Section 187 of the Labour Relations

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1 Contemporary Labour Law Vol 15 No 11 June 2006 When is a dismissal automatically unfair? The Labour Appeal Courts consider shop steward misconduct, normal retirement age and aspects of s197 transfers by P.A.K. Le Roux Section 187 of the Labour Relations Act, 66 of 1995 (LRA) provides that if an employer dismisses an employee for one of the reasons set out in this section, the dismissal is automatically unfair. These reasons include the employee s participation in, or support of, a protected strike or protest action (see s187(1)(a), Early Bird Farm (Pty) Ltd v Food & Allied Workers Union & others (2004) 25 ILJ 2135 (LAC) and SA Chemical Workers Union & others v Afrox Ltd (1999) 20 ILJ 1718 (LAC)); an employer compelling an employee to comply with a demand relating to a matter of mutual interest (see s 187(1)(c), Frys Metals (Pty) Ltd v National Union of Metalworkers of SA (2003) 24 ILJ 133 (LAC) and Chemical Workers Industrial Union & others v Algorax Pty Ltd (2003) 24 ILJ 1917 (LAC)); the employee taking action, or intending to take action against, an employer by exercising any rights conferred by the LRA or participating in any proceedings in terms of the LRA (see s 187(1)(d), Managing Editor : P A K Le Roux Contributing Editor : Carl Mischke Hon. Consulting Editor : A.A. Landman Chemical Energy Paper Printing Wood & Allied Workers Union & another v Glass & Aluminium 2000 CC (2002) 23 ILJ 695 (LAC) and Kroukam v SA Airlink (Pty) Ltd (2005) 26 ILJ 215 (LAC)); the employee s pregnancy or any reason related to her pregnancy (see s 187(1)(e) and, for example, Mashava v Cuzens & Woods Attorneys (2000) 21 ILJ 402 (LC)); unfair discrimination against an employee on one of the grounds listed or envisaged in s187(1)(f), including grounds such as race, sex, gender, marital status, age, sexual orientation, and family responsibility. (As far as age discrimination is concerned see Rubin Sportswear v SA Clothing & Textile Workers Union & others (2004) 25 ILJ 1671 (LAC)), and; the transfer of an employee in terms of s 197 of the LRA or a reason related to such a transfer (see s 198(1)(g)). If it is established that the reason why the dismissal took place is one of these listed grounds the fairness thereof cannot be justified by the employer, except on two very Published by Gavin Brown & Associates Box Tokai 7966 Tel : Fax:

2 That an employee, even when he or she is representing a fellow employee at a disciplinary enquiry or arbitration hearing, owes certain duties to the employer cannot be doubted. Among these is the duty to act honestly. BIFAWU v Mutual & Federal narrow grounds dealing with discriminatory dismissals in terms of s 187(1)(f). These dismissals are seen as contradicting the fundamental policies espoused in the LRA and/or the values enshrined in the Constitution and can therefore not be justified on the grounds of fairness.the seriousness with which the LRA regards these dismissals is also evident from the fact that the maximum compensatiopn that can be awarded to an employee is two year's remuneration instead of 12 months as is the case with other unfair dismissals. As can be seen from the decisions listed above (and there are more), this section has been the subject of the attention of our courts on numerous occasions. Many of the more important decision have also been dealt with in CLL, the most recent being the discusssion of the Labour Appeal Court (LAC) decision in the case of Kroukam v SA Airlink. (CLL 15.7 p68) In this contribution we will deal with three of the more recent decisions, namely those of the LAC in Banking Insurance Finance & Allied Workers Union & another v Mutual & Federal Insurance Company (2006) 27 ILJ 600 (LAC) (the BIFAWU decision) and Cash Paymaster Services (Pty) Ltd v Browne (2006) 27 ILJ 281 (LAC) (the Cash Paymaster Services decision) and that of the Labour Court in Van der Velde v Business & Design Software (Pty) Ltd & another JS 371/03 (unreported 1 March 2006) (the van der Velde decision). The first decision is of interest because it deals with the problem of what activities of a shop steward are immune from disciplinary action. The second deals with age discrimination. The third is of importance because it is the first decision to deal with the interpretation of s 187(1)(g) and dismissals that take place in the context of a transfer of a going concern. The BIFAWU decision The applicant employee in this case was a shop steward who, in the exercise of his duties in this capacity, represented another employee, one Munyai, at a disciplinary enquiry and at the subsequent CCMA arbitration where he challenged his dismissal. The arbitrator found that the dismissal (for the dishonest processing of insurance claims) was substantively fair but procedurally unfair. This was based on a finding that the chairperson had unfairly refused to grant a postponement and a finding that the company s representative at the