Employment Protection Jurisprudence on the Transfer of Undertakings: A Comparative Study of the Jurisdictions of South Africa, United Kingdom and European Union

The article compares Section 197 (the Section dealing with business transfers) of the South African Labour Relations Act 66 of 1995, the Acquired Rights Directive of the European Union, and the Transfer of Undertakings Employment Protection Act of the United Kingdom...

Introduction

The purpose of this paper is to make a comparative analysis between Section 197 (the Section dealing with business transfers) of the South African Labour Relations Act 66 of 1995, the Acquired Rights Directive of the European Union and the Transfer of Undertakings Employment Protection Act of the United Kingdom. The Labour Relations Act 66 of 1995 is an outcome of extensive research embodying some of the best practices in the world. That is especially so of Section 197 which deals for the first time in South African law with statutory transfer of businesses ostensibly called transfer of undertakings by the Acquired Rights Directive of the European Union and the Transfer of Undertakings Employment Protection Regulations of the United Kingdom. Section 197 was formulated because of the vacuum that was there in the Labour Relations Act of 1956 in the field of transfer of businesses. Section 197 was formulated, like all other provisions of the Act to give effect to the international law obligations of the Republic.

The ARD has undergone a radical metamorphosis, as has the TUPE. These changes have been necessitated by changing times and the influences these have had in the process of privatization across the EU. The law relating to the transfer of undertakings in the United Kingdom reached its climax with the coming into power of the Conservatives in the late seventies and as a direct result of the privatization campaign

of Lady Margaret Thatcher’s government. Privatization and compulsory competitive tendering have entered the economic domain of the Republic and they pose the very same challenges that have led to the radical change and

shifts of emphasis by the ARD and TUPE.

Post-apartheid political economy

The challenges that are brought about by the postapartheid political economy in South Africa are such that, South Africa is expected to level the labor relations playing fields so as to attract direct foreign investment.

It is expected to play a significant role in shaping African and global affairs and it is accordingly expected that its laws and policies particularly on the labor market are compatible with international standards. The laws in these different jurisdictions have got their own values, norms and aspirations, which differ because of the historical facts that inform their diversity. As the positivists would say, “law is simply what the powers that be, the sovereign lay down.”¹ When looking at the concept of sovereignty, it is doubtful whether at this age of globalization, we will be able to confidently claim that nation states are passing laws based on their own will or based on the will of multinationals. Globalization seeks to transform the respective national states political economies into one unit of global economy with an assumption that the global market is homogenous. This entails amongst others that the notion of sovereignty espoused by the positivists is bound to be neutralized by the globalizing world.

Another factor that needs to be observed is the recognition that, social reality is not stagnant. What had happened in Europe fifty years ago should not necessarily be imported into South Africa as sui generis.

As the Spanish Mexican theorist, Luis Racasens Siches had once observed, “social reality is diverse and changing.”² This is what exposes the weakness of the positivist theory as it neglects the social dimension of the law. This is perhaps the reason why Enright suggests a multiplicity of theories when dealing with law. “With law it is suggested that one of the reasons for the variety of theories and lack of unanimity, is that law is complex. Thus, there is a diversity of theories which have been formulated in different legal systems and emphasize different aspects of the law.”³

With the obvious neglect of the social dimension of law by the positivists as represented by Graham Bentham, one is persuaded by Roscoe Pounds’ sociological theory. “Roscoe Pound bases his theory on the existence in society of interests. He classifies interest as individual, public or social. It is the function of the law to balance the conflicting claims of the various interests in the most efficient possible way.”⁴

However, the sociological theory cannot be spared of criticism as well. In this age of globalization, it is inconceivable that the law will seek to balance the interests of those affected.

There is a general admission that globalization serves the

interests of a particular section of society. In the study of labor relations, where there is an obvious contestation of power, it is clear that globalization has led to the tilting of the scales in favor of business. An amalgamation of positivist and sociological theories is therefore inevitable in terms of their definition of the concept of law with the former emphasizing sovereignty and the latter emphasizing societal values. “Dunlop attempted to provide an integrated theory of industrial relations and focused his attention on the system of rules which govern the workplace and work community. His major work provided a theoretical framework which defines the industrial relations system as a subsystem of the wider society.”⁵

However, both positivists and the sociological theorists are less vocal in espousing the fact that the study of law is more on the practical than on the theoretical side. This paradigm is represented by the Aristotelian theory. “We cannot escape the realm

of practical conflict over goods and virtues by the strategic retreat to a purely theoretical or scientific

perspective; law and legal argument will always be rhetorical and practical rather than demonstrative and

theoretical.”⁶. Aristotelian jurisprudence encourages detailed empirical studies of legal policy.

