Rural Maintenance (Pty) Limited and Another v Maluti-A-Phofung Local Municipality (CCT214/15) [2016] ZACC 37; 2017 (1) BCLR 64 (CC); (2017) 38 ILJ 295 (CC); [2017] 3 BLLR 258 (CC) (1 November 2016)

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[2016] ZACC 37
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Rural Maintenance (Pty) Limited and Another v Maluti-A-Phofung Local Municipality (CCT214/15) [2016] ZACC 37; 2017 (1) BCLR 64 (CC); (2017) 38 ILJ 295 (CC); [2017] 3 BLLR 258 (CC) (1 November 2016)

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Heads of arguments

CONSTITUTIONAL
COURT OF SOUTH AFRICA
Case CCT
214/15
In the matter
between:
RURAL MAINTENANCE
(PTY)
LIMITED
First Applicant
RURAL MAINTENANCE (FREE
STATE) (PTY)
LIMITED
Second Applicant
and
MALUTI-A-PHOFUNG
LOCAL
MUNICIPALITY
Respondent
Neutral
citation:
Rural
Maintenance (Pty) Ltd and Another v Maluti-A-Phofung Local
Municipality
[2016] ZACC 37
Coram:
Mogoeng CJ, Moseneke DCJ, Bosielo AJ, Cameron J,
Froneman J, Jafta J, Khampepe J, Madlanga J, Mhlantla J,
Nkabinde J and Zondo
J
Judgments:
Froneman J (first judgment - majority): [1] –
[42]
Jafta J (second judgment): [43] – [128]
Zondo J (third judgment): [129] – [193]
Heard on:
03 May 2016
Decided on:
01 November 2016
Summary:
Labour Relations Act 66 of 1995
—
section 197
— transfer of a business as a going concern —
British Transfer of Undertakings (Protection of Employment)
Regulations
(TUPE Regulations) — no need shown for
reformulation or development of test in terms of section 197 of LRA—
leave to
appeal refused
ORDER
On appeal from the Labour
Appeal Court:
The
application for leave to appeal is dismissed with costs.
JUDGMENT
FRONEMAN J (Moseneke
DCJ, Cameron J,
Khampepe J, Mhlantla J and
Nkabinde J
concurring):
Introduction
[1]
This is an application for leave to
appeal against an order by the Labour Appeal Court, upholding an
appeal to it from the Labour
Court.  The dispute between the
parties concerned the question whether there had been a transfer of
business by the applicants
(Rural) to the respondent (Municipality)
in terms of section 197 of the
Labour Relations Act (LRA
).
[1]
The Labour Court held that there had been a transfer, the Labour
Appeal Court held that there had not.
[2]
Rural seeks to justify its
application for leave to appeal on the basis that the Labour Appeal
Court failed to apply the proper
test for considering whether there
has been a transfer of business under
section 197
and effectively
crafted and applied a new test.  It argues that, in any event,
in relation to transfer of a service as a business
under the section,
this Court should re-assess its jurisprudence in light of new
developments in European employment law.
In addition, Rural
contends that the Labour Appeal Court made factual findings outside
the case pleaded by the Municipality and
seeks to lead further
evidence on appeal.
[3]
None of these contentions withstand
scrutiny.  In order to understand why, one has to look at the
facts as disclosed in the
papers, the Labour Appeal Court judgment
and the applicable law.
Facts and pleadings
[4]
The Municipality is responsible, in
terms of the Constitution
[2]
and national legislation,
[3]
for the provision of services to its residents, including the supply
of electricity.  It appears that it allowed its electricity

services to fall into disrepair.  In 2011 its then municipal
manager entered into an Electricity Management Contract (EMC)
with
Rural to manage, operate, administer, maintain and expand the
municipal electricity distribution network for a period of 25
years,
after which the obligation to supply electricity to residents would
revert to the Municipality.  In terms of the EMC
16 employees
were transferred under section 197 of the LRA by the Municipality to
Rural.
[5]
Rural started its performance under
the provisions of the EMC on 1 September 2011.  It
expanded the workforce to
127 employees and incurred significant
expenditure on the purchase of network materials, specialised
vehicles, the compiling and
recordal of details of the Municipality’s
electrical distribution infrastructure, the mapping of townships
within the Municipality’s
geographical area, and software
systems in relation to the provision of the electrical services.
It also purchased immovable
property for offices and staff
accommodation.  This all cost in the region of R96 million.
[6]
In August 2013 the Municipality
informed Rural that it considered the EMC to be null and void because
the erstwhile municipal manager
did not have the requisite authority
to conclude the EMC with Rural.  The latter disputed this and
contended that this conduct
amounted to a repudiation of the
Municipality’s obligations under the EMC, entitling it to
cancel the agreement.  This
contractual dispute was, and
apparently still is, pending in the Free State High Court.
[7]
Despite the pending action in the
High Court, Rural provided the Municipality with information about
the identities of the 127 employees,
their employment contracts and
organisational structure in the beginning of October 2014.  It
also handed over what it termed
the “possession of the Network
and the Capital Assets”.
[4]
It proposed an agreement of the transfer of the 127 employees under
section 197 of the LRA to the Municipality.  The
Municipality
refused.
[8]
Rural then sought relief in the
Labour Court for an order declaring that there had been a transfer of
business as a going concern
by it to the Municipality and that,
hence, the employment contracts of the 127 employees should be
transferred to the Municipality.
The Labour Court granted the
relief, but the Labour Appeal Court overturned that decision.
[9]
The application was brought in
motion proceedings and the affidavits filed thus served as both
pleadings and evidence.
[5]
The case advanced on behalf of Rural in the founding affidavit was
based on its acceptance of the Municipality’s alleged

repudiation of the EMC and the resultant cancellation of the EMC.
Rural averred, however, that the legal cause of the transfer
was not
relevant, because that issue was pending in the High Court.  It
stated that factually the entire electricity distribution

infrastructure of the Municipality that Rural utilised, maintained,
upgraded and was in control of, was handed back to the Municipality.

This, it contended, amounted to the transfer of the business as a
going concern in terms of section 197 of the LRA.
[10]
The Municipality disputed both the
causa
(legal
cause) for the transfer, as well as the extent of the factual handing
over.  In regard to the former it contended that
because the EMC
was null and void from the outset, all that had to be effected was to
restore the parties to their position prior
to the conclusion and
implementation of the EMC.  That meant a transfer back of the
employment obligations of only the 16 persons
employed by the
Municipality originally, not the transfer of all 127 persons employed
by Rural.
[11]
At a factual level the Municipality
also disputed that Rural’s business was transferred to it as a
going concern.  The
answering affidavit deposed to by the
municipal manager stated:
“
Rural
grew the business after it was transferred to them.  On their
own version they invested large sums of money in making
the business
bigger, better, more efficient and ultimately more profitable.
We know that they employed more than 100 additional
people.
However, they would have bought computers (hardware and software),
stationery, office equipment, implemented systems
(such as a debt
collection system), vehicles and other related equipment needed to
operate
their
business as they were conducting it.  I can categorically state
that since the contract ‘fell through’ Rural has
not
transferred
their business to us as a ‘going concern’.  At best
we have received an obligation to provide electricity to the

residents but we never received their computers, systems, stationery,
vehicles, equipment etc.  We also have not received
their
debtor’s book.  I have not, to date, received an inventory
of Rural’s business.  Thus its business
was not
transferred to us as a going concern.  The meaning of ‘going
concern’ is specific and argument on this
will be presented to
the court.  I understand this to be a threshold requirement for
the trigger of section 197.”
(Emphasis in original.)
[12]
Similar statements are made
elsewhere:
“
I
deny that Rural has done enough in its papers to lay a factual
foundation that demonstrates that it did transfer its business
to the
Municipality as a going concern.  Further argument on this point
will be advanced at the hearing.”
Towards the end of
the affidavit the following summary appears:
“
Noticeably
absent from these paragraphs (in which Rural allege that they
transferred their business as a going concern to us) is
an itemized
inventory of exactly what their business was.  One would expect
that an allegation of a business being transferred
as a going concern
would explain what the business was (assets, liabilities, etc).
The founding affidavit does not do this.
The founding affidavit
does not even explain to us what Rural’s ‘business’
entailed.  The meaning of ‘a
business as a going concern’
has a very specific meaning in mercantile parlance.  The
founding affidavit, in my submission,
fails to describe Rural’s
business and what it would mean for it to qualify as a going
concern.  For example, I presume
that Rural were operating from
offices that were either owned by them or leased by them.  I
assume that Rural had assets which
may have included motor vehicles,
computers, laptops, cellphones, office furniture, tools, and other
equipment needed to carry
out its operation.  I would also
assume that Rural’s business had both creditors and debtors.
I assume it had
intellectual property too.  None of these
aspects that one would ordinarily find in an inventory of a business
being transferred
as a ‘going concern’ are apparent from
these papers.  None of these aspects were factually transferred
to the
Municipality either.  We do not have any of their assets,
we do not have their motor vehicles, cellphones, computers, laptops,

equipment, etc.  Their contracts have not been ceded to us nor
have their debtor’s books.  This, I respectfully
submit,
translates into the only inference that their
business
was not transferred to us as a
going
concern
.”  (Emphasis in
original.)
[13]
In reply Rural deals with the
Municipality’s contention that the business had not been
transferred to it as a going concern,
in particular the allegation
that certain assets had been retained by Rural as follows:
“
[T]he
business comprises, in essence, the infrastructure for the provision
of electricity services and the employees dedicated to
that
business.  Handing over of peripheral assets such as software,
vehicles and stationery are not essential for the transaction
to
constitute one in terms of section 197 of the LRA.  The transfer
of the business did not occur in a vacuum but in the
de
facto
implementation of the Agreement
whether the Agreement is valid or void.  The Agreement did not
contemplate that such assets
would ever transfer to the Municipality
as part of the business.”
And further:
“
As
a matter of fact and law the retention by Rural of peripheral assets
such as vehicles, computers, stationery and the like does
not affect
this conclusion [that there has been a transfer of the business]. . .
.  Precisely what has been transferred from
Rural to the
Municipality has been dealt with above.  The legal consequences
thereof and the import for the application of
section 197 of the LRA
will be dealt with in argument.”
[14]
The application was thus set to be
decided on the acceptance by Rural of the factual assertions by the
Municipality that certain
specified assets were not handed over.
Rural maintained that their handing over was not necessary as a
matter of law, while
the Municipality contended that they were.
Both parties agreed on the papers that this issue would be dealt with
in legal
argument.
Labour Appeal Court
[15]
In its judgment dealing with the
issue of whether there was a transfer as a going concern the Labour
Appeal Court referred to two
cases decided by the European Court of
Justice
[6]
on which the parties placed reliance in argument, as well as a
decision of the Labour Court.
[7]
In its evaluation of the issue the Court referred to a statement made
by the English Court of Appeal in
P &
O Trans-European Limited v Initial Transport Services Limited
[8]
and, on the basis of this statement, concluded:
“
It
is clear therefore that the overall assessment depends on an
examination of the totality of the business; in this case, the
business operated by Rural prior to the transfer.”
[9]
[16]
The Labour Appeal Court then
considered the opposing arguments on the effect of the non-transfer
of certain assets.  After
dealing with the description of
Rural’s business in the founding affidavit and what it
considered necessary to hand back
to the Municipality it concluded:
“
In
my view, given that the
onus
rests
upon the respondent to show, on the probabilities, that a transfer of
a business as a going concern had taken place, it cannot
be said that
the same business conducted by Rural had been transferred so that it
was now conducted by a different entity, namely
[the Municipality].
Take but one critical issue, debt collection.  For debt
collection to be continued seamlessly by
[the Municipality], this
component of the business had been conducted by Rural, it was
necessary to meter the use of electricity,
invoice the consumer and
collect payments therefrom.  Essential to this process would
have been the use of software and information
stored and used in
digital form as had been employed by Rural.  In short, the means
to perform this debt collection activity
had not been transferred.
On its own, this was a significant component of the overall
business.  It supports the overall
assessment that it cannot be
said, on these papers, that the very business conducted by Rural had
been transferred to [the Municipality].
Expressed differently,
the Municipality would not have been able to continue business
seamlessly after the ‘transfer’.
For these reasons,
the appeal must be upheld.”
[10]
Leave to appeal
[17]
The proper interpretation of the LRA
will raise a constitutional issue that clothes this Court with
jurisdiction, but this does
not mean that this Court will hear all
appeals from the Labour Appeal Court.  It will only do so if the
appeal raises “important
issues of principle”.
[11]
Rural contends that there are three issues of principle which justify
granting leave.
[18]
The first is that the Labour Appeal
Court applied a new test or approach to determine whether there had
been a transfer of a business
as a going concern in terms of section
197 of the LRA.  In support of this argument it sought to place
much reliance on the
use of the word “seamlessly” in the
judgment of the Labour Appeal Court, as well as on its specific
discussion of debt
collection as a component of the business that
needed to be transferred.  The former allegedly showed the
application of a
new test of “seamlessness”, the latter
an inappropriate reliance on only one aspect of what constituted a
transfer
of business.  Neither contention can be upheld.
[19]
It is clear from the portion of the
Labour Appeal Court judgment discussed in paragraph 15 above that it
considered that an “overall
assessment” had to be made
“on an examination of the totality of the business . . .
operated by Rural prior to the
transfer”.  It used “but
one critical issue, debt collection” as an example in its
overall assessment.
This is not the formulation of a new test,
or the singling out of one factor to the exclusion of others in the
overall assessment,
or laying down a general principle that all
assets have to be transferred before section 197 is applicable.
For these reasons
I cannot agree with Jafta J in his judgment (second
judgment) that the matter raises any new legal issue that needs to be
determined
on appeal.
[12]
It might have been better to rely on local precedent, rather than the
English Court of Appeal, but as we will see the home
grown variety
also requires a holistic assessment of various factors.
[20]
The second point of principle was
said to be the Labour Appeal Court’s reliance on and reference
to debt collection, a fact
said not to have been raised on the
papers, but only in argument on appeal.  As a result of this
alleged defect Rural applied
to admit further evidence before this
Court for the first time.  From the portions of the record
quoted above it is apparent
that the questions of, among other
things, debtors’ books and software were raised in the
Municipality’s opposing affidavits.
[13]
Rural did not seek to dispute that these items were not handed over,
but explicitly contended that they were peripheral and
not required
to be handed over as a matter of law.
[14]
The facts upon which the Labour Appeal Court relied were thus not
only undisputed on the record, but Rural declined the appropriate

opportunity to dispute them.  There is no justification to
introduce evidence at this late stage of proceedings.
[15]
[21]
The third point was that local and
international developments in relation to so called “service
provision changes”,
as opposed to standard transfer of
businesses, necessitated the reformulation or development of our law.
[22]
Rural submitted that European
jurisprudence has in effect developed two different tests for
transfers, one for transfer of a business
or undertaking and another
for service provision changes, and that the Labour Appeal Court has
accepted “the introduction
of the 2006 TUPE Regulations
relating to a [service provision change]”.  It urged this
Court to follow suit in order
to provide clarification.  There
is no reason to, for the reasons that follow.
[23]
The term “service provision
change” was introduced into the British Transfer of
Undertakings (Protection of Employment)
Regulations (TUPE
Regulations)
[16]
in 2006.
[17]
It is not a term used in section 197 of the LRA.  Section
197(1)(a) defines “business” as including “the

whole or part of any business, trade, undertaking
or
service
”.
[18]
[24]
The use of terms or concepts not
found in the wording of section 197 to determine whether a
transaction falls under the terms of
section 197(1) and (2) may be
misleading and has the potential to bring about an incorrect
result.
[19]
As Yacoob J remarked in
Aviation Union,
the evaluation of whether there has
been a transfer of business as a going concern under section 197 “is
complex enough without
it being burdened with questions about the
‘generation’ of outsourcing”.
[20]
The same can be said about service provision changes.
[25]
In
NEHAWU
support was found for the Court’s reasoning on the purpose of
section 197 in “comparable foreign instruments and foreign
case
law construing these instruments.”
[21]
But this was done with acknowledgment of possible differences in
language and context.
[22]
This Court has on many occasions warned that the use of comparative
law should be treated with due regard to different contexts
and
language.
[23]
NEHAWU
is
no authority for the wholesale and uncritical adoption of
jurisprudence under the Acquired Rights Directive adopted by the
European Commission
[24]
or the British TUPE Regulations.
[26]
The inclusion of “service”
in the definition of “business” in the LRA was enacted in
2002.  It precedes
the 2006 TUPE Regulations and differs in both
wording and context from the latter.  It is difficult to see on
what basis the
mere adoption of the TUPE Regulations in Britain and
the jurisprudence in relation to it necessitates a reformulation or
development
of our existing law to incorporate a separate approach to
so-called service provision changes.
[27]
This Court has, in
NEHAWU
,
Aviation Union
and
City Power
,
[25]
consistently formulated the approach to be followed in determining
whether there has been a transfer of business as a going concern

under section 197.
[28]
NEHAWU
was
decided before the amendment that included a “service” in
the definition of “business” was applicable,
but regarded
the amendment as a clarification of the conclusion it reached.
[26]
Ngcobo J formulated the approach as follows:
“
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.”
[27]
[29]
Both the majority and minority
judgments in
Aviation
Union
relied
on and endorsed this approach to the interpretation and application
of section 197 of the LRA.
[28]
The disagreement between the two judgments related to whether a
transfer must already have taken place before relief could
be granted
and whether there was sufficient evidence to justify the relief being
granted on the record before the Court.
[29]
[30]
Importantly, and helpfully, Jafta J
in the minority judgment also dealt with the inclusion of service in
the definition of a business
in section 197(1):
“
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.”
[30]
[31]
City Power
too
accepted and built on the foundations of
NEHAWU
and
Aviation Union
.
[31]
It is important to note that
City Power
did not find that the mere termination of a service contract
triggered the application of section 197 of the LRA.  It
followed
the approach in
NEHAWU
and
Aviation Union
and determined the question on the facts:
“
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 continued, save that it was now conducted
by a different
entity.”
[32]
[32]
Rural submitted that this consistent
approach nevertheless needs clarification in the light of the Labour
Appeal Court’s alleged
acceptance into our law of the 2006 TUPE
Regulations relating to service provision changes.  But this is
also incorrect.
[33]
It is true that in
TMS
Group
[33]
the Labour Appeal Court did, in the course of its judgment, refer to
the TUPE Regulations.  It is incorrect, however, that
the Court
accepted them as now constituting a separate test for service
provision changes.  Instead, what Davis JA did do
was to
continue and refer to the European Court of Justice decision in
Sodexho
:
[34]
“
In
my view, the approach adopted by the European Court of Justice in
Sodhexo
,
supra, accords with the approach which has been adopted to section
197 by the
Constitutional
Court, both in [
Aviation
Union
],
supra and in its earlier decision of [
NEHAWU
]:
‘
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.’
See
also [
Aviation Union
]
supra at para 50 51.”
[35]
[34]
Sodexho
was
a case decided under the Acquired Rights Directive, and not the TUPE
Regulations.
[36]
Its approach to the issue of the transfer of the business concerned
was formulated as follows:
“
The
national court, in assessing the facts characterising the transaction
in question, must take into account the type of undertaking
or
business concerned.  It follows that the degree of importance to
be attached to each criterion for determining whether
or not there
has been a transfer within the meaning of Directive 77/187 will
necessarily vary according to the activity carried
on, or indeed the
production or operating methods employed in the relevant undertaking,
business or part of a business (Süzen,
paragraph 18, and
Hidalgo, cited above, paragraph 31).”
[37]
This approach accords
with the approach in our law, set out in
NEHAWU
and
Aviation Union
,
as the Labour Appeal Court correctly pointed out.
[35]
I have had the privilege of reading
the judgments of Jafta J (second judgment) and Zondo J (third
judgment).  I can discern
no new, old or important issue of
principle in the application of section 197 that we differ on.
What remains is an appeal
on the facts, not usually a sufficient
ground for this Court to interfere with the findings of a specialist
tribunal like the Labour
Appeal Court.  Its findings are in any
event not unreasonable.
[36]
Suffice to compare, in this regard,
the factual situation in
City Power
– an “as is” transfer of a full business – to
the half hearted return of certain components of Rural’s

business in the present case.  The difference between the two
factual situations is important in the context of the transfer
of
service businesses to municipalities.  As noted above,
City Power
did
not find that the mere termination of a service contract triggered
the application of section 197 of the LRA.  In that
case there
was a transfer of a fully functional business in its expanded form to
City Power
.
Without that kind of “as is” transfer, the termination of
the service contract may literally mean only a
termination
of the business, not its transfer back to the Municipality.  The
employment obligations of employees must then be dealt with
by the
erstwhile service provider under section 189 of the LRA if the
business comes to an end for operational reasons.  It
cannot
seek to transfer those obligations to the Municipality under the
guise of section 197, but nevertheless seek to retain for
itself the
means it used to conduct the service business as is the case here.
It is not only the interests of employees that
must be protected in
the interpretation and application of section 197, but even if their
protection is of primary concern it needs
to be kept in mind that the
protection of workers is not solely governed by section 197 in these
kinds of situations.  Employees
are also protected by the
retrenchment provisions in section 189.
[38]
The choice here is which employer should be responsible for the
workers affected by the change in circumstance.
[37]
Rural submitted that it expanded the
business and made it more profitable.  The Municipality, by
contrast, complains that certain
necessary assets were not
transferred.  I agree that for a transfer of a business as a
going concern to occur, not all the
assets of the business have to be
transferred and that it depends on the nature of the business and
essentiality or otherwise of
particular assets for a particular
business.  That factual application of a flexible test has long
been at the heart of our
going-concern business transfer
jurisprudence.  The onus rested on Rural to set out what work
the more than hundred additional
employees it employed were involved
in and what means were provided to them to do that work.  It is
common cause that certain
equipment was not transferred to the
Municipality, but it appears improbable that at least some of the
newly employed employees
did not need and use that equipment in order
to do their work.  Without the transfer of the means to do the
work they did
as part of Rural’s business, there could be no
transfer of the business to the Municipality as a going concern.  The

assets that Rural did not transfer back to the Municipality were
essential to the profitability and operation of the business.

Without these crucial assets, the Municipality could not have
carried on the business without any major difficulties.
But all
this involves a disputed factual assessment – which is
precisely not this Court’s task.  This example
shows how
this Court would have to make factual findings on what assets were
essential for the operation of the business.
But as noted
earlier, it is quite inapt for this Court to adjudicate the appeal on
a set of facts the Labour Appeal Court fully
considered and itself
determined.
[38]
A final aspect remains.  The
Labour Appeal Court held, on the basis of
Oudekraal
[39]
and
Kirland
,
[40]
that it should assume the validity of the EMC, despite the
Municipality’s contention that it was null and void for want of

compliance with the prescribed procurement requirements.  It did
so even though the dispute about the validity of the EMC
was pending
in the High Court.  In view of its finding that there was in any
event no transfer of business, the eventual finding
on the validity
dispute in the High Court would have no effect.  But if it had
found otherwise and the High Court then
held that the EMC was
null and void there would have been a problem.  The Municipality
would then have been saddled with the
employment contracts of 127
persons under the provisions of section 197, rather than only having
to take over, as part of the restitution
following a declaration that
the EMC was null and void, the original 16 persons employed by it in
relation to the electricity services.
[39]
This provides a useful illustration
of what role the
causa
,
or legal cause, of any transfer of a business may play in the
application of section 197 of the LRA.  It is settled that
the
enquiry to determine whether the business is transferred as a going
concern is a factual one.  But the parameters of the
factual
inquiry are determined by the legal cause from which the transfer
stems from.
[41]
The legal cause may be the invalidity of the underlying contract.  In
this case, if the EMC is held to be invalid, the
legal cause of
restitution demands that what Rural needs to hand back to the
Municipality is the original business as operated
by the Municipality
at the time when it was transferred to Rural.  If, however, it
is held that the EMC was valid, the legal
cause within which the
factual inquiry (whether transfer of the business took place) must
take place is the valid contract.
What Rural needs to hand back
is the business it operated until acceptance of the repudiation of
the EMC and the cancellation of
the EMC.  To the extent that the
second judgment finds that the legal cause is totally irrelevant, I
must disagree.
Summary and conclusion
[40]
On the evidence on record it was
common cause that certain components of Rural’s operation of
the business that supplied electricity
services to the Municipality
were not handed back to the Municipality.
[42]
Despite having the opportunity to refute this evidence, Rural
contended that they were peripheral to the operation of its
business
and need not have been handed back to the Municipality.
Besides, Rural did not explain precisely what this business

entailed.  The Labour Appeal Court, proceeding on the accepted
test of an assessment of all the relevant factors to determine

whether there was a transfer of business as a going concern under
section 197 of the LRA, held to the contrary.  It did
not
apply any new test, nor has the Labour Appeal Court imported a
different test in relation to the transfers of so-called
“
service
provision changes”.  That term was imported into the TUPE
Regulations in Britain in 2006 and does not appear
in section 197
of the LRA.  The definition of “business” in section
197(1) of the LRA includes a service.
This Court has clarified
that this means that it is the business that supplies the service,
and not the service itself, that must
be transferred.  Both in
wording and context the provisions of section 197 differ
materially from those in the TUPE Regulations.
No need has been
demonstrated that our existing law on the interpretation and
application of section 197
of the LRA is in need of reformulation or development.
[41]
It follows that leave to appeal must
be refused with costs, including the costs of two counsel.
Order
[42]
The application for leave to appeal
is dismissed with costs.
JAFTA J (Mogoeng CJ and
Madlanga J concurring):
Introduction
[43]
I have had the benefit of reading
the judgment prepared by my colleague Froneman J (first judgment).
Regrettably, I am unable
to support the order proposed and the
reasons advanced for it.  On the contrary, I hold the view that
leave to appeal must
be granted and that the appeal must be
successful.  As I see it, the order granted by the Labour Court
was correct and the
subsequent order by the Labour Appeal Court was
incorrect.
Leave to appeal
[44]
As the first judgment rightly
observes, this matter involves the application of
section 197
of the
Labour Relations Act (LRA
).  It is now trite that the
interpretation and application of legislation that was passed to give
effect to a right entrenched
in the
Bill of Rights raises
a constitutional issue.  In a number of cases this Court has
held that it has jurisdiction over matters
involving the application
and interpretation of
section 197.
[43]
What remains for determination is the question whether it is in the
interests of justice to grant leave.  I think it
is, for a
number of reasons.
[45]
The matter raises two constitutional
issues of great importance which are yet to be determined by this
Court.  The first issue
is whether, with regard to the factors
relevant to deciding if there was a transfer of business as a going
concern, it must be
proved that all assets which were used in the
operation of the business were transferred before it may be held that
a transfer
envisaged in
section 197
had occurred.  The Labour
Appeal Court held that withholding some of those assets showed that
there was no transfer of that
sort.
[46]
The other issue is whether the
operation and applicability of
section 197
in a particular matter
depends on the validity of the transaction in terms of which the
transfer was effected.  Maluti-A-Phofung
Local Municipality
(Municipality) has resisted the claim by Rural Maintenance (Pty) Ltd
(Rural), on the basis that the Municipal
Manager who signed the
agreement on which the claim was based had no authority to do so.
The Municipality also contended
that Rural did not qualify to
conclude such agreement.  Consequently, the validity of the
agreement was pivotal to the defence
raised by the Municipality.
[47]
Moreover, there are reasonable
prospects of success on the merits.  While this is not decisive,
it constitutes a weighty factor
to take into consideration.  The
prospects of success are borne out by the conflicting outcomes
reached by the other courts.
The Labour Court held that a
transfer contemplated in
section 197
has taken place and ordered the
Municipality to accept as its own employees, all workers of Rural who
were engaged in the operation
of the business transferred to the
Municipality.  In contrast, the Labour Appeal Court held that a
transfer envisaged in
the section has not
occurred and reversed the order of the Labour Court.  In these
circumstances leave must be granted.
Issues
[48]
Two main issues arise here.
The first is whether the Labour Appeal Court applied the test for
determining the applicability
of
section 197
correctly.  The
crucial issue being whether it was necessary for Rural to show that
all assets both tangible and intangible
were transferred, for Rural
to succeed.  Differently put, whether the Municipality may
escape the legal consequences of
section 197
purely on the ground
that not all assets were transferred to it.
[49]
The determination of the issue
requires us to cast our eyes on the test laid down by this Court in
NEHAWU
and
examine whether the test demands a transfer of all assets.  For
if it does not, then the Labour Appeal Court has erred
in applying
the test to the facts.
[50]
The second issue relates to the
defence raised by the Municipality, namely, that the agreement on
which Rural relied on was invalid.
This raises the complex
question whether
section 197
requires a valid transfer in law, for
provisions of the section regarding the transfer of employment
contracts to be triggered.
The determination of this issue
depends on the proper interpretation of
section 197(2).
However, before considering these two issues it is necessary to set
out in detail the relevant facts, for a better understanding
of the
issues.
Factual background
[51]
The Constitution and legislation
impose on municipalities the duty to provide services like the supply
of water and electricity.
The municipalities must build and
maintain infrastructure that enables them to fulfil the duty of
providing basic services to residents
and businesses.  Owing to
various reasons, the Municipality failed to maintain and upgrade the
infrastructure it had for the
supply of electricity to its
customers.  The Municipality’s customer base comprises
approximately 121 000 households
and 600 businesses.
[52]
The state of disrepair of the
infrastructure and equipment resulted in accidents that caused loss
of life and an erratic supply
of electricity which drove customers to
public protests.  The Municipality also failed to pay Eskom
which supplied it with
electricity.  Its debt collection system
was in chaos and as a result the Municipality was unable to collect
revenue from
customers for its services.  The extent of the
perilous state of the Municipality’s affairs is best captured
in an affidavit
deposed to by the Municipal Manager at the time the
dispute between the parties arose.
[53]
Since this affidavit is crucial to
the defence raised by the Municipality, it is necessary to quote
copiously from it.  The
affidavit was filed in opposing a claim
by the South African Municipality Workers Union (Union), after the
signing of the agreement
on which Rural relied in the present
proceedings.  The Union sought relief in the Labour Court
against both Rural and the
Municipality.
[54]
In its affidavit the Municipality
averred:
“
47.
The relief sought by the Applicant will, if granted, have far
reaching, severe and irreparable
consequences not only for the First
Respondent but for all persons within the area of jurisdiction of the
First Respondent including
the Applicant’s members employed by
the First Respondent.  Consequently, the relief sought by the
Applicant is not,
it is submitted, in the public interest and is in
fact contrary thereto.
48.
The First Respondent is simply not in a position to effectively,
properly and economically
provide municipal services being
electricity to persons within its area of jurisdiction and to thereby
comply with its statutory
obligations to provide municipal services
being electricity to persons within its area of jurisdiction.
49.
In regard to what is stated in paragraph 48 above:—
49.1
The First Respondent’s electricity distribution infrastructure
is close to collapse, with major
transformers suffering oil leaks
which can cause the transformers to malfunction and the oil leaks
contribute to ground pollution,
and many circuit breakers are damaged
beyond repair.
49.2
The First Respondent does not have the funds to either repair or
replace transformers or to purchase
spare transformers, new switch
gear or any spare parts in respect of the First Respondent’s
electricity distribution infrastructure.
49.3
There are constant electricity outages occurring due to the poor
state of the First Respondent’s
electricity distribution
infrastructure.
49.4
The poor state of the First Respondent’s electricity
distribution infrastructure is such that
there are many live
electricity distribution points which are not secured and which can
be accessed by members of the public and
which can result in
electrocution.
49.5
Due to malfunctioning switchgear, employees of the First Respondent
are at serious risk of injury or
death. During March 2013 an
electricity substation at Phuthaditjhaba exploded, and during
February 2012 an employee of a contractor
engaged by the First
Respondent died and an employee of the First Respondent was injured
when electrical apparatus in a substation
(the substation that
supplies electricity to Nestlé) exploded.
49.6
The bulk of the electricity distribution infrastructure of the First
Respondent requires upgrading
and systematic replacing of conductors,
insulators and transmission line poles.
49.7
Major investment is required in the electricity distribution
infrastructure of the First Respondent
in order to render the
substations, transmission, distribution and reticulation systems
operational and safe for use.
49.8
The First Respondent does not have the resources to effectively
collect revenue from consumers.
ln this regard, the First
Respondent does not have the funds to employ sufficient numbers of
employees or to purchase the necessary
equipment required to
effectively collect revenue from consumers.  Furthermore, the
First Respondent does not have a qualified
high voltage cable jointer
(who repairs cable faults) on its staff.
49.9
The First Respondent is presently heavily indebted to Eskom in
respect of electricity supplied by Eskom
to the First Respondent, in
the amount of approximately R144 000 000,00 (one hundred
and forty four million rand).
The average monthly deficit, i.e.
the difference between the revenue collected by the First Respondent
from consumers and the cost
to the First Respondent in supplying
electricity to consumers, being incurred by the First Respondent is
approximately R14 660 000,00
(fourteen million six hundred
and sixty thousand rand).  The deficit does not include the
funds required to upgrade and enhance
the First Respondent’s
electricity distribution infrastructure.  For the month of June
2013, the deficit between the
Eskom cost and the total amount billed
to customers was R21 832 939,10 (twenty one million eight
hundred and thirty two
thousand nine hundred and thirty nine rand and
ten cents) which excludes labour and other operational and
maintenance costs.
49.10
The Electricity Management Agreement recognises the dire situation
that the First Respondent finds itself in.
In this regard, clause 2
of the Electricity Management Agreement states as follows
‘
2.
Objective of the Agreement
2.1
The failed restructuring of the electricity distribution industry and
subsequent formation
of the regional electricity distributors have
left municipalities with material maintenance and operational
backlogs.
2.2
The objective of the Agreement is to provide for the appointment of
Rural as management
and operations service contractor of the Network
for the duration of the Term, during which period Rural shall have
the sole and
exclusive responsibility for the management, operation,
administration, maintenance and expansion of the Network.’
49.11
The Second Respondent has the resources to, in the stead of the First
Respondent but subject to the ultimate supervision
of the First
Respondent as provided for in terms of Section 81 of the Act, provide
municipal services being electricity to persons
within the area of
jurisdiction of the First Respondent and to collect revenue from
consumers, and as appears
inter
alia
from the Second
Respondent’s answering affidavit the Second Respondent has
invested considerable time and resources in regard
to the
implementation of the Electricity Management Agreement.
49.12
Without the assistance of the Second Respondent, the First Respondent
will not be able to render municipal services
being electricity to
persons within the area of jurisdiction of the First Respondent,
including members of the Applicant.
49.13
If the Electricity Management Agreement is not implemented or is set
aside on review, then the First Respondent
will be left in the dire
situation that it finds itself in and may well not be able to
continue with the supply electricity to
the community.  Not only
will the harm to the First Respondent be severe and irreparable, more
importantly the harm to persons
within the area of jurisdiction of
the First Respondent to whom the First Respondent is statutorily
obliged to render municipal
services being electricity will also be
severe and irreparable, if not more severe and irreparable.
49.14
Incidents of public violence are also not uncommon with a typical
electricity service delivery demonstration comprising
residents of
Tsheseng, Makaneng, Bolata, Makgalaneng, Thabo Tsoue, Lejwaneng,
Phamong, Thaba Tsoue and Bluegumbosch having occurred
on Wednesday 1
June 2011.  Numerous shops were looted and shots fired with the
First Respondent not having had the capacity
to assist residents who
were without water and electricity for a week. A team comprising
Councillors, Management, SAMWU and COGTA
(Department of Cooperative
Governance and Traditional Affairs) undertook to investigate the
causes of the problems and to set up
an action plan to deal with the
issues immediately. No progress was however achieved in this regard.
49.15
Subsequent to the failure to make progress with the lack of service
delivery, Ungerer as a last resort submitted
a request to Council in
November 2011 requesting assistance to identify and appoint an
alternative service delivery mechanism to
actually improve service
delivery to the community.
49.16
The First Respondent is plagued by constant theft of overhead copper
conductors, which occurs on almost a daily
basis and which results in
electricity outages.  The First Respondent does not have the
funds or resources to replace the
overhead copper conductors that are
being stolen.”
In
those proceedings, the Municipality was the First Respondent.
[55]
This affidavit depicts in graphic
terms the poor state of the Municipality’s infrastructure to
the extent that it had become
a danger to the public.
Substations exploding and killing workers and violent protests
occurring in many areas within the
Municipality’s jurisdiction
in June 2011.  A task team comprising of the Municipality’s
councillors, administrative
staff, the Union and officials from the
Department of Cooperative Governance and Traditional Affairs was
formed and charged with
the responsibility to investigate the causes
of the violent protests and the Municipality’s failure to
deliver services.
[56]
When the task team failed to produce
a solution and protests continued unabated, a request was submitted
to the Municipal Council
in November 2011, asking it to identify and
appoint a private service provider to take over the function of
providing electricity.
This request was motivated by the
Municipality’s lack of funds to repair the ailing
infrastructure so that it could supply
electricity and its inability
to pay its debt to Eskom, which then stood at R144 million.
[57]
Following the request and in an
attempt to address problems relating to its poor service delivery,
the Municipality placed an advert
in newspapers circulating
countrywide.  One such advert was published in the
Sowetan
newspaper of 26 October 2012.  This advert informed
the public that the Municipality was considering an unsolicited
bid
to appoint Rural as a service provider to invest, upgrade, maintain
and operate the electrical infrastructure of the Maluti-A-Phofung

