Section 197 of the Labour Relations Act (LRA) places
heavy responsibilities on the employer who takes over the
business (or part thereof) of another employer as a going
concern. This section forces the new employer to take over
all the labour-related obligations of the old employer.
The term ‘business’ in this context includes any
employer’s undertaking – be it big, small, profit-making
or non-profit, unionised or not, private or government.
Unfortunately, the LRA does not define what a transfer
‘as a going concern’ is. The below circumstances would
be likely to characterise a merger or takeover as the
transfer of a going concern:- Where the transfer agreement itself labels the
takeover as ‘a transfer of a going concern’ this
would be significant. - Where the new entity took over the assets and
wherewithal and/or the employees of the old
entity and continued to offer the same service
as had been served by the old entity, this would
indicate a section 197 transfer. - Where a section of an undertaking is transferred,
this could also qualify as a takeover of a going
concern. In SAMWU and others vs Rand
Airport Management Company (Pty) Ltd &
others (2002, 12 BLLR 1220) the Labour Court
found that the transfer of part of an employer’s
structure that did not comprise a recognisable
entity did not constitute the transfer of a going
concern. However, the Labour Appeal Court later
overturned this decision.- Even when the running of the enterprise or part
thereof is merely outsourced to a contractor this
might constitute the transfer of a going concern. In
the case of NEHAWU vs University of Cape Town
& Others (2000, 1 BLLR 803) the Labour Court
found that the outsourcing of the university’s
cleaning, maintenance and gardening functions
did not constitute the takeover of a going
concern because the university did not transfer its
equipment and other assets to the contractor and
because the outsourcing was not of a permanent
nature. However, the Constitutional Court later
overturned this decision.
Caution advised
Previously it could have been good business for
contractors or other enterprises to enter into a
takeover deal. However, under the new and restrictive
interpretation of the law, the potential advantages of
takeovers have become more uncertain.
This means that would-be buyers of businesses as well
as contractors looking to take over catering, security,
cleaning, construction and other services do not know
if they are coming or going. Due to these concerns,
such employers should not enter into takeovers before
consulting reputable experts in the labour law field.Text | Ivan Israelstam Photography | Peter Hermes FurianIvan Israelstam is Chief
Executive of Labour
Law Management
Consulting. He may be
contacted on 011 888
7944, 082 852 2973 or
ivan@labourlawadvice.
co.za. For more
information, go to
labourlawadvice.co.za.Law resource
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on “Register here”.Taking over a business comes with added responsibilities and some vague definitions
Going, going, forward?
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business trade | industry
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