Labor Relations Policy Making in South Africa

Labour relations policy making in post-apartheid South Africa is faced with several challenges. The majority of them hinge on political, economic and social factors. Firstly, there is a working-class population which is demanding employment protection during a transfer of business from one employer to the other.

Secondly, there are international investors that are demanding for the relaxation of employment protection laws during business transfers; so that the employer who has bought a business should not be burdened by the obligations of the previous owner. This is precipitated by the developments in other jurisdictions, particularly the United Kingdom and the European Union and is a requisite for them to invest in the South African economy.

Thirdly, there is a largely poor population who are looking to the government to provide basic services to them at a

lesser or no cost at all.

Government which is dominated by a strong workingclass component, can source this money through increased foreign direct investment, however, at a price of relaxing employment protection laws and at the risk of alienating its working-class support base.

The United Kingdom and the European Union

As a member of the European Community, the United Kingdom is bound by the directives of the community, Whereas it has taken some time for it to comply with the ARD, it did in fact comply at a later stage. It is interesting

to note that the United Kingdom was reluctant to fully abide with the ARD before the 1981 Regulations under discussion. “It was unpopular with both political parties (Tories and Labour) and was only implemented after threats of action before the European Court of Justice, the implementation three years late was carried out through TUPE.”⁷

The TUPE regulations were introduced in the United Kingdom to implement the EC

Acquired Rights Directive (77/187/EEC) adopted in 1977. Describing the objectives of the TUPE Regulations, the Department of Trade and Industry (UK) states that, ‘government considers that the TUPE regulations are based on a positive principle - the coupling of flexibility for business with fairness for employees.

Internationalization of Markets and Capital: Globalization

Within the great globalization debate, the balance of forces in the global labor relations field are clear that employer associations and trade unions are not having the same political influence in the shaping of global, continental and country labor policies.

“The internationalization of markets and capital means national industrial relations regimes are no longer able to deliver what they once did for the trade union movement.”⁸ Indeed at this age of globalization, unions are losing their influence in favor of capital and the consequence of that is they are likely to oppose whatever they deem is the agenda of the international market to justify their continued existence. As Hyman puts it, “unions which in previous decades based their appeal to workers on their ability to win tangible improvements in pay and working conditions, have a far harder task to justify their existence if obliged to accept the reversal of their former achievements.”⁹

The restructuring of state assets and privatization thereof have led to a stiff competition from South Asian countries

which pay far lower wages for labor-intensive industries. The result is that companies are bound to do business where wages are lower and labor laws are relaxed to maximize their profits. “The average manufacturing wage in South Africa is R1500 per month compared to R110 in Vietnam, R470 in Indonesia and R740 in Malaysia.”¹⁰

As Finnemore has observed that, all developing countries urgently require foreign direct investment. In order to maximize its attractiveness as a site of such investment by transnational companies, the state minimizes the cost of labor by ensuring its docility.”¹¹

Defining a Transfer

It is important to state that the most controversial aspect in the transfer of undertakings has been the changing definition of what constitutes a relevant transfer. This changing definition has in many instances been influenced by decided cases both in the European Community and the United Kingdom. Whilst the United Kingdom has had to stick to its guns on many occasions, it has sometimes been forced to follow what is being dictated by EC law. This is more so of the Transfer of Undertakings. In the United Kingdom, the question of what amounts to a relevant transfer has always been a dodgy one because of privatizing most state assets. In deciding whether a particular transfer is indeed a relevant transfer, the following have to be taken into account:

• Whether tangible assets have been transferred
• Whether the majority of employees have been transferred
• Whether the customers are transferred
• Similarity between the service provided by the old and new undertaking
• Whether there is a contractual link between the transferor and the transferee

Defining an Undertaking

Adding to the confusion of what constitutes a relevant transfer has been the water-tight guidelines that were put in the matter of Spijkers v Gebroeders Benedik Abattoir [1986]2 CMR 296, it was held here that if a means of

production of the enterprise are transferred as a unit from one owner to the other, that is a relevant transfer. When courts are faced with a question of determining whether a particular entity is an undertaking in terms of the ARD and TUPE, there has to be a:

• Stable economic entity not limited to one specific works contract and an organized grouping of people and assets enabling the exercise of the activity pursuing a specific objective
• An entity that must be sufficiently structured and autonomous but does not necessarily include significant

assets
• An organized group of workers performing a common task
• An entity, in itself that requires for its identity its workforce, management staff, and the way in which work is organized and where appropriate the operational resources available to it

The United Kingdom’s law of transfer of undertakings initially put more emphasis on commercial ventures as principal entities capable of being transferred. “The emphasis in the definition is therefore on the transfer of a business as a going concern. The transfer of governmental or charitable activities from one employer to another are excluded as not being commercial ventures.”¹² The United Kingdom government delayed the applicability of the Acquired Rights Directive of the European Union in so far as transfer of undertakings is concerned.

