TRANSFER OF A BUSINESS AS A GOING CONCERN OR NOT?

Section 197 of the Labour Relations Act 66 of 1995 (“the LRA”) offers protection to employees during the transfer of a business as a going concern.

In terms of section 197, a ‘business’ includes the whole or a part of any business, trade, undertaking or service; and ‘transfer’ means the transfer of a business by one employer (‘the old employer’) to another employer (‘the new employer’) as a going concern.

The following factors are considered when determining whether a transfer of a business as a going concern has occurred. These include but are not limited to:

• The transfer of assets both tangible or intangible;
• Whether employees are transferred to the new employer;
• Whether customers / clients are transferred to the new employer;
• Whether or not the same business is carried on by the new employer.

The substance of a transaction rather than its form is relevant in determining whether a transfer of a business as a going concern has in fact occurred. It is also important to determine whether following the transfer, the undertaking has retained its identity.

On 27 January 2023, the labour court handed down judgment in Numsa obo Members v AIH Logistics [2023] ZALCD 2.

AIH Logistics (Pty) Ltd (“AIH”) was concerned with the assembly of motor vehicles.

The applicants, who were members of the National Union of Metal Workers of South Africa (“NUMSA”), were transferred from AIH to Blacksuits (Pty) Ltd (“Blacksuits”) and continued to perform the function of motor vehicle assembly under the supervision of AIH.

The applicants alleged that the transfer from AIH to Blacksuits did not constitute a real transfer of a business as a going concern but only the transfer of services of the employees to the new employer.

According to the applicants, the transaction arose shortly after the National Union of Metal Workers of South Africa started organising at AIH and after wage demands were pushed by employees.

In determining whether the transaction constituted a transfer as envisaged in section 197 of the LRA the labour court highlighted the following:

1. Although not all assets and personnel must be transferred, what should be transferred are those assets and personnel that are essential to the business as the transferor operated it. Without a transfer of the means to do the work, there could be no transfer of a business as a going concern – No assets nor any customers or suppliers were transferred from AIH to Blacksuits and Blacksuits neither had its own equipment nor leased equipment from AIH;
2. AIH argued that it “looked for service providers to assist with people and labour management issues”.
3. The core shopfloor assembly work the applicants performed in this instance was not functionally severable from the overall task of producing Mahindra pick-ups (the ambit of work of AIH);
4. AIH had retained direct supervision of Blacksuits’ workforce;
5. A distinction must be drawn between a genuine transfer of a business as a going concern and the mere transfer of a right to provide an outsourced service;
6. Looked at holistically, Blacksuits was not an autonomous economic entity capable of operating as a going concern.

The labour court concluded that Blacksuits was accordingly not in possession of a going concern after the transfer but rather in possession of the right to perform certain human resources functions – more so when one considered that personnel of Blacksuits were labour lawyers and labour brokers and did not have the requisite experience to work on an assembly line.

The transaction accordingly did not constitute a transfer of a business as a going concern and the labour court ordered that the position between the applicants and AIH before the transaction be restored.