Municipality, a bid that had complied with the requirements of
section 113 of the Local Government: Municipal, Finance Management

Act.
[44]
[58]
The advert proceeded to set out
reasons why the bid should not be subjected to an onerous competitive
bidding process.  These
included the assertion that Rural was
the sole provider with specialised services and expertise which would
generate revenue without
costs to the Municipality and enhance
electricity cost savings for consumers.  It was also stated that
the appointment of
Rural would immediately solve the poor supply of
electricity if it was going to be sustainable over a long period.
[59]
The advert invited the public to
comment on the intended appointment of Rural by not later than 24
December 2012.  It concluded
by stating:
“
Bidders
should be requested to submit bids or quotations valid for a period
not exceeding 60 days.  This period should be sufficient
to
enable the Municipality to complete the comparison and evaluation of
bids, review the recommendation and award a contract.”
[60]
It is not clear from the record
whether comments were received from the public and whether there were
bidders other than Rural.
But what is clear is that Rural was
awarded the tender.  However, it is important to note that in
the present case the Municipality
does not dispute any of these
facts.  Instead what is placed in issue is the validity of the
agreement signed pursuant to
the award of the tender.
[61]
Following the award of the tender to
Rural, an Electricity Management Contract was concluded by Rural and
the Municipality.
It was signed by the then Municipal Manager
acting on behalf of the Municipality and a Director of Rural.
This is the agreement
in respect of which the Municipality now
contends that its Municipal Manager had no authority to sign and also
impugns its validity
in proceedings pending in the Free State
Division of the High Court (High Court).
[62]
Shortly after the signing of the
agreement, the Union instituted on an urgent basis an application in
the Labour Court against the
Municipality and Rural.  This
application was lodged on 17 May 2013.  The Union’s claim
was based on the assertion
that in breach of section 78 of the Local
Government: Municipal Systems Act
[45]
the Union was not consulted before the agreement was concluded.
The Municipality and Rural filed opposing papers.  The
Municipal
Manager who was in office then deposed to an affidavit setting out in
explicit terms the depressing situation relating
to the
Municipality’s inability to provide electricity and water to
its residents and businesses.  The vivid picture
painted was
that the Municipality had no funds to repair even that part of the
infrastructure which posed a danger to the public.
[63]
The affidavit pointed out that,
should implementation of the agreement be stopped, the Municipality
“will be left in the dire
situation” and it will suffer
irreparable harm.  In this regard the affidavit states:
“
Not
only will the harm to the [Municipality] be severe and irreparable,
more importantly the harm to persons within the area of
jurisdiction
of the [Municipality] to whom [the Municipality] is statutorily
obliged to render municipal services being electricity
will also be
severe and irreparable, if not more severe and irreparable.”
[64]
The affidavit also shows that the
majority of employees did not support the relief sought by the
Union.  But more importantly,
the Municipality admitted that
Rural had taken over its business to supply electricity and that
consequently the operation of section
197 of the LRA was triggered.
The Municipality also acknowledged that some of its employees were
transferred to Rural in
terms of section 197.  But because
the infrastructure was in such a state of disrepair, Rural was not
able to commence
the supply of electricity immediately.  Rural
first had to fix the damaged infrastructure and replace equipment
that could
no longer be used.
[65]
Rural incurred considerable
expenditure in the process of preparing to implement the agreement.
It spent approximately R70
million on electrical infrastructure
mapping; about R14 million on materials like switchgears, poles,
transformers, mini substations,
prepaid meters and 17 light
commercial vehicles.  An amount of R7.5 million was spent on
purchasing two specialised trucks.
Rural also purchased
immovable property within the Municipality’s area for about R5
million.
[66]
The enormous capital and
infrastructure investment was necessary to remedy the situation and
prevent the collapse of the Municipality’s
failing electricity
supply network.  It also became essential for Rural to employ
staff in addition to the 16 workers
who were transferred from
the Municipality.  A total of 127 employees were appointed to
operate the business.
[67]
But even before Rural commenced the
actual supply of electricity, on 5 August 2013 Rural
received a letter from the Municipality,
written by the Executive
Mayor.  This letter was dated 2 August 2013 and reads:
“
Rural
Maintenance is hereby given notice to withdraw its resources related
to the abovementioned function with immediate effect.
The work
currently performed is illegal within the supply area of
Maluti-a-Phofung and therefore the Municipality will seek relief
from
the High Court in this regard.  No legal relationship exists
between the Municipality of Maluti-a-Phofung and Rural Maintenance
as
to justify such operations.”
[68]
The Executive Mayor made no
reference to the tender that was awarded to Rural and the award,
which is not disputed by the Municipality
in these proceedings.
Nor does she refer to the Electricity Management Contract which now
the Municipality contends was signed
without the necessary authority.
[69]
In response to the Mayor’s
letter, Rural pointed out that the Municipality’s action
amounted to repudiation of the agreement.
Rural indicated that
it did not accept the repudiation, but that it had decided to hold
the Municipality to the agreement.
Rural insisted that the
Municipality should perform its obligations in terms of the
agreement.  Rural concluded its response
by demanding an
undertaking by no later than 16h00 on 8 August 2013, that the
Municipality would allow implementation of the agreement
failing
which relief would be sought from the High Court interdicting
the Municipality from interfering with the agreement.
[70]
No undertaking was given by the
Municipality.  This led to an urgent application instituted in
the High Court by Rural against
the Municipality.  The
Municipality did not oppose the relief sought despite the stance that
there was no legal basis for
Rural to take over its supply of
electricity.  Consequently Jordaan J granted the following
order:
“
1.
The matter is heard as one of
urgency and that relaxation of the usual rules as to service and time
periods be condoned;
2.
Pending the finalisation of an action to be instituted within 30 days
for an
order that the respondent be prohibited and interdicted from
interfering in any way with the implementation of the electricity
management agreement concluded between the applicant and the
respondent on 3 April 2013;
3.
Costs of this application be costs in the cause of the action to be
instituted.”
[71]
In terms of this order the
Municipality was prohibited from interfering with the implementation
of the parties’ agreement,
pending finalisation of an action to
be instituted by Rural within 30 days from the date of that order.
Indeed Rural instituted
the action on 26 August 2013 and that action
was still pending in the High Court at the time of hearing of the
application for
leave in this Court.
[72]
On 1 September 2013, Rural commenced
with operating the transferred business of supplying electricity to
businesses and households
within the area of the Municipality.
From 1 September 2013 up to 31 March 2014, Rural paid Eskom’s
account for the
supply of electricity on time every month.  The
total amount paid to Eskom was R40 million.  An amount of R172
million
was spent over the same period in upgrading, maintaining and
managing the electricity supply infrastructure.  Rural remedied

14 415 complaints by consumers and collected payments for the
electricity supplied.
[73]
Although the Municipality had
repudiated the agreement, it was happy to see 16 of its employees
transferred to Rural and the latter
assuming the responsibility of
paying their salaries and other benefits.  Rural trained the
transferred employees to improve
their skills and employed further
workers from the residents of the Municipality, in accordance with
its undertaking.  All
these employees became permanent workers
of Rural and were dedicated solely to operating the business of
supplying electricity.
[74]
Rural put in place strict
debt-collection systems.  They also collected revenue from
prepaid vendors and consumers who did
not use pre-paid meters.
Defaulters were disconnected for non-payment of accounts.
[75]
However, notwithstanding the court
order of 22 August 2013, the Municipality remained obstructive to the
implementation of the agreement.
It displayed “an utter
disregard for the order and the interest of the public.”
It refused to pay R32.6 million
in respect of its own electricity
usage.  On occasions the Municipality invoiced and collected
revenue from consumers for
the electricity that was supplied by Rural
and this impacted negatively on Rural’s ability to raise funds
for operating the
business.  This conduct was in breach of the
parties’ agreement and also the Court’s order.
[76]
When Rural disconnected electricity
to non-paying consumers, the Municipality would reconnect the
supply.  In March 2014 the
Municipality made it impossible for
Rural to continue operating the business of providing electricity.
It informed consumers
that Rural was not entitled to collect payment
for electricity it supplied because Rural was not licensed.
This encouraged
more and more consumers to default on their payments.
[77]
Out of frustration Rural threw in
the towel and accepted the Municipality’s repudiation of the
agreement and cancelled it
as from 1 April 2014.  In the
cancellation letter of 1 April 2014 Rural also pointed out that its
employees were assaulted
by municipal employees and that made it
impossible for Rural to continue operating the business.  In a
second letter of the
same date, Rural stated that cancellation meant
that the business reverted to the Municipality and as a consequence
of section
197, the employees of that business were transferred with
it to the Municipality.
[78]
When Rural delivered information and
employment contracts of the affected employees to the Municipality on
3 April 2014, its current
Municipal Manager, Mr Tomo Taetsane
informed Rural that the Municipality would not take over all the
employees.  Instead
it was willing to re-employ its former
employees only.  It is this stance adopted by the Municipality
which drove Rural to
instituting the present proceedings.
Litigation history
[79]
In April 2014 Rural approached the
Labour Court for a declaration to the effect that as from 1 April
2014 all the employees who
were engaged in the business of supplying
electricity were transferred to the Municipality in terms of section
197(2) of the LRA.
It also sought an order directing the
Municipality to assume obligations of an employer under employment
contracts of the affected
employees.
[80]
In substantiating its claim, Rural
averred that when it cancelled the agreement:
“
78.
The entire Network Business relating to all aspects of the Project,
i.e. the provision of all electricity
related services to inhabitants
of the Municipality’s jurisdictional area, has reverted back to
and has been taken over by
the Municipality and is already under the
control of the Municipality and possession of the Network and the
Capital Assets have
already been returned to the Municipality.
79.
The entire electricity distribution infrastructure of the
Municipality that Rural and Rural
Free State were in control of and
utilised (and maintained and upgraded) for the provision of all
electricity related services
to inhabitants of the Municipality’s
jurisdictional area, as the Municipality had previously done, are no
longer under the
control of Rural and Rural Free State and has been
handed back, together with the additions and improvements thereto
effected by
Rural and Rural Free State, to the Municipality.
80.
The bulk of the steps in the handover process have already taken
place.
81.
The very same Network Business will continue, and has continued, in
the hands of the Municipality
with effect from 1 April 2014, and as
the Municipality had been doing prior to the implementation of the
Agreement, the Municipality
is once again providing all electricity
related services to inhabitants of the Municipality’s
jurisdictional area.”
[81]
The Municipality opposed the relief
sought.  While not disputing that capital assets of the
business, together with the entire
electricity distribution
infrastructure upgraded by Rural, including additions and improvement
were handed over to it, the Municipality
disputed that Rural’s
business was transferred to it as a going concern.  But the
Municipality did not deny that the
bulk of steps in the handover
process had already taken place and that the Municipality had
commenced supplying electricity to
consumers within its area.
[82]
The reasons for disputing that what
occurred was a transfer of the business back to the Municipality are
contained in paragraph
47 of the answering affidavit deposed to by
the current Municipal Manager.  He states:
“
Noticeably,
absent from these paragraphs (in which Rural allege that they
transferred their business as a going concern to us) is
an itemized
inventory of exactly what their business was.  One would expect
that an allegation of a business being transferred
as a going concern
would explain what the business was (assets, liabilities, etc.).
The founding affidavit does not do this.
The founding affidavit
does not even explain to us what Rural’s ‘business’
entailed.  The meaning of ‘a
business as a going concern’
has a very specific meaning in mercantile parlance.  The
founding affidavit in my submission,
fails to describe Rural’s
business and what it would mean for it to qualify as a going
concern.  For example, I presume
that Rural were operating from
offices that were either owned by them or leased by them.  I
assume Rural had assets which
may have included motor vehicle,
computers, laptops, cell phones, office furniture, tools, and other
equipment needed to carry
out its operation.  I would also
assume that Rural’s business had both creditors and debtors.
I assume it had
intellectual property too.  None of these
aspects that one would ordinarily find in an inventory of a business
being transferred
as a ‘going concern’ are apparent from
these papers.  None of these aspects were factually transferred
to the
Municipality either.  We do not have any of their assets;
we do not have their motor vehicle, cellphones, computers, laptops,

