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[2015] ZACC 8
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City Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and Others (CCT133/14) [2015] ZACC 8; 2015 (6) BCLR 660 (CC); [2015] 8 BLLR 757 (CC); (2015) 36 ILJ 1423 (CC) (20 April 2015)
Links to summary
Heads of arguments
CONSTITUTIONAL
COURT OF SOUTH AFRICA
Case
CCT 133/14
In
the matter between:
CITY
POWER (PTY)
LTD
.....................................................................................................
Applicant
and
GRINPAL
ENERGY MANAGEMENT
SERVICES
(PTY)
LTD
................................................................................................
First
Respondent
NATIONAL
UNION OF
MINEWORKERS
.........................................................
Second
Respondent
EMPLOYEES
LISTED IN ANNEXURE “A”
OF
THE NOTICE OF
MOTION
..........................................................................
Further
Respondents
Neutral
citation:
City Power (Pty) Ltd v
Grinpal Energy Management Services (Pty) Ltd and Others
[2015] ZACC 9
Coram:
Mogoeng CJ, Moseneke DCJ, Froneman J, Khampepe J,
Leeuw AJ, Madlanga J, Nkabinde J, Tshiqi AJ,
Van der Westhuizen J
and Zondo J.
Judgments:
Tshiqi AJ (unanimous)
Heard
on:
18 November 2014
Decided
on:
20 April 2015
Summary:
Labour Relations Act 66 of 1995
–
section 197
— applicability on municipal entities regulated by
Local Government: Municipal Systems Act 32 of 2000
and
Local
Government: Municipal Finance Management Act 56 of 2003
Relationship
between
Labour Relations Act 66 of 1995
and
Local Government:
Municipal Systems Act 32 of 2000
in employment matters —
Labour
Relations Act – section
210 —
Labour Relations Act
prevails
Labour
Relations Act 66 of 1995
—
section 197
not in conflict with
sections 152 and 160 of the Constitution — section 197
applicable to municipal entities unless specifically
excluded in
terms of
section 197(6)
of the
Labour Relations Act — On
the
facts, there was transfer of business as a going concern in terms of
section 197(2)
ORDER
On
appeal from the Labour Appeal Court (hearing an appeal from the
Labour Court):
1.
Condonation is granted.
2.
Leave to appeal is granted.
3.
Save for paragraph 4 below, the appeal is dismissed.
4.
The order of the Labour Appeal Court dismissing the appeal from the
Labour Court is upheld but paragraph 2 of the order of the
Labour
Court is amended to read:
“
The
first respondent [City Power] is ordered to give effect to the
provisions of
section 197
of the
Labour Relations Act 66 of 1995
in
relation to the employees.”
5.
The applicant is ordered to pay costs of the application for leave
and the appeal, including costs of three counsel where employed.
JUDGMENT
TSHIQI
AJ (Mogoeng CJ, Moseneke DCJ, Froneman J, Khampepe J, Leeuw AJ,
Madlanga J, Nkabinde J, Van der Westhuizen J and Zondo
J concurring):
Introduction
[1]
This
is an application for leave to appeal against the decision of the
Labour Appeal Court in terms of which an appeal by the
applicant, City Power (Pty) Ltd (City Power), from the Labour
Court, was dismissed. City Power had awarded a tender
to the
first respondent, Grinpal Energy Management Services (Pty) Ltd
(Grinpal). The key question is whether, upon termination
of
service level agreements between them, there was a transfer of
business as a going concern as contemplated in section 197 of
the
Labour Relations Act
[1]
(LRA). Grinpal argues that the continued performance of the
services, either by City Power or a third party after the contract
was terminated, amounts to a transfer of business as a going concern
as envisaged in section 197 of the LRA. City Power on
the other
hand contends that the provisions of section 197 were not triggered.
The
parties
[2]
The
applicant is City Power, a state owned entity established in terms of
the Local Government: Municipal Systems Act
[2]
(Municipal Systems Act) and is effectively controlled by the City of
Johannesburg Metropolitan Municipality (Johannesburg Municipality).
It is a municipal entity as defined in the Municipal Systems
Act and is governed by legislative prescripts governing
municipalities.
[3]
Its principal mandate is to distribute electricity within the area of
the Johannesburg Municipality. In execution of
its mandate, it
does not render the services directly. Instead, it enters into
service delivery contracts with relevant institutions,
entities or
persons legally competent to operate a business activity, in
accordance with the Municipal Systems Act.
[4]
[3]
The first respondent, Grinpal is a private
company incorporated in terms of the laws of the Republic of South
Africa. It manufactures,
supplies, installs, operates, and
maintains smart metering systems and electrical infrastructure which
it supplies primarily to
municipalities and power utility companies.
The business that formed the substance of the service level
agreements and which
became the subject of the dispute was only the
unit within Grinpal that rendered the above services on behalf of
City Power.
[4]
The second respondent is the National Union of Mineworkers (NUM), a
trade union registered in terms of the LRA. The further
respondents are 41 individuals who were employed by Grinpal to
perform the services in terms of the service level agreements
concluded
between City Power and Grinpal. The second and
further respondents were not represented in this Court.
Factual
Background
[5]
In 2003, following a tender process for the
renewed electrification of Alexandra Township, Gauteng, known as the
Alexandra Renewal
Project (the Project), City Power awarded a
tender to Grinpal for the supply of prepaid metering systems. City
Power
and Grinpal entered into contracts which came to an end in
2010. Additional contracts were concluded late in 2010 for a
further
period of three years. These further contracts were for
the installation of more prepaid meters and for maintenance of the
meters previously installed. These were termed the installation
and maintenance agreements (service level agreements).
[6]
On 14 March 2012, City Power informed
Grinpal in writing that it was terminating the contracts with
immediate effect, alleging that
Grinpal had submitted a fraudulent
tax certificate. Grinpal initially disputed the validity of the
cancellation but, after
several meetings and correspondence, the
parties agreed in a meeting held on 16 July 2012, to terminate the
agreements. The
parties also agreed that since no new service
provider had been appointed at the time, there would be a full
handover of the entire
infrastructure, software and databases
relating to the project from Grinpal to City Power. It was
further agreed that City
Power would, in the interim, conduct the
business until a new service provider had been appointed. The
handover process took
place. City Power continued to run the
business but denied that the Grinpal employees, who had performed the
functions of
the business before the handover, were transferred to
City Power together with the business in terms of section 197.
In
the Labour Court
[7]
On 6 August 2012, Grinpal brought an urgent
application to the Labour Court for the following order:
“
(a)
declaring that with effect from 1 August 2012, the employment
contracts of the employees listed in annexure ‘A’
[to the
Notice of Motion] were transferred to [City Power], alternatively the
service provider appointed by [City Power], in terms
of section
197(2) of the [LRA];
(b)
directing [City Power] and/or any new service provider appointed by
it to comply with the provisions of section 197 in relation
to the
transfer of the listed employees listed in Annexure “A”
from [Grinpal] to [City Power] and/or the new service
provider
appointed by [City Power].”
[8]
The Labour Court considered the case by
Grinpal to be that there was never any doubt that the Project would
continue after termination
of the service level agreements, as the
continued supply of electricity to Alexandra Township depended on it.
There was a
clear intention by City Power, as from the moment
of its purported cancellation of the agreements during March 2012, to
take over
all the services rendered by Grinpal in terms of the
service level agreements.
[9]
Regarding City Power, the Labour Court
understood its case to be that there was no handover process but
simply an introduction of
interim measures until a new contractor had
been appointed. The agreements informed the consequences of the
termination and
it was envisaged that on termination, the old
contactor would retain its employees and equipment, and a new
contactor would begin
rendering its services with its own employees
and equipment.
[10]
The Labour Court upheld the application.
It held that the facts show that the infrastructure for
conducting the business in
question did not remain in the hands of
Grinpal, the outsourcee, but in the hands of City Power, albeit
temporarily. It further
held that, notwithstanding the reasons
for the cancellation, the “holding operation” –
alleged by City Power
until a new contractor had been appointed –
could not be immune to the operation of section 197. The Labour
Court concluded
that a transfer in terms of section 197 had taken
place with effect from 1 August 2012, and that the employees had been
transferred
to City Power in accordance with the provisions of
section 197.
[11]
After reaching the conclusion that section
197 had been triggered, the Labour Court also noted that it was
urged, by counsel
on behalf of City Power, to deal with the impact of
the declaratory order sought by Grinpal, on organs of state that are
subject
to a myriad of regulations in respect of, among other things,
tendering for services. On that issue the Labour Court held
that organs of state, as employers, cannot be exempted from the
operation of section 197. It found that these entities must
make the necessary provision for the legal eventualities of section
197, as other employers do, when entering into contracts with
service
providers. City Power appealed to the Labour Appeal Court.
In
the Labour Appeal Court
[12]
In that Court Davis JA also rejected the
submission by City Power that transfer did not take place and stated:
“
The
uncontested facts in this case are that the assets, both tangible and
intangible, were required to operate the Project, that
is, for the
installation and maintenance of a prepaid metering system for
electricity in Alexandra. This entire operation
was transferred
to appellant in terms of the handover process between appellant and
first respondent described in this judgment.
It is clear from
the evidence that the business of providing prepaid electrical
services to residents of Alexandra was handed
over by first
respondent to appellant, upon termination of the contracts which they
had previously concluded and the arrangements
agreed upon as set out
in the subsequent correspondence and meetings which took place to
effect termination. The business
is identifiable and it is
discrete. It involves equipment and expertise which is required
to continue the Project of providing
electricity. According to
the uncontested version of Mr Dlamini, training was to be provided by
first respondent to appellant
specifically to ensure that appellant
would have the necessary expertise and know how ‘to be
able to run the project’.
Ultimately
what occurred was that a business of providing a system of prepaid
electricity to residents of Alexandra continued, save
that it was now
conducted by a different entity. In similar fashion to the
decision of the majority in
Aviation
Union
,
the only debate concerned whether the business, as a going concern,
was transferred to first appellant or ultimately to a third
party.
When the court a quo referred to appellant acting in a ‘holding
operation’, it clearly meant that appellant
would run the
business in the interim, until such time as a new contract was
concluded with a third party.”
[5]
(Citation omitted).
[13]
Having made the above finding against City
Power, the Labour Appeal Court concluded:
“
I
reach this decision with some anxiety. The implication of the
jurisprudence of the Constitutional Court in
Aviation
Union
, means that where an organ of
state such as the municipality enters into outsourcing agreements for
a defined period, it runs the
risk, upon termination of that
contract, that the municipality is required to assume the obligation
of financing the ongoing employment
contracts of those who had
previously been employed by the initial service provider. This
concern is raised within the specific
context of a second generation
transfer as applied both in
Aviation
[
Union
],
and in this case. The consequences of the application of
section 197 of the LRA to second generation transfers may be to
impose significant financial burdens on municipalities which are
already constrained by limited available public resources to fulfil
their important obligations of providing services to all residents
who fall within their jurisdiction.
It
may be that consideration should be given by the legislature as to
whether section 197, viewed within the specific context
of a
second generation transfer, should be applicable to such contracts.
For this reason, a copy of this judgment will be
delivered to the
Minister of Labour for her consideration.”
[6]
(Citations omitted).
The
Labour Appeal Court dismissed City Power’s appeal.
In
this Court
Jurisdiction
[14]
This
matter concerns section 197 of the LRA and its relationship with the
Municipal Systems Act. The interpretation and application
of
the LRA usually raises a constitutional issue because the statute
seeks to give effect to section 23 of the Constitution.
[7]
Moreover, the obligations borne by municipalities and municipal
entities are sourced from sections 152
[8]
and 153
[9]
of the Constitution.
This case raises constitutional issues and this Court has
jurisdiction to deal with the issues.
Condonation
[15]
The application was served on Grinpal and
filed some 30 days outside the 15 day limit set in terms of rule
19(2) of the Rules
of this Court. City Power places the blame
at the door of its legal representatives. Although the
explanation given
is insufficient, City Power never displayed
disinterest in the outcome of the case. At the hearing of the
application, the
application for condonation was not strenuously
opposed. Condonation is granted.
Leave
to appeal
[16]
On
whether to grant leave to appeal, regard must be had to the issue
raised by Davis J regarding the applicability of section 197
to
municipalities and municipal entities like City Power. Although
this Court has consistently interpreted and settled the
general
approach relating to section 197 in
NEHAWU
and in
Aviation
Union
,
[10]
the concern raised by the Labour Appeal Court is more nuanced than
what has previously been interpreted in this Court. It
pertains
to whether municipal entities like City Power, tasked with
public functions, funded from public resources and regulated
through
the Municipal Systems Act and
Local Government: Municipal Finance
Management Act,
[11
]
are immune
from the financial consequences of a transfer in terms of
section
197.
The provision of basic municipal services is the most
important function of every municipal government. As noted by
the Labour Appeal Court, municipalities are constrained by limited
available public resources to fulfil their important obligations
of
providing services to all residents who fall within their
jurisdiction. I am satisfied that it is in the interests of
justice to grant leave to appeal in terms of
rule 19(2).
Issues
[17]
City
Power contends that the provisions of
section 197
are not applicable
to it because it is a municipal entity and has, as required in terms
of section 66 of the Municipal Systems
Act,
[12]
its own Recruitment and Selection Policy and Procedure (employment
policies) governing employment of the staff. Section 93A
of the
Municipal Systems Act obliges it to follow its provisions, the
Municipal Finance Management Act and any other applicable
legislation.
[13]
City
Power further submits that whenever it is necessary to effect any
change to its head-count, it must be planned and approved
at the time
of the annual budget. It cannot ignore its budgetary
constraints and simply embark on employment of personnel
that are not
necessary for effective performance of municipal functions as
required by section 160(1)(d) of the Constitution.
[14]
To do so, the argument goes, will offend section 152(1)(b) and (2) of
the Constitution, as a bloated or unnecessary staff
complement will
put strain on its budget and thereby negatively affect the provision
of services to communities. City Power
further argues
that, should the interpretation placed by the Labour Court and the
Labour Appeal Court be upheld by this Court,
it would simply mean
that all the service providers currently contracted by City Power on
fixed term contracts can obtain the same
declaratory orders obtained
by Grinpal.
[18]
Grinpal submits that City Power is not a
municipality, or a sphere of local government, but a private company
established as an
external service provider used by the Johannesburg
Municipality in the exercise of its statutory obligation to supply
electricity
to its population. Grinpal concedes that City Power
is wholly owned by the Johannesburg Muncipality, has the status of a
municipal entity, and operates under certain constraints; but argues
that it is not itself a municipality and consequently the Municipal
Systems Act is not applicable to it.
Is
the Municipal Systems Act applicable to municipal entities like City
Power?
[19]
For
its contention that the Municipal Systems Act is not applicable to
City Power as a municipal entity, Grinpal relies on
Joseph
where this
Court
described City Power as a parastatal that is wholly owned by the
Johannesburg Municipality.
[15]
Grinpal also places reliance on sections 1, 86B, 86C and 86D of the
Municipal Systems Act. Section 1 defines a municipal
entity as
a private company referred to in section 86B(1)(a). A
private company referred to in section 86B(1)(a) may
be established
by one or more municipalities or it may be a private company in which
one or more municipalities have acquired or
hold an interest in the
establishment and acquisition of such private companies. In
establishing or acquiring a private company,
the municipality must
comply with the Companies Act
[16]
in terms of section 86C(3). Section 86D(2) provides: a private
company which is a municipal entity (a) must restrict its
activities
to the purpose for which it is used by its parent municipality in
terms of section 86E(1)(a); and (b) has no competence
to perform any
activity which falls outside the functions and powers of its parent
municipality contemplated by section 8.
[20]
A mere reliance on the fact that City Power is a
private company does not take into account the fact that these
entities are usually
established for the sole purpose of
performing public functions as required in terms of section 86E.
In terms of section 86E(1)
a municipality may establish a
municipal entity only for the “purpose of utilising the company
as a mechanism to assist it
in the performance of any of its
functions or powers” and where the functions of such a
municipal entity would benefit the
local community. The public
nature of the functions performed by City Power and the restrictions
imposed on such municipal
entities by the Municipal Systems Act
distinguish them from other private entities.
[21]
Grinpal’s reliance on
Joseph
to support the contention that the
Municipal Systems Act is not applicable to City Power also ignores
the fact that in that case
this Court also characterised City
Power through its functions as follows
:
“
In
my view therefore, when City Power supplied electricity to Ennerdale
Mansions,
it
did so in fulfillment of the constitutional and statutory duties of
local government to provide basic municipal services to all
persons
living in its jurisdiction. When the applicants received
electricity, they did so by virtue of their corresponding
public law
right to receive this basic municipal service
.
In depriving them of a service which they were already receiving as a
matter of right, City Power was obliged to afford
them procedural
fairness before taking a decision which would materially and
adversely affect that right.”
[17]
(Emphasis added.)
[22]
Recently
in
AllPay
2,
[18]
the
South African Social Security Agency (SASSA), an organ of state
established in terms of the South African Social Security Agency
Act
(Agency Act),
[19]
issued
a tender outsourcing its obligations to pay social grants to millions
of qualifying South Africans to Cash Paymaster, a private
company.
The Court held that Cash Paymaster was also an organ of state for the
purposes of the provision of the outsourced
services. The Court
stated:
“
That
SASSA is an organ of state is clear. But, for the purposes of
the impugned contract, so too is Cash Paymaster.
