Transport Union, in
addition to supporting the submissions of Aviation Union,
put up
argument that the word “by” was at least reasonably
capable of the construction both trade unions preferred
and that this
Court should adopt this construction  because it is more
constitutionally compliant.  In view of the conclusion
in this
judgment concerning the meaning of
section 197(1)
and (2), the
contentions of the Transport Union are not reached.  It is
necessary to first define the issues.  The first
issue is
concerned with the nature of the transactions that would attract
section 197
and, in particular, the meaning of the word “by”
in the requirement that it is a transfer by the old employer to the

new one which renders the section applicable to it.  The second
is whether there is sufficient evidence of a transaction of
the kind
contemplated in
section 197
to warrant relief.
[101]
Section 197(1)
and (2) provide:
“(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.”
[102] I must emphasise immediately that the main area of dispute was
not so much what was being transferred but really by whom.
The
only real issue was whether the transfer would be one by an old
employer to a new one.  I accept however that there must
be
evidence that the contemplated transfer is that of a business as a
going concern before relief can be granted.  I will
deal with
this issue briefly in the section of this judgment that is concerned
with whether any relief is justified.
[103] I think the place to begin is to say a word about the meaning
of the concepts “old employer” and “new employer”

as contained in the section.  The point to be made is that each
of these concepts is not static.  The concept “once
an old
employer, always an old employer” does not hold good for the
meaning of the section.  Nor does the approach:
“once a
new employer, always a new employer”.  My understanding on
this score perhaps requires no explanation,
but a brief one may not
be out of place.  When a business is transferred successively
from one entity to another:
(a) in transfer one by A to B, A is the old employer and B, the new
employer;
(b) in transfer two by B to C, B is no longer the new employer but
the old one, and C becomes the new employer; and
(c) if transfer two is by B back to A, B will be the old employer and
A, who had been the old employer in the first transfer, becomes
the
new employer in the second transfer.
[104] This view of the meaning of these concepts can now be
demonstrated by reference to the circumstances of the case before
us.  On the assumption that each of the transfers referred to
below will qualify as a transfer of business as a going concern,
in
the transfer:
(a) by SAA to LGM, SAA is the old employer and LGM the new employer;
(b) by LGM back to SAA for whatever reason, LGM is the old employer
and  SAA the new employer;
(c) subsequently from SAA to a third party, SAA will be the old
employer and the third party the new employer; and
(d) by LGM directly to the third party, LGM is the old employer and
the third party the new employer.
[105] A further general point must be made.  An inquiry whether
a transaction falls under the terms of
section 197(1)
and (2) would
be misleading if it focuses solely or mainly on the “generation”
of the transfer.  It has the potential
to bring about an
incorrect result.  It does not matter in principle what the
“generation” of the outsourcing
is, or even whether the
transaction is concerned with contracting out at all.  The true
inquiry is whether there has been
a transfer of a business as a going
concern by the old employer to the new employer.  That
evaluation is complex enough without
it being burdened with questions
about the “generation” of outsourcing.  A transfer
of business may not be covered
by
section 197
even if it is a “first
generation” contracting out.  On the other hand, even a
“fifth generation”
outsourcing could be caught by the
section if it is in reality the transfer of a business as a going
concern.
[106] The final
general observation is that, in determining whether contracting out
amounts to the transfer of a business as a going
concern, the
substance of the initial transaction, more specifically whether what
is outsourced is a business as a going concern
rather than the
provision of an outsourced service remains significant during
subsequent transfers.  If the outsourcing institution
from the
outset did not offer the service, that service cannot be said to be
part of the business of the transferor.  What
happens here is
simple contracting out of the service, nothing more, nothing less.
[107] There is no transfer of the business as a going concern.
The outsourcee is contracted to provide the service, and becomes

obliged to do so.  And it is the outsourcee’s
responsibility to make appropriate business infrastructure
arrangements.
