28 January 2009

Retrenchments connected to transfer of businesses: automatically unfair?

If an employer dismisses an employee for reasons related to the transfer of a business as going concern, which transfer took place in terms of section 197 of the Labour Relations Act,1995 (the LRA), the dismissal will be automatically unfair. But what does this mean? The LRA's provisions in this respect have been a cause for debate amongst employers and lawyers.

The Labour Court (the Court) recently shed light on the issue. In the matter of Viney v Barnard Jacobs & Mellet Security (Pty) Ltd (2007) 29 ILJ 1564 (LC), the Court confirmed the use of a two-step test employed in other branches of the law to determine the true reason for a dismissal. The Court indicated that what is important is establishing the factual and legal reasons for which an employee was dismissed. This test, in short, is to establish the factual cause of the dismissal and then to enquire whether the transfer of the business concerned as a going concern was the "dominant, proximate or most likely cause" of the dismissal.

The Court held that the employee must initially set out sufficient evidence to raise a credible possibility that an unfair labour practice has taken place, by giving evidence of a causal connection between the transfer of the business and his dismissal. The burden then shifts to the employer to prove that the reason for the dismissal was not related to the transfer of business, and failure to do so would render the dismissal presumed to be related to the transfer of the business and thus unfair.

The employer in the Viney case argued that while the dismissal occurred after the transfer of the relevant business, the employee concerned would still have been dismissed for operational reasons even if the transfer of the business not taken place, thus rendering the dismissal fair. This approach was rejected by the Court. The Court made it clear that when an employee is dismissed subsequent to the transfer of the business in which he is employed, the two step test has to be directed at the new, post transfer employer, who on the date of the transfer took responsibility for the employment of the employee.

The Court in this case found that the correlation in timing between the transfer of the business, the overstaffing that resulted from the transfer and the dismissal of the employee concerned, all indicated that the employee was dismissed post transfer, as a result of the transfer of the business, rendering the dismissal automatically unfair.

The conclusion must therefore be drawn that if the target firm in a section 197 transfer is in financial difficulty, then dismissals of its staff members for operational reasons should be effected prior to the transfer of the business, by the target firm itself and not left for the acquiring firm to undertake after transfer. Any disputes about a dismissal in these proposed circumstances will then be evaluated in terms of the normal criteria for fairness in dismissals based on operational requirements, rather than the on the stricter tests for fairness applied when dismissals are made pursuant to the transfer of a business as a going concern.

Retha Beerman

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