. . .
In
AAA
Investments
Yacoob J, writing for the majority of this Court,
stated:
‘
Our
Constitution ensures . . . that government cannot be released from
its human rights and rule of law obligations simply because
it
employs the strategy of delegating its functions to another entity.
It does so by a
relatively broad definition of an organ of state. . . . An
organ of state is, among other things, an entity
that performs a
public function in terms of national legislation. If [an
entity] performs its functions in terms of national
legislation, and
these functions are public in character, it is subject to the
legality principle and the privacy protection.
In our
constitutional structure, [the entity] does not have to be part of
government or the government itself to be bound by the
Constitution
as a whole.’
.
. .
In terms of the
agreement between SASSA and Cash Paymaster the latter administers the
payment of social grants on SASSA’s
behalf. In doing so,
Cash Paymaster exercises a public power and performs a public
function in terms the Agency Act, enacted
to give effect to the right
to social security.
. . .
SASSA
does not, by the conclusion of the contract, divest itself of its
constitutional responsibility and public accountability
for rendering
the public services. It remains accountable to the people of
South Africa for the performance of those functions
by Cash
Paymaster. . . . When Cash Paymaster concluded the contract for
the rendering of public services, it too became accountable
to the
people of South Africa in relation to the public power it acquired
and the public function it performs. This does
not mean that
its entire commercial operation suddenly becomes open to public
scrutiny. But the commercial part dependent
on, or derived
from, the performance of public functions is subject to public
scrutiny, both in its operational and financial aspects.”
[20]
(Footnotes omitted).
[23]
Similarly, City Power, like SASSA, is a
private company performing a public function.
The fact
that it performs a public function bears relevance in its
classification and cannot be ignored.
As in
AllPay 2
,
once City Power concluded the service level agreements, it delegated
some of its functions to Grinpal which, as a result, also
became a
municipal entity for the purposes of those functions and only in so
far as that section of its business was concerned.
For the
purposes of the present dispute, Grinpal and
Ci
ty
Power are organs of state that perform public functions akin to those
of a municipality. The Johannesburg Municipality
cannot avoid
its constitutional obligations and public accountability for the
rendering of public services by forming a municipal
entity like City
Power. It remains accountable to the people of South Africa
for the performance of those functions
by City Power. Likewise,
City Power cannot avoid its constitutional obligations and
public accountability by delegating
its functions to Grinpal.
[24]
Having found that City Power is a municipal
entity governed by the Municipal Systems Act and that Grinpal is
an organ of state,
the next question is whether section 197 of
the LRA is applicable to both entities.
[25]
Section 197 provides that where there is a
transfer of a business as a going concern, there is an automatic
transfer of employees
to the new employer. On the other hand
section 66 of the Municipal Systems Act prescribes the manner in
which a municipal
manager must develop a staff establishment for the
municipality. The section requires the manager to provide a job
description
for each post on the staff establishment and attach to
each post the remuneration and other conditions of service, as may be
determined
in accordance with any applicable labour legislation.
[26]
In terms of section 93A(a)(i),
municipalities and municipal entities are obliged to comply with the
Municipal Systems Act, the Municipal
Finance Management Act and any
other applicable legislation. Sections 66 and 93A of the
Municipal Systems Act give effect
to the provisions of the
Constitution. Section 152(1)(b) of the Constitution provides
that municipalities should ensure the
provision of services in a
sustainable manner. Section 152(2) states that a municipality
must strive, within its financial
and administrative capacity, to
achieve the objects of local government set out in section 152(1).
Section 160(1)(d)
provides that a Municipal Council may employ
personnel that are necessary for the effective performance of its
functions.
[27]
The implications of sections 66 and 93 of
the Municipal Systems Act read with sections 152 and 160 of the
Constitution are that
municipalities are obliged to conduct all
matters affecting their employees in terms of the Municipal Systems
Act. A reading
of those provisions alone would suggest that
section 197 of the LRA is not applicable to employees of a municipal
entity even if
those employees are eligible for automatic transfer.
The consequence would be that all municipal entities would be
immune
from section 197 of the LRA. That was not the purpose of
the legislation. A reading of both Acts shows that the LRA
supersedes the Municipal Systems Act.
