Quote of the week

[Nostalgia] is rarely the past as actually experienced, of course; it is the past as imagined, as idealized through memory and desire. In this sense … nostalgia is less about the past than about the present. It operates through what Mikhail Bakhtin called an ‘historical inversion’: the ideal that is not being lived now is projected into the past.

David Medalie
28 November 2011

Constitutional Court once again to the rescue of workers

What happens if a parastatal like South African Airways (SAA) acts in a manner destructive of the rights of its workers and a court intervenes to protect the workers? Would the cabinet see such a move by a court as advancing the socio-economic interests of ordinary citizens and thus advancing the transformation agenda, or, alternatively, would it see the pro-worker decision by the court as unacceptable “interference” by the court in the running of SAA?

The answer is not clear. After all, in a world in which a “pro-transformation” government often acts in an “anti-transformation” manner when the financial interests of some of its donors, benefactors and family members or friends of the President or other cabinet ministers are at stake, the cabinet might well argue — in truly Orwellian manner — that a pro-transformation judicial decision is in fact anti-transformation.

These questions take on an added importance in the light of the seemingly bizarre statement recently issued by the cabinet about the need to assess the judgments of the Constitutional Court “to establish how the decisions of the court have impacted on the lives of ordinary citizens and how these decisions have influenced socio-economic transformation and the reform of the law”.

Last week the Constitutional Court, in the case of Aviation Union of South Africa and Another v SAA and Others, handed down a judgment in an appeal from the Supreme Court of Appeal (SCA) in which that court ruled that workers affected by an outsourcing agreement in which part of a business is transferred as a going concern would not be protected — despite the provisions of section 197 of the Labour Relations Act which protected workers involved in an outsourcing agreement — if the outsourcing agreement was terminated and a second outsourcing agreement entered into.

SAA had outsourced maintenance services to a company called LGM for a fixed period (and transferred that part of its business as a going concern to LGM) but this outsourcing agreement was not renewed. SAA was planning to issue tenders for the provision of the services previously provided by LGM. If the interpretation by the SCA had been endorsed by the Constitutional Court, it would have meant that the employees of SAA (and later LGM) who enjoyed protection afforded by section 197 at the stage of the first outsourcing agreement to LGM would be left with no protection if the same business was again transferred in terms of a second or further outsourcing agreement to another company.

The Constitutional Court had already interpreted section 197 in National Education Health and Allied Workers Union v University of Cape Town and Others, (NEHAWU) where it stated that the correct approach to interpreting the section was:

to construe the section as a whole and in the light of its purpose and the context in which it appears in the LRA. In addition, regard must be had to the declared purpose of the LRA to promote economic development, social justice and labour peace. The purpose of protecting workers against loss of employment must be met in substance as well as in form. And, as pointed out earlier, it also serves to facilitate the transfer of businesses. The section is found in a chapter that deals with unfair dismissal. Construed against this background, the section makes provision for an exception to the principle that a contract of employment may not be transferred without the consent of the workers.  Subsection (1) says so and it makes it possible to transfer the business on the basis that the workers will be part of that transfer.  This will occur if the business is transferred as a going concern.

Section 197 alters the common law which previously provided that the employment contract between employees and the company automatically came to an end when that company transferred a business to another company “as a going concern”. The section thus protects the job security of workers affected by the transfer of a business from one company to another company — in this case as part of an outsourcing agreement. In the Nehawu case the Constitutional Court said that in deciding whether a business has been transferred as a going concern (a prerequisite for section 197 to operate) regard must be had to the substance and not the form of the transaction.

A number of factors will be relevant to the question whether a transfer of a business as a going concern has occurred, such as the transfer or otherwise of assets both tangible and intangible, whether or not workers are taken over by the new employer, whether customers are transferred and whether or not the same business is being carried on by the new employer.  What must be stressed is that this list of factors is not exhaustive and that none of them is decisive individually.

There were two judgments in the Constitutional Court case. Both rejected the conservative and exceedingly formalistic interpretation of section 197 provided by the SCA as such an interpretation would have provided far less protection for workers caught up in such outsourcing agreements.

The minority judgment, authored by Justice Chris Jaftha (and supported by Justice Mogoeng Mogoeng and Dikgang Moseneke, amongst others) found that the facts placed before the Labour Court were insufficient to support the finding that the termination of the agreement between SAA and LGM, coupled with the performance of the relevant services by SAA, would constitute a transfer of business as a going concern. This meant that it was not possible to determine whether the protection afforded by section 197 would apply or not. The minority would therefore have referred the matter back to the Labour Court to deal with the factual issues in the light of the proper interpretation of section 197.

The majority, in a judgment written by Justice Zack Yacoob (and supported by Chief Justice Ngcobo and Justices Cameron, Froneman, Khampepe and Van der Westhuizen), differed with this approach. The majority agreed with a broader interpretation of section 197 and also rejected the narrow and legalistic approach of the SCA. However, it disagreed with the minority that a transfer must already have taken place in this case before the applicants are entitled to any relief. The majority also disagreed with the conclusion that the evidence does not justify relief being granted to the Union by the Constitutional Court itself.  It therefore found that there was no need to refer the matter back to the Labour Court for further consideration.

The implicit concern of the majority in this case was that an original employer would be able to “get rid” of employees by transferring part of their business as part of an outsourcing agreement for a fixed period, then terminating that agreement without demanding that the part of the business would be transferred back to it or doing so only at a time when workers rights had already been affected.

According to Yacoob, unless SAA or the temporary service provider decided to take over the employees, contrary to the contentions of SAA, the workers would have remained with LGM on the date of the termination of the agreement. LGM might then have had to retrench all the employees.

On the assumption that the transaction with which we are concerned, in particular its cancellation, involves the transfer of a business as a going concern, the workers would have been hard done by on 1 October 2007 [when original agreement was terminated] because they would have been left with LGM.  The interim service provider would have sourced its workers and the possibility of the workers at LGM being transferred would be reduced.  In my view, the section contemplates a seamless transfer from the old employer to the new one.  And this becomes possible only if, when there is a dispute about whether the workers are to be automatically transferred in terms of the transaction concerned, that dispute is determined before the implementation of the agreement.

The majority found that the outsourcing agreement had to be interpreted in a manner that would inevitably activate section 197 at the termination stage of the agreement. It found that LGM did indeed become obliged to assist SAA in transferring certain services to SAA or to a third party. But the agreement went further, the court found. LGM was also obliged to provide SAA with reasonable access to the services, assets and inventory of LGM. LGM became obliged to sell all fixed assets and inventory dedicated only to providing the services in terms of the agreement back to SAA and to transfer or assign all third party contracts to SAA.

In the circumstances, the majority found that the cancellation clause of the agreement contemplated a transfer of the business as a going concern. The only debate was about whether the business as a going concern was to be transferred to SAA or to an interim service provider. As long as there is a transferor, the identity of that entity or person is of no material significance. The agreement contemplates transfer by LGM to SAA or to the interim service provider.  It requires a transfer by a transferor, the old employer, to the transferee, the new employer.

The majority therefore made a declaratory order that would safeguard the rights of the employees affected by the cancellation of the outsourcing agreement. It was therefore a judgment that any reasonable person would agree impacted positively on the lives of ordinary citizens (if not on the lives of SAA executives who might receive smaller bonuses as a result of the decision). However, only time will tell whether the independent research institution tasked with assessing the work of the Constitutional Court and the cabinet, will see this judgment in this way.

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