disciplinary enquiry had acted improperly. Compensation amounting to R was awarded to Munyai. The employer, Mutual & Federal, did not seek to review this award. However, some weeks later it instituted disciplinary proceedings against the applicant employee on the basis that he had made dishonest statements during the course of the CCMA proceedings and in his heads of argument when he represented Munyai. It was alleged that he had misled the arbitrator by incorrectly stating that the chairperson of the disciplinary enquiry had refused to postpone the hearing as requested by the applicant on behalf of Munyai the matter had in fact been postponed after an initial refusal to grant the postponement was rescinded. The applicant employee was dismissed for this misrepresentation. He then challenged his dismissal in the Labour Court. He argued that his dismissal was automatically unfair because it was in breach of s 187(1)(d) he had been exercising his right as a shop steward to represent an employee in CCMA arbitration proceedings. He also took the point that his dismissal had been procedurally unfair because his union had not been consulted prior to Mutual & Federal instituting disciplinary action against him as is required in item 4(2) of the Code of Good Practice: Dismissal set out in Schedule 8 to the LRA. The Labour Court found that, after an initial refusal, a postponement had in fact been granted by the chairman of the disciplinary hearing. The Court also found that the applicant had been deliberately deceitful and had intentionally misled the CCMA commissioner. The dismissal was held to be substantively fair. As far as procedural fairness was concerned, the Court found that there had been no obligation on Mutual & Federal Page 102

3 to consult with the union. It had not recognised the union, had not had any contact with the union and had not recognised the union s shop stewards as shop stewards. In any event, the Code of Good Practice only served as a guideline in this regard. The applicant employee than appealed to the LAC. The LAC agreed with the Labour Court s finding that the employee had been deliberately deceitful and had intentionally misled the CCMA commissioner. But had the dismissal been in breach of s 187(1)(d)? Here the Court posed two questions. Did the applicant employee exercise a right conferred by the LRA when he represented Munyai at the CCMA proceedings? If such a right does exist, was the applicant employee dismissed because he exercised this right? The first question was answered in the affirmative. The LAC accepted that there was no explicit provision in the LRA which conferred the right on a shop steward to represent an employee at a CCMA arbitration. However, it relied on item 4(1) of Schedule 8 to the LRA, which states that employees are entitled to be represented by a trade union representative at disciplinary enquiries. If item 4 created such right in respect of disciplinary enquiries this principle a fortiori also applied to CCMA proceedings. The answer to the second question required a consideration of the reasons why the employee had been dismissed. The Court referred to its earlier decision in the Kroukam matter and stated that this decision established the principle that, where there was more than one reason for the dismissal, one must attempt to establish what the dominant or principal reason for the dismissal was. If the dominant or principal reason for the dismissal was the fact that the employee had participated in union activities and had acted on behalf of a union, s 187(1)(d) would be contravened and the dismissal would be automatically unfair. This was the case even if other reasons had also played a lesser role. The LAC came to the conclusion that, although the facts which gave rise to the employee s dismissal arose whilst he was exercising a right conferred by the LRA (representing Munyai at a CCMA arbitration), the dominant reason for his dismissal was his dishonest conduct whilst representing Munyai rather than the fact that he was representing the Munyai. The dismissal had therefore not been automatically unfair. The LAC also addressed the issue of alleged procedural unfairness ie Mutual & Federal s failure to consult with the applicant employee s union prior to taking disciplinary steps against him. The employer argued that there was no duty to consult because the union had not been recognised by it it had minority support amongst the workforce and its representivity was dropping. The Court found that it was not necessary that a union had to be representative in order for such consultation to be required, and found that item 4(2) had therefore not been complied with. Nevertheless, it was not prepared to order the payment of compensation for this failure. The applicant employee had suffered no prejudice and had been ably represented by another employee. The employer s error was also bona fide. As the following excerpt shows, in coming to this decision the LAC made some interesting