Sale (transfer) of business and labour law

In terms of the Labour Relations Act (LRA), an employee’s employment contract is automatically transferred to the new employer when a business is sold as a going concern. Any dismissal associated with such a transfer of business, will be deemed as automatically unfair. An employer selling his/her business may also not dismiss the employees if the buyer does not want to keep the employed employees.

As with any form of alleged automatic unfair dismissal, the court will first have to determine that the dismissal is causally related to the transfer of the business. If the employee makes a prima facie case that the dismissal is linked to the transfer of the business, the employer must be able to prove that the dismissal was due to a valid reason or fair operational requirement. Otherwise, the dismissal can be automatically unfair.

A new employer is entitled to restructure his business to the extend he deems necessary to accommodate the acquisition of another business, even if it involves the retrenchment of a transferred employee. Such restructuring may continue if there are sufficient and fair reasons to retrench a “redundant” employee shortly after the merger of the business, provided that the dismissal is justifiable. It is also very important that the employer follows the prescribed process in terms of labour law. The only way employers, who are involved in a transfer of business, can avoid a potential automatically unfair dismissal is to enter into an agreement with the employees or their recognised representatives, before the business is transferred.