One condition of a valid agreement is consensus between parties to the agreement. The Labour Court echoed these sentiments in Motor Industry Staff Association and Another v Eastvaal Motors (Pty) Ltd (JS927/2019) [2024] ZALCJHB 256 (17 July 2024), where a dispute surrounding the implications of transferring a business or part thereof was considered.
The case pertains to an agreement concluded by two companies operating in the automotive industry, namely, Motormid (Pty) Ltd (Motormid) and Eastvaal Motors (Pty) Ltd (Respondent). Part of the agreement was that the latter party would purchase assets, assume the responsibilities of the former by way of employing their existing employees and continue its operations as a dealership.
Leading up to the completion of the transaction, various meetings were held with the employees who would likely be affected by the transfer. Helena Dorothea Stoffberg (Applicant), who was employed by Motormid at the time of the negotiations, contended that in lieu of being employed under new management, she would instead want to be retrenched and paid her severance pay. The request was met with complete disfavour, and the Applicant was advised that the alternative to accepting the employment offered was to tender a resignation.
This dispute arose from the Applicant’s dismissal shortly after the Respondent took over the operations of the former dealership.
The questions emanating from the dispute were whether there was a transfer of a business by one employer to another employer as a going concern in terms of Section 197(1) of the Labour Relations Act (The Act). Another question was whether the Applicant’s dismissal had amounted to an Automatic Unfair Dismissal according to Section 187(1)(g) of the Act.
In its analysis, the Labour Court (LC) initially sought to identify if a transfer had taken place and referenced the matter of Aviation Union of South Africa and Another v SAA (Pty) Ltd and Others (2011) 32 ILJ 2861 (CC) (24 November 2011) to establish the elements of a business transfer as a going concern. It was held that “for a transfer to be established, there must be components of the original business that are passed on to the third party. These may be in the form of assets or the taking over of workers assigned to provide the service.”
Following the guidance of the afore, the LC found that the transfer of a business as a going concern had been undertaken consequent to the sale agreement between Motormid and the Respondent, having also considered the nature of the business in which both parties operated. The transfer was further evidenced by the Respondent’s undertaking to retain the employees of Motormid. Concerning the Applicant, the Labour Court was of the view that a termination of employment only took place after the business “takeover”, and this, in effect, made the Applicant an employee of the Respondent. The dismissal of the Applicant was thus held to have been automatically unfair.
What must be borne in mind when dealing with sale or purchase transactions of a business is the implications of transferring a business as a going concern, such as that the new employer is automatically substituted in the place of an old employer in respect of all contracts of employment in existence immediately before the date of the transfer.
As a new employer, you are bound by the previous employer’s employment relationship obligations, including the employment contracts entered with its employees. Should an employer dismiss an employee for reasons consequent to the transfer of a business, the dismissal may be deemed automatically unfair under Section 187(1)(g) of the Act.
Article By Nomcebo Magagula
Dispute Resolution Official at Consolidated Employers Organisation (CEO SA)