comments regarding the rights of a shop steward when representing an employee at a disciplinary enquiry or a CCMA arbitration. That an employee, even when he or she is representing a fellow employee at a disciplinary enquiry or arbitration hearing, owes certain duties to the employer cannot be doubted. Among these is the duty to act honestly. The second appellant himself conceded this. After all, when an employee represents a fellow employee at a disciplinary enquiry or arbitration hearing, he or she does so precisely in that capacity of being a fellow employee. The fellowship does not transubstantiate the continuing employment relationship between the employer and the representing employee. In Mondi Paper Co Ltd v Paper Printing & Allied Workers Union & Another (1994) 15 ILJ 778 (LAC) Nugent J, as he then was, said in a slightly different context: No doubt a shop steward should fearlessly pursue the interests of the members he represents and he ought Page 103

4 In the absence of such an agreement a normal retirement age will be the age at which employees have been retiring for such a period of time that it can be said that it has become the norm for employees to retire at this age. Cash Paymaster Services v Browne to be protected against being victimized for doing so. However, this is no licence to resort to defiance and needless confrontation. I do not agree with the view of the court a quo that t h e fact that he was acting in his capacity as a shop steward serves to mitigate conduct which objectively is unacceptable. Notwithstanding the position to which he has been elected, a shop steward remains an employee, from whom his employer is entitled to expect conduct appropriate to that relationship. Of course, a court should be slow to confirm the dismissal of an employee whose conduct at a disciplinary enquiry or arbitration has, as a result of immaturity, inexperience, overzealousness, exuberance, or an inability to maintain a certain detachment, fallen short of the standard that could reasonably have been expected. An employee representing a fellow employee has the right, and indeed the duty, to do so fearlessly to the best of his or her ability. The following was said in Ngubo & others v Hermes Laundry Works CC(1990) 11 ILJ 591(IC) It is contrary to the interest of other employees and counter-productive as far as sound labour relations are concerned, to discipline in the severest possible manner, namely, by dismissal, a shop steward who makes himself guilty of an infraction because he is performing his functions as a shop steward Nevertheless the right and duty to represent a fellow employee to the best of one s ability is not an unbridled licence: it is constrained by the duty to do so honestly. Without honesty on the part of representatives of the parties, the system would be unviable. ( 608F - 609E) The Cash Paymaster Services decision Section 187(1)(f) states that a dismissal is automatically unfair if the reason for the dismissal is that the employer discriminated against the employee on a variety of grounds, including the employee s age. Section 187(2)(b) states that a dismissal based on age is fair if the employee has reached the normal or agreed retirement age for employees of his type. In two decisions the LAC has had to consider the effect of s 187(2)(b). In Rubin Sportswear v SA Clothing & Textile Workers Union & others (2004) 25 ILJ 1671 (LAC) the employee concerned had been transferred to the employment of Rubin Sportswear by virtue of the provisions of s 197 of the LRA - the business that he had been employed by had been transferred to Rubin Sportswear as a going concern. His old employer did not have an agreed or normal retirement age. Rubin Sportswear had a normal retirement age of 60. It then attempted to apply this retirement age to the transferred employees. It terminated the employment of four of these employees when they reached the age of 60. They instituted proceedings in the Labour Court which found that they had been automatically unfairly dismissed on the basis of age. Rubin Sportswear then appealed to the LAC. The LAC upheld this finding and found that the attempt by Rubin Sportswear to force the employees to accept the age of 60 as their retirement age was unlawful, wrongful and of no effect. It also considered what was meant by a normal retirement age. It came to the conclusion that normal means that which accords with the norm. It also pointed out that an employer cannot unilaterally determine what its normal retirement age will be. It may make a proposal to its employees in this regard, and if they agree, this becomes an agreed retirement Page 104

