What happens when there are no employee/employment contracts transferred? Is the business still transferred as a going concern?

The Labour Court recently had to decide whether the termination of a service agreement and the concluding of another service agreement with a new service provider to render the same or similar services constituted the transfer of a business as a going concern in terms of section 197 of the Labour Relations Act 66 of 1995 (LRA).

9 Oct 2023 1 min read Employment Law Alert Article

At a glance

The Labour Court recently had to decide whether the termination of a service agreement and the concluding of another service agreement with a new service provider to render the same or similar services constituted the transfer of a business as a going concern.
The respondent argued that, once the first service agreement was terminated, there would be no employees (and no employment contracts) to be transferred after the effective date of termination of the first service agreement.
The court rejected this argument and found that the Labour Relations Act 66 of 1995 provides for “post-transfer obligations” on the part of the transferor employer, where the latter becomes jointly and severally liable with the transferee employer, to any employee who becomes entitled to receive payment for accrued leave and severance pay.

This matter is novel in that the court had to decide whether a business is capable of being transferred as a going concern if the employees of the transferor employer are engaged on fixed-term contracts that terminate when the service agreement between the transferor employer and its client terminates.

The submission made by the respondent party in these proceedings was that, once the first service agreement is terminated, there would be no employees (and no employment contracts) to be transferred after the effective date of termination of the first service agreement.

The court rejected this argument and found that – even if this is the case and that there would be no employees (and no employment contracts) to be transferred after the effective date of termination of the first service agreement – section 197 provides for “post-transfer obligations” on the part of the transferor employer, where the latter becomes jointly and severally liable with the transferee employer, to any employee who becomes entitled to receive payment for accrued leave and severance pay.

Accordingly, the principle is that – even if few to no employees are, in fact, transferred – one must consider whether the substantive requirements of section 197 of the LRA have been met, if only for determination of whether post-transfer obligations came into existence.

The information and material published on this website is provided for general purposes only and does not constitute legal advice. We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter. We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages. Please refer to our full terms and conditions. Copyright © 2024 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com.