Section 197 of South Africa's Labour Relations Act, 1995 ("LRA") provides that, if there is a transfer of a business as a going concern, the contracts of employment between the transferor employer ("old employer") and its employees are automatically transferred to the transferee employer on the same terms and conditions of employment that the employees had with their old employer.In MTN and others v CCI SA and others, the Labour Appeal Court had to consider the intricate nuances of section 197 and its application in unique circumstances.

Mobile Telephone Networks (Pty) Ltd ("MTN") had initially entered into an exclusive agreement with CCI SA (Umhlanga) (Pty) Ltd ("CCI") for call centre services. A year later, the agreement became non-exclusive, and call volumes were split between three competing service providers: CCI, iBridge Contract Solutions (Pty) Ltd ("iBridge") and iSon Xperiences South Africa (Pty) Ltd ("iSon"). When CCI's agreement with MTN expired, iBridge and iSon took over the call volumes which were previously serviced by CCI.

CCI contended that the lapsing of the agreement triggered the application of section 197 and that its employees working on the MTN contract transferred to MTN, iBridge and iSon, seemingly on a joint and several basis. MTN, iBridge and iSon disputed this claim. CCI then approached the Labour Court for a declaratory order to confirm that section 197 applied. The Labour Court found that section 197 did apply. MTN, iBridge and iSon were granted leave to appeal to the Labour Appeal Court ("LAC").

The LAC found that the call centre services provided by CCI constituted a discrete business. The LAC, however, questioned whether this discrete business was transferred as a going concern. The LAC found that the major asset of this discrete business was its contractual entitlement to perform call centre services. The secondary asset was the physical tools of the trade for a call centre such as office equipment. Its third category of assets constituted the labour-intensive productive capacity of the persons delivering the service.

The LAC found that: no contract, tools of the trade or labour had been transferred from CCI to the other parties. The transfer of call volumes from CCI to iSon and iBridge did not constitute the transfer of CCI's business as a going concern. Therefore section 197 was not triggered.

In coming to this decision, the LAC made a number of interesting comments. Firstly, in interpreting section 197 it held that:

"The fair practice remedies relevant to job security objectives as alluded to in the Constitution and as set out in the scheme of the LRA are not guarantees of job security; rather, the LRA inhibits dismissals which are not for good cause and has created statutory procedural and substantive remedies for unfair dismissal."

The LAC continued to hold that:

"The protection against the risk of job loss is rooted, not in a procedural straitjacket imposed on the employer, but rather, is located in the objective existence of a commercial reality..."

The Constitutional Court has also considered the purpose of section 197 in National Education Health & Allied Workers Union v University of Cape Town by commenting as follows: "The section aims at minimising the tension and the resultant labour disputes that often arise from the sales of a business and impact negatively on economic development and labour peace. In this sense, section 197 has a dual purpose, it facilitates the commercial transactions while at the same time protecting the workers against unfair job losses."

While the interpretation of the purpose of section 197 of the LRA by the LAC is not at odds with the interpretation provided by the Constitutional Court, the LAC emphasised commercial realities to determine whether section 197 is triggered.

In the MTN judgment, the LAC did not seek to bring about job guarantees for the affected employee, nor did it become side-tracked by the transfer of call volumes which did not constitute the business of CCI. As the LAC aptly summarised: "The exercise is not the imposition of a moral construct on the circumstances. The job protection objective hangs wholly by the thread of the banal concrete elements of section 197 is proven to exist."

When determining whether part of CCI's labour-intensive business transferred, the LAC commented that labour-intensive businesses have a domicile (a place of residence), which means that in some circumstances, a transfer is simply not feasible. This comment came about in circumstances where CCI's employees were based in Kwa-Zulu Natal but iSon was situated in Cape Town. The LAC once again looked at the commercial realities and practicalities to see whether a transfer indeed occurred or could have taken place.

The MTN judgment is a reminder that section 197 does not guarantee job security, but that commercial realities need to be carefully considered to see if it is triggered.

ENSafrica acted for MTN in this matter

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