5 age. In the absence of such an agreement a normal retirement age will be the age at which employees have been retiring for such a period of time that it can be said that it has become the norm for employees to retire at this age. The employee in the Cash Paymaster Services case, a Mr Browne, had also been transferred to a new employer in terms of s 197 of the LRA. His old employer had had an agreed retirement age of 65. His new employer, Cash Paymaster Services, had no agreed age of retirement at the date that the transfer took place. However, it subsequently amended its staff manual to include a retirement age of 60. He objected to this age being applied to him and argued that his agreed retirement age with his previous employer was part of his contract with Cash Paymaster Services. Discussions on this issue took place but no agreement could be reached. Browne s employment was then terminated when he reached the age of 60. His claim that he had been automatically unfairly dismissed on the basis of age was upheld by the Labour Court and, on appeal, by the LAC. One of the arguments raised by Cash Paymaster Services was that even if Browne s agreed retirement age was 65, there was a normal retirement age in operation within the financial services sector (in which Cash Paymaster Services operated) and that he had reached this age. In the case where there was both an agreed and a normal retirement age and the normal retirement age was lower than the agreed retirement age, an employer was entitled to require an employee to retire at the normal retirement age. The LAC rejected this view in the following terms - The retirement age dispensation provided for in s 187(2)(b) of the Act is one that works on the basis that, if there is an agreed retirement age between an employer and an employee, that is the retirement age that governs the employee s employment. This is the case even when there is a different normal retirement age for employees employed in the capacity in which the employee concerned is employed. The provision relating to the normal retirement age only applies to the case where there is no agreed retirement age between the employer and the employee. The van der Velde decision The employee in this matter, Eric van de Velde, was employed in 1999 by Business & Design Software (Pty) Ltd (BDS) as the general manager and managing director designate. In 2001 BSD was taken over by the AST Group. At that time he was still the general manager although it appears that it was still the intention to appoint him as managing director. This appointment was never made. During the course of 2002 a Paul Smulders was appointed as managing director. Van der Velde continued in his position as general manager. Sometime during September 2002 van der Velde was informed by Smulders that management within the AST Group was concerned that the management structure of BDS was top heavy and that he (van der Velde) was surplus to requirements. However, no attempt was made to retrench him at that stage. In January 2003 it became known that a consortium led by Smulders had proposed a management buy-out of BDS. Van der Velde then submitted a counter-bid to purchase BDS. In February 2002 the AST Group announced that the consortium led by Smulders had been successful. This then led to a meeting between Smulders and van der Velde in which it was agreed that there would be a cooling-off period to allow van der Velde to come to terms with the fact that his bid had been unsuccessful. Van der Velde then made a offer, together with other members of staff, to take over the back-office part of the business. This offer was rejected and the majority of the staff employed in this part of the business then resigned. Smulders and others were concerned that Contemporary Labour Law is published monthly from August to July of each year. Visit our website at www. workplace.co.za for information and subscription details. Subscription Enquiries : Tel : (021) Fax : (021) workplace.co.za Copyright held by the authors. No part of this publication may be reproduced in any form without the prior written consent of the publishers. Page 105

6 van der Velde had orchestrated these resignations. During February 2003 Paul Smulders brought his brother, Marcel Smulders, into the business. This brought to the fore the role that van der Velde should play in the business, and during March various discussions took place and various letters were exchanged. At a meeting held on 3 March 2003 van der Velde was advised that he had three options, namely to resign, to stay at BDS and face disciplinary action, or to be retrenched. Van der Velde then sent a letter to Paul Smulders and the AST Group in which he proposed that he be retrenched and proposed certain terms in this regard. On 7 March 2003 BDS addressed a letter to van der Velde in which he was offered alternative employment by BDS as its administration manager at a reduced salary in which capacity he would report to, and assist, various other managers. A few days later he received a letter from the Human Resources Manager of AST, one Strydom, in response to his proposal that he be retrenched. It was indicated to him that no package would be offered to him because his skills and the role he played within the organisation made him a valuable employee. On 26 March 2002 a meeting took place