How does the labour court decide whether a business is a “going concern” for the purpose of s197?
Well, as lawyers are fond of saying – “…it depends on the facts”. The saying is especially true in decisions on whether what is being sold, outsourced, insourced, contracted out or merged is a –
“business” (which) includes the whole or a part of any business, trade, undertaking or service”.
And whether there is a –
“transfer” (which) means the transfer of a business by one employer (the old employer) to another employer (the new employer) as a going concern”
The definition opens up a spectrum of possible interpretations. What constitutes a “business” or a “trade” or an “undertaking” or a “service”?
When is it a “going concern”? When does “part of any business” constitute a “business as a going concern” without the other parts?
There’re no snappy answers so the lawyers are correct – it does indeed depend on the facts.
And the Labour Courts agree.
In 2011, Nampak outsourced its warehousing and distribution functions to Unitrans. In 2014 they appointed Vericon to take over from Unitrans when the 3-year management contract with Unitrans expired.
There was a dispute about whether there was a s197 transfer of employees from Unitrans to Vericon. Vericon said there was no transfer of a business as a going concern – they were merely providing a service to Nampak. They used their own resources to provide the services; they did not take over any of the employees from Unitrans; nor did they take over any assets, goodwill, or intellectual property from them.
The Labour Court noted that Nampak had provided Unitrans with the facilities, infrastructure, and equipment to perform the services.
The contractual right to use them constituted an “economic entity” for the purpose of s197. And when the right was transferred from Unitrans to Vericon, it constituted a transfer of an economic entity.
This triggered a s197 obligation on Vericon to take transfer of the employees who had been performing the services for Unitrans.
The LAC agreed with the reasoning and decision of the Labour Court. It said the assessment of the facts must focus on the substance and not the form of the transaction. It focussed on the following facts to make its decision –
- The warehousing operation services were a discrete business.
- Vericon assumed the right to use the same Nampak assets, computer systems, infrastructure, forklifts and other assets to continue providing the same services which Unitrans had provided to Nampak.
- The services could only have been provided at Nampak’s production facility.
- The affected employees only performed services for Nampak.
The net effect was that the appeal failed and Vericon was held to be the employer of the transferred employees by virtue of the operation of s197.
TIP: The practical mechanics of each business transaction between a client (such as Nampak) and a service provider (such as Unitrans and Vericon) will have both differences and similarities.
They should be analysed to determine whether there is an economic entity which retains its identity after the change in service providers. It would do so if the new service provider:
(a) carries on the same or similar economic activities,
(b) with the same employees,
(c) with the same business assets used by the old service provider, and
(d) without substantial interruption.
The term ‘going concern’ must be given its ordinary meaning. And what is transferred must be ‘a business in operation’ so that ‘…the business remains the same but in different hands.’
P Deale