equipment, etc.  Their contracts have not been ceded to us nor
have their debtor’s books.  This, I respectfully
submit,
translates into the only inference that their
business
was not transferred to us as a
going
concern.
”
[83]
This statement reveals the Municipal
Manager’s own understanding of the law relating to a transfer
of business as a going
concern.  In his view Rural was required
to describe the business and furnish an inventory of its assets and
liabilities.
He concludes by stating incorrectly that the
Municipality did not have any of Rural’s assets.  This is
not true.
The undisputed allegation in Rural’s affidavit
shows that additions and improvements effected by Rural to the
infrastructure
were transferred to the Municipality.  These
included switchgears, poles, transformers, mini substations and
pre-paid meters
as well as electrical infrastructure mapping.
These assets were additional to what Rural had received and returned
to the
Municipality.
[84]
The Municipal Manager proceeds to
state that motor vehicles, cell phones, computers, laptops and
equipment were not handed over.
Furthermore, he complained that
debtor’s books were not given to the Municipality and that
contracts were also not ceded.
However, he does not specify
which contracts he was referring to.  He then drew an inference
that Rural’s business was
not transferred as a going concern.
[85]
What emerges from the Municipal
Manager’s statement in paragraph 47 is that he understood the
notion of a transfer of a business
as a going concern as it occurs in
mercantile law.  The assertion that “the meaning of a
business as a going concern
has a very specific meaning in mercantile
parlance” together with the averment that Rural should have
furnished an itemised
inventory of assets and liabilities reveal this
misconception.
[86]
But the Municipality raised other
defences as well.  These included the fact that the Municipal
Manager who signed the agreement
on its behalf had no mandate to bind
it and therefore the agreement was illegal.  It was also
asserted that the agreement
was a product of an improper relationship
between the erstwhile Municipal Manager and Rural.  Lastly, the
Municipality contended
that section 197 does not apply in
circumstances where a transfer occurred pursuant to an agreement
which is declared void
ab initio
(from the outset).
[87]
The contentions advanced by the
Municipality were rejected by Tlhotlhalemaje AJ in the Labour
Court.  With regard to the
submission that section 197 did
not apply because the transfer occurred in terms of an invalid
agreement, the Labour Court
invoked the decision in
Nokeng
Tsa Taemane
[46]
and held that the presence of a contractual link between the
transferor and the transferee is not a necessary pre-condition for

the application of section 197.
[88]
While the Labour Court accepted that
some of the assets of Rural’s business such as vehicles,
computers and administrative
equipment were not transferred, however,
it held that a transfer of business as a going concern had occurred.
The Labour
Court stated:
“
In
this case, the Municipality accepted that it had acquired the
obligation to provide electricity to its inhabitants. In this regard,

it can be accepted that the business transferred was the purchase of
electricity from Eskom as bulk supplier, the provision of
electricity
and related services to ratepayers, and most importantly, the entire
infrastructure to run the entire electricity network,
including
transmission and distribution.  That infrastructure as pointed
out in the Applicants’ replying affidavit included
substations,
switchgears, transformers, power lines, pre-paid vending systems,
metering equipment etc.  This infrastructure,
which was
transferred to the Applicants in a dilapidated state in 2011 was
returned back to the Municipality in a improved and
functional state
in April 2014.  Furthermore, it should be accepted that the
business transferred, will continue to serve
and service the same
clients that the Applicants used to service, being the inhabitants
that fall under the jurisdiction of the
Municipality.  Thus the
return of the infrastructure would enable the Municipality to
continue from where the Applicants left
off in providing the service
in question.”
[47]
[89]
Consequently, the Labour Court
declared that with effect from 1 April 2014 the employment contracts
of the affected employees were
transferred to the Municipality in
terms of section 197(2) of the LRA.  The Labour Court refused
leave to appeal but leave
was granted by the Labour Appeal Court.
Labour Appeal Court
[90]
Having considered foreign cases to
which it was referred, the Labour Appeal Court held:
“
It
is clear therefore that the overall assessment depends on an
examination of the totality of the business; in this case, the
business operated by Rural prior to the transfer.”
[48]
[91]
Proceeding from the premise that the
question whether there has been a transfer of business as a going
concern must be assessed
with reference to the business operated by
Rural before the transfer, the Labour Appeal Court held that
vehicles, computers and
administrative equipment, which the Labour
Court had regarded as peripheral assets, were used in the conduct of
the business by
Rural.  Without transfer of those assets, the
Labour Appeal Court held, it cannot be said that the same business
that was
conducted by Rural had been transferred and it was now
conducted by the Municipality.  The Court concluded that,
without debtor’s
books, the Municipality could not seamlessly
do the debt collection part of the business.
[92]
Accordingly, the Labour Appeal Court
held that a transfer of business as a going concern did not take
place and the appeal must
succeed.
[49]
The order of the Labour Court was set aside and replaced with an
order dismissing the application with costs.
[93]
It is now convenient to consider the
issues arising and in doing so I propose to begin with the question
whether a transfer as contemplated
by section 197 took place from
Rural to the Municipality.  But before doing so, I must dispose
of a preliminary issue.
That is whether section 197 applies to
a transfer to a municipality.  This issue was settled by the
Labour Court in
Nokeng Tsa Taemane
and
this Court in
City Power
.
The section does apply to transfers to municipalities.
[94]
In
City
Power
this Court affirmed that section
197 applies in these terms:
“
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.  No such agreement was
concluded between City Power and Grinpal”.
[50]
Transfer of businesses
[95]
Section 197(1) defines two words
which are crucial to the interpretation of the section.  These
words are “business”
and “transfer”.
The section provides:
“
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.”
[96]
It is quite plain that “business”
as defined carries a wide meaning.  The text proclaims that it
includes “the
whole or part of any business, trade, undertaking
or service”.  Therefore, the business contemplated in the
section
may be the whole or part of a business of any type, the whole
or part of a trade, the whole or part of an undertaking and the whole

or part of a service.  Although the section says “business”
includes the whole or part of a service, this Court
in
Aviation
Union
pointed out that this must be
understood to refer to the business entity that supplied the service
and not the service itself.
[97]
On this issue the minority said:
“
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.
”
[51]
[98]
And in similar vein the majority
stated:
“
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.
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.”
[52]
[99]
Indeed what is capable of being
transferred is the business or entity that provides a service and not
the service itself.
Put differently, a service is incapable of
providing another service.  Moreover, a service itself is not
capable of employing
workers.  Instead, they may be employed by
the transferor who provides a service through them to a consumer.
In this
context it is the transferor who transfers the business or
entity in which the workers are employed.  The focal point of
section 197(2)
is to protect the employment of the workers
through the hands of whom a service or goods are supplied.
Their contracts of
employment get transferred together with the
business or entity that provided a particular service.
[100]
With regard to “transfer”,
Aviation Union
tells us that:
“
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
affected by the old employer is at odds with the clear scheme of the
section.
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.
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.”
[53]
[101]
As the Labour Court observed here,
it is common cause that upon cancellation of the Electricity
Management Contract the Municipality
regained the right to purchase
bulk electricity from Eskom and assumed the responsibility to sell
the electricity to consumers
within its area.  In addition, the
whole infrastructure to operate the electricity supply, including
transmission and distribution
moved from Rural into the hands of the
Municipality.  This infrastructure included substations,
switchgears, transformers,
power lines, pre-paid vending systems and
pre-paid meters and other meters.
[102]
For its part, the Labour Appeal
Court found that Rural had returned to the Municipality the bulk of
the assets used in the acquisition
of electricity from Eskom and its
distribution to consumers.  The Court stated:
“
Notwithstanding
this pending action, Rural delivered an information pack to appellant
on 3 October 2014 containing a list of the
names of the 127 affected
employees, their employment contracts, an organogram of Rural’s
organisational structure together
with a proposed agreement in terms
of section 197 of the LRA. Rural then sought to transfer the 127
employees onto appellant’s
payroll. It returned to appellant
what it termed ‘possession of the Network and the Capital
Assets’; in other words
the electricity distribution
infrastructure
'
which
consisted largely of the properties, tools equipment and vehicles
that had been transferred by appellant to Rural in the first

place.”
[54]
[103]
Notwithstanding this finding, the
Labour Appeal Court held that it could not be said that there was a
transfer of business because
some of the assets were not
transferred.  This conclusion constitutes the sole foundation
that supported the order issued
by the Labour Appeal Court.  It
was articulated in these terms:
“
In
my view, given that the
onus
rests
upon the respondent to show, on the probabilities, that a transfer of
a business as a going concern had taken place, it cannot
be said that
the same business conducted by Rural had been transferred so that it
was now conducted by a different entity, namely
appellant.  Take
but one critical issue, debt collection.  For debt collection to
be continued seamlessly by appellant,
this component of the business
had been conducted by Rural, it was necessary to meter the use of
electricity, invoice the consumer
and collect payments there from.
Essential to this process would have been the use of software and
information stored and used
in digital form as had been employed by
Rural.  In short, the means to perform this debt collection
activity had not been
transferred. On its own, this was a significant
component of the overall business.  It supports the overall
assessment that
it cannot be said, on these papers, that the very
business conducted by Rural had been transferred to appellant.
Expressed
differently, appellant would not have been able to continue
business seamlessly after the ‘transfer’. For these
reasons,
the appeal must be upheld.”
[55]
[104]
The approach adopted by the Labour
Appeal Court is inconsistent with what was stated by this Court in
Aviation Union
with regard to determining whether there was a transfer of business.
There it was stated that transfer of business means
that the business
has changed hands or that it has moved from one person to the other.
On this issue the majority said:
“
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.
”
[56]
[105]
Here the answer to both questions
must be in the affirmative.  This much is clear from the facts.
The consequence of
the cancellation was that the Municipality
regained the right to acquire electricity from Eskom and that Rural
was obliged to return
to the Municipality the infrastructure and
other equipment necessary for receiving the bulk electricity and
distributing it to
consumers.  The fact that debt collection was
part of the business as operated by Rural did not detract from this
reality.
[106]
Moreover, the Labour Appeal Court
itself held that—
“
the
business conducted by Rural operated on two legs, namely the
provision of adequate infrastructure in order for residents to
be
supplied with electricity and the mechanism by which to generate
sufficient revenue for the supply of electricity by way of
an
adequate billing of consumers and collection of what was owed for the
supply of electricity”.
[57]
[107]
On that approach, Rural’s
business had two parts to it, namely the supply of electricity and
debt collection.  On facts
accepted by the Labour Appeal Court,
the assets were used in the supply part and that part of the business
passed on to the Municipality.
This constituted a transfer of
part of the business as contemplated in section 197(1) of the LRA.
Therefore, the Labour Appeal
Court erred in concluding that there was
no transfer because the debt collection part of the business could
not be operated seamlessly
by the Municipality.  That Court
overlooked the fact that section 197(2) was also triggered by
transfer of a part of
a business.
[108]
In any event the conclusion that
without the debtors’ books, it was impossible for the
Municipality to bill consumers and
collect payment is not supported
by the facts.  It will be recalled that what prompted
cancellation was the fact that the
Municipality had encouraged
consumers not to pay Rural for its supply of electricity and that
instead the Municipality issued invoices
and collected payments for
the electricity which was supplied by Rural.
Going concern
[109]
For section 197(2) to be activated,
it is not enough to prove that there was transfer of business from
one person to the other.
The transfer must have been of a
particular kind.  The business must have been transferred as a
going concern.
[110]
In
NEHAWU
this Court declared what the words “going concern” mean:
“
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.”
[58]
[111]
What requires emphasis from this
statement is the fact that the enquiry is factual.  There must
be objectively ascertainable
facts showing that the business does not
remain in the same hands but that it has changed hands.
[112]
The second issue that calls for
highlighting in evaluating the facts is that attention must be paid
to the substance and not the
form of the transaction.  Here
transaction does not denote an agreement between the parties but a
relationship that creates
rights for the transferee and obligations
for the transferor.  The obligation must require the transferor
to effect or allow
a transfer to happen and the transferee must
acquire the right to demand and receive the transfer.
[59]
[113]
The third issue that requires to be
stressed is that in determining whether a transfer of business as a
going concern has taken
place, a court must examine whether certain
factors were present.  These include whether assets, workers
and/or customers
were transferred and whether the same business is
being carried on by the transferee.
NEHAWU
was at pains to underscore that this list is not exhaustive and that
none of the factors is individually decisive.
[114]
What is important though is the fact
that the mentioned factors constitute guidelines to help a court that
undertakes an enquiry
on whether transfer as a going concern has
occurred.  As a guide it is therefore not necessary that all
assets or all workers
or all customers must have been transferred.
Moreover, sight must not be lost of the fact that all these factors
are guidelines
which should not be elevated to the level of mandatory
and rigid legal rules.  Instead they should be taken as possible
indications
which must be weighed up in the process leading up to a
conclusion.  Our courts are familiar with the process of
balancing
disparate factors in order to arrive at a particular
conclusion.  For example, various factors are taken into account
to determine
whether leave to appeal to this Court should be
granted.  None of them is decisive.  Here too the court
must at the conclusion
of the inquiry make a value judgement on
whether the presence of each or some of the factors sufficiently show
that a transfer
of the business as a going concern took place.
[115]
Here each of the factors mentioned
were present.  The bulk of assets were transferred.  It
bears repeating that it was
not necessary for all assets to be
transferred before this factor could be taken into account.  Nor
did the failure to transfer
some of the assets prove decisively that
no transfer as a going concern had occurred.  Notably, all
assets that were initially
transferred from the Municipality to Rural
were returned to the Municipality.
[116]
Some workers were to be transferred
from Rural to the Municipality.  The latter had indicated its
willingness to take over
the 16 employees who were originally
transferred from the Municipality to Rural.  All electricity
consumers within the area
of the Municipality were transferred back
to it.  The 121 000 households and 600 businesses could
only obtain their electricity
supply from the Municipality as from
1 April 2014.  Lastly, the Municipality as from that date
operated the business
of sourcing electricity from Eskom and
distributing it for a fee to consumers.  This was the same
business which Rural conducted
before 1 April 2014.  The
Municipality did not have to operate exactly the same business that
Rural carried out.
[117]
The fact that a transferor operates
an upscaled or downscaled version of the transferred business cannot
mean that the business
is different.  The scale at which a
transferred business was conducted may be influenced by a myriad of
reasons.  The
fact that one or more parts of it are discontinued
does not change the nature of the business.  Accordingly, the
Labour Appeal
Court erred in holding that the business which the
Municipality operated after 1 April 2014 was different from the one
that was
conducted by Rural.
[118]
The Labour Appeal Court’s
approach would render the test for determining whether there was a
transfer of business as a going
concern unworkable.  To
illustrate this point.  Take for instance a case where only part
of the workforce moves with
the business to the new owner and the
rest of the employees decline to work for the new owner.  In law
they are entitled to
decline.  Another example is where, after
the transfer, some of the customers stop supporting the business and
procure their
goods or services from a third party.  In both
instances the transferor and the transferee have no control over the
issues.
Coming close to what occurred here, where the
transferor used rented assets to run the business, can it be said
that there was
no transfer contemplated in section 197(2) if she is
unable to transfer all assets to the transferee.  In all these
instances,
the answer must be that there was such a transfer if the
conspectus of the facts supports that conclusion.
[119]
Yet here the Labour Appeal Court
approached the matter on the footing that the failure to transfer all
assets was individually decisive
of the question.  The
withholding of those assets alone meant, in the opinion of that
Court, that there was no transfer of
a business as a going concern.
This constitutes a misapplication of the test laid down by this Court
in
NEHAWU
.
According to that test none of the relevant factors is individually
decisive.  So even if the factor, and not part
of it, is
entirely absent, there may still be a transfer as a going concern.
Here the absence related to part of the assets
only.
Validity of contract
[120]
The Municipality persisted in the
argument that section 197 did not apply to the present transfer
because the underlying agreement
was void
ab
initio
(from the outset)
.
It was submitted that the agreement was void because the Municipal
Manager who signed it was not authorised by the Municipality
and that
Rural did not have the necessary licence to supply electricity.
In addition, it was concluded that the question
whether the agreement
was void
ab initio
or was once valid but later cancelled is pending before the High
Court.  Consequently, argued the Municipality, this Court
cannot
now determine whether section 197 applies until the validity of the
agreement is decided by the High Court.
[121]
Implicit in this argument is the
proposition that for section 197 to apply, there must be a valid
agreement in terms of which the
transfer was effected.  I
disagree.  The issue that is pending before the High Court
relates to the validity of the agreement
and has no bearing on the
reach of section 197.  It is simply irrelevant.  This is
because section 197(2) in its text
does not prescribe that it applies
only where the transfer is effected in terms of a valid agreement.
In other words, the
scope of the section is not determined, nor is it
limited by the validity of an agreement.
[122]
Section 197(2) provides:
“
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.
”
[123]
The section lists four consequences
that flow from the transfer of a business as a going concern.
These consequences include
an automatic replacement of the workers’
employer by the transferee who assumes all rights and obligations of
the transferor
under the employment contracts, which the transferor
had with the employees of the transferred business.
[124]
In determining the reach of the
section, closer attention must be paid to the opening words of
section 197(2).  In plain language
the section deals with two
issues in those opening words.  These issues are arranged in the
form of a general norm and an
exception.  The norm is that
wherever a transfer of business takes place, the enumerated
consequences follow as matter of
law.  This norm is depicted by
the phrase “if a transfer of a business takes place”.
[125]
In contrast the exception is defined
by the words “unless otherwise agreed in terms of subsection
(6)”.  Properly
construed, this part of the section means
that if the transferor and transferee wish that the consequences of
section 197(2) be
excluded, they should conclude an agreement in
terms of section 197(6).  As this Court observed in
City
Power
, that agreement must be in
writing and must be concluded by the transferor and transferee on the
one hand and any person or union
the employers are obliged to consult
in terms of section 189 of the LRA, on the other hand.
Consequently it is
only an agreement envisaged in section 197(6) that may exclude the
operation of section 197(2) and the consequences
that flow from it.
[126]
To construe the section otherwise
and subjecting its application to the validity of the underlying
agreement would seriously undermine
its purpose.  The objective
of the section is to preserve employment when business exchanges
hands.
[60]
It alters the common law position which terminated employment upon
transfer of business.
[61]
[127]
I agree with the Labour Court here
and also in
Nokeng Tsa Taemane
that
the existence of a contract is not a pre-condition for the
application of section 197(2) in a particular case.  The section