between van der Velde, the Smulders brothers and Strydom. Van der Velde was told that BDS was being restructured and that the position of general manager would no longer exist from 1 April He was also told that if he did not accept the post of administration manager he would be retrenched. A further meeting took place on 28 March 2003 during which the same message was presented to van der Velde. He refused the offer of alternative employment. He was then dismissed. He claimed that he had been automatically unfairly dismissed, alternatively that he had been unfairly dismissed and referred the matter to the Labour Court. During this period it appears that negotiations had been taking place between the National Golf Network (Pty) Ltd (NGN) on the one hand, and BDS and AST on the other, for the sale of BDS s business to NGN. On 3 April 2003 an agreement was entered into in terms of which NGN acquired the business of BDS. This transaction took the form of the sale of a business as a going concern to which s 197 of the LRA applied. In other words, all the employees of BDS were transferred to NGN on the same terms and conditions of employment. Notwithstanding the fact that the agreement was signed on 3 April 2003, and notwithstanding the fact that the sale was subject to certain suspensive conditions which were only met on 4 April 2003, NGN, BDS and AST attempted to give the agreement retrospective effect by agreeing that the effective date of the sale was 1 January In terms of this agreement ownership of the business was deemed to have transferred on 1 January The potential effect of s 197 and the agreement posed a problem for van der Velde. Who was his employer at the time of his dismissal? At the time that he was dismissed he was, in reality, employed by BDS as the agreement had not yet been signed. However, in terms of the agreement between NGN and BDS/AST the effective date of the transfer of the business (and therefore of the employees) was 1 January If this agreement were to be given effect to it would mean that he had been employed by NGN on the date of his dismissal. To avoid this problem van der Velde cited both BDS and NGN as respondents in his application to the Labour Court. However, BDS raised this issue at the commencement of the Court proceedings and argued that it was not van der Velde s employer at the date of dismissal and should therefore not have been cited as a respondent. The Court first considered this preliminary point and, in a separate decision dated 18 November 2005, came to the conclusion that BDS had been the employer. (This decision is dealt with later in this edition.) The Court then reconvened during early 2006 to consider the merits of the case. The first issue to be considered by the Court was whether there had been an automatically unfair dismissal. Van der Velde relied on the provisions of s 187(1)(g) and argued that the reason for his dismissal was the transfer of the BDS business as a going concern, or at the very least a reason related to this transfer. The intention of the legislature in enacting s 197 was to protect both the interests of employees and employers in the situation where a business is transferred as a going concern. On the one hand employees rights are protected in that their employment is not affected by the transfer and they continue their employment with the new employer. On the other hand it facilitates commercial transactions Page 106

7 by making it possible for employees to be transferred from one employer to another and it relieves the transferring or old employer of the obligation to pay the retrenchment benefits which would otherwise have resulted from the fact that the business (or part thereof) in which the employees worked had been transferred to another employer. (See National Education Health & Allied Workers Union v University of Cape Town & others (2003) 24 ILJ 95 (CC) at 118A.) There is a balancing of the interests of employers and employees. But s 187(1)(g) must also be considered in this regard. It supplements s 197 in the sense that it is aimed at preventing employers from evading the provisions of this section. If this type of provision did not exist, employers could retrench employees prior to the sale of the business taking effect to avoid employees being transferred to the new employer. Alternatively, the new employer could retrench workers after receiving them into its employment. There would, of course, be retrenchment benefits that would have to be paid but these would not necessarily act as a disincentive to retrenchment. On the other hand, if extensively interpreted, this section could hamper the other purpose of s 197, namely to facilitate commercial transactions. In many cases the effect of a transfer will be to create at least some redundancies in the new employer s business. The possibility that the retrenchment of the redundant employees will give rise to a claim that employees have been automatically unfairly dismissed may act as a disincentive to