The Labour Relations Act 66 of 1995 (LRA), through section 197, provides for a seamless and automatic transfer of employment contracts if a business is being sold as a “going concern”. The Constitutional Court has previously held that the phrase “going concern” means that what must be transferred is the business in operation “so that the business remains the same but in different hands.” For employees to enjoy the protection under the LRA, there must be evidence suggesting that the business continues to operate post transfer, though under different management.
Once the transfer as a going concern has been proven, the new employer automatically “steps into the shoes” of the old employer in regards to all the contracts of employment in existence immediately before the transfer, and the rights and obligations of the old employer become those of the new employer, anything done by the old employer is regarded as having being done by the new employer, and the transfer does not affect the duration of the employee’s service with the old employer. Due to the protection afforded by the LRA during a transfer, the new employer is not permitted to change any of the employees’ terms and conditions of employment unless such variation is through an agreement.
The legal consequences do, however, vary when the business of the employer is being sold as a result of the old employer becoming insolvent. Whilst the employees retain their original contracts of employment and continuity of employment, rights and obligations previously had with the old employer remain to be that of the old employer and anything done by the old employer before the transfer is regarded as conduct done by the old employer even post transfer.
In the case of Africa Online Operations (Mauritius) Limited v Scanlon and Others (CA01/2023) [2024] ZALAC 2, the Labour Appeal Court had to decide whether a transfer of business as a going concern in terms of Section 197A of the LRA had taken place after ECHO International Management Services (Pty) Ltd (EIMS) was placed in liquidation. The court declared that the contracts of employment of the employees had been transferred in terms of section 197A(2) of the LRA to the Appellant as the latter continued to provide shared services to group companies that were previously provided by EIMS and EIMS’ staff were engaged by the Appellant to perform the same activities previously performed by the employees of EIMS. It accordingly held that the liquidation of EIMS did not disrupt the continuation of the respondents’ employment contracts as the continuity of business had been established. The appellant was accordingly ordered to instate the employees with full backpay and without loss of benefits.
For a business transfer to happen, the actual nature of the transaction is more important than how it is structured. Once the transfer has taken place, section 197 automatically apply, meaning certain obligations must be followed by law. These obligations cannot be avoided unless the employers and employees explicitly agree to something different.
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