Ironically, when Section 197 of the 1995 Act was promulgated, it put much emphasis on going concerns as having the capability of being transferred. This emphasis on economic entities automatically excluded governmental and charitable organizations.

Prior to the coming into effect of the Labour Relations Act 66 of 1995, there was no law in South Africa that dealt specifically with the transfer of undertakings and the courts had to borrow from the Transfer of Undertakings Employment Protection regulations of the United Kingdom. “Under common law (South Africa), the sale of business in general meant termination of the contracts of the existing employees and left it up to the purchaser to decide whether or not to offer them re-employment.”¹³ A slight movement towards the recognition of employee rights during transfers was witnessed with the matter of, Kebeni v Cementile Products (Ciskei) PTY Ltd (1987) ILJ 442 IC, where the Industrial Court referred for the first time to the British Tupe Regulations of 1981 in arriving at the decision that safeguards should be incorporated into the agreement between employer and the purchaser of the business to ensure that the interests of the workforce are adequately protected. “But understandably the Industrial Court hesitated to order a remedy that would have major socioeconomic policy implications and employees accordingly acquired no right to continued employment on transfer of the business where they worked.”¹⁴

Second, third and contracting in business transfers could be relevant transfers in the true sense of the word. The facts of the Suzen case are as follows; Suzen was a cleaner employed in Germany by a company called Zenhacker. Zenhacker lost the contract to another company and dismissed Suzen. She was challenging that, in terms of the EU Directive that was a relevant transfer and she should have been taken along by the new company. The German Court referred the matter to the ECJ to inquire whether the Acquired Rights Directive was applicable in the circumstances; it was decided on the affirmative. What Suzen meant therefore was that where a change in contractor involves the transfer of significant assets or a major part of the workforce, in term of their numbers and skills, then that is a relevant transfer. Suzen has been criticized as having caused a lot of confusion in the already confusing state of affairs of the transfer of undertakings.

Section 197 is amongst the various provisions of the Labour Relations Act 66 of 1995 that have been amended. It is my considered opinion that the amendment to the Labour Relations Act and Section 197 in particular was influenced inter alia by the changes in the European Union context.

The most important feature of the amended Act is that it seems to be premised directly on the TUPE of the United Kingdom. Whilst at this stage it is still difficult to establish the extent upon which it will be able to deal with most of the pertinent questions faced by its counterparts in Europe and the United Kingdom. It is however important to understand that there is a vast difference between the legal systems of

United Kingdom/European Union and South Africa. Such differences have got a propensity of impacting in the process

of transplanting the legal norms of the former to the latter. Butler¹⁵ states that, “for the legal norm to be transplanted from one legal system to the other, there needs to be a study of conditions in which the law, norm or model intended for transplantation exists, and comparison thereof with the conditions into where it is to be transplanted. As a rule, if conditions differ, difficulties and obstacles, sometimes insurmountable, arise for transplantation, transplanted norms/models will not take root in new conditions.” This feature of differences in the legal systems, social, economic and political conditions in the respective jurisdictions mentioned above will act as a compass in this investigation, lest the present investigators’ approach be neutralized by him having to bring into surface his implicit background assumptions.

In the South African Labour Court matter of National Health and Allied Workers Union v University of Cape Town [case C3999/99]DATED 29 March 2000 (unreported), the question before the court was whether outsourcing of part of an employers business amounts to a transfer of part of its business as a going concern, it was held by Mlambo J, that it did not. Contrastingly, it was held by the English Court in Schmidt v Spar [1994] IRLR 302, that there was a relevant

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STATUTES

1) Acquired Rights Directive (77/187/EEC)
2) Transfer of Undertakings Employment Protection Regulations (UK) 1981
3) Labour Relations Act 66(SA) 1995
4) Labour Relations Amendment Bill 2001

TABLE OF CASES

1) Spijkers v Gebroeders[1986] 2 CMