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’ 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. 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 ‘SECOND GENERATION CONTRACTINGOUT’ UWC Xtra Clean ‘SECOND GENERATION CONTRACTING OUT’ UWC Xtra Clean Super Clean ‘SECOND GENERATION CONTRACTINGOUT’ 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 ‘SECOND GENERATION CONTRACTINGOUT’: 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 ‘SECOND GENERATION CONTRACTINGOUT’: 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. ‘SECOND GENERATION CONTRACTINGOUT’: 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).’ ‘SECOND GENERATION CONTRACTINGOUT’: 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 .’ ‘SECOND GENERATION CONTRACTINGOUT’: 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.’ ‘SECOND GENERATION CONTRACTINGOUT’: 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 .’ ‘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) ‘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) ‘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.’ 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) 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) SECOND GENERATION CONTRACTING-OUT Yacoob J: ‘[i]t 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) 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? SECOND GENERATION CONTRACTING-OUT Harsco Metals South Africa (Pty) Ltd and Another v Arcelormittal South Africa Ltd and Others  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 H’s 445 employees 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 transferor ’s employees engaged in the business on the date of the transfer.’ 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 Harsco’s business that are to be passed on to Phoenix and Tube City. As I have mentioned, at least some of the Harsco’s assets will transfer, as will the majority of Harsco’s employees. There is therefore a ‘transfer’ for the purposes of s 197.’ 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 Harsco’s’ employees will work for Phoenix or Tube City.’ Thus a transfer as a going concern 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?