In order to determine whether s197 of the LRA is applicable to a change in service providers, in essence entails a factual question as to whether or not the relevant preconditions are simultaneously met, namely, a transfer, of the business (or part thereof) as a going concern.
With reference to the most recent judgment of the constitutional court in Road Traffic Management Corporation v Tasima; Tasima v Road Traffic Management Corporation (2020) 41 ILJ 2349 (CC), what are the relevant factors to be considered when determining such factual question?
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- In Tasima, the constitutional court held that three conditions must simultaneously be met for s197 to be applicable, namely, a transfer of a business (or part thereof) as a going concern
(see, further, Aviation Union of SA v SA Airways 2012 (1) SA 321 (CC))
the concept of a business, inclusive of a business that supplies the service or part thereof
- a determination is required on the facts, whether the activities conducted by the outgoing service provider constitute a defined set of activities which represent an identifiable, autonomous and discreet business undertaking (the so-called economic entity approach)
(see, further, City Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and Others
(2015) 26 SALLR 1 (CC))
- there is a difference between a legal entity and the concept of a business as referred to above
(Dimension Data v GWB (2022) 33 SALLR 2 (LC), so referred to in Tasima)
- generally speaking, a termination of a service agreement and a subsequent award to another party does not, in itself, constitute a s197 transfer, seeing that the original service provider, whose contract has been terminated, loses such contract and is free to offer the same services to other clients with the workforce it still has intact
(see Dimension Data)
- in Tasima, the constitutional court held that other factors are required to establish that the business changed hands as a going concern (e g assets, customers, etc)
the concept of a transfer
- the constitutional court, in Aviation Union of South Africa and Another v South African Airways (Pty) Ltd and Others 2012 (1) SA 321 (CC), identified the following relevant factors in order to determine whether such a concept was present:
- does the transaction create rights and obligations that require one party to transfer something in favour of or for the benefit of another or to another?
- if so, does the obligation imposed in the transaction contemplate two parties, namely, a transferor, with the obligation to give effect to a transfer or allow a transfer to take place, and a transferee, who receives the transfer?
- if so, does the transaction contemplate transfer by the transferor to the transferee?; and
- provided the transfer amounts to a business as a going concern, s197 would be applicable
(followed in City Power by the constitutional court)
the concept of a going concern
- the constitutional court, in NEHAWU v University of Cape Town (2003) 24 ILJ 95 (CC), indicated that what is required to be transferred must be a business in operation, so that the business remains the same but in different hands
- in order to determine whether there is compliance with this concept, the following non-exhaustive list of factors should be considered:
- goodwill of the business
- stock-in-trade of the business
- the premises of the business
- contracts with clients or customers
- the workforce
- the assets of the business
- the debts of the business
- whether an interruption of the operation of the business occurred
- if so, the duration of the interruption
- whether same or similar activities are continued after the transfer
- with reference to Dimension Data, it is suggested that the snapshot test should be applied, entailing comparing a snapshot of the business before and after the transfer – if substantially the same, but just in different hands, then the going concern requirement has been met
