Slamming the Shams: Section 197 transfers as a going concern

When a transfer of a business as a going concern takes place, the provisions of section 197 of the Labour Relations Act 66 of 1995 (“LRA”) apply. Section 197 of the LRA acts, among other things, as a mechanism to ensure that individuals do not lose their jobs when the businesses for which they work transfers, as a going concern, from one employer to another. The section therefore ensures continuity of employment for the affected employees. In the recent case of NUMSA obo Members v AIH Logistics (Pty) Ltd and Another (LC) 2023, the Labour Court grappled with a seemingly atypical set of circumstances regarding a purported section 197 transfer, and was tasked with determining the legitimacy of the transfer.

The facts of AIH Logistics are summarised as follows: AIH Logistics (Pty) Ltd (“AIH”), relying on section 197 of LRA, sought to transfer its employees to Blacksuits (Pty) Ltd (“Blacksuits”). This would mean, ordinarily, that the employees would perform the same functions that they did at AIH, but as employees of Blacksuits, the transferee. Aggrieved by this, the employees sought relief from the Labour Court alleging that AIH merely wanted to dismiss them, and that no transfer as envisaged by section 197 of the LRA had occurred. The employees supported their argument by contending, among other things, that only certain employees of AIH had in fact been transferred, there was no money paid for the transfer of business, and there was no sale and/or lease of AIH’s tools or equipment to Blacksuits.

The Court held that for section 197 of the LRA to be triggered, there need not necessarily be a transfer of the entirety of the assets and personnel of a business. Rather, the true essence of a transfer lies in whether the assets and personnel that are essential to the running of a business are to be transferred. Whether section 197 is triggered is always a determination of fact. The Court also held that on a proper analysis of the “transfer” that had taken place between AIH and Blacksuits, it was clear that the purpose thereof was to shift employees from one employer to another, and not in fact to transfer a business. There was therefore no indication of a true transfer of business as a going concern as contemplated by section 197. On this basis, the Court held that the transfer did not fall within the ambit of section 197, and that the status quo prior to said “transfer” ought to be restored.

This case therefore is a warning to employers not to use the provisions of section 197 of the LRA to try and dismiss some of its employees. Employers must bear in mind that section 197 is not a catch-all provision for the transfer of businesses and/or employees, and each transfer will be assessed on its own facts by the Courts. Employers who misuse the provisions of section 197 of the LRA could face serious ramifications, as was the case in AIH discussed above.