The transfer of a contract in terms of Section 197

The Labour Relations Act, Act 66 of 1995 (LRA) sets strict conditions to comply with when dealing with a Section 197 transfer of business.  Its vitally important that both employers consult with each other about the transfer, as well as with the employees.

Section 197 of the LRA

Section 197 of the LRA’s default position and effect is that employees are automatically transferred from one employer to another when a business is transferred.  When a business is transferred as a going concern, employees of the old employer (transferor) are automatically transferred to the new employer (transferee) on the same terms and conditions of employment. This means that the employee’s contract with the old employer remains intact and their conditions of employment (including their wages, benefits and length of service) are preserved under the new employer. This provision ensures continuity and stability for employees, who are protected from sudden changes in their employment conditions due to the transfer.

At the end of the day, the new employer must ensure that the employees are employed on terms and conditions that are as a whole no less favourable than those under which the employees were employed with the previous employer.

Objecting to the transfer

Sometimes employees are unhappy with being transferred to a new employer and want to object to the transfer from the previous to the new employer. Whilst employees do not have a statutory right to object to an automatic transfer, some employers may permit employees to do so, allowing them to stay employed by the previous employer. This, however, would normally be to the detriment of the employee concerned as the previous employer’s operational requirements could very well justify the employee’s subsequent dismissal.

Case study

Such an objection was discussed in the Durban Labour Court case of Krishna v University of KwaZulu-Natal (2012) 33 ILJ 1688 (LC).  The Court held that an employee who was transferred to the National Health Laboratory Service (NHLS) from a laboratory service operated by her university on behalf of the national department, had not been dismissed (as she claimed) by reason of the university’s operational requirements.

The employee was an administrative assistant in the university’s microbiology department at the university’s medical school.  At the time the medical school operated laboratories for the Department of Health (DOH) which was also funded via a grant from the DOH. When the national department established the NHLS, that unit had to then be transferred to the department. The decision was that all the laboratory staff had to be transferred to the newly formed NHLS that was established in terms of an Act of Parliament.

In this case the employer had provided the employee with a choice to accept and consent to the automatic transfer to the new employer or to object and face a possible dismissal due to operational requirements.  After the employee consented and was transferred, she instituted action claiming that she was unfairly dismissed and that she was coerced into accepting the transfer.

After duly examining the choice given to the employee, the Court found that it was not a threat at all, and neither was she forced to accept the transfer.  It was merely a notification of the possible consequences should she refuse. The employer thus acted properly according to the Court when it informed the employee of a possible dismissal due to operational requirements should she object to the transfer.

Conditions of a Section 197 transfer

Employers should be aware of the conditions of a Section 197 transfer, because if these conditions are not met it could have dire financial implications for the employer/business.  When a dismissal arises from the transfer of a business, whether in whole or in part, it can lead to an automatically unfair dismissal claim in terms of Section 187(1)(g) of the LRA.  This could entitle the employee up to 24 months’ compensation.

Conclusion

Employers are encouraged to contact their labour law representatives to ensure that the correct procedure is followed if they are involved in a transfer, or partial transfer of business as a going concern.

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