may apply even in circumstances where the transfer is based on a
different legal arrangement.  What activates the application
of
the section is the transfer of business as a going concern and not
the reasons underlying the transfer.
[128]
For these reasons, I would grant
leave, uphold the appeal with costs and set aside the order of the
Labour Appeal Court.
ZONDO J (Mogoeng
CJ and Bosielo AJ concurring):
Introduction
[129]
The main question for determination
in this matter is whether there was a transfer of business as a going
concern in terms of section
197 of the Labour Relations Act
[62]
(LRA) from Rural Maintenance (Pty) Limited (Rural) to the
Maluti A Phofung Local Municipality (Municipality) on
1 April 2014.
If there was, then all Rural’s
employees who were employed in that business at the time of the
transfer became employees
of the Municipality with effect from that
date.  The dispute between the parties is whether such a
transfer of business did
take place.
[130]
Rural contends that a transfer of
business as a going concern did take place from itself to the
Municipality and that, as a result
thereof, all 127 employees that
were employed in the business became employees of the Municipality.
The Municipality contends
that no such transfer of business occurred
and, therefore, no employee of Rural became an employee of the
Municipality by reason
of that transfer of business.
Nevertheless, the Municipality is prepared to accept 16 of the
127 employees into its
employ but not the rest.  The 16
employees had previously been in its employ until 1 September 2013
when Rural became
their employer following a transfer of business as
a going concern from the Municipality to Rural.
[131]
The Labour Court decided that there
had been a transfer of business as a going concern from Rural to the
Municipality and that,
therefore, all the 127 employees became
employees of the Municipality.  On appeal the Labour Appeal
Court decided that there
was no transfer of business as a going
concern and, therefore, Rural’s 127 employees did not
become employees of the
Municipality with effect from 1 April 2014.
This meant that even the 16 employees who had previously been in the

Municipality’s employ and had become employed by Rural upon the
transfer of business as a going concern from the Municipality
to
Rural remained employees of Rural.
[132]
I have had the opportunity of
reading the judgment by my Colleague, Froneman J (first
judgment) and the judgment by my Colleague,
Jafta J (second
judgment).  The first judgment does not only hold that there was
no transfer of business as a going concern
but it concludes that even
leave to appeal should be refused.  The second judgment
concludes not only that leave to appeal
should be granted but also
holds that there was a transfer of business as a going concern from
Rural to the Municipality and that,
consequently, the 127 employees
of Rural became employees of the Municipality.  It, accordingly,
upholds the appeal and sets
aside the decision of the Labour Appeal
Court and restores the order of the Labour Court.
Background
[133]
The facts of this matter have been
sufficiently set out in the first and second judgments.
[63]
For that reason, I will not set them out here.
Jurisdiction
[134]
I agree with the second judgment
that this matter raises constitutional issues and that, therefore,
this Court has jurisdiction.
Leave to appeal
[135]
For the reasons given in the second
judgment, I agree that:
(a)
this matter raises important issues;
(b)
there are reasonable prospects of success;
and
(c)
it is in the interests of justice that
leave to appeal be granted.
The appeal
[136]
I agree with the second judgment
that:
(a)
there was a transfer of business as a going
concern from Rural to the Municipality; and
(b)
the appeal should be upheld and the
decision of the Labour Appeal Court set aside and that of the Labour
Court restored.
I set out my reasons
below.
Was there a transfer of
business from Rural to the Municipality?
[137]
Section 197(1) reads:
“
(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.”
The definition of the
word “business” is such that, when one speaks of a
business, one would also be speaking of a part
of a business.
The word “transfer” has a special meaning given in its
definition.  It does not bear its
ordinary meaning.  It
means the transfer of a business by one employer (the old employer)
to another employer (the new employer)
as a going concern.
[138]
Section 197(2)(a) and (d) reads:
“
(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;
. . .
(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.”
[139]
It is trite that purposive
interpretation is the correct approach in interpreting the LRA.
The purpose of the LRA is the advancement
of economic development,
social justice, labour peace and the democratisation of the workplace
by fulfilling the primary objects
of the LRA as set out in section
1.  One of these primary objects is giving effect to and
regulating the right to fair labour
practices as enshrined in
section 23 of the Constitution.
[140]
In the interpretation and
application of section 197, it is important that the primary purpose
of the section be borne in mind at
all times.  The primary
purpose of section 197 is the protection or safeguarding of the
rights of employees whenever
there is a transfer of business as a
going concern from one employer to another.
[64]
The principle upon which section 197 is based is that, whenever
a business in which workers are employed is transferred
as a going
concern from one employer to another, the workers go with the
business.  This avoids the loss of jobs that used
to result from
transfers of businesses prior to the current LRA.  The
transferor ceases to be the employees’ employer
and the
transferee becomes their employer, with full recognition of their
years of service, benefits and other terms and conditions
of
employment unless there has been an agreement in writing as envisaged
in section 197(2) read with subsection (6).
[141]
Our section 197 was inspired by
[65]
instruments such as the Acquired Rights Directive 77/187/EEC of the
European Union (EU Directive) and the Transfer of Undertakings

(Protection of Employment) Regulations, 1981 (TUPE Regulations).
[66]
Indeed, the provision shares a number of features with those
instruments.
[67]
It, therefore, makes sense that, while mindful of the difference in
language between section 197 and those instruments
and the legal
context in which each occurs, our courts should seek to benefit from
the jurisprudence of other courts, particularly
the European Court of
Justice, as those courts’ interpretation of those instruments
may be helpful in interpreting our section 197.
[68]
In dealing with the interpretation of the EU Directive and the
TUPE Regulations, the European Court of Justice and other
courts
have, time and again, emphasised that the purpose of the instruments
is to safeguard the rights of employees in the event
of a transfer of
a business.
[69]
[142]
In
Spijkers
the European Court of Justice held that the test for determining
whether there is a relevant transfer is whether the entity in

question retained its identity after the transfer.  To determine
this, a court must have regard to all relevant factors surrounding

the transaction.  The European Court of Justice said:
“
It
is clear from the scheme of Directive No 77/187 and from the terms of
Article 1(1) thereof that the directive is intended
to ensure
the continuity of employment relationships existing within a
business, irrespective of any change of ownership.
It follows
that the
decisive criterion for
establishing whether there is a transfer for the purposes of the
directive is whether the business in question
retains its identity
.
Consequently,
a transfer of an undertaking, business or part of a business does not
occur merely because its assets are disposed
of.  Instead it is
necessary to consider, in a case such as the present,
whether the
business was disposed of as a going concern, as would be indicated,
inter alia, by the fact that its operation was actually
continued or
resumed by the new employer, with the same or similar activities
.
In
order to determine whether those conditions are met, it is necessary
to consider
all the facts characterising
the transaction in question
, including
the type of undertaking or business, whether or not the business’s
tangible assets, such as buildings and movable
property, are
transferred, the value of its intangible assets at the time of the
transfer, whether or not the majority of its employees
are taken over
by the new employer, whether or not its customers are transferred and
the degree of similarity between the activities
carried on before and
after the transfer and the period, if any, for which those activities
were suspended.  It should be
noted, however, that all those
circumstances are merely single factors in the overall assessment
which must be made and
cannot therefore
be considered in isolation
.”
[70]
This test has been
applied and confirmed in various decisions by the European Court of
Justice
[71]
as well as in decisions of the English Courts.
[72]
What is common in the cases set out above is that the court must take
into account “all relevant factors” when
deciding whether
there has been a transfer of a business as a going concern –
i.e. whether the entity retained its identity.
[143]
In
Kelman
it was said that the crucial question
is whether the entity remains identifiable (although not necessarily
identical) after the
alleged transfer.  In the context of an
entity that was only concerned with the provision of services, the
Employment Appeal
Tribunal held that there could be a relevant
transfer even though there was no transfer of assets.  Mummery J
said in part:
“
A
line of decisions of the Court of Justice on Directive 77/187/EEC
culminating in
Schmidt
[1994] IRLR 302
establishes that the decisive criterion for
determining whether there has been a transfer of an undertaking is
whether, after the
alleged transfer, the undertaking has retained its
identity, so that employment in the undertaking is continued or
resumed in the
different hands of the transferee.  In order to
determine whether there has been a retention of identity it is
necessary for
the industrial tribunal to examine all the facts
relating both to the identity of the undertaking and the relevant
transaction
and assess their cumulative effect, looking at the
substance, not at the form, of the arrangements.  The mode or
method of
transfer is immaterial.
The
emphasis is on a comparison between the actual activities of and
actual employment situation in an undertaking before and after
the
alleged transfer.  A change of employer responsible for the
activities of an undertaking which continues to be identified
will
usually mean that there has been a relevant transfer.
The cumulative effect of the decisions on the Directive is that a
transfer of an undertaking may occur for the purposes of
the
Directive even though . . .
there has
been no transfer of the ownership of assets, tangible or intangible.
. . .  What matters is the transfer of responsibility
for the
operation of the undertaking in which the employees were employed.
”
[73]
I draw special
attention to the last sentence in this passage.
[144]
In the present case, the
Municipality has admitted that there was a transfer from Rural to
itself of the responsibility to provide
all electricity related
services to its inhabitants.  The deponent to the Municipality’s
answering affidavit, Mr Tomo
Charles Taetsane, says:
“
Whilst
I admit that the Municipality has acquired the obligation to provide
electricity to its inhabitants (an obligation that previously
would
have rested on Rural had the contract been valid) such does not mean
that the acquisition of an obligation translates into
the acquisition
of a business.”
[145]
In
Kenmir
,
[74]
too, it was said that the absence of a transfer of certain assets is
not necessarily conclusive of a relevant transfer not having

occurred, if in the particular circumstances, the transferee was able
to carry on substantially the same business as before the
transfer.
The Court said:
“
In
deciding whether a transaction amounted to the transfer of a
business,
regard must be had to its
substance rather than its form
, and
consideration must be given to the whole of the circumstances,
weighing the factors which point in one direction against those
which
point in another. . . .  The
absence
of an assignment of premises, stock-in-trade or outstanding contracts
will likewise not be conclusive, if the particular
circumstances of
the transferee nevertheless enable him to carry on substantially the
same business as before
.”
[75]
[146]
In
Oy
Liikenne
, it was said that a court must
determine what is essential and indispensible for the entity to carry
on operating and whether such
has been transferred to the
transferee.  The court will also need “to assess the
respective importance to be given”
to the separate
factors.
[76]
In order to do this it should look at what “characterises, or
what distinguishes, the economic entity which was the
subject of the
operation in question”.  The European Court of Justice
held that two conditions must apply in order for
the identity of the
undertaking to have been maintained after the transfer:
“
First,
the transferee must carry on the same economic activity as was
carried on by the transferor before the transfer, or a similar

