When do they apply? : s197(1)

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Section 197 and s197A of the LRA

• When do they apply? s197(1)
• When there is the transfer of a business as a
  going concern
• Business includes the whole or a part of any
  business, trade, undertaking or service

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Section 197 and s197A of the LRA

• As a going concern?
• NEHAWU v University of Cape Town (CC) the
  business remains the same but in different hands
• An objective test having regard to substance and
  not form taking into account what has transferred
  i.e. activity, employees, customers, tangible and
  intangible assets etc.

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What is a s197 transfer? (cont.)

• What kind of transferring transaction?
• Transfer the conveyance of property esp. of
  stock or shares, from one person to another or
  the act of transferring or being transferred
  conveyance from one place , person etc. to
  another - New Shorter Oxford English Dictionary
• a merger, takeover or part of a broader process
  of restructuring within a company or group of
  companies. Transfer can take place by virtue of
  an exchange of assets or a donation.- Schutte v
  Powerplus Performance (Pty) Ltd

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Second generation contracting-out
UWC
Xtra Clean
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Second generation contracting out
UWC
Xtra Clean
Super Clean
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Second generation contracting-out

• An initial word of warning do not get caught up
  in the terminology
• The fact that something is first or second or
  other generation outsourcing or contracting-out
  is irrelevant.
• The test in each case must be whether there has
  been the transfer of a business as a going
  concern

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Second generation contracting-out the battle
between Ausa and saa

• Aviation union of SA others v SA Airways (Pty)
  Ltd others (2008) 29 ILJ 331 (LC)
• The facts infrastructure and support services
  transferred (outsourced) to LGM. All employees in
  those services transferred by virtue of s197. SAA
  cancelled the arrangement in terms of its
  contract with LGM.
• Importantly, the contract provided that on
  termination of the agreement SAA retained the
  right to transfer certain services and/or
  functions back to itself or to a third party
  (clause 27.1.1) and to obtain transfer or
  assignment from LGM to SAA of all third-party
  contracts

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Second generation contracting-out the battle
between Ausa and saa

• AUSA approached the LC for, inter alia, a
  declarator to the effect that
• the termination of the outsourcing agreement
  between SAA and LGM constituted a transfer of the
  whole or part of the undertaking or services
  provided to SAA by LGM under s197 of the LRA.
• And in the alternative, that the award of any of
  the tenders of SAA to a third party will
  constitute a transfer of a whole or a part of the
  undertaking or services provided to SAA by LGM
  under the provisions of s 197 of the LRA.

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Second generation contracting-out the battle
between Ausa and saa

• AUSA argued that s197 should also apply to
  transfers 'from' one employer to another as
  opposed to only those facilitated 'by' the 'old'
  employer to the 'new' employer.
• Court held Although I am in agreement with the
  sentiment expressed that s197 should be read so
  as to protect the work security of employees
  affected by a business transfer, I am of the view
  that it is clear from s197 of the LRA that the
  legislature had only contemplated a transfer from
  the old employer to the new employer and nothing
  else (the so-called first generation transfer).

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Second generation contracting-out the battle
between Ausa and saa

• Aviation Union of SA obo Barnes others v SA
  Airways (Pty) Ltd others (2009) 30 ILJ 2849
  (LAC)
• Zondo JP It is difficult for me to see what
  purpose s 197 can be said to aim to achieve if
  the protection which it gives to workers against
  job losses is as limited as it has to be conceded
  would be the case if the word 'by' in the section
  was read to mean what it normally means. In such
  a case the protection of workers would be limited
  to the first outsourcing and nothing more . . .
  In these circumstances I am of the view that s
  197 is capable of application in a situation such
  as the one under consideration.

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Second generation contracting-out the battle
between Ausa and saa

• Davis JA
• An examination of the multiple meanings of the
  word 'by' indicates that the confident assertion
  that the literal interpretation of this section
  precludes any possible extension to second
  generation transfers is not justified
  linguistically. The wording of the section does
  not necessarily and inevitably support the
  exclusive connotation that the transferor has to
  play an immediate, positive role in bringing
  about the transfer.

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Second generation contracting-out the battle
between Ausa and saa

• Davis JA
• Assume however, that the word 'by' must be
  interpreted to connote a positive action on the
  part of the old employer (in this context LGM) as
  contended for by respondent. On the particular
  facts of this case, the requisite positive action
  was taken when the initial agreement was
  concluded between SAA and LGM which afforded SAA
  rights to compel LGM to act by means of a
  transfer of the business back to SAA or to a
  third party . . .
• In my view, the approach to s 197 adopted by the
  court a quo is neither inexorably congruent with
  the literal wording of the section nor with the
  facts of the present dispute. Hence, the
  conclusion it reached cannot be supported.