a going concern transaction being entered into. The costs involved and the inability of the new employer to make use of potential synergies created by the possible merging of two businesses may simply mean that the potential purchaser of the business decides that the transaction is not in its interests. (This, in turn, may lead to job losses and thus affect the interests of employees.) How must s 187(1)(g) be interpreted and applied to ensure that the balancing of interests envisaged in s 197 is not affected? The way in which the conflicting interests of employer and employee should be reconciled was explored by the Labour Court when considering van der Velde s argument in this regard. The Court s approach was as follows An employee who claims that he has been dismissed in contravention of s 187(1)(g) must establish that he was dismissed and that the transaction which he alleges gave rise to his dismissal was a going concern transaction as envisaged in s 197. The employee must also establish that there is some credible evidence to support the proposition that the dismissal and the transfer might be causally linked. It is not enough for the employee to simply allege such a link. The fact that the dismissal occurs at a point in time that is in close proximity to the date of the transfer will, in most (but not necessarily all) cases constitute credible evidence of a causal link between the transfer and the dismissal. If the employee discharges this evidentiary burden then the employer bears the onus of showing that the reason for the dismissal is not the s 197 transfer itself or a reason related thereto. Here the two-stage causation test formulated in the decision in SA Chemical Workers Union & others v Afrox Ltd (1999) 20 ILJ 1718 (LAC) should be applied. The first stage of the process involves a factual consideration of whether the dismissal would have taken place even if there had been no transfer of a business (or part thereof) as a going concern. If such a dismissal would have taken place even if the transfer had not taken place there is clearly no causal link between the dismissal and the transfer. However, the mere fact that the transfer was the factual cause of the dismissal does not mean that that it was the legal cause. The transfer in terms of s 197 will only be regarded as the legal cause once it is found to have been the real or dominant cause of the dismissal. (The Court pointed out that in the Kroukam decision Zondo JP expressed the view that the test for legal causation could be less strict in that it would be complied with if the prohibited reason significantly influenced the employer s decision to dismiss. However, the Court did not have to take a view on this point see below.) Page 107

8 The Afrox decision dealt with an allegation of an automatically unfair dismissal in the context of a dismissal during the course of a protected strike. The Kroukam decision dealt with an alleged automatically unfair dismissal on the basis that the employee was dismissed because of his activities on behalf of his union. The Court pointed out that the wording of s 187(1)(g) made things more difficult. Section 187(1)(g) applies where - the reason for the dismissal is a s 197 transfer, and; where the reason for the dismissal is a reason related to such a transfer. An employer dealing with a redundancy created by the transfer of a business as a going concern can cogently argue that a retrenchment in these circumstances does not necessarily fall within the first part of s 187(1)(g). This redundancy may have been factually caused by the s 197 transfer, but this is not legal cause of the dismissal. The real or dominant reason for (or cause of) the retrenchment is the fact that it has too many employees and certain workers are now redundant. (Note, however, that this does not deprive a redundant employee of protection against unfair dismissal. It merely means that there has been no automatically unfair dismissal and the employee still retains the right to argue that the dismissal was unfair because, for example, unfair selection criteria were utilised or that reasonable alternatives to dismissal were not exhausted.) The extended wording of the second part of s 187(1)(g) makes the above argument more difficult. It can be argued that the dominant or real cause for the dismissal in these circumstances is a reason related to the transfer. The Court rejected this view. It accepted that the view expressed by Professor Darcy du Toit in Todd et al Business Transfers in South Africa (Lexis Nexis) at 167 that a reason related to a s 197 transfer is a broader concept - and was no doubt included in subsection 187(1)(g) to prevent dismissals which offend against that provision even though passing the test of causality for the technical reason that the dominant cause of the dismissal, although inextricably bound up with the transfer, was not the transfer itself. The Court also referred to an example given by Prof Darcy where an employer retrenches