Rural Maintenance (Pty) Ltd v Maluti-A-Phofong Local Municipality (CCT214/15) [2016] ZACC 37 (1 November 2016) per Froneman J (Moseneke DCJ, Cameron J, Khampepe J, Mhlantla J and Nkabinde J concurring)

By a majority vote the Constitutional Court today refused leave to appeal and upheld the judgment of the LAC.

[40]     On the evidence on record it was common cause that certain components of Rural’s operation of the business that supplied electricity services to the Municipality were not handed back to the Municipality. [footnote omitted].  Despite having the opportunity to refute this evidence, Rural contended that they were peripheral to the operation of its business and need not have been handed back to the Municipality.  Besides, Rural did not explain precisely what this business entailed.

The Labour Appeal Court, proceeding on the accepted test of an assessment of all the relevant factors to determine whether there was a transfer of business as a going concern under section 197 of the LRA, held to the contrary.

It did not apply any new test, nor has the Labour Appeal Court imported a different test in relation to the transfers of so-called “service provision changes”.  That term was imported into the TUPE Regulations in Britain in 2006 and does not appear in section 197 of the LRA.  The definition of “business” in section 197(1) of the LRA includes a service.”

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Excerpts without footnotes

Leave to appeal

[17]     The proper interpretation of the LRA will raise a constitutional issue that clothes this Court with jurisdiction, but this does not mean that this Court will hear all appeals from the Labour Appeal Court.  It will only do so if the appeal raises “important issues of principle”.  Rural contends that there are three issues of principle which justify granting leave.

. . . . .

[22]     Rural submitted that European jurisprudence has in effect developed two different tests for transfers, one for transfer of a business or undertaking and another for service provision changes, and that the Labour Appeal Court has accepted “the introduction of the 2006 TUPE Regulations relating to a [service provision change]”.  It urged this Court to follow suit in order to provide clarification.  There is no reason to, for the reasons that follow.

[23]     The term “service provision change” was introduced into the British Transfer of Undertakings (Protection of Employment) Regulations (TUPE Regulations) in 2006.  It is not a term used in section 197 of the LRA.  Section 197(1)(a) defines “business” as including “the whole or part of any business, trade, undertaking or service”.

[24]     The use of terms or concepts not found in the wording of section 197 to determine whether a transaction falls under the terms of section 197(1) and (2) may be misleading and has the potential to bring about an incorrect result.  As Yacoob J remarked in Aviation Union, the evaluation of whether there has been a transfer of business as a going concern under section 197 “is complex enough without it being burdened with questions about the ‘generation’ of outsourcing”.  The same can be said about service provision changes.

[25]     In NEHAWU support was found for the Court’s reasoning on the purpose of section 197 in “comparable foreign instruments and foreign case law construing these instruments.”  But this was done with acknowledgment of possible differences in language and context.  This Court has on many occasions warned that the use of comparative law should be treated with due regard to different contexts and language.  NEHAWU is no authority for the wholesale and uncritical adoption of jurisprudence under the Acquired Rights Directive adopted by the European Commission or the British TUPE Regulations.

[26]     The inclusion of “service” in the definition of “business” in the LRA was enacted in 2002.  It precedes the 2006 TUPE Regulations and differs in both wording and context from the latter.  It is difficult to see on what basis the mere adoption of the TUPE Regulations in Britain and the jurisprudence in relation to it necessitates a reformulation or development of our existing law to incorporate a separate approach to so-called service provision changes.

[27]     This Court has, in NEHAWU, Aviation Union and City Power, consistently formulated the approach to be followed in determining whether there has been a transfer of business as a going concern under section 197.

. . . . .

[29]     Both the majority and minority judgments in Aviation Union relied on and endorsed this approach to the interpretation and application of section 197 of the LRA.  The disagreement between the two judgments related to whether a transfer must already have taken place before relief could be granted and whether there was sufficient evidence to justify the relief being granted on the record before the Court

. . . . .

[35]     I have had the privilege of reading the judgments of Jafta J (second judgment) and Zondo J (third judgment).  I can discern no new, old or important issue of principle in the application of section 197 that we differ on.  What remains is an appeal on the facts, not usually a sufficient ground for this Court to interfere with the findings of a specialist tribunal like the Labour Appeal Court.  Its findings are in any event not unreasonable.

[36]     Suffice to compare, in this regard, the factual situation in City Power – an “as is” transfer of a full business – to the half‑hearted return of certain components of Rural’s business in the present case.

The difference between the two factual situations is important in the context of the transfer of service businesses to municipalities.  As noted above, City Power did not find that the mere termination of a service contract triggered the application of section 197 of the LRA.  In that case there was a transfer of a fully functional business in its expanded form to City Power.  Without that kind of “as is” transfer, the termination of the service contract may literally mean only a termination of the business, not its transfer back to the Municipality.

The employment obligations of employees must then be dealt with by the erstwhile service provider under section 189 of the LRA if the business comes to an end for operational reasons.  It cannot seek to transfer those obligations to the Municipality under the guise of section 197, but nevertheless seek to retain for itself the means it used to conduct the service business as is the case here.

It is not only the interests of employees that must be protected in the interpretation and application of section 197, but even if their protection is of primary concern it needs to be kept in mind that the protection of workers is not solely governed by section 197 in these kinds of situations.

Employees are also protected by the retrenchment provisions in section 189.  The choice here is which employer should be responsible for the workers affected by the change in circumstance.

[37]     Rural submitted that it expanded the business and made it more profitable.  The Municipality, by contrast, complains that certain necessary assets were not transferred.  I agree that for a transfer of a business as a going concern to occur, not all the assets of the business have to be transferred and that it depends on the nature of the business and essentiality or otherwise of particular assets for a particular business.  That factual application of a flexible test has long been at the heart of our going-concern business transfer jurisprudence.