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Second generation contracting-out

• SA Airways(Pty) Ltd v Aviation Union of SA
  others (2011) 32 ILJ 87 (SCA)
• There was no challenge to the constitutionality
  of s 197 in this matter. A collateral challenge
  in the guise of reading a word to mean something
  different is simply not legitimate. (par 28)

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Second generation contracting-out

• The purposive interpretation adopted by the
  Labour Appeal Court was aimed, it said, at
  preventing abuse. This concern on the part of the
  court is misconceived because there is, as SAA
  argued, no suggestion of any abuse in the present
  case. And even if we accepted that such abuse is
  possible, that is no reason to distort the plain
  meaning of the section. We accordingly conclude
  that the Labour Appeal Court erred in adopting an
  approach to the interpretation of s 197 which is
  at odds with the ordinary meaning of the words
  chosen by the legislature. By interpreting the
  word by to mean from the court impermissibly
  distorted the meaning of the word. (par 32)

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Second generation contracting-out

• AND In the absence of a factual basis for the
  Labour Court to have concluded that there was a
  transfer of a business as a going concern by LGM
  either to SAA or to another entity, its decision
  to dismiss the application was correct.
  Accordingly the Labour Appeal Court erred in
  upholding the appeal to it.

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Second generation contracting-out

• Aviation Union of SA another v SA Airways (Pty)
  Ltd others (2011) 32 ILJ 2861 (CC)
• Jafta J
• For the section to apply the business must have
  changed hands, whether through a sale or other
  transaction that places the business in question
  in different hands. Thus the business must have
  moved from one person to the other. The breadth
  of the transfer contemplated in the section is
  consistent with the wide scope it is intended to
  cover. Therefore, confining transfers to those
  effected by the old employer is at odds with the
  clear scheme of the section. (at para 46)

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Second generation contracting-out

• Aviation Union of SA another v SA Airways (Pty)
  Ltd others (2011) 32 ILJ 2861 (CC)
• Jafta J
• Determining the operation of the section with
  reference to a single word is not the correct
  approach to its interpretation. The whole section
  must be read in its proper context. Reading
  section 197 as a whole in the context of where it
  is located in the LRA and paying sufficient
  attention to its purpose and the objects of the
  LRA, reveal that it applies to any transaction
  that transfers a business as a going concern. It
  follows that the majority in the Supreme Court of
  Appeal erred in holding that the section does not
  apply to second generation outsourcing
  agreements. (at para 55)

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Second generation contracting-out

• Yacoob J
• 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.
  (at para 113)

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Second generation contracting-out

• Is there a difference in the approaches?
• Could the approach advanced by Yacoob J be a
  barrier to s197 applying to second generation
  transfers?
• What would happen if, for example, the outgoing
  contractor only transferred some employees and
  equipment, but the client was responsible for
  transferring the premises and opportunity to do
  the work?
• I.e. must the old employer be responsible for
  transferring the whole going concern in order for
  it to be effecting a transfer within the
  meaning of s197?

20
Second generation contracting-out

• Harsco Metals South Africa (Pty) Ltd and Another
  v Arcelormittal South Africa Ltd and Others
  2012 4 BLLR 385 (LC)
• Facts Harsco provided services to AMSA related
  to the management and processing of slag at
  various sites. The contract was put out to tender
  and Harsco secured one site, but the others were
  given to two other service providers who got two
  sites each.
• The new contractors were to perform substantially
  the same services at the sites
• AMSA was to buy certain assets from Harsco some
  of which would be sold on to the new contractors
• The new contractors would employ 300 of Hs 445
  employees

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Second generation contracting-out

• SAA resolves the debate on whether second (and
  further) generation outsourcing may in principle
  trigger the provisions of s 197. . . Section 197
  is triggered when on the facts there is a
  transfer by one employer to another, in
  circumstances where the transferred entity is the
  whole or part of a business, and where the
  business (or part of it) is transferred as a
  going concern. If the transfer meets these
  criteria (a matter for objective determination),
  the transferee is substituted automatically and
  by operation of law for the transferor as the
  employer of those of the transferors employees
  engaged in the business on the date of the
  transfer.

22
Second generation contracting-out

• In the present instance, none of the parties
  contends that the absence of any contractual
  nexus between Harsco on the one hand and Phoenix
  and Tube City on the other hand is decisive, or
  even significant. It is not disputed that there
  are components of Harscos business that are to
  be passed on to Phoenix and Tube City. As I have
  mentioned, at least some of the Harscos assets
  will transfer, as will the majority of Harscos
  employees. There is therefore a transfer for
  the purposes of s 197.

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Second generation contracting-out

• the factual circumstances particularly to be
  taken into account in determining whether the
  conditions for a transfer of whole or part of a
  business as a going concern for the purposes of s
  197 are met are primarily the degree of
  similarity of the activity carried on before and
  after the transfer and the type of undertaking
  concerned, and the question whether or not the
  majority of the employees are to be taken over by
  the new employers. In the present case, the
  service contracts concluded between AMSA on the
  one hand and Phoenix and Tube City on the other
  hand require the new service providers to perform
  substantially similar services to those performed
  by Harsco, at the same locations, broadly using
  the same operational methods. Viewed from an
  employment perspective, the majority of Harscos
  employees will work for Phoenix or Tube City.
• Thus a transfer as a going concern

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Second generation contracting-out

• Practical problems
• How will potential tenderers know how to price
  and pitch their bids? i.e. how will they access
  the information they need from a potential
  competitor?
• Is the client to stuck with the same poor
  employees ad infinitum?