Transfer of a business “as a going concern” is not the same as only selling shares or assets of the business, but it rather refers that the transferred company continues to run ordinarily as it did in the hands of the purchaser. The previous owner will no longer conduct this business and carries it over to the new owner. Section 197 of the Labour Relations Act regulates the transfer of a business as a going concern from the old employer to the new employer as well as the rights of the employees and Section 197A regulates the transfer of an insolvent business.
To determine whether a business is transferred as a ‘going concern’, other factors than the mere intention to transferring parties must be taken into account. These factors include: To determine whether a business is transferred as a ‘going concern’, other factors than the mere intention to transferring parties must be taken into account. These factors include:
- The premises;
- Assets;
- Goodwill of the business;
- The nature of activities transferred;
- The continuity of the operation;
- The stock in trade;
- Contracts with customers or clients.
In NEHAWU & others v University of Cape Town 2003 (2) BLLR 154 (CC), the point of view to determine whether a business was transferred remains in existence just in the hands of another employer.
Section 197(7) of the LRA: What are the employees’ rights in the transfer of a business, and what are they entitled to when the new employer substitutes the old employer?
- The conditions in the contract in its whole may not be less favourable than the conditions of the old employer unless agreed upon.
- In terms of Section 186(1)(f), resignation due to less favourable conditions will be seen as a dismissal.
- Dismissals, unfair labour practice, and misconduct that took place during the service of the old employer will be deemed done by the new employer.
- The continuity of the employee’s contract will not be interrupted – this is especially important concerning the employee’s rights when calculating the severance package.
- When a business is carried over as an insolvent one, the same principles above applies as immediately before the winding-up or sequestration of the business.
Section 197(7) of the LRA: Who will be liable when a severance package becomes payable?
The old and new employer will be severally and jointly liable for a period of 12 months after transfer unless there is a joint written agreement between the employers that the new employer will be liable for the following amounts:
- Leave accrued to the employees;
- Any severance pay due;
- Any other payments due to the employees or commitments.
What is the standard calculation for severance pay that I will be entitled to?
- 1 weeks’ salary for each continuous completed year of service;
Notice pay as follows:
- If you are employed less than 6 months – 1 Week notice pay;
- If you are employed more than 6 months but less than 12 months – 2 weeks’ notice pay;
- If you are employed for more than 12 months – 4 weeks’ notice pay.
- The situation may differ if the employee is a member of a bargaining council;
- With reference to the Income Tax Act, the first R 500 000 pension and severance pay in a person’s natural lifetime is exempted from tax.
Conclusion:
The seller and the purchaser may not unilaterally decide on the future of the employees. The parties must take the factors mentioned above to determine whether the business is sold as a going concern. Severance pay will not be influenced by the transfer as the continuity of the employment is not interrupted.
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About The Author:
Gerhard Olivier is a Labour and BEE Legal Advisor at SEESA’s Bethlehem office. He obtained his LLB degree in 2015 at the North West University of Potchefstroom and completed his articles in Bethlehem.
References:
- Basic Conditions of Employment Act, 1997. – Section 41
- Labour Relations Act 66 of 1995 Section 197.
- Income Tax Act 58 of 1962 Section 57
- Nehawu v University of Cape Town and Others (2000, 1 BLLR 803)