Section 197 of the Labour Relations Act (LRA), 1995 deals with transferring a business from one employer to another employer as a going concern.
What constitutes a “going concern”?
This question is not answered by the LRA but can be determined, it seems, by reviewing the following factors:
- The intention of the transferring parties.
- The continuity of the operation, for example, the business entity is still in existence after the transfer.
- The employees have been taken over by the new employer.
- The nature of the activities transferred remains in place.
Although the above list is not exhaustive, they are consistently mentioned in various case laws. Therefore, quite simply put, a Section 197 Transfer entails the new employer stepping into the shoes of the old employer – “the same business, but merely in different hands”
It is important to be mindful of the following:
- The new employer is obliged to take over the existing staff.
- The transfer cannot interrupt the employees’ years of service. The employees’ years of service will run continuously with the new employer.
- The terms and conditions of employment with the new employer must remain the same as the old employer or at least must not be substantially less favourable. In other words, the employee can be transferred to a different provident-, pension- or retirement fund provided it complies with Section 14 (1) of the Pension Fund Act, 1956.
- All rights and obligations between the old employer and employee at the time of transfer remain in force after the transfer between the new employer and the employee.
It is important that both the old and new employer ensure that before concluding the sale agreement they consider the above and most importantly the LRA to ensure that the rights of the employee are not infringed upon and that they are aware of their obligations.
ABOUT THE AUTHOR
Simone Elizabeth Tayler obtained her LLB degree from the University of KwaZulu-Natal in 2007. After completing her articles at the prominent Pietermaritzburg Law Firm, Stowell & Company, she went on to work as a Professional Assistant at AG Jenkins Attorneys specialising in trusts, estates and conveyancing. She is now a SEESA Labour Legal Advisor at our Durban office.