These may include securing staff, letting
appropriate property for office or other work space, and acquiring
fixed assets, machinery
and implements, computers, computer networks
and the like.  Cancellation of the contract in these
circumstances entails only
that the outsourcee forfeits the
contractual right to provide the service.  The whole
infrastructure for conducting the business
of providing the
outsourced service would ordinarily remain the property of the
outsourcee.  As we shall see, that is not
what happened here,
either when the initial outsourcing contract was concluded between
SAA and LGM, or when SAA cancelled it.
[108] If, on the other hand, the first outsourcing exercise is really
a transfer of part of the business of the outsourcer who
has been
carrying on the business of the provision of the service until
transfer, the question whether the subsequent transfer
is merely the
transfer of the right to provide the outsourced service or the
transfer of a business as a going concern would arise.
And that
would require an analysis of the terms of the transaction that gives
rise to the subsequent event.
“
By”
or “from”?
[109] The Supreme Court of Appeal held on the meaning of the word
“by”:
“
The choice of language in
section 197
is
plain and unambiguous.  By the deliberate use of the word ‘by’,
the legislature showed that it intended
section 197
to apply to a
situation where there are at least two positive actors in the
process.  The ordinary meaning of the word ‘by’

requires positive action from the old employer who transfers the
business to the new employer.”
[61]
[110] This approach the Labour Appeal Court dealt with thus:
“Wallis . . . says ‘[w]hat the section says is that that
the old employer is a positive actor in the process.  This
is
not what occurs when an institution has concluded a contract for the
provision of cleaning services and at the expiry puts it
out to
tender and the existing contractor loses the tender.  In those
circumstances the role and function of the old employer
is to strive
to keep the contract not to transfer all or any part of the business
to someone else.’  Sophistry aside,
there is no compelling
reason to conclude, on the wording of
section 197(1)(b)
, that the new
employer (i.e. the initial transferee) has not transferred the
business to a third party or to the initial transferor.
In
other words the initial transferee became the employer after the
initial transfer.  Pursuant to the contract which
caused the
initial transfer, the existing employer is now obliged to transfer
the business to a party which will now become the
new employer.
Hence the second generation transfer falls within the scope of
the definition.”
[62]
[111] I agree with the approach of the Labour Appeal Court.  I
might add that it is quite impossible to determine in the air
that a
“second generation” outsourcing arrangement does or does
not amount to a transfer of a business as a going concern.
As
was said in
NEHAWU
,
[63]
this determination is wholly dependent on the facts and circumstances
of the particular case:
“The phrase ‘going concern’ is not defined in the
LRA.  It must therefore be given its ordinary meaning
unless the
context indicates otherwise.  What is transferred must be a
business in operation ‘so that the business remains
the same
but in different hands’.  Whether that has occurred is a
matter of fact which must be determined objectively
in the light of
the circumstances of each transaction.  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.  They must all be considered in the overall
assessment and therefore should
not be considered in isolation.”
[64]
(Footnotes omitted.)
[112] One must bear in mind that the legislation, providing as it
does for the automatic transfer of employees consequent upon
the
transfer of a business as a going concern, is aimed at the kind of
situation in which the business is transferred as a going
concern but
the employees are not.  In other words, if all the employees
involved in the transferred business were indeed
transferred to the
new employer, the
section 197
inquiry would become irrelevant.
It only has application where, on a proper construction of the
transaction in issue, the
business is transferred as a going concern
without the concomitant transfer of employees.  The evaluation
whether
section 197
applies to a particular transaction will
ordinarily arise where it is contended that the business has been
transferred as a going
concern but that, contrary to the provisions
of
section 197
, the employees involved in the business have not been
transferred.  The degree of the relevance of whether employees
have
been transferred may be limited and may depend on the
circumstances of a case.  I may make it quite plain that the
purpose
of this part of the judgment is not to supplant the
NEHAWU
test set out in the previous paragraph.
[113] It cannot be doubted that the word “by” must be
given its ordinary meaning.  We must ask these questions
in the
inquiry whether a transaction in issue contemplates a transfer of
business by the old employer to the new employer.