activity.  This first condition can be defined as the ‘identity’
of the activity.
Secondly,
there must have been the transfer of the means necessary to undertake
the activity in question, or of the means required
to operate it,
having regard to the nature of the entity transferred.  This
second condition can be defined as the ‘identity’
of the
entity.
. . .
The
national court must therefore determine which are the essential and
indispensable elements required in order for the economic
entity to
carry on operating and establish whether these elements have been
taken over by the transferee.”
[77]
[147]
It was further held in
Oy
Liikkenne
that where an entity exists
“without having any significant assets, tangible or intangible,
the maintenance of its identity
following a transfer affecting it
cannot, logically, depend on the transfer of such assets”.
[78]
However, where an entity “comprises significant assets which
are indispensable to its operation, the absence of any
transfer of
those assets” usually indicates that there could not have been
a relevant transfer.  In
Brintel
Helicopters
it was held that “in
the service industry tangible assets may be unimportant or possibly
non-existent”.
[79]
What is important is “whether, having regard to all the
circumstances, the economic entity identified prior to the
transfer
can be found after the transfer”.
[80]
[148]
In
NEHAWU
this Court provided the test for determining whether in a particular
case it can be said that a transfer of business as a going
concern
has occurred.  It said:
“
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.”
[81]
(footnotes omitted)
This Court went on to
say that each transaction must be considered on its own merits,
regard being had to the circumstances of the
transaction in
question.
[82]
In
Aviation Union
this Court made it clear, after referring to the above passage, that
it did not intend to supplant the
NEHAWU
test.
[83]
[149]
In
Rask
the European Court of Justice said:
“
On
the one hand, the decisive criterion for establishing whether there
is a transfer within the meaning of the Directive is whether
the
business retains its identity, as would be indicated, in particular,
by the fact that its operation was either continued or
resumed.
On the other hand, in
order to determine whether those conditions are fulfilled, it is
necessary to consider all the factual circumstances
characterising
the transaction in question, including the type of undertaking or
business concerned, whether the business’s
tangible assets,
such as buildings and movable property, are transferred, the value of
its intangible assets at the time of the
transfer, whether or not the
majority of its employees are taken over by the new employer, whether
or not its customers are transferred
and the degree of similarity
between the activities carried on before and after the transfer and
the period, if any, for which
those activities are suspended.  It
should be noted, however, that all those circumstances are merely
single factors in the
overall assessment which must be made and
cannot therefore be considered in isolation.”
[84]
[150]
In the present case we are dealing
with a situation where the outsourcee cancelled the agreement between
the parties as a result
of the outsourcer’s repudiation of the
agreement and transferred the business back to the outsourcer and the
dispute is whether
there was a transfer of business as a going
concern.  In
Landsorganisatioen I
Danmark
the European Court of Justice
held that the EU Directive applied and there could be a transfer as
contemplated by the EU Directive
where the owner of a tavern who had
leased it to someone else took it back and resumed running it as a
result of a breach of the
lease by the lessee.
[85]
[151]
The issue whether, after Rural had
accepted the repudiation of the Municipality and returned to the
latter certain assets including
the electricity infrastructure, a
transfer of business as a going concern occurred must be determined
within the whole context
of what happened.  That context
includes that, as a matter of fact – as opposed to a matter of
law – there was
an agreement between Rural and the Municipality
in terms of which Rural had taken over the Municipality’s
obligation to provide
all electricity related services to the
residents of the Municipality and had also taken 16 of the
Municipality’s workers.
The Municipality says that that
agreement was void from the beginning.  Whether or not that
agreement was valid in law is
another question.
[152]
Whether or not there was a transfer
of business as a going concern from the Municipality to Rural and
from Rural to the Municipality
is not dependent on the validity of
that agreement.  The question is whether what occurred –
within the context in which
it happened – constituted a
transfer of business as a going concern as contemplated in
section 197.  If it did,
the consequences set out in
section 197(2) followed.  If it did not, those consequences
did not follow.  If a transfer
of business as a going concern
occurred, that remains the position even if it may be found that the
transfer is the product of
an invalid agreement.  That is in
part because, although most of the time a transfer of business as a
going concern will come
about as a result of an agreement between the
transferor and transferee, such an agreement is not a prerequisite
for a transfer
of business.
[153]
In the present case, one cannot wish
away the fact that Rural and the Municipality entered into an
agreement that envisaged that
Rural would take over from the
Municipality the responsibility of providing all electricity related
services to the Municipality’s
inhabitants and that at some
stage in the future that responsibility would be transferred back to
the Municipality.
[154]
It is important to understand
certain terms that are defined in the agreement because, when Rural
uses those terms in its founding
affidavit, it uses them on the
understanding that they carry the same meaning attached to them in
the agreement.  If one does
not understand the meaning of those
terms in the agreement, one could misunderstand Rural’s case.
[155]
The preamble to the agreement is to
the effect that the Municipality wished “to appoint a service
provider in respect of the
Project” and the Municipality
acknowledged Rural as having “the requisite experience and
expertise to successfully
plan, operate and execute the Project”.
The term “Project” was defined as meaning: “the
management,
operation, administration, maintenance and
expansion
of the Network,
inclusive of the
revenue management process and the implementation of a regional or
local electrification programme within the
Municipal boundaries as
set out in the Distribution Licence”.  From this we can
see that the Municipality effectively
asked Rural to even expand “the
Network” – which Rural agreed to do.  What is the
“Network”
that Rural was required to expand?
[156]
The term “the Network”
is defined in the agreement as meaning: “the Municipal
Electricity Distribution Network
within the boundaries of the
Municipality”.  The term “Distribution” is
defined as meaning: “the conveyance
of electricity at low,
medium and high voltages (275kV and below) for sale to end users, and
‘Distribute’ and ‘Distributing’
shall have a
similar meaning”.  The term “the Network Business”
is defined as meaning: “the business
(existing prior to the
Take Over Date) of management, operation, administration,
maintenance and expansion of the Network,
inclusive of the revenue
management process and the implementation of a regional or local
electrification programme within the
boundaries of the
Municipality”.  The term “Capital Assets” is
defined as meaning: “the Operational
Capital Assets referred to
in clause 7.3 and the Network”.  Clause 7.3 reads: “Rural
shall be entitled to make
use of the whole or part of the existing
properties, tools, equipment and vehicles (“Operational Capital
Assets”) of
the Municipality currently utilised by the
Municipality’s electricity department”.
[157]
The term “Equipment” is
defined as meaning: “the installed and operational electricity
equipment and assets invested
into by Rural as per the provisions of
clause 9.5 below”.  Clause 9.5 reads:
“
All
Equipment installed by Rural for the operation and management of the
Network shall be for the account of Rural and shall remain
the
property of Rural until termination of the Agreement as per clause 15
below.  The provisions hereof shall apply notwithstanding
the
installation of such Equipment on the Municipal premises or the
accession thereof to any of the Municipal assets or that the

equipment may be incorporated into or form part of other goods or
change their essential character.  All Equipment, whether
fixed
to immovable property or not, shall be deemed to remain movable
property and be deemed to be severable without injury to
either
property.”
The term “Initial
assets” means “the Network and related assets owned and
paid for by the Municipality prior to
the Take-Over Date, the
ownership of which shall remain vested in the Municipality”.
The term “Services”
refers to “all matters
pertaining to the management and execution of the Project”.
[158]
Rural’s founding affidavit in
the Labour Court was deposed to by Mr Bester.  Mr Bester refers
to various clauses of the
agreement and says that it is self-evident
from the terms of the agreement that:
-
Rural would be responsible for the
entire Network Business (essentially the provision of all electricity
related services to the
inhabitants of the Municipality’s
jurisdictional area) which, prior to the implementation of the
agreement, was the responsibility
of the Municipality.
-
Rural and the Municipality intended
that the transfer of the Network Business from the Municipality to
Rural would be a transfer
in terms of section 197.
-
Rural had onerous obligations under
the agreement and was subject to strict performance objectives.
-
Rural and the Municipality intended
for Rural to employ and train sufficient staff to meet the strict
performance objectives imposed
on it.
-
Rural would use the existing Network
and Capital Assets to perform the services, would make substantial
capital investments to maintain
and upgrade the Network and would
utilise the services of certain employees of the Municipality to
operate the Network Business,
being the employees who operated the
Network Business whilst employed by the Municipality and who would
cease employment with the
Municipality and would become employees of
Rural.
-
Upon the termination or the
cessation of the agreement, the Network Business would revert to the
Municipality to operate the Network
Business (i.e. provide all
electricity related services to the inhabitants of the Municipality’s
jurisdictional area) as
it had been doing prior to the implementation
of the agreement.
The Municipality only
denies these averments in so far as they may be in conflict with what
it had said in other parts of its affidavit.
To a large extent
in those other parts of its affidavits the Municipality was saying
nothing more than that there was no transfer
of business as a going
concern from Rural to the Municipality.
[159]
Mr Bester says in Rural’s
founding affidavit that, before 1 September 2013, the
Municipality had been rendering—
“
the
management, operation, administration, maintenance and expansion of
the Municipal electricity distribution network within the
boundaries
of the Municipality inclusive of the revenue management process and
the implementation of a regional or local electrification
programme
within the boundaries of the Municipality (essentially the provision
of all electricity related services to inhabitants
of the
Municipality’s jurisdictional area).”
He then says that
with effect from 1 September 2013 Rural “commenced
rendering the aforesaid business / service”.
Mr Bester
makes these averments in paragraph 17.1 of Rural’s founding
affidavit and the Municipality does not dispute any
of them.
Mr Bester goes on to say that “[t]he aforesaid activity
constitutes a ‘business’ or ‘a
service’ as
envisaged in terms of Section 197(1) of the LRA”.  The
Municipality has not disputed this averment
either.
[160]
From what Mr Bester says in
paragraphs 17.1 and 17.2 of Rural’s founding affidavit, we know
exactly what the “business”
is that the Municipality was
“running” prior to 1 September 2013.  In
paragraph 17.1 Mr Bester says
that a transfer of business as a going
concern took place from the Municipality to Rural with effect from
1 September 2013.
The Municipality does not dispute
this save in so far as it says in effect that the agreement, valid or
invalid, did not trigger
the operation of section 197.  The
Municipality does not substantiate this assertion.
[161]
Mr Bester also said in paragraph
17.1 that, with effect from 1 September 2013, Rural
commenced rendering the aforesaid
business or service which the
Municipality had outsourced to it.  From this statement –
which the Municipality does
not dispute – we know that, with
effect from 1 September 2013 Rural began rendering the same
service to the inhabitants
of the Municipality that the Municipality
had been rendering before 1 September 2013.  That
service is that of the
management, operation, administration,
maintenance and expansion of the municipal electricity distribution
network within the boundaries
of the Municipality inclusive of the
revenue management process and the implementation of a regional or
local electrification programme
within the boundaries of the
Municipality.  Mr Bester says that all of this refers
essentially to the provision of all electricity
related services to
the inhabitants of the Municipality.  This means that we know
exactly what business was transferred from
the Municipality to Rural
and what “business” Rural continued between
1 September 2013 and 1 April 2014.
[162]
Mr Bester goes on to say that with
effect from 1 April 2014 Rural ceased to render the
services referred to above, i.e.
the services that he said
essentially constitute the provision of all electricity related
services to the inhabitants of the Municipality.
Mr Bester goes
on to say that “the aforesaid services will be rendered, and is
now being rendered, by the Municipality”.
Once again, the
service that Mr Bester says was already being rendered by the
Municipality is the same service Rural had been rendering
between
1 September 2013 and 1 April 2014.  The
Municipality does not dispute that Rural stopped providing
these
services with effect from 1 April 2014 and that,
thereafter, it is the Municipality that provided these services
to
its inhabitants.  Mr Bester concludes that the “business
or service that was initially transferred from the Municipality
to
Rural . . . has reverted back, or has transferred back to the
Municipality”.  He says that, alternatively, a new

transfer of a business in its own right has taken place from Rural to
the Municipality.  The Municipality disputes this conclusion.
[163]
Mr Bester refers to the answering
affidavit of the Municipality filed in the Labour Court to oppose an
application brought by the
South African Municipal Workers Union
(SAMWU) to interdict the implementation of the agreement.  He
then says that in that
affidavit—
-
the Municipality acknowledged that
the take-over by Rural of the Network Business triggered the
operation of section 197;
-
the Municipality acknowledged
further that certain employees of the Municipality would be
transferred to Rural pursuant to the provisions
of section 197.
[164]
Mr Bester concludes in paragraph
45.3 that a transfer of a business (a service) (i.e. the Network
Business – the provision
of all electricity related services to
the inhabitants of the Municipality’s jurisdictional area) as a
going concern as envisaged
in terms of section 197 took place
from the Municipality to Rural.  There is no effective challenge
to this averment
by the Municipality.
[165]
Mr Bester also states that—
“
[t]he
entire Network Business relating to all aspects of the Project, ie.
the provision of all electricity related services to the
inhabitants
of the Municipality’s jurisdictional area, has reverted back to
and has been taken over by the Municipality and
is already under the
control of the Municipality and possession of the Network and the
Capital Assets have already been returned
to the Municipality.”
The
Municipality does not deny this averment.  The reference to
“Capital Assets” is a reference to the Operational

Capital Assets referred to in clause 7.3 of the agreement and
the Network.  In clause 7.3 the Operational Capital Assets
are
defined as “the whole or part of the existing properties,
tools, equipment and vehicles of the Municipality” that
were
utilised by the Municipal electricity department at the time of the
conclusion of the agreement.  The Network had also
been
returned.  The Network is defined in the agreement as “the
Municipal Electricity Distribution network within the
boundaries of
the Municipality”.
[166]
Mr Bester also states that—
“
[t]he
entire electricity distribution infrastructure of the Municipality
that Rural and Rural Free State were in control of and
utilised (and
maintained and upgraded) for the provision of all electricity related
services to inhabitants of the Municipality’s
jurisdictional
area, as the Municipality had previously done, are no longer under
the control of Rural and Rural Free State and
has been handed back,
together with
the additions and
improvements thereto
effected
by Rural and Rural Free State, to the Municipality.”
The Municipality does
not deny this averment.  Mr Bester adds: “The bulk of the
steps in the handover process have already
taken place”.  The
Municipality does not deny this averment either.  Mr Bester also
states that—
“
[t]he
very same Network Business
will continue, and
has continued, in the
hands of the Municipality with effect from 1 April 2014
and, as the Municipality had been doing prior to the implementation
of the agreement,
the Municipality is
once again providing all electricity related services to inhabitants
of the Municipality’s jurisdictional
area.
”
This averment is also
not denied by the Municipality.  This means that the
Municipality accepts the averment that after 1 April 2014

it effectively rendered the services which Rural had been rendering.
[167]
At this stage it is important to
point out that when Mr Bester refers to “Network Business”
in the passage in the preceding
paragraph, he is referring to the
Network Business as defined in the agreement.  That definition
refers to “the management,
operation, administration,
maintenance and expansion of the Network inclusive of the revenue
management process and the implementation
of a regional or local
electrification programme within the boundaries of the
Municipality”.  That is the same as the
business that
Rural took over from the Municipality.  Indeed, it is the same
business that Rural had been conducting or the
same service that
Rural had been rendering to the inhabitants of the Municipality
between 1 September 2013 and 1 April 2014.

