One of the
flawed assumptions in section 197 of the 1995 Labour Relations Act is that
incoming and outgoing employers (service providers) will agree, or are even
prepared to acknowledge that section 197 applies to their transfer
arrangements. It is one thing to acknowledge that section 197(7) obliges them
to enter into agreements on data objectively verifiable by accountants, such as
accrued leave and severance pay ; it is another to come to agreement that
section 197 applies in the first place. This is particularly true, as the
question whether a particular deal is indeed governed by section 197 remains a
vexed question in practice.
Below we
continue our series of notes and comments on important practical issues
relating to section 197, for those involved in mergers, acquisitions, outsourcing,
business sales, going concern transfers and business development work.
This problem of denial that section 197 applies, is frequently encountered - particularly where a service is in-sourced by a client. In practice, such deals often entailed the earlier outsourcing of a particular service by the client. After expiry of one or two outsourcing contracts (in other words, second or further generation outsourcing agreements), the client resolves to in-source it and conduct the service in-house. Economic challenges in the current economy, do not make outsourcing of core services such as IT and Logistics as obviously efficient and attractive, as might have been the case a decade ago. Reasons for in-sourcing may therefore include : better in-house economies of scale, adequate in-house competencies, better internal management and oversight of the service, flexibility not often procured if an outsourced provider is managed under an SLA, and as stated, tweaking of the service to the business' exact needs, and the belief that it can provide the service more efficiently in-house.
In such cases of
contract cancellation or termination, some clients bluntly refuse to
acknowledge that the employees or a group of them may be governed by section
197 of the LRA. This was the position, for example in the recent decision in
Harsco Metals SA (Pty) Ltd & another v Arcelormittal SA Ltd & others
(2012) 33 ILJ 901 in which the out-going service provider successfully
challenged the incoming slag management services providers in court, to take
transfer of 145 employees whom the latter did not want, out of 445 impacted
employees. [see Article 1]
However, in
commerce it is not always viable or advisable to challenge an incoming service
provider in court on the applicability or not, of section 197. Business
services are provided piecemeal : in IT and Logistics, to name only two
industries, the service provider who lost components of the contract, may still
hold the contract for other parts of the services with the same client.
Normally, suing one's clients is not a way to keep them, or make new ones!
Furthermore, the
client who now takes the service in-house, will frequently change, adapt and
update the service upon in-sourcing, to meet new business demands. In
particular, it will use this opportunity to get away from outdated or already
amortized technology to refresh the quality of service to its own business.
This frequently occurs in the Information Technology sector, where a 5 year
solution and technology deployment is indeed a long time. In such event,
employees with outdated skills, or skills built on outdated technology, are not
attractive to them, and the carefully try to avoid employing them.
To compound this
problem, employees are often loyal to the company they work for, and those with
marketable skills do not particularly wish to transfer to a new, unknown
employer - particularly not to a new one who has indicated that it does not
really want or need those employees, as is often the case. After all, not all
employees are equally in need of the job protection and employment security
purposes of section 197.
In order to
address these problems, one often has to turn to the options presented by
section 197(6) of the 1995 Labour Relations Act to craft agreements between the
old employer and those employees reluctant to transfer, or those employees who
were rebuffed by the new employer, but who do not want to invoke section 197,
simply to transfer and be retrenched.
As for the
resistant new employers, clients who want to avoid taking them to court to
oblige them to take transfer under section 197 often have to turn to mediation
or the dispute resolution provisions of the service agreements with the
in-sourcing client, to resolve this delicate problem. However, after Harsco, it
still appears rational to use the measure of a successful declarator, often sought
on an urgent basis, to oil the wheels of transfer under section 197. Even if
then to gain the very necessary leverage better to negotiate the apportionment
of the inevitable liabilities and need for provisions that come with section
197.