Does the
transaction concerned create rights and obligations that require one
entity to transfer something in favour or for the
benefit of another
or to another?  If so, does the obligation imposed within a
transaction, fairly read, contemplate a transferor
who has the
obligation to effect a transfer or allow a transfer to happen, and a
transferee who receives the transfer?  If
the answer to both
these questions is in the affirmative, then the transaction
contemplates transfer by the transferor to the transferee.

Provided that this transfer is that of a business as a going concern,
for purposes of
section 197
, the transferee is the new employer and
the transferor the old.  The transaction attracts the section
and the workers will
enjoy its protection.
Determination of application of
section 197
[114] It will be necessary to examine the agreement in issue to
determine whether the rights and obligations it creates provide
for
the transfer of a business as a going concern by a transferor, the
old employer, to a transferee, the new employer.  But
before I
do so, the question of the relevance and appropriateness of an
inquiry of this kind must be addressed.  This judgment
proposes
that courts are obliged, if a party to an appropriate case requires,
to decide whether rights and obligations imposed
by a transaction or
an agreement are subject to the provisions of
section 197.
In
other words, courts must determine, if required, whether the rights
and obligations, properly interpreted, call for a
transfer of a
business as a going concern.
[115] It is true, as Jafta J points out, that
section 197(2)
says
that the consequences mentioned should follow if a transfer of a
business as a going concern occurs between the old employer
and a new
one.  But that provision cannot be said to mean that a transfer
must have taken place before any court proceedings
can be
instituted.  As is demonstrated here, the dispute about whether
an agreement provides for the transfer of a business
arises mostly
when two circumstances are present: the workers contend that the
agreement does entail the transfer of a business
as a going concern,
and one or other parties to the transfer maintains that the agreement
does not contemplate the transfer of
employees.  That dispute is
justiciable and the parties are entitled to have it determined by the
application of law in terms
of section 34 of the Constitution.
[65]
[116] In
SAMWU
,
[66]
the Labour Appeal Court was, in my view, correct in making orders in
respect of an agreement that had not yet been implemented.
The
relevant part of that order read:
“1 The written agreement concluded between the first and second
respondents which was annexed to the papers in this matter
is an
agreement to which upon implementation
section 197
of the
Labour
Relations Act 1995
would apply.
2 The draft agreement which was prepared for signing by the first and
third respondents which was annexed to the papers in this
matter is
an agreement to which
section 197
of the
Labour Relations Act 1995
would apply if signed and implemented.”
[67]
[117] The order in
SAMWU
was right because to await the
implementation of the agreement results in the perpetuation of the
very mischief that the legislature
sought to avoid in enacting the
section.  Take this case.  The workers did not get the
relief they sought.  Unless
SAA or the temporary service
provider decided to take over the employees, contrary to the
contentions of SAA, the workers would
have remained with LGM on 1
October 2007.  On the assumption that the transaction with which
we are concerned, in particular
its cancellation, involves the
transfer of a business as a going concern, the workers would have
been hard done by on 1 October
2007 because they would have been left
with LGM.  The interim service provider would have sourced its
workers and the possibility
of the workers at LGM being transferred
would be reduced.  In my view, the section contemplates a
seamless transfer from the
old employer to the new one.  And
this becomes possible only if, when there is a dispute about whether
the workers are to
be automatically transferred in terms of the
transaction concerned, that dispute is determined before the
implementation of the
agreement.
[118] It is common cause, and amply demonstrated in the agreement
between SAA and LGM, that that transaction contemplated a transfer
of
part of the business of SAA to LGM.  The question for
determination now is whether the provisions of the agreement relative

to cancellation, interpreted in the light of the transfer of a
business as a going concern which had already taken place,
contemplate
the transfer of a business as a going concern.
