Business Transfers and their effect on employees - a global guide evaluates South Africa's position

23 Mar 2015 4 min read Article

A report comparing labour legislation governing business transfers, in conjunction with 33 countries around the world, is the third comparative global guide of this nature to be released in South Africa. The DLA Piper Global Employment team put together the report entitled, A Global Employment Guide to Business Transfers, with Cliffe Dekker Hofmeyr contributing the South African chapter

Aadil Patel, Director and National Head of the Employment Practice at Cliffe Dekker Hofmeyr noted, "Cross border transactions are driving deal activity at present in Africa and around the rest of the world.  Getting to grips with people issues across multiple jurisdictions is a big challenge and the process requires expert knowledge in each country as well as flawless co-ordination between all the jurisdictions involved in the deal. In this regard, having access to a global network of business law firms all sharing their labour law expertise, can significantly speed up and simplify a  cross border deal and also reduce legal risk. 

"South Africa received an A rating for its labour legislation  in respect of provisions dealing with business transfers in the Global Guide, along with countries like Australia, Germany, Hong Kong, Japan, Netherlands, Singapore, the UAE, UK and USA. Whilst no country's labour laws are perfect or or without unique challenges, in many respects South Africa's labour laws compare favourably with many of the top investment countries in the world. This achievement ought to be celebrated," said Patel.

An A rating in the Global Guide means that there are procedures that must be followed, but it is possible to effect a transfer within a reasonable period of time and without incurring liability if the procedures are followed. However, if the procedures are not followed, the cost implications can be fairly significant.

"What this A rating essentially means is that South Africa's employment legislation offers a similar legal employment framework for multinationals operating in Europe, Asia and the Middle East in respect of transfers of businesses. The legislation in this rating (A) is balanced as it provides protection and legal recourse for both the employers and employees during business transfers," said Patel.

Patel explained that the Labour Relations Act 66 of 1995 (LRA) provides that, in the event that a business (defined as a whole or part of any business, trade, undertaking or service) is transferred as a going concern from one employer to another, the employees employed in the business are transferred automatically from the old employer to the new employer, and the new employer steps into the shoes of the old employer, assuming liability for everything done and owed by the old employer prior to the transfer. Employees have protection against dismissal and changes to terms and conditions.

The G rating was given to countries where the transfer process is deemed to be relatively straightforward, easy to get right and quick to implement, there are either no restrictions at all, or limited requirements which are easy to circumvent or satisfy. Bahrain, Hong Kong, Kuwait, Mexico, Oman, Quatar and Saudi Arabia received the G rating.

Tim Marshall, partner and DLA Piper's International Head of Employment, explained the rationale behind the research, "Employee transfer rules differ significantly across countries, from automatic transfer across the European Union, to termination and re-hire in the US and much of Asia. The required timeframes, consultation obligations and risks involved also vary significantly, from jurisdictions with no specific regulations (e.g. Russia, Japan, UAE) to heavily regulated jurisdictions where getting it wrong presents significant issues for employers (e.g. France, Germany, Netherlands). 

"Timing is often crucial, particularly in relation to consultation processes, and can be one of the most complex issues to get right. Understanding the key differences – and commonalities – between jurisdictions is critical for in-house counsel and HR professionals managing international transactions. This report explores what, if any, employee protection rules apply and when they are triggered, the transfer mechanism, information and consultation obligations as well as post-transfer contract variations and sanctions," said Marshall.

"As an employment practice we will, together with DLA Piper, be issuing numerous guides on employment legislation, outlining information on a global, comparative scale. This research affords us the opportunity to assess where our country's employment legislation fits in, in terms of global best practice. The ability to research on such a global scale is one of many benefits of being part of a pan-African and global alliance with DLA Piper, one of the world's largest law firms," said Patel

Patel added, "Our global research aims to improve understanding and awareness of topical employment issues across borders, which is a huge advantage in cross border transactions." 

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