[28]
Section 66 is contained in Chapter 7 of the
Municipal Systems Act. Section 52 is also contained in the same
Chapter and provides:
“
In
the event of any inconsistency between a provision of this Chapter,
including the Code of Conduct referred to in section 69,
or a
regulation made for the purposes of this Chapter, and any applicable
labour legislation, the labour legislation prevails.”
[29]
Other sections of the Municipal Systems Act
also make it apparent that it is subservient to labour legislation.
Section 81(2)(c)
provides that a municipality through a
service delivery agreement, may in accordance with the applicable
labour legislation, transfer
or second any of its staff members to
the service provider, with the concurrence of the staff member
concerned. Section 86K(2)(b)
provides for the disestablishment
of service utilities and states that the staff of the service utility
must be dealt with in accordance
with applicable labour legislation.
Section 89(f)(ii) states that the appointment of staff by a
multi-jurisdictional service
utility, or transfer or secondment of
staff to the multi-jurisdictional service utility must be in
accordance with applicable labour
legislation.
[30]
The LRA states that it should prevail—
“
[i]f
any conflict, relating to the matters dealt with in
this
Act
,
arises
between
this
Act
and the provisions of any other law save the Constitution or any
other Act expressly amending
this
Act
,
the provisions of
this
Act
will prevail.”
[21]
What
it means in this context is that the provisions of the LRA prevail
over the Municipal Systems Act in employment matters.
[31]
The only question that remains is whether
section 197 is in conflict with sections 152 and 160 of the
Constitution. The answer
is in the negative. As stated
previously, section 152(1)(b) of the Constitution provides that
municipalities should ensure
provision of services in a sustainable
manner. Section 152(2) states that a municipality must strive,
within its financial
and administrative capacity, to achieve the
objects of local government set out in subsection (1). Section
160(1)(d) provides
that a Municipal Council may employ personnel that
are necessary for the effective performance of its functions.
[32]
All those provisions of the Constitution do
not conflict with the LRA but simply state the manner in which a
sustainable and effective
local government should be achieved. City
Power did not demonstrate that the consequences of section 197 would
defeat the
objectives of these provisions of the Constitution.
[33]
No
case has been made for the preferential treatment of a municipal
entity, or other entity that performs a public function akin
to that
of a municipality, from the application of section 197. There
are numerous instances where labour legislation will
have budgetary
or procedural consequences for all entities, including organs of
state. As the Labour Court stated, all employers,
including
organs of state must, when entering into contracts with service
providers, make the necessary provisions or arrangements
for legal
eventualities like section 197. To the extent that such
entities wish to avoid the provisions of section 197(2),
they could
seek to reach an agreement in terms of section 197(6). Section
197(6) caters for instances where the employer
seeks to “contract
out” of the provisions of section 197(2). In terms of
section 197(2) the specified legal consequences
follow if a transfer
of business as a going concern takes place, unless otherwise agreed
upon in terms of section 197(6).
The agreement contemplated
should in terms of section 197(6), be in writing and concluded
between the old employer, the new employer
or the old and new
employers acting jointly, on the one hand, and any person or body
with whom the old employer and new employer
are obliged to consult in
terms of section 189 of the LRA.
[22]
No such agreement was concluded between City Power and Grinpal.
[34]
For all those reasons, there are adequate
safeguards for municipalities to allay the concerns expressed by the
Labour Appeal Court
about the potentially serious consequences it
raised. Section 197 is thus applicable to City Power and other
municipal entities,
unless such entities have specifically made
provision for its exclusion in the form prescribed by section 197(6).
Was
there a transfer of a business as a going concern in terms of section
197?
[35]
What
is required to trigger the provisions of section 197
[23]
is—
(a)
a transfer;
(b)
of a business (or part of a business, or a
service); and
(c)
as a going concern.
[36]
The test for determining whether a business
was transferred as a going concern was laid down in
NEHAWU
.
There this Court stated:
“
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 the workers are taken over by the new
employer, whether customers are 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.”
[24]
(Footnote omitted.)
[37]
Once
a transfer of the kind identified by section 197(1)
[25]
occurs, it automatically carries with it all contracts of employment
that existed immediately before the transfer took place.
The
employment contracts are automatically transferred together with the
business. This happens by operation of law.
The person to
whom the business is transferred replaces the employer in terms of
the contracts of employment and assumes all obligations
of the
previous employer. The new employer also acquires the
contractual rights of the previous employer.
[26]
The question has to be determined with reference to the
objective facts of each case.