[119]
Clause
27 of the outsourcing agreement is concerned with the consequences of
cancellation:
“EFFECT OF TERMINATION
27.1 On the termination date –
27.1.1
should SAA desire LGM SA’s assistance in transferring certain
services and/or functions back to SAA, SAA’s
affiliates or to a
third party, SAA and LGM SA may agree in writing upon a period of
transfer assistance ending at termination
date.  LGM SA shall
furthermore, during such transfer assistance period, provide SAA with
reasonable access to the services,
Fixed Assets and inventory of LGM
SA provided that such agreement is reached in writing and provided
that any such access does
not and will not interfere with LGM SA’s
ability to provide the services or transfer assistance and that the
third parties
and SAA affiliates permitted such access comply with
LGM SA’s security and confidentiality requirements, including
execution
of an appropriate confidentiality agreement;
27.1.2
SAA shall be entitled to purchase, at fair market value, all fixed
assets and inventory belonging to LGM SA and dedicated
only to
providing the services in terms of this agreement;
27.1.3
SAA shall be entitled to obtain transfer or assignment from LGM SA of
all third party contracts.
27.2 Upon termination of this agreement both parties shall be obliged
to surrender any information pertaining to the scope of work

belonging to the other party.”
[120] Does this clause contemplate the transfer of a business or does
it contemplate simply the outsourcing of a service?
This
question must be answered in context.  SAA did not effect the
mere outsourcing of a service to LGM through the agreement.
It did
much more. It transferred the business relative to delivering that
service. Thus, LGM received transfer of fixed assets
and inventory,
the use of space at all airports, SAA computers, SAA computer network
services and the lease of property necessary
to conduct the service.
In short as the agreement rightly states, LGM acquired the whole of
the infrastructure necessary for the
conduct of the business. It did
not have to secure property, or computers, or network services or
anything of the kind.
[121] The question to be answered now is whether clause 27 of the
agreement contemplates merely outsourcing a service to SAA or
to a
third party or whether it contemplates the transfer of the business
operation that delivered the service. The answer to this
depends to a
large extent on whether LGM, upon cancellation, would be entitled to
continue to use the computers and airport space,
to lease the
property and to keep the fixed assets and inventory. If the assets
necessary to operate the business stay with LGM,
then the business
would not be transferred. If they do not stay with LGM, but go back
to SAA, or to another service provider, there
is a transfer of
business.
[122] And the answer is clearly that these assets will not be kept by
LGM. LGM did indeed become obliged to assist SAA in transferring

certain services to SAA or to a third party. But the agreement went
further. LGM was also obliged to provide SAA with reasonable
access
to the services, assets and inventory of LGM. LGM became obliged to
sell all fixed assets and inventory dedicated only to
providing the
services in terms of the agreement back to SAA and to transfer or
assign all third party contracts to SAA. What is
more, both parties
were entitled to the surrender of all information pertaining to the
scope of work belonging to the other party.
[123] Moreover, the cancellation of the agreement would necessarily
mean that LGM would no longer be entitled to the use of property
and
to the leases already described. In my view, it would be quite
impossible for LGM to continue to conduct the business upon

cancellation of the agreement. LGM might win a tender or a part of it
but that is another transaction.
[124] In the circumstances, the cancellation clause of the agreement
contemplated a transfer of the business as a going concern.
The only
debate was about whether the business as a going concern was to be
transferred to SAA or to an interim service provider.
As long as
there is a transferor, the identity of that entity or person is of no
material significance. The agreement contemplates
transfer by LGM to
SAA or to the interim service provider. It requires a transfer by a
transferor, the old employer, to the transferee,
the new employer.
[125] The cancellation is thus hit by
section 197.
[126] In the circumstances Aviation Union was entitled to a
declarator.
Costs
[127] The applicants have succeeded in this Court.  There is no
reason why Aviation Union should not be awarded costs in all
three
courts including the costs of two counsel, wherever two counsel were
employed and why the Transport Union should not get
its costs in this
Court.
Order
[128] I therefore make the following order:
1. Leave to appeal is granted and the appeal is upheld.
2. The orders of the Supreme Court of Appeal, the Labour Appeal Court
and the Labour Court are set aside and replaced with paragraphs
3 and
4 of this order.
3. It is declared that the cancellation of the agreement between
South African Airways (Pty) Ltd and LGM South Africa Facility

Managers and Engineers (Pty) Ltd entered into in March 2000 obliges
LGM South Africa Facility Managers and Engineers (Pty) Ltd
to
transfer a business as a going concern within the meaning of
section
197(1)
and
197
(2) of the
Labour Relations Act 66 of 1995
.