workers prior to a transfer of the business as a going concern at the behest of the potential purchaser who does not want to have these employees transferred to its employment. Here the reason for the dismissal is not the transfer itself because this has not yet taken place; but it is a reason related to a transfer. (See also in this regard the recent Labour Court decision in Lotz v Anglo Office Supplies[2006]5 BLLR 491 (LC).) Nevertheless, the Court also made the point that it could not have been intended that any connection between a transfer and a dismissal, however tenuous, should be sufficient to make a dismissal automatically unfair. It also pointed out that redundancies often arise from the transfer of businesses and that this is particularly so post-transfer, where the transferee employer may well be faced with two workforces, and where rationalisation is both necessary and inevitable. It would be absurd to suggest that any dismissal in these circumstances, whenever effected, would be automatically unfair simply because in some literal sense, it can be said that the dismissals would never have occurred but for the transfer, or because they were on some other basis transfer-dependent. In the Court s view the balance to be struck between the competing interests of employers and employees when interpreting s 187(1)(g) is to determine whether the dismissal was used by the employer as a means to avoid its obligations in terms of s 197. If this was the reason for the dismissal the dismissal was related to the transfer. If not, the dismissal would not be automatically unfair but the employee would still be able to argue that the dismissal was unfair by virtue of the provisions of s 188 and 189 of the LRA. Using this approach, and after an analysis of the evidence, the Court came to the conclusion that van Der Velde s dismissal had been automatically unfair. Leave to appeal has been granted and it will be interesting to see how the LAC deals with this issue. PAK le Roux Page 108

9 The dating of s197 transfers Van der Velde v Business & Design Software It is not unusual for the parties to a going concern transaction to state in their agreement that the effective date of the transaction, ie the date on which the bundle of assets, rights and obligations that constitute the business that is being transferred is transferred to the new owner, differs from that on which the agreement was actually entered into. In the context of s 197 of the Labour Relations Act, 66 of 1995 (LRA) this can give rise to interesting issues. This is illustrated by the facts in the dispute between Mr van der Velde and Business Design Software (Pty) Ltd (BDS). The facts of this case are discussed in the previous contribution which dealt with the interpretation of s 187(1)(g) of the LRA and the allegation that van der Velde had been automatically unfairly dismissed. Prior to dealing with this issue the Court was called upon to consider the preliminary question as to who was his employer at the date that he was dismissed. In this case it was common cause that van der Velde had been dismissed by BDS on 28 March 2003 and that at that date BDS was his employer. However, a few days later, on 3 April 2003, BDS entered into an agreement with National Golf Network (Pty) Ltd (NGN) in terms of which its business was transferred to NGN as a going concern. This agreement contained a clause in terms of which the effective date of transfer would be 1 January In other words, the parties agreed that the agreement would have retrospective effect and that the date on which the business was transferred as a going concern would be a date prior to the date on which he had been dismissed. If this agreement was given effect to by the Labour Court, van der Velde s employer would have been regarded as being NGN. It not, the employer would have been BDS. Van der Velde s legal representatives decided to take a cautious approach in this regard and to cite both BDS and NGN as respondents. However, BDS objected to this approach and argued that it should not be cited as a respondent. The Labour Court considered and determined this point in the decision of Van der Velde v Business & Design Software (Pty) Ltd & another JS 371/03 (unreported 18 November 2005). BDS s legal representative argued that the old and the new employer could, by agreement, determine the date of transfer of employment and that the Court should give effect to this agreement unless the two employers had entered into the agreement with an ulterior motive. Van der Velde s legal representative rejected this contention. He argued that the effective date set by the contract was a fiction and that the date of transfer of employment could, at the earliest, have been the date on which the suspensive conditions set for coming into force of the contract were met, ie 4 April On 28 March 2003 there was no contract in existence between BDS and NGN and there could therefore have been no transfer of employment prior to that date. The