Articles

Labour law issues to look out for when selling your business

Posted 29 April 2009

The recent decision handed down by the Labour  Appeal Court in Business and Design Software (Pty) Ltd and Another v Van der Velde (JA 35/06) [2009] ZALAC re- affirms the fundamental principle found in s 187(1)(g) of the Labour Relations Act 66 of 1995. S 187(1)(g)  states that a dismissal for a transfer of a business as a going concern or a reason connected with the transfer of a business as a going concern is automatically unfair.

In the  above case the respondent was appointed as General Manager for Business and Design Software (Pty) Ltd. In 2001 the  company was sold to AST Group Limited. In 2003, after various bidding, the respondent had been advised that AST Group Ltd intended selling the business to National Gold Network(Pty) Limited.  

The issue of the respondent’s  role in the business was soon thereafter questioned.  The respondent had been advised that he had three options: he could resign, he could stay on and face disciplinary action or, alternatively he could accept voluntary retrenchment.

The respondent was offered alternative employment  as an Administration Manager at a reduced salary and  was informed that if he refused to accept the position he would be retrenched. The respondent refused  and was dismissed. Shortly thereafter the business was sold  as a going concern on 4^th April 2003.

A dispute arose between the appellants and the respondents about the fairness of the respondent’s dismissal. The Labour Court held that the dismissal and the transfer of the business were causally linked. The Court concluded that the dismissal had been automatically unfair.

On appeal the Court held that the wording of s 197(2): ‘if a transfer of a business takes place’ refers to the actual time when the transfer of a business takes place and not the time deemed by the parties. Thus in this case the business was transferred on 4 April 2003 and not the date the parties deemed to be the effective date, 1 January 2003.

The next issue decided on appeal was whether the reason for the respondent’s dismissal  was ‘the transfer or a reason related to the transfer  contemplated in s 197 or s 197A.’ If so, in terms of s 187(1)(g) the dismissal would be automatically unfair.

The Appeal Court found that there  was direct evidence indicating that the reason for the respondent’s dismissal was either the transfer of the first appellant’s business to the second appellant or a reason related to such transfer. Such evidence included, inter alia, that the respondent was dismissed with effect from a date that was only three days away from the date of transfer of the business and that the respondent was dismissed for operational requirements  notwithstanding that he had previously been told  that he was crucial to the business and indispensable.

The Appeal Court emphasized that s 197 would be ‘completely undermined if an employer who is about to sell a business to another would, prior to the transfer of the business and without the employees consent, be entitled to dismiss for the transferee’s operational requirements employees whose contracts would otherwise transfer to the new employer upon the transfer of the business as a going concern.’

The Appeal Court concluded that the transfer had not yet occurred and in terms of s 197 it was impermissible for the old employer to dismiss an employee because of or for a reason  related to the transfer of a business as a going concern. The Labour Court’s award of 12 months remuneration was upheld on the basis that it was a just and equitable amount.

Unfair dismissal is taken very seriously by the Labour Courts. As a buyer/ seller of a business  make sure that you are aware of the consequences of transferring/ acquiring a  business as a going concern and the rights which accrue to employees in these instances.

The consequences arising from the transfer of a business as a going concern are as follows:

·     The new employer is automatically substituted in the place of the old employer in respect of all contracts of employment in existence immediately before the date of transfer;

·     All the rights and obligations between the old employer and an employee at the date of transfer continue in force as if they had been rights and obligations between the new employer and the employee;

·     Anything done before the transfer by or in relation to the old employer, including the dismissal of an employee or the commission of an unfair labour practice or act of unfair labour discrimination, is considered to have been done by or in relation to the new employer;

·     An employee’s continuity of employment is not interrupted by the transfer, and the employee’s contract continues with the new employer as if with the old employer.

Remember,  it is automatically unfair to dismiss an employee for reasons of  a transfer or a reason related to a transfer. So for example, if an interested buyer wishes to buy your business as a going concern  and the buyer says ‘ reduce your staff or else I am not interested in buying the business’.

If you do dismiss staff based on the buyer’s demands it will be classified as a dismissal to facilitate the transfer of a business as a going concern and will be considered automatically unfair.