4. South African Airways (Pty) Ltd is ordered to pay the costs of:
(a) the Aviation Union of South Africa, including the costs of two
counsel whenever two counsel were employed in the Labour Court,
the
Labour Appeal Court, the Supreme Court of Appeal and in this Court;
and
(b) the South African Transport and Allied Workers’ Union in
this Court.
For the First Applicant:
Advocate JG Van der Riet SC and Advocate I De Vos instructed by Ruth
Edmonds Attorneys.
For the Second Applicant:
Advocate S Budlender instructed by Cheadle Thompson & Haysom Inc.
Attorneys.
For the First Respondent:
Advocate GJ Marcus
SC, Advocate K Pillay and Advocate N Mji instructed by Cliffe Dekker
Hofmeyr Inc.
[1]
South African Airways (Pty) Ltd v Aviation
Union of South Africa and Others
2011 (3) SA
148 (SCA); 2011 (2) BLLR 112 (SCA).
[2]
Aviation
Union of South Africa and Others v South African Airways (Pty) Ltd
and Others
2010
(4) SA 604
(LAC);
2010 (1) BLLR 14
(LAC)
.
[3]
Aviation
Union of South Africa and Others v South African Airways (Pty) Ltd
and Others
2008
(1) BLLR 20
(LC)
.
[4]
Act 66 of
1995.
[5]
Section 189(1)
and (2) provides:
“
(1) When an employer
contemplates dismissing one or more employees for reasons based on
the employer’s operational requirements,
the employer must
consult—
(a) any person whom the employer is required to consult
in terms of a collective agreement;
(b) if there is no collective agreement that requires
consultation—
i) a workplace forum, if the employees likely to be
affected by the proposed dismissals are employed in a workplace in
respect
of which there is a workplace forum; and
ii)
any registered trade
union whose members are likely to be affected by the proposed
dismissals;
(c) if there is no workplace forum in the workplace in
which the employees likely to be affected by the proposed dismissals
are
employed, any registered trade union whose members are likely to
be affected by the proposed dismissals;
(d) if there is no such trade union, the employees
likely to be affected by the proposed dismissals or their
representatives nominated
for that purpose.
(2) The employer and the other consulting parties must
in the consultation envisaged by subsection (1) and (3) engage in a
meaningful
joint consensus-seeking process and attempt to reach
consensus on—
(a) appropriate measures—
(i) to avoid the dismissals;
(ii) to minimise the number of dismissals;
(iii) to change the timing of the dismissals; and
(iv) to mitigate the adverse effects of the
dismissals.”
[6]
Above n 3 at
para 32.
[7]
Above n 2 at
para 66.
[8]
The majority
judgment was written jointly by Lewis JA and Ebrahim AJA, with Mpati
P and Mhlantla JA concurring.
[9]
The minority
judgment was written by Shongwe JA.
[10]
Fraser
v Naudé and Others
[1998] ZACC 13
;
1999 (1) SA 1
(CC);
1998 (11) BCLR 1357
(CC) at para 10 and
National
Union of Metalworkers of South Africa and Others v Bader Bop
(Pty) Ltd and Another
[2002] ZACC 30
;
2003 (3) SA 513
(CC);
2003 (2) BCLR 182
(CC) at para
17.
[11]
Section
3(1) of the LRA provides:
“
Any person applying this Act must interpret its
provisions—
(a) to give effect to its primary objects;
(b) in compliance with the Constitution; and
(c) in compliance with the public international law
obligations of the Republic.”
[12]
Section
1(1) of the LRA provides:
“
The purpose of this Act is to advance economic
development, social justice, labour peace and the democratisation of
the workplace
by fulfilling the primary objects of this Act, which
are—
(a) to give effect to and regulate the fundamental
rights conferred by section 27 of the Constitution;
(b) to give effect to obligations incurred by the
Republic as a member state of the International Labour Organisation;
(c) to provide a framework within which employees and
their trade unions, employers and employers’ organisations
can—
i) collectively bargain to determine wages, terms and
conditions of employment and other matters of mutual interest; and
ii) formulate industrial policy; and
(d) to promote—
i) orderly collective bargaining;
ii) collective bargaining at sectoral level;
iii) employee participation in decision-making in the
workplace; and
iv) the effective resolution of labour disputes.”