The passage quoted in the preceding paragraph means that from
1 April 2014 the Municipality was providing all the
electricity
related services to its inhabitants that Rural had been
providing between 1 September 2013 and 1 April 2014.
[168]
Mr Bester further states that—
“
[t]he
entire customer base of approximately 121 095 households and 597
businesses must now be served by the Municipality for
which they need
the affected employees.  It is impossible for the Municipality
to render the aforesaid Services to the aforesaid
households and
businesses without the affected employees.”
This is not denied by
the Municipality.  Mr Bester also says that the business –
which is the provision of all electricity
related services to the
inhabitants of the Municipality’s jurisdictional area –
“remains the same after the transfer
but in different hands”.
This is not denied by the Municipality.  He goes on to say that—
“
the
residents (households and businesses) to whom Rural and Rural Free
State provided all electricity related services are the same
that the
Municipality will provide all electricity related services to and has
been providing to since 1 April 2014 (the
same residents
that the Municipality provided all electricity related services to
prior to the implementation of the agreement)
and such residents
retain the same needs.”
[169]
Finally, Mr Bester states:
“
The
same Capital Assets and infrastructure that Rural and Rural Free
State utilised (and maintained and upgraded) to provide all

electricity related services to inhabitants of the Municipality’s
jurisdictional area will be utilised by the Municipality
and since
1 April 2014 are being utilised by the Municipality to
provide all electricity related services.”
In addition, Rural
had used the Operational Capital Assets of the Municipality in
rendering all electricity related services to
the Municipality’s
inhabitants.  The Operational Capital Assets were the existing
properties, tools, equipment and vehicles
of the Municipality which
had been used by the Municipality’s electricity department
before 1 September 2013.
Obviously, with effect from
1 April 2014 when Rural transferred the business back to
the Municipality, the Municipality
began to utilise the operational
Capital Assets as well to render all electricity related services.
[170]
Although it is true that Rural did
not transfer certain assets to the Municipality, those were not
assets that the Municipality
had made available to Rural to use.
Furthermore, the fact that in a certain transaction certain assets
have not been transferred
does not, generally speaking, on its own
preclude a transaction from being a transfer of business as a going
concern.  The
Municipality seems to think that all assets must
be transferred before one can speak of a transfer of business as a
going concern.
[171]
Mr Bester makes it clear in his
affidavit what it is that Rural required in order to provide all the
electricity related services
to the inhabitants of the Municipality.
He says Rural needed to be in control of and to utilise “the
entire electricity
distribution infrastructure of the Municipality”
which Rural had maintained and upgraded.  He puts it thus in
paragraph
79:
“
The
entire electricity distribution infrastructure of the Municipality
that Rural and
Rural Free State were in
control of and utilised (and maintained and upgraded)
for
the provision of all electricity related services to inhabitants of
the
Municipality’s jurisdictional
area, as the Municipality had previously done. . . .”
[172]
Mr Bester even says that, when Rural
handed the entire electricity distribution infrastructure, referred
to in the above passage
back to the Municipality, it did so “together
with the additions and improvements thereto effected by Rural and
Rural Free
State . . .”.  Nowhere in its answering
affidavit does the Municipality dispute what Mr Bester says in
paragraph 79.
In paragraph 89 Mr Bester also states:
“
The
same Capital Assets and infrastructure that Rural and Rural Free
State utilised (and maintained and upgraded) to provide
all
electricity related services
to
inhabitants of the Municipality’s jurisdictional area will be
utilised by the Municipality and since 1 April 2014 are
being
utilised by the Municipality to provide all electricity related
services.”
Rural said that the
assets that it did not transfer to the Municipality were not
essential for the provision of all the electricity
related services
that the Municipality had to provide and which Rural had been
providing.  Rural said that they were peripheral.
The
Municipality did not show how and why those assets were essential for
the rendering of the electricity related services.
[173]
Rural points out that it incurred
considerable expenditure in respect of the purchase of network
materials such as—
-
switch gears, poles, transformers,
mini substations and prepaid meters, and, the purchase of 17 new
light commercial vehicles totalling
R13 523 766,51;
-
two specialised trucks being an
Iveco 4x4 Live Line Truck and an Iveco 6x6 drill rig totalling
R7.5 million;
-
electrical infrastructure mapping
(i.e. the compiling and recordal of the Municipality’s
electrical distribution infrastructure);
the mapping of townships
within the geographical area of the Municipality; software systems in
regard to the electricity metering,
billing, collection, customer
care, fault desk, call centre, technical services and the like;
salaries, legal costs, travel costs,
technical investigations, and
financial investigations and feasibility study costs totalling
R69 987 804,00; and
-
immovable property in Harrismith to
be used to construct offices for Rural’s employees and staff
accommodation.  Rural
says that the total cost of the immovable
property including construction would be about R5 million.
The Municipality does
not deny any of these averments.
[174]
Mr Bester also states that enormous
capital and infrastructure investment was required to remedy the
situation that resulted from
the Municipality’s failure to
properly maintain its electricity distribution infrastructure and
prevent the collapse of its
failing electricity supply network.
He states that this necessarily required the employment of a
sufficiently large and capable
workforce to properly manage the
Network Business.  Mr Bester adds that at all times the
Municipality was aware of the extent
to which Rural had to increase
the workforce to manage and operate the Network Business and it was
considered justified having
regard to the size of the community that
had to be served, the critical status of the infrastructure and the
overall risk to the
public as a whole.  None of these averments
is denied by the Municipality.  All the deponent to its
answering affidavit
says is that these averments are irrelevant and
that, “when all of this took place”, he was the Director
of Sport in
the Municipality and had no personal knowledge of
electricity issues at the time.
[175]
Mr Bester states that during the
period from 1 September 2013 to 1 April 2014
Rural and Rural Free State “employed
various persons, the
majority being from the local community and allocated prior appointed
employees, to the Network Business to
enable them to effectively
perform the Services”.  Mr Bester then points out that the
affected employees who consisted
of the “(15) employees who
were previously employed by the Municipality and became employed by
Rural Free State as well as
additional employees employed by Rural
and Rural Free State, were dedicated to rendering the services in
respect of the Network
Business to enable Rural to meet the
performance objectives imposed on it in terms of the Agreement”.
Mr Bester states
that “[t]hese employees’ functions and
duties related solely to rendering the Services in respect of the
Network Business,
i.e. solely to the rendering of all electricity
related services to inhabitants of the Municipality’s
jurisdictional area,
and all such employees were permanently employed
in the business”.  Later on, Mr Bester states that all
“the affected
employees [who] became permanently employed in
the Network Business were integral to and were solely dedicated to
conducting the
Network Business and the provision of the Services”.
[176]
A reading of the Municipality’s
answering affidavit in the Labour Court reveals that the
Municipality’s main difficulty
with the proposition that there
was a transfer of business as a going concern from Rural to the
Municipality is the notion that
the Municipality would suddenly have
many additional workers on its payroll – workers which the new
Municipal Manager says
the Municipality has no budget for.
[177]
One answer to the Municipality’s
concern about the impact that having all the 127 employees in its
employ will have on its
budget is to be found in what this Court said
in
City Power.
There, this Court said:
“
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 to 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).
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 and new employer are obliged
to
consult in terms of section 189 of the LRA.”
[86]
[178]
Another answer to this is that, if,
in terms of section 197(2) of the LRA, there was a transfer of
business as a going concern
from Rural to the Municipality and all
those additional workers were employed by Rural in the business that
was transferred to
the Municipality, then the Municipality became
their employer by operation of law.  That is one of the
consequences of the
occurrence of a transfer of business as a going
concern.  However, when one considers the burden that the
additional workers
would be on the Municipality one should remember
three points.
[179]
The first point is that Rural did
not just decide unilaterally to employ additional workers to the 16
that it had taken over from
the Municipality.  The agreement
between Rural and the Municipality effectively required Rural to
employ more workers.
In terms of clause 2.2 of the agreement
Rural was given “the sole and exclusive responsibility for the
management, operation,
administration, maintenance
and
expansion
of the Network, including the
revenue management process, the implementation of a local and
regional electrification programme
and to regulate matters pertaining
to the Project.”  In terms of clause 7.1 of the agreement
Rural was “responsible
for the
provision
of all labour
, transport and material
required to operate, maintain and expand
the Network
.”  It,
therefore, seems to me that the agreement between Rural and the
Municipality contemplated that Rural would have
to employ more
workers.  It is inconceivable that the Municipality could have
thought that Rural would have been able to provide
the services it
was contractually obliged to render with only the 16 workers that it
had taken over from the Municipality.
[180]
The second point to be borne in mind
is that the Municipality cannot render efficient and effective
electricity related services
with 16 employees.  It needs many
more workers than that.  In
City
Power
one of the points that this Court
made was that—
“
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.”
[87]
This
makes it clear that a municipality has the constitutional power to
employ the number of employees “that are necessary
for the
effective performance of its functions”.
[88]
[181]
This Court went on to say in the
next paragraph in
City Power
:
“
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.”
[89]
[182]
The third point to be borne in mind
is that our law provides an employer which finds itself in the
position of the Municipality
with an escape route so that that
employer need not have a permanent burden of excess workers.
The remedy provided for by
the LRA is that, whereas the old employer
is not entitled to dismiss its excess workforce prior to a transfer
of business as a
going concern if the reason for dismissal is related
to the transfer of the business as a going concern, the transferee
employer
is entitled to terminate the services of its excess workers
for operational requirements after complying with the relevant
procedures.
[90]
Section 187(1)(g) of the LRA provides that a dismissal is
automatically unfair if the reason for the dismissal is the
transfer,
or, a reason related to the transfer, contemplated in sections 197
or 197A.
[91]
[183]
When the new employer terminates the
services of its excess workers for operational requirements within 12
months after a transfer
of business as a going concern has occurred,
the old employer – in this case Rural – would be jointly
liable with the
new employer to pay the employees any monies to which
the employees would be entitled by reason of the dismissal for
operational
requirements.  This is based on section 197(8).
The provision reads:
“
(8)
For a period of 12 months after the date of the transfer, the old
employer is jointly and severally
liable with the new employer to any
employee who becomes entitled to receive a payment contemplated in
subsection (7)(a) as a result
of the employee’s dismissal for a
reason relating to the employer’s operational requirements or
the employer’s
liquidation or sequestration, unless the old
employer is able to show that it has complied with the provisions of
this section.”
[184]
Another way for an employer in the
Municipality’s position to limit its financial obligations
arising from a transfer of a
business as a going concern is provided
for in section 197(7).  The provision reads:
“
(7)
The old employer must—
(a)
agree with the new employer to a valuation as at the date of transfer
of—
(i)
the leave pay accrued to the transferred employees of the old
employer;
(ii)
the severance pay that would have been payable to the transferred
employees of the
old employer in the event of a dismissal by reason
of the employer’s operational requirements; and
(iii)
any other payments that have accrued to the transferred employees but
have not been paid
to employees of the old employer;
(b)
conclude a written agreement that specifies—
(i)
which employer is liable for paying any amount referred to in
paragraph (a),
and in the case of the apportionment of liability
between them, the terms of that apportionment; and
(ii)
what provision has been made for any payment contemplated in
paragraph (a) if any
employee becomes entitled to receive a payment;
(c)
disclose the terms of the agreement contemplated in paragraph (b) to
each employee
who after the transfer becomes employed by the new
employer; and
(d)
take any other measure that may be reasonable in the circumstances to
ensure that
adequate provision is made for any obligation on the new
employer that may arise in terms of paragraph (a).”
[185]
It is clear from the authorities
including
NEHAWU
that
various factors must be taken into account in determining whether or
not there has been a transfer of business as a going concern
from the
old employer to the new employer.  Some of the factors are:
(a)
whether there has been a transfer of assets, tangible and intangible;
(b)
whether or not workers are or have been taken over by the new
employer;
(c)
whether customers are transferred;
(d)
whether or not the same business is being carried on by the new
employer;
(e)
whether goodwill has been transferred; and
(f)
whether the responsibility or obligation has been transferred.
[186]
In the present case the
Municipality’s first contention was that, until the High Court
had decided on the validity of the
agreement, the issue of the
transfer of business as a going concern should be stayed.  The
next contention by the Municipality
is that no transfer of business
as a going concern from Rural to the Municipality occurred because
Rural did not transfer certain
assets to the Municipality.  Out
of all the factors that are required to be taken into account to
determine whether there
has been a transfer of business as a going
concern, as indicated above, the only factor upon which the
Municipality relies to contend
that there has been no such transfer
of business as a going concern is that certain assets were not
transferred.  It is fair
to infer from this that the
Municipality accepts that the rest of the factors support the
proposition that there was a transfer
of business as a going concern
from Rural to the Municipality.
[187]
The Municipality does not say that
Rural did not hand over any assets at all.  It accepts that the
assets that Rural had taken
over from it were all handed back.
Indeed, the Municipality even accepts that Rural returned those
assets with even improvements
and additions.  The Municipality’s
complaint is simply that certain assets were not handed over to it.
The Municipality’s
complaint seems to suggest that all assets
used in the business are required to be transferred before there can
be a transfer of
business as a going concern.  That is not the
law.  Indeed, the authorities make it clear that there can be a
transfer
of business as a going concern even in a situation where no
assets have been transferred at all.  It depends on the nature

of the business and the essentiality or otherwise of particular
assets for a particular business.  If you transfer a soccer
club
business, provided the players go with the business, it may not be
important to transfer any immovable property or even vehicles
before
it can be said that there has been a transfer of business as a going
concern.  Where the business relates to the provision
of a
service, the transfer of assets may not be essential.
[188]
In the present case Mr Taetsane did
not even know for certain all the assets that he said were not handed
over to the Municipality
by Rural.  He said:
“
We
know that they employed more than 100 additional people.
However, they would have bought computers (hardware and software),

stationary, office equipment, implemented systems (such as a debt
collection system), vehicles and other related equipment needed
to
operate their business as they were conducting it.  I can
categorically state that since the contract “fell through”

Rural has not transferred their business to us as a “going
concern”.  At best we have received an obligation to

provide electricity to the residents but we never received their
computers, systems, stationary, vehicles, equipment, etc.  We

also have not received their debtor’s book.  I have not,
to date, received an inventory of Rural’s business.
Thus
its business was not transferred to us as a going concern.  The
meaning of “going concern” is specific and
argument on
this will be presented to the court.  I understand this to be a
threshold requirement for the trigger of section
197.”
[189]
Later on Mr Taetsane complained
again.  He said that he presumed that Rural was operating from
offices either owned or leased
by them.  He said that he
presumed that Rural had assets such as motor vehicles, computers,
laptops, cellphones, office furniture,
tools and other equipment
needed to carry out its operation.  He said that the
Municipality was not given a list of Rural’s
debtors and
creditors nor was it given Rural’s intellectual property or
debtor’s books.
[190]
Two things are conspicuous by their
absence in the Municipality’s answering affidavit.  The
first is that the Municipality
does not anywhere say that, since
1 April 2014 when, according to Rural, a transfer of
business as a going concern occurred
from Rural to the Municipality,
it had not been able to provide all the electricity related services
to its inhabitants because
of Rural’s failure to hand over
certain assets.  In fact, Mr Bester said more than once in
Rural’s founding affidavit
that, since 1 April 2014,
the Municipality had taken over the responsibility of providing the
same services that Rural
had been providing between 1 September 2013
and 1 April 2014 and was actually providing the services
and not
once did the Municipality deny those averments.
[191]
The second is that the Municipality
has not anywhere in its answering affidavit said that the assets that
Rural did not hand over
to it were essential for it i.e. for the
Municipality to continue to operate the “business” that
Rural contends it
had transferred to it.  One understands why
the Municipality could not say this.  It is because the truth of
the matter
is that, after Rural had stopped providing all the
electricity related services to the Municipality’s inhabitants
with effect
from 1 April 2014, the Municipality carried on
with the business of providing those services without any major
difficulties.
All that happened is that the “business”
of providing the electricity services to the inhabitants changed
hands but
it remained the same.  The authorities are clear.
When that happens, there has been a transfer of business as a going

concern.
[192]
In the result, I conclude that the
Labour Appeal Court erred in holding that there was no transfer of
business as a going concern
from Rural to the Municipality and that,
therefore, the Municipality did not become the employer of the
127 employees upon
the transfer of the business as a going
concern.  In my view, the appeal should be upheld and the order
of the Labour Appeal
Court set aside and replaced with an order
dismissing the appeal before that Court.  That will
automatically reinstate the
order of the Labour Court.
Order
[193]
Accordingly, I would make the
following order:
1.
Leave to appeal is granted.
2.
The appeal is upheld with costs.
3.
The order of the Labour Appeal Court is set
aside and replaced with the following:
“
The
appeal is dismissed with costs.”
For the Applicants:

P J Pretorius SC and L Hollander instructed by Webber Wentzel
Attorneys
For the Respondent:

A Redding SC, K Hopkins and S Freese instructed by Majavu Inc
[1]
66 of 1995.
[2]
Section 152(1)(b) and Schedule 4B of the
Constitution
.
[3]
Section 73 of
Local Government: Municipal Systems
Act 32 of 2000
.
[4]
Capital assets are defined in clause 1.3.6 of the
EMC to mean the operational capital assets, which, in terms of
clause 7.3, included
the whole or part of the existing properties,
tools, equipment and vehicles of the Municipality currently used by
its electricity
department. The network and related assets described
in clause 1.3.17 of the EMC as “initial assets” were
owned and
paid for by the Municipality prior to the take-over date.
Their ownership remained vested in the Municipality.
[5]
See
Minister of Land
Affairs and Agriculture v D&F Wevell Trust
[2007]
ZASCA 153
;
2008 (2) SA 184
(SCA) at para 43;
Transnet
Ltd v Rubenstein
[2005] ZASCA 60
;
2006
(1) SA 591
(SCA) at para 28.
[6]
Spijkers v Gebroeders
Benedik
Abbatoir v Alfred Benedik en Zonen
[1986]
2 CMLR 296
(ECJ);
Oy Liikenne Ab v
Pekka Liskojärvi, Pentti Juntunen
[2001] IRLR 171
(ECJ).
[7]
Harsco Metals SA (Pty) Ltd v Acelormittal SA
Ltd
[2011] ZALCJHB 116; [2012] 4 BLLR
385 (LC).
[8]
[2003] IRLR 128 (CA).
[9]
Maluti-A-Phofung Local Municipality v Rural
Maintenance (Pty) Ltd and Another
[2015] ZALAC 41
; (2016) 37
ILJ
128 (LAC);
[2016] 1 BLLR 13
(LAC) (LAC judgment) at para 33.
[10]
Id at para 37.
[11]
National Education Health and Allied Workers
Union (NEHAWU) v University of Cape Town
[2002]
ZACC 27
;
2003 (3) SA 1
(CC);
2003 (2) BCLR 154
(CC) (
NEHAWU
)
at para 31.  See also
South
African Police Service v Solidarity obo Barnard
[2014] ZACC 23
;
2014 (6) SA 123
(CC);
2014 (10) BCLR 1195
(CC) at
para 232 and
Florence v Government of
the Republic of South Africa
[2014]
ZACC 22
;
2014 (6) SA 456
(CC);
2014 (10) BCLR 1137
(CC) at para 24.
[12]
Second judgment at [45].
[13]
See discussion above at [11] to [12].
[14]
See discussion above at [13].
[15]
See
Rail Commuters
Action Group v Transnet Ltd t/a Metrorail
[2004]
ZACC 20
;
2005 (2) SA 359
(CC);
2005 (4) BCLR 301
(CC) at para 43.
[16]
No 246 of 2006.
[17]
In
section 2(1)
“relevant transfer”
is defined as “a transfer or a service provision change to
which these Regulations apply
in accordance with
Regulation 3
. . .
.”
Regulation 3
reads:
“
(1)
These Regulations apply to—
(a)
a transfer of an undertaking, business or part of an undertaking
or
business situated immediately before the transfer in the United
Kingdom to another person where there is a transfer of an
economic
entity which retains its identity;
(b)
a service provision change, that is a situation in which—
(i)
activities cease to be carried out by a person (‘a client’)

on his own behalf and are carried out instead by another person on
the client’s behalf (‘a contractor’);
(ii)
activities cease to be carried out by a contractor on a client’s

behalf (whether or not those activities had previously been carried
out by the client on his own behalf) and are carried out
instead by
another person (‘a subsequent contractor’) on the
client’s behalf; or
(iii)
activities cease to be carried out by a contractor or a subsequent
contractor on a client’s behalf (whether or not those
activities had previously been carried out by the client on his own

behalf) and are carried out instead by the client on his own behalf,
and in which the conditions set out in paragraph (3) are
satisfied.
(2)
In this regulation ‘economic entity’ means an organised

grouping of resources which has the objective of pursuing an
economic activity, whether or not that activity is central or

ancillary.
(3)
The conditions referred to in paragraph (1)(b) are that—
(a)
immediately before the service provision change—
(i)
there is an organised grouping of employees situated in

Great Britain which has as its principal purpose the carrying
out of the activities concerned on behalf of the client;
(ii)
the client intends that the activities will, following the service

provision change, be carried out by the transferee other than in
connection with a single specific event or task of short-term

duration; and
(b)
the activities concerned do not consist wholly or mainly of the

supply of goods for the client’s use.
(4)
Subject to paragraph (1), these Regulations apply to—
(a)
public and private undertakings engaged in economic activities
whether or not they are operating for gain;
(b)
a transfer or service provision change howsoever effected
notwithstanding—
(i)
that the transfer of an undertaking, business or part of an

undertaking or business is governed or effected by the law of a
country or territory outside the United Kingdom or that the service

provision change is governed or effected by the law of a country or
territory outside Great Britain;
(ii)
that the employment of persons employed in the undertaking, business

or part transferred or, in the case of a service provision change,
persons employed in the organised grouping of employees, is
governed
by any such law;
(c)
a transfer of an undertaking, business or part of an undertaking
or
business (which may also be a service provision change) where
persons employed in the undertaking, business or part transferred

ordinarily work outside the United Kingdom.
(5)
An administrative reorganisation of public administrative
authorities
or the transfer of administrative functions between
public administrative authorities is not a relevant transfer.
(6)
A relevant transfer—
(a)
may be effected by a series of two or more transactions; and
(b)
may take place whether or not any property is transferred to the

transferee by the transferor.
(7)
Where, in consequence (whether directly or indirectly) of the

transfer of an undertaking, business or part of an undertaking or
business which was situated immediately before the transfer in
the
United Kingdom, a ship within the meaning of the Merchant Shipping
Act 1995 registered in the United Kingdom ceases to be
so
registered, these Regulations shall not affect the right conferred
by section 29 of that Act (right of seamen to be discharged
when
ship ceases to be registered in the United Kingdom) on a seaman
employed in the ship.”
[18]
The inclusion of “service” in the
definition was effected in 2002.
[19]
Aviation Union of South Africa v South African
Airways (Pty) Ltd
[2011] ZACC 39
;
2012
(1) SA 321
(CC);
2012 (2) BCLR 117
(CC) (
Aviation
Union
) at para 105.
[20]
Id.
[21]
NEHAWU
above n
11 at para 46.
[22]
Id at para 47.
[23]
H v Fetal Assessment Centre
[2014] ZACC 34
;
2015 (2) SA 193
(CC);
2015 (2) BCLR 127
(CC) at para
32.  See also
K v Minister of
Safety and Security
[2005] ZACC 8
;
2005 (6) SA 419
(CC);
2005 (9) BCLR 835
(CC) at para 34;
S
v Makwanyane
[1995] ZACC 3
;
1995 (3)
SA 291
(CC);
1995 (6) BCLR 665
(CC) at para 39.
[24]
Directive 77/187 EEC.
[25]
City Power (Pty) Ltd v Grinpal
Energy Management Services
(Pty) Ltd
[2015]
ZACC 8
; (2015) 36
ILJ
1423 (CC);
2015 (6) BCLR 660
(CC) (
City
Power
).
[26]
NEHAWU
above n
11 at para 68.
[27]
Id at para 56.
[28]
Aviation Union
above n 19 at paras 35, 37, 47 and 50 (minority judgment) and para
111 (majority judgment).
[29]
Id at para 82.
[30]
Id at para 52.
[31]
City Power
above
n 25 at paras 16, 36 and 37.
[32]
Id at para 39.  See also para 38.
[33]
TMS Group Industrial Services (Pty) Ltd t/a
Vericon v Unitrans Supply Chain Solutions (Pty) Ltd
[2014]
ZALAC 39
; (2015) 36
ILJ
197 (LAC) (
TMS Group
).
[34]
Carlito Abler and Others v Sodexho MM Catering
Gesellschaft GmBH
[2004] IRLR 168
(
Sodexho
).
[35]
Id at para 26.
[36]
Sodexho
above n
34.  The European Court of Justice formulated the issue for
decision before it as—
“
whether
Article 1 of Directive 77/187 must be interpreted as applying to a
situation in which a contracting authority which had
awarded the
contract for the management of the catering services in a hospital
to one contractor terminates that contract and
concludes a contract
for the supply of the same services with a second contractor, where
the second contractor, on the one hand,
uses substantial parts of
the tangible assets previously used by the first contractor and
subsequently made available to it by
the contracting authority and,
on the other hand, refuses to take on the employees of the first
contractor.”
[37]
Id at para 35.
[38]
Compare Wallis “It’s not Bye-Bye to
‘By’: Some Reflections on Section 197 of the LRA”
(2013) 34
Industrial Law Journal
779
at 805:
“
Reverting
to the typical case, if the new provider of the service does not
employ the affected workers they will become redundant
from the
perspective of their current employer and will be retrenched. That
retrenchment arises from the economic circumstances
of the service
provider’s business and is no different from the retrenchment
that arises when there is a downturn in the
market and a reduction
in demand for the employer’s products or services. It results
in dismissal for operational requirements.
To extend protection to
workers in that situation under the guise of ‘second
generation outsourcing’ or any similar
label distorts the
statutory protection given to workers in the context of retrenchment
and provides a certain limited class
of workers with greater
protection than others similarly situated. This is, at least
potentially, a breach of the equality provisions
of the
Constitution.”
[39]
Oudekraal Estates (Pty) Ltd v The City of Cape
Town
[2004] ZASCA 48
;
2004 (6) SA 222
(SCA) (
Oudekraal
).
[40]
Member of the Executive Council for Health,
Eastern Cape Province v Kirland Investments
[2014] ZACC 6
;
2014 (3) SA 481
(CC);
2014 (5) BCLR 547
(CC)
(
Kirland
).
[41]
Aviation Union
above n 19 at paras 47-51.
[42]
See in this regard clause 1.3.14 of the EMC which
states that “‘Equipment’ shall mean the installed
and operational
electric
i
ty
equipment and assets
i
nvested
into by Rural as per the provis
i
ons
of clause 9.5 below”
.
Rural creates an incorrect impression that all the “operational
electricity equipments” (including those upgraded
and
invested) were returned to the Municipality.  It invested to
make the business bigger, better, more efficient and more

profitable. And not all the operational electricity equipments were
handed to the Municipality.
[43]
See
NEHAWU
n
11 above;
Aviation Union
n
19 above; and
City Power
n
25 above
.
[44]
56 of 2003.
[45]
32 of 2000.
[46]
Nokeng Tsa Taemane Local Municipality v
Metsweding District Municipality
[2003] ZALC 81
; (2003) 24
ILJ
2179 (LC) (
Nokeng Tsa Taemane)
.
[47]
Rural Maintenance (Pty) Ltd v Maluti-A-Phofung
Local Municipality
[2014] ZALCJHB 180
at para 29.
[48]
LAC judgment above n 9 at para 33.
[49]
Id at para 37.
[50]
City Power
above
n 25 at para 33.
[51]
Aviation Union
above n 19 at para 52.
[52]
Id at paras 106-7.
[53]
Id at paras 46-8.
[54]
LAC judgment above n 9 at para 9.
[55]
Id at para 37.
[56]
Aviation Union
above n 19 at para 113.
[57]
LAC judgment above n 9 at para 34.
[58]
NEHAWU
above n
11 at para 56.
[59]
Aviation Union
above n 19 at para 113.
[60]
NEHAWU
above n
11 at para 53.
[61]
Aviation Union
above n 19 at para 39.
[62]
66 of 1995.
[63]
See first judgment at [4] to[14] and second
judgment at [50] to [78].
[64]
NEHAWU
above n
11 at para 53 it was said that section 197 has two purposes.
These purposes were given as: (i) to facilitate
the commercial
transaction of transferring a business as a going concern, and
(ii) to protect workers against unfair job
losses.  What
was not said in
NEHAWU
was whether any one of those is the primary purpose of the section,
and, if so, which one it is.  I take the view that the

safeguarding and protection of employees’ employment and their
rights is the primary purpose of section 197.
This is in
line with the pronouncement of the European Court of Justice and
other courts in numerous cases that the primary purpose
of
instruments such as the Acquired Rights Directive 77/187/EEC of the
European Union and the Transfer of Undertakings (Protection
of
Employment) Regulations, 1981 is the safeguarding of the rights of
employees in the event of a transfer of business.
[65]
National Education Health & Allied Workers
Union v University of Cape Town
(2002)
23
ILJ
306
(LAC);
[2002] 4 BLLR 311
(LAC) at para 14.
[66]
The TUPE Regulations are regulations adopted by
the United Kingdom in order to give effect to the EU Directive
within the
United Kingdom.
[67]
See above n 65 at paras 15–33.  See
also
Horn v LA Health Medical Scheme
[2015] ZACC 13
;
2015 (7) BCLR 780
(CC)
at paras 66-71.
[68]
NEHAWU
above n
11 at para 47.
[69]
Power v Regent Security Services Ltd
[2007] EWCA Civ 1188
;
[2008] 2 All ER 977
(CA Civ) at para 8;
Council
of the Isles of Scilly v Brintel Helicopters Ltd and Ellis
[1995]
IRLR 7
(EAT) (
Brintel Helicopters
)
at paras 18-19;
Kelman v Care
Contract Services
[1995] ICR 260
(EAT)
;  Landsorganisatioen I
Danmark v Ny Molle Kro
[1989] IRLR 37
(ECJ) at para 16; and
Spijkers v
Gebroeders Benedik Abattoir CV
[1986]
2 CMLR 296
(ECJ) at para 6.
[70]
Spijkers
above n
69 at paras 11–13.
[71]
Oy Liikenne Ab v Liskojärvi
[2001]
All ER (EC) 544 (
Oy Liikenne
);
Mayeur v Association Promotion De
L’Information Messine (APIM)
[2000]
IRLR 783
;
Sanchez Hidalgo and
Others v Asociacion De Servivios Aser and Sociedad Cooperativa
Minerva; Ziemann v Ziemann Sicherheit GmbH
and Horst Bohn
Sicherheitsdienst
[1999] IRLR 136
;
Süzen v Zehnacker Gebaudereinigung
GmbH Krankenhausservice and Lefarth GmbH
[1997]
IRLR 255
;
Schmidt v Spar-und
Leihkasse Der Fruheren Ämter Bordersholm, Kiel und Cronshagen
[1994] IRLR 302
;  and
Rask
v ISS Kantineservice A/S, C-209/91
[1993] IRLR 133
at para 20.
[72]
OCS Cleaning Scotland Ltd v Rudden and Olscot
Ltd
[EAT/290/99];
Kelman
above n 69;
Brintel
Helicopters
above n 69; and
Kenny
v South Manchester College
[1993] IRLR
265.
[73]
Kelman
above n
69 at 267B.
[74]
Kenmir v Frizzel
[1968]
1 All ER 414 (QBD).
[75]
Id at 418E-G.
[76]
Oy Liikenne
above
n 71
at para 66.
[77]
Id at paras 51, 52 and 58.
[78]
Id at para 60.
[79]
Brintel Helicopters
above
n 69 at para 22.
[80]
Id at para 24.
[81]
NEHAWU
above n
11 at para 56.
[82]
Id at para 58.
[83]
Aviation Union
above n 19 at paras 111-112.
[84]
Rask
above n 71
at paras 19-20.
[85]
Landsorganisatioen I Danmark
above
n 69 at para 16.
[86]
City Power
above
n 25 at para 33.
[87]
Id at para 31.
[88]
Id.
[89]
Id at para 32.
[90]
Section 189 of the LRA.
[91]
Section 197A provides for the transfer of
contracts of employment in circumstances where the old employer
becomes insolvent or
where a scheme of arrangement or compromise is
being entered into to avoid winding-up or sequestration for reasons
of insolvency.