VARIATION AGREEMENTS OFTEN CRUCIAL IN BUSINESS TAKEOVERS

VARIATION AGREEMENTS OFTEN CRUCIAL IN BUSINESS TAKEOVERS

Section 197 of the Labour Relations Act (LRA) requires the new employer, in a takeover as a going concern, to take over all the employees of the old employer.
A take over of an enterprise “as a going concern” essentially means that the new employer is carrying on the same business as the old employer after a takeover.
In such a case the new employer is required to take over the old employer’s staffwith all their years of service and all their old terms and conditions intact. Due to
t his heavy burden and for other reasons, the new employer often wishes to retrench excess employees or requires the old employer to carry out the
retrenchments before the takeover. However, section 187(1)(g) of the LRA prohibits any retrenchment (or any otherdismissal) related to a takeover as a going concern. Such terminations are deemed to be automatically unfair dismissals. This means that the dismissed employees could claim reinstatement or up to 24 months remuneration in compensation. It is important to stress that the provisions of sections 197 and
187 of the LRA apply not only to businesses but to all employers including government departments, welfare organisations, NGOs and all other enterprises
that employ staff.
The purpose of this legislation is to preserve jobs by preventing employers from rationalising their workforces in circumstances of a takeover. However, because
such legislation tends to discourage takeovers, rescue bids for enterprises that are going under will also be discouraged. Such enterprises will often have to
close down. Then, instead of a limited number of employees being retrenched during a rationalisation, all the employees will lose their jobs.
In the case of Cash Paymaster Services (Pty) Ltd vs Browne (2006, 2 BLLR 131) the Labour Appeal Court found that the employee who lost his job due to the
takeover of a business had been unfairly dismissed. The employer was ordered to pay most of the employee’s legal costs plus compensation in the amount of
R684 621.
In the case of Van Zyl vs Asanti Safari Trading cc t/a The Hill Kwik Spar and another (2009, 2 BALR 206) the parties consented that the case be heard by the
CCMA instead of by the Labour Court. In this case the employee was dismissed shortly before the business was taken over by a new owner. The respondent
claimed that the sale agreement between the old and new owners had excluded the requirements section 197 of the LRA. However, the arbitrator found that:

 The sale agreement had not excluded section 197 and that, had it done so, this would have been illegal.
 The old and new employers could have entered into an agreement to vary the requirements of section 197 but only if they had entered into such agreement with the full participation of the employees of the business whose jobs could be affected by the results of the takeover.
 Van Zyl, the dismissed employee, had not been involved in any such agreement with the owners.
 The purchase of the business had constituted a transfer of a going concern as contemplated in section 197 of the LRA
 The reason that the employee was dismissed was the takeover of the business.
 This contravened the provisions of section 187(1)(g) of the LRA effectively prohibiting such dismissal.
 The dismissal was automatically unfair.
 The new employer was required to pay the employee compensation equal to 12 months’ compensation and also to pay the employee’s legal costs.
These cases show that employers considering takeovers, buy outs, mergers or contracting/outsourcing arrangements must, before implementing any transfers,
must act with extreme caution. That is, they should utilise their labour law experts to:
 Analyse and explain the meaning of sections 197 and 187 of the LRA as well
as of the developing case law in this area.
 Examine the specific circumstances of the intended takeover in the light of the legislation.
 Work out a strategy for completing the takeover without infringing the ever tightening labour legislation.

To register for our 7 May webinar on Lockdown Labour Law please contact
Ronni on [email protected] or 0845217492.

LOCKDOWN IS NOT A LICENSE TO FIRE AT WILL!!

LOCKDOWN IS NOT A LICENSE TO FIRE AT WILL!!

Under the yoke of the Covid lockdown employers are becoming more and more desperate in their attempts to run orderly, productive and profitable businesses. In addition to the lockdown the special obstacles to the achievement of this goal are intense and growing international competition, South Africa’s culture of crime and disciplinary legislation that severely restricts the rights of employers.
In their attempt to deal with this restrictive labour legislation employers place new employees on probation so as to detect and get rid of ‘bad apples’ without having to travel the tortuous disciplinary procedure route mapped out by the law. However, employers have discovered to their alarm that, while probationary contracts are legal, they are not a license to fire at will.
In October vs Teleperformance SA (Pty) Ltd 2021] 4 BALR 426 (CCMA) a call centre agent was dismissed for absenting himself from work without permission for four days during May 2020. He had stayed home because he
felt afraid after a colleague had been infected by Covid.
The Commissioner noted that a regulation issued by the Minister of Employment and Labour in April 2020 provided that employees may refuse to work if they reasonably feel that doing so would pose an imminent threat of exposure to Covid-19 and that they may not be dismissed or disciplined for this. The applicant was awarded compensation of four months’ salary.
Another problem is that probation clauses are not useful as quick fixes for getting rid of undesirable employees. As a result employers use fixed-term contracts as a way of testing out whether the employee is going to fit into the
organization. However, in the case of Abrahams vs Rapitrade (Pty) Ltd (2007, 6 BALR 501) the employee was hired on a probationary contract. However, when the employee performed badly the employer claimed that the employee was on a fixed-term contract and terminated his employment at the alleged expiry date. The arbitrator found that the dismissal was unfair because the employee was not on a fixed-term contract and dismissals for poor performance must be preceded by counselling and/or training. Other employers hire workers as independent or external contractors to disguise the fact that the workers are employees. If the contractor works and
behaves well the employer might then make him/her an employee. However, the pawpaw hits the fan when the worker fails to meet the standards and is terminated on short notice. Labour law procedures are not used because the worker is seen as an independent contractor.

However, workers terminated in this way have a good chance of succeeding at the CCMA because section 200A of the Labour Relations Act (LRA) effectively distinguishes between genuine independent contractors and
employees. That is, this section provides that, unless the employer can prove otherwise, the worker is presumed to be an employee and not an independent contractor if any one of the following factors is present:
o The manner in which the person works is subject to the control or
direction of another person;
o The person’s hours of work are subject to the control or direction of
another person;
o The person forms part of the organisation or business;
o The person has worked for the organisation/business or other person
for an average of at least 40 hours per month over the last three
months;
o The person is economically dependent on the
organisation/business/person;
o The person is provided with work tools or equipment by the
organisation/business;
o The person only works for one organisation/business/person.

I must stress that these criteria apply regardless of the form of the contract. This means that, even if the employee has contractually agreed that he/she is an independent contractor the CCMA may well find that he is not one!
Therefore, at CCMA there is a heavy onus on the employer to prove that, despite the existence of any one of these seven factors, the worker is an independent contractor. However, due to the fact that the majority of such
workers are employees disguised as independent contractors the employer loses the case. And, because the employer fails to use disciplinary procedures they are forced to reinstate or compensate the employees.
The loopholes for avoiding the law of discipline are all but closed and the impending new legislation on labour brokering and contracting is likely to finish off the job. This means that employers will have to abandon the quest
for loopholes and become more adept at implementing the laws of discipline  and dismissal.
To register for our 7 May webinar on Lockdown Labour Law please contact
Ronni on [email protected] or 0845217492.

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