(Footnotes omitted.)
[13]
Section 23
of the Constitution provides:
“
(1) Everyone has the right to fair labour
practices.
(2) Every worker has the right—
(a) to form and join a trade union;
(b) to participate in the activities and programmes of
a trade union; and
(c) to strike.
(3) Every employer has the right—
(a) to form and join an employers’ organisation;
and
(b) to participate in the activities and programmes of
an employers’ organisation.
(4) Every trade union and every employers’
organisation has the right—
(a) to determine its own administration, programmes and
activities;
(b) to organise; and
(c) to form and join a federation.
(5) Every trade union, employers’ organisation
and employer has the right to engage in collective bargaining.
National legislation
may be enacted to regulate collective
bargaining.  To the extent that the legislation may limit a
right in this Chapter,
the limitation must comply with section
36(1).
(6) National legislation may recognise union security
arrangements contained in collective agreements. To the extent that
the
legislation may limit a right in this Chapter the limitation
must comply with section 36(1).”
[14]
[2002]
ZACC 27; 2003 (3) SA 1 (CC); 2003 (2) BCLR 154 (CC).
[15]
Id at para
62.
[16]
Id at para
53.
[17]
Id.
[18]
Above n 14
at para 56.
[19]
The phrase
“second generation outsourcing agreement” is generally
used in reference to a second or further outsourcing
agreement in
respect of the same business.
[20]
Above n 3
at para 32.
[21]
Id at para
39.
[22]
Above n 2
at para 64.
[23]
Hillock
and Another v Hilsage Investments (Pty) Ltd
1975 (1) SA 508
(A) at 515.
[24]
Above n 2
at para 65.
[25]
Id at para
32.
[26]
Above n 1
at para 41.
[27]
COSAWU
v Zikhethele Trade (Pty) Ltd and Another
(2005) 26 ILJ 1056 (LC) and
Nokeng Tsa
Taemane Local Municipality and Another v Metsweding District
Municipality and Others
(2003) 24 ILJ 2179
(LC).
[28]
Clause
27.1.2 provides:
“
SAA shall be entitled to purchase, at fair
market value, all fixed assets and inventory belonging to LGM SA and
dedicated only
to providing the services in terms of this
agreement”.
[29]
Clause
27.1.1 provides:
“
[S]hould SAA desire LGM SA’s assistance in
transferring certain services and/or functions back to SAA, SAA’s
affiliates
or to a third party, SAA and LGM SA may agree in writing
upon a period of transfer assistance ending at termination date. LGM
SA shall furthermore, during such transfer assistance period,
provide SAA with reasonable access to the services, Fixed Assets
and
inventory of LGM SA provided that such agreement is reached in
writing and provided that any such access does not and will
not
interfere with LGM SA’s ability to provide the services or
transfer assistance and that the third parties and SAA affiliates

permitted such access comply with LGM SA’s security and
confidentiality requirements, including execution of an appropriate

confidentiality agreement”.
[30]
Clause 27.2
provides:
“
Upon termination of this agreement both parties
shall be obliged to surrender any information pertaining to the
scope of work
belonging to the other party.”
[31]
Above
n 14 at para 56.
[32]
In
Shoprite Checkers
(Pty) Ltd v CCMA and others
[2009] 7 BLLR 619
(SCA) at para 34, the Supreme Court of Appeal
said:
“
The entire scheme of the LRA and its motivating
philosophy are directed at cheap and easy access to dispute
resolution procedures
and courts.  Speed of result was its
clear intention.  Labour matters invariably have serious
implications for both
employers and employees.  Dismissals
affect the very survival of workers.  It is untenable that
employees, whatever
the rights or wrongs of their conduct, be put
through the rigours, hardships and uncertainties that accompany
delays of the kind
here encountered.  It is equally unfair that
employers bear the brunt of systemic failure.”