[27]
[38]
In the Labour Court, Mr Mbuso Dlamini,
Grinpal’s managing director, listed several factors in his
founding affidavit to support
the contention that the handover was a
transfer in terms of section 197:
“
(a)
the entire business relating to all aspects of the Project is being
transferred to City Power in terms of the handover
process;
(b) the bulk of the
steps in the handover process have already taken place;
(c)
the Project will continue after the termination of the Service
Agreements and completion of the handover process;
(d)
all of the assets, both tangible and intangible, required to operate
the project, have already been transferred to City Power,
with the
only exceptions being the outstanding “communications’’
issues and the confirmation by City Power of
the transfer of the
affected employees;
(e)
City Power cannot operate the Project without using all or most of
the employees – they have the necessary expertise,
built up
over the years, to implement, maintain and operate the Project.
City Power does not have this expertise available
in its pool of
employees. The training provided by Grinpal to City Power
employees is by no means intended to replace the
services of any of
the affected employees – rather it is required in order for
City Power to better understand the Project,
so that in due course,
after a full handover (including the affected employees), City Power
will be able to run the Project with
the minimum continued support
from Grinpal;
.
. .
(g)
the entire customer base of approximately 38 000 households in
Alexandra (as well as the master plan and designs for the remainder
of the network (i.e. all projected 65 000) have been transferred to
City Power. Grinpal no longer has any involvement in
the
Project (save for the offer of further limited technical support in
an effort to ensure that service to the customers is not
disrupted
during the handover process);
(h)
all existing infrastructure, including unfinished installations and
materials for installation, maintenance and repair of the
network and
systems have been handed over to City Power.”
In
reply to these averments, City Power in its answering affidavit
simply made a bald denial which does not create a genuine dispute
of
fact. It follows that the matter must be decided on the basis
that those averments are true.
[39]
On the present facts, there is no dispute
that City Power took over the full business “as is”, with
all of the complex
network infrastructure, assets, know how, and
technology required to install and operate the prepaid electricity
system with
the clear intention of maintaining uninterrupted
electricity services to Alexandra Township. The project
continued after
termination of the service level agreements and
completion of the handover process. The business is
identifiable and it is
discrete. Ultimately a business of
providing a system of prepaid electricity to residents of Alexandra
Township continued,
save that it was now conducted by a different
entity.
[40]
It follows that there was a transfer of
business from Grinpal to City Power as a going concern; which
means that the contracts
of employment of Grinpal’s employees
were automatically transferred to City Power. The appeal must
fail.
Order
[41]
The following order is made:
1.
Condonation is granted.
2.
Leave to appeal is granted.
3.
Save for paragraph 4 below, the appeal is dismissed.
4.
The order of the Labour Appeal Court dismissing the appeal from the
Labour Court is upheld but paragraph 2 of the order of the
Labour
Court is amended to read:
“
The
first respondent [City Power] is ordered to give effect to the
provisions of
section 197
of the
Labour Relations Act 66 of 1995
in
relation to the employees.”
5.
The applicant is ordered to pay costs of the application for leave
and the appeal, including costs of three counsel where employed.
For
the Applicant:
M
Mphaga SC, J A Motepe and E M Baloyi Mere instructed by Hewu
Attorneys.
For
the First Respondent:
A
I S Redding SC and G A Fourie instructed by Webber Wentzel.
[1]
66
of 1995.
Section 197(2)(a)
of the LRA provides that—
“
[i]f
a transfer of a business takes place, unless otherwise agreed in
terms of subsection (6), 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”.
[2]
32
of 2000.
Section 86C(1)
provides:
“
A
municipality may, subject to subsection (2)—
(a)
establish or participate in the establishment of a private company
in accordance with the Companies Act 1973 (Act No. 61 of
1973); or
(b)
acquire or hold an interest in a private company in accordance with
the Companies Act 1973 (Act No. 61 of 1973).”
[3]
Section
86D(1)(a) provides:
“
(1)
A private company referred to in section 86C(1)—
(a)
is a municipal entity if a municipality,
or two or more municipalities collectively, have effective control
of the private company.”
[4]
Section
76 provides in relevant part:
“
A
municipality may provide a municipal service in its area or a part
of its area through—
(b)
an external mechanism by entering into a service delivery agreement
with—
(i)
a municipal entity; [or]
(v)
any other institution, entity or person legally competent to operate
a business activity.”
[5]
City
Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and
Others
[2014]
ZALAC 22
; [2014]
10 BLLR 945
(LAC); (2014) 35 ILJ 2757 (LAC) at
paras 25-6 (Labour Appeal Court judgment).
