BY   Ivan Israelstam, Chief Executive of Labour Law Management Consulting. He may be contacted on (011) 888-7944 or 0828522973 or on e-mail address: This email address is being protected from spambots. You need JavaScript enabled to view it.. Go to:

In the current turbulent economic circumstances buyouts and outsourcing have become frequent occurrences in the lives of HR and IR practitioners.  Where an undertaking (or part thereof) of any kind is transferred to another undertaking as a going concern section 197 of the Labour Relations Act (LRA) comes into effect. Practitioners need to impress upon management that such a takeover forces the new entity to take over all the labour law obligations of the old undertaking.

Section 197 applies to all SA employers whether they be companies, close corporations, partnerships, sole traders, welfare organisations, NGOs, academic institutions or any other type of organisation.

The entities could even be government departments. In the case of Wren vs Eastbourn Borough Council (1993, IRLR 425) the Employment Appeal Tribunal held that the transfer of refuse collection services of a local authority constituted the transfer of an undertaking as a going concern.

However, not all transfers qualify under this legislation because

not all are transfers ‘as going concerns’. It is vital for employers to know which transfers do and do not fall under this legislation because they need to know:

 whether the new employer will be forced to take over all the old employer’s employees and
 whether the new employer will have to recognise and preserve all the benefits, remuneration, working conditions, years of service and other rights of the employees.

Unfortunately the LRA does not define what a transfer ‘as a going concern’ is. This causes great confusion and sparks many disputes between employers on the one hand and employees and trade unions on the other. That is, takeovers often cause loss of jobs and employees are often desperate to stay on with the new enterprise. On the other hand, the new entity very often already has its own staff and wants to avoid the expense of taking on additional employees.

In view of the vagueness of section 197 we have therefore offered below our view as to what circumstances would be likely to characterise a merger or takeover as the transfer of a going concern.

 Where the transfer agreement itself characterises the transfer as the transfer of a going concern as contemplated in section 197 of the LRA this would be significant.

 Where the new entity took over the assets of the old entity and continued to serve the same users of the business as had been served by the old entity this would indicate a section 197 transfer.

 If the new undertaking continued the running of the business as a going concern in much the same way as it had been run before the takeover of a going concern this would point to the takeover of a going concern.

 Such a takeover would also be likely to qualify if the new undertaking served the same clients or the same client market as did the old undertaking.

 Where a section of an undertaking is transferred this could also qualify as a takeover of a going concern if that section was a distinct and recognisable entity in the legal sense of the word. That is the section would need to be an organised unit with its own assets, employees, operating procedures and goals. In SAMWU and others vs Rand Airport Management Company (Pty) Ltd & others (2002, 12 BLLR 1220) the Labour Court found that the transfer of part of an employer’s structure that did not comprise a recognisable entity did not constitute the transfer of a going concern. However, this was overturned on appeal.

 The sale of a business as an operating entity would be likely to qualify under the heading of a section 197 transfer. However, where the running of the enterprise is merely outsourced to a contractor will not always constitute the transfer of a going concern. In the case of NEHAWU vs University of Cape Town & Others (2000, 1 BLLR 803) the Labour Court found that the outsourcing of the university’s cleaning, maintenance and gardening functions did not constitute the takeover of a going concern because the university did not transfer its equipment and other assets to  the contractor and because the outsourcing was not of a permanent nature.

However, in the case of Schutte & others vs Powerplus Performance (Pty) Ltd and another (1999, 20 ILJ 665) the labour Court found that the takeover of a company’s motor workshop by a contractor did constitute the takeover of a going concern and forced the contractor to take over all the workers attached to the motor workshop employees. However, this was overturned on appeal.

Due to the complex nature of the section 197 legislation and the resulting confusion employers should not enter into takeovers before consulting reputable experts in the labour law field. Our experience is that employers have found to their cost that going it alone is far more costly than getting the right advice.

To attend our 15 November seminar in Cape Town on NEW CHANGES AND DANGERS IN LABOUR LAW 2013 please contact Ronni at This email address is being protected from spambots. You need JavaScript enabled to view it. or on 0845217492.