See also
Strategic
Liquor Services v Mvumbi NO and Others
[2009] ZACC 17; 2010 (2) SA 92 (CC); 2009 (10) BCLR 1046 (CC);
Netherburn
Engineering CC t/a Netherburn Ceramics v Mudau
NO
and
Others
[2009] ZACC 10; 2010 (2) SA 269 (CC); 2009 (8) BCLR 779 (CC);
and
Billiton
Aluminium SA Ltd t/a Hillside Aluminium v Khanyile and others
[2010] ZACC 3
;
2010 (5) BCLR 422
(CC);
[2010] 5 BLLR 465
(CC)
.
[33]
Act 66 of
1995.
[34]
The
judgment of Jafta J at para 55.
[35]
Id.
[36]
South
African Airways (Pty) Ltd, the first respondent.
[37]
LGM South
Africa Facility Managers and Engineers (Pty) Ltd, the second
respondent.
[38]
From 1
April 2000 to 31 March 2010.
[39]
Aviation
Union of South Africa (Aviation Union), South African Transport and
Allied Workers’ Union (Transport Union) and
SALSTAFF.
[40]
Aviation
Union.
[41]
See
COSAWU
v Zikhethele Trade (Pty) Ltd and Another
(2005) 26 ILJ 1056 (LC) (
COSAWU
)
as quoted by the Labour Court
below
n 13
at para 32, the Labour Appeal Court
below n 18 at para 58 and the Supreme Court of Appeal below n 22 at
paras 17-8.
[42]
COSAWU
above n 9 at para 29.
[43]
South
African Transport and Allied Workers’ Union.
[44]
The
Transport Union did not participate in the proceedings in the Labour
Court, the Labour Appeal Court or the Supreme Court of
Appeal.
[45]
Aviation
Union of South Africa and Others v SAA
(Pty)
Ltd and Others
[2007] ZALC 66
;
[2008] 1 BLLR 20
(LC)
(Labour
Court).
[46]
Id at para
26.
[47]
Id at para
30.
[48]
Id
at para 32.
[49]
COSAWU
above n 9 at paras 27-36.
[50]
Aviation
Union of South Africa and Others v South African Airways (Pty) Ltd
and Others
[2007] ZALC 54
;
2010 (4) SA 604
(LAC);
[2010] 1 BLLR 14
(LAC)
(Labour Appeal Court).
[51]
Id at para
66.
[52]
Written
by Davis JA.
[53]
Above n 18
at para 62.
[54]
South
African Airways (Pty) Ltd v Aviation Union of South Africa and
Others
2011 (3) SA 148
(SCA);
[2011] 2 BLLR
112
(SCA) (Supreme Court of Appeal).
[55]
Id at para
16.
[56]
Wallis “Is
Outsourcing In? An Ongoing Concern” (2006) 27 ILJ 1.  The
writer of this article is now a judge in
the Supreme Court of
Appeal.
[57]
Supreme
Court of Appeal above n 22 at para 18.
[58]
Id at para
19.
[59]
Id at para
23.
[60]
Id at para
32.
[61]
Supreme
Court of Appeal above n 22 at para 31.
[62]
Labour
Appeal Court above n 18 at para 60.
[63]
National
Education Health and Allied Workers Union v University of Cape Town
and Others
[2002]
ZACC 27
;
2003 (3) SA 1
(CC);
2003 (2) BCLR 154
(CC) (
NEHAWU
)
.
[64]
Id at para
56.
[65]
Section
34 of the Constitution provides:
“
Everyone has the right to have any dispute that
can be resolved by the application of law decided in a fair public
hearing before
a court or, where appropriate, another independent
and impartial tribunal or forum.”
[66]
SA
Municipal Workers Union and Others v Rand Airport Management Co
(Pty) Ltd and Others
(2005) 26 ILJ 67 (LAC)
(
SAMWU
).
[67]
Id at para
47.