[6]
Id
at paras 27-8.
[7]
Section
23(1) of the Constitution provides: “Everyone has the right to
fair labour practices.” Furthermore it
has been stated
by this Court that the interpretation and application of the LRA is
a constitutional issue. (See
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
)
at paras 14-5).
[8]
Section
152 in relevant part provides:
“
(1)
The objects of local government are—
(b)
to ensure the provision of services to
communities in a sustainable manner.
(2)
A municipality must strive, within its financial and administrative
capacity, to achieve the objects set out in subsection
(1).”
[9]
Section
153 provides:
“
A
municipality must—
(a)
structure and manage its administration and budgeting and planning
processes to give priority to the basic needs of the community,
and
to promote the social and economic development of the community; and
(b)
participate in national and provincial development programmes.”
[10]
Aviation
Union of South Africa and Another v South African Airways (Pty) Ltd
and Others
[2011]
ZACC 39
;
2012 (1) SA 321
(CC);
2012 (2) BCLR 117
(CC) (
Aviation
Union
).
[11]
56
of 2003 (Municipal Finance Management Act).
[12]
Section
66 provides:
“
(1)
A municipal manager, within a policy framework determined by the
municipal council and subject to any applicable legislation,
must—
(a)
develop a staff establishment for the
municipality and submit the staff establishment to the municipal
council for approval;
(b)
provide a job description for each post on
the staff establishment;
(c)
attach to those posts the remuneration and
other conditions of service as may be determined in accordance with
any applicable
labour legislation; and
(d)
establish a process or mechanism to
regularly evaluate the staff establishment and, if necessary, review
the staff establishment
and the remuneration and conditions of
service.
(2)
Subsection (1)(c) and (d) do not apply to remuneration and
conditions of service regulated by employment contracts referred
to
in section 57.”
[13]
Section
93A(a)(i) provides:
“
The
parent municipality of a municipal entity—
(a)
must exercise any shareholder, statutory,
contractual or other rights and powers it may have in respect of the
municipal entity
to ensure that—
(i)
both the municipality and the municipal
entity is managed responsibly and transparently and meets its
statutory, contractual and
other obligations.”
[14]
Section
160(1)(d) states that a Municipal Council—
“
(d)
may employ personnel that are necessary for the effective
performance of its functions.”
[15]
Joseph
and Others v City of Johannesburg and Others
[2009] ZACC 30
;
2010 (4) SA 55
(CC);
2010 (3) BCLR 212
(CC) (
Joseph
)
at para 4.
[16]
Act
61 of 1973. This Act has been subsequently repealed by the
Companies Act 71 of 2008
.
[17]
Joseph
above n 15 at para 47.
[18]
AllPay
Consolidated Investment Holdings (Pty) Ltd and Others v Chief
Executive Officer of the South African Social Security Agency
and
Others (No 2)
[2014]
ZACC 12
;
2014 (4) SA 179
(CC);
2014 (6) BCLR 641
(CC) (
AllPay
2)
.
[19]
9
of 2004.
[20]
AllPay
2
above n 18 at paras 52-9.
[21]
Section
210
of the LRA.
[22]
Section
189
obliges employers who contemplate dismissing one or more
employees for reasons based on operational requirements to engage in
consultation with employees likely to be affected or with their
trade unions or work place forum.
[23]
Section
197 of the Labour Relations Act 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;
.
. .
(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.
(3)
(a)
The new employer complies with subsection (2) if that employer
employs transferred employees on terms and conditions that
are on
the whole not less favourable to the employees than those on which
they were employed by the old employer.
.
. .
(6)
(a)
An agreement contemplated in subsection (2) must be in writing and
concluded between—
(i)
either the old employer, the new employer, or the old and new
employers acting jointly, on the one hand: and
(ii)
the appropriate person or body referred to in section 189(1) on the
other.”
(b)
In any negotiations to conclude an agreement contemplated by
paragraph (a), the employer or employers contemplated in
subparagraph
(i), must disclose to the person or body contemplated
in subparagraph (ii), all relevant information that will allow it to
engage
effectively in the negotiations.
(c)
Section 16(4) to (14) applies, read with the changes required by the
context, to the disclosure of information in terms of
paragraph
(b).”
[24]
NEHAWU
above n 7 at para 56.
[25]
Section
197(1) states:
“
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.”
[26]
Aviation
Union
above n 11 at para 43.
[27]
Id
at para 47.