Court stated that there may be valid commercial reasons for sellers and purchasers of businesses making the operation of their agreements retrospective. There is also nothing in the LRA to prevent them assigning or apportioning employment-related responsibilities and liabilities to one of them, or between them. Section 197 accepts that this can occur and protects employees interests by requiring disclosure to affected employees of the terms of any agreement in terms of which liabilities are apportioned in respect of certain payments. However, in the Court s view, it did not follow that the employer parties could by agreement between themselves bind an employee to an effective date of transfer and by agreement decide on a date on which s 197 will be triggered. The agreement between BDS and NGN therefore could not have the effect of changing the reality that on 28 March 2003 BDS was van der Velde s employer and that BDS had dismissed him. The date of transfer for the purposes of s 197 cannot be a date earlier than what the Court termed the date of closure, the date on which the transferor employer takes final and unconditional control and responsibility for the transferred business. This is not Page 109

10 a date that can be made retrospective or postponed by the will of the transferor and transferee employers. It is a date to be determined objectively, regardless of what has been agreed by the employer parties. (The Court did, however envisage that the employees themselves or their representatives could agree to a different date.) The Court therefore held that BDS had been properly cited as a respondent. It gave four reasons for this view. Whether or not there has been a transfer of a business as a going concern is a matter that must be objectively determined, having regard to all the relevant factors. This implies that there will have to be some physical transfer, or at least some assumption of control, over the bundle of assets, rights and obligations that comprise the business, and which are the subject of the transfer. There is a sense of chronology in section the transfer of the business occurs, immediately followed by the substitution of the transferee employer in relation to all contracts of employment in force on that date. To permit employer parties to manipulate the provisions of section 197 by effectively ceding employment contracts with retrospective effect to a date preceding the date of the completion of the transaction and the assumption of physical control of the business is inconsistent with the logic and structure of the section. Section 197 is based on the assumption that employees have a right to know the identity of their employer. This is a right recognised by the common law, which prohibits the transfer of a contract of employment from one employer to another without the employee s knowledge and consent. Section 197 creates a statutory exception to the common law rule, but it also provides a series of in-built protections for employees. For example, s 197(7) obliges the transferor and transferee employers to agree on defined employment-related liabilities for severance pay and certain accrued earnings, and to disclose the terms of their agreement to affected employees. In a transaction that complies with s 197, an employee would be aware, therefore, of the identity of the new employer and which of the employers has assumed the liabilities concerned. If the employer parties to a transfer were able to manipulate the transfer date by agreeing to a deemed date on which the business transferred, or on which s 197 was triggered, there is potential prejudice to an affected employee in that he may have an incorrect understanding of who is employer is at a particular date. In this case, if the agreement had been upheld, van der Velde would not have known that he was employed by NGN on the date of his dismissal. To allow the employer parties to fix the date of transfer of a business for the purposes of s 197 would give rise to the possibility of abuse. Section 197(8) envisages that, in certain circumstances, the old and the new employer remain jointly and severally liable in respect of certain liabilities for a period of 12 months after the date of the transfer. If the employer parties to an agreement effecting the transfer of a business were able to manipulate the transfer date, it may be possible, by fixing an effective date 12 months and one day prior to any physical transfer of the business, to circumvent this protection, particularly when the transferee employer is a shell. This was one of the reasons for enacting s 197(8) - the possibility of unscrupulous employers using s 197 to transfer employees into a shell company and then putting those companies into liquidation to avoid payment of unpaid remuneration, severance pay, accrued leave, and the like. Finally, the facts also showed that the two employers did not act consistently with the notion that the transfer had taken place on 1 January PAK le Roux Page 110