The Aviation
Union of SA & another v South African Airways (Pty) Ltd. & others
(2011) 32 ILJ (CC) 2861, a Constitutional Court ruling on section 197 of the 1995
Labour Relations Act of South Africa on business transfers, was applied and
followed shortly thereafter in the important further judgement a month later,
in Harsco Metals SA (Pty) Ltd & another v Arcelormittal SA Ltd & others
(2012) 33 ILJ 901 (Labour Court) at the end of December 2011 by Van Niekerk, J.
These landmark
decisions on many aspects of employment and business transfers are discussed
around a series of important practical issues and questions for those involved
in mergers, acquisitions, outsourcing, business sales, going concern transfers
and business development.
The facts:
Harsco conducts business in 30 countries worldwide and operated at 13 locations
in South Africa. It provided slag (a by-product from ore smelting) management
services in South Africa to Arcelormittal (AMSA) and its predecessor Iscor, for
40 years. During 2011, AMSA called for tenders. Harsco lost out to two separate
competitors, Phoenix (P) and Tube City (T), respectively, who were awarded the
tenders at four plants to conduct substantially similar services, and who were
prepared to take over and employ 300 of the 445 impacted employees. About 145
employees were to be ''left behind'' with Harsco, and could lose their jobs.
Harsco had to assist with certain handover services for a limited period.
Harsco was to retain its head office staff, as well as two site managers under
restraints of trade in favour of Harsco. AMSA was to acquire less than 50% of
the plant, and 32.5% of the movable assets deployed by Harsco at AMSA. The
stakes were high: if Harsco succeeded, its competitors P and T were saddled
with about 145 more employees than it needed, and would have to redeploy them,
or embark on retrenchments. Further relevant facts will appear from the comments
herein.
An important point : a section 197 dispute can go to court before the deal is implemented
On 23 December
2011, in the dying throes of the year, Harsco sought an urgent declaratory
order that this transfer of the work to P and T as from 1 January 2012 was
governed by section 197 of the LRA and that all 445 employees were to transfer
to P and T, respectively. AMSA, P and T all opposed this argument, and four
unions involved mainly reserved their position. In itself, this application
applied an important aspect of the SAA CC judgement a month before : such a
dispute can be ruled on by a court before the new deal is implemented, i.e. is
a justiciable dispute. (Note : A justiciable dispute is one capable of being
decided by a court of law.)
In the SAA ruling, the Constitutional Court held
that a dispute as to whether or not a specific transaction triggers the
application of section 197 and whether the new employer is substituted for the
old employer of the affected employees, is indeed a justiciable dispute and
thus one that the parties are entitled to have determined by a court of law.
The important point is that a court can be approached even if the commercial
agreement concerned has not yet been implemented between them. These rights and
the deal leverage it presents, attach to the employees impacted (e.g. through
exclusion from transfer), their unions, as well as employers - particularly, in
practice, outgoing providers / old employers. Prior to the SAA CC decision, it
was generally thought that such an application to court is premature and cannot
be ruled on by it, as nothing has as yet
happened to the service, and a court cannot be approached to make a declarator
on speculation or a supposition of facts which have not yet come to pass.
This of course
presumes a concluded agreement between the commercial parties by the time a
labour court is approached. This is of great assistance to trade unions and
outgoing employers who can, if all else fails, seek a declaration from a court
on the complex questions whether section 197 applies in a particular deal. To
do so later, after the deal is implemented can be extremely costly, and
inefficient, in that implementation and staffing to service the deal, has
already rolled out. It supports the interests of workers who need certainty
timeously, and limits the cost risks of the old/outgoing employer who avoids
the (high) likelihood of having to start retrenchments then. What makes Harsco
more interesting, is that it was the first application lodged, not by a union
at that point, but by an outgoing provider / employer in South Africa to seek
the court's declaration, as against its incoming competitors.
This is
particularly important, too, as commercial deals are not won and lost in the
friendliest of climates ; it often involves direct competitors in a field of
service provision, who survive in business through tight administration of all
efficiencies in their businesses. Although the courts have often stated (e.g.
Yacoob, J in the SAA CC decision at par. 48 that, without the protection of
section 197, the new, incoming service provider who has not enjoyed transfer of
the in-scope workers to it, may be exposed to ''catastrophic consequences'',
the reality is seldomly that. It is rather that the new employer rarely wants
to take transfer of the entire workforce under section 197, given its own
staff's skills and experience of how it does business. The new employer very
often only wants a selection, or a cherry-picked group of the old employer's
workforce, and pushes against the applicability of section 197 to the deal won.
Furthermore,
these outgoing and incoming service providers are in no contractual
relationship with each other, and often see no need to collaborate on section
197 (as section 197(6) permits), and rather address their efforts at debating
why the section does, or does not apply. It is this dynamic that gave rise to
the not untypical scenario in Harsco : of 445 impacted employees, 145 were not
selected, fall into uncertainty, and could become the burden of the old
employer, while the business contract shifted away from it. While these
competitor parties are in no contractual relationship with each other, they also
do not enjoy dispute resolution mechanisms, as are commonly included in
commercial contracts, to resolve these disputes.
In this, the
clarity provided by SAA CC that the court may be approached regarding section
197 before the deal is implemented, is welcome assistance to employees and
dealmakers. This assists both workers who may fall by the wayside, and outgoing
employers, who may otherwise easily land up without the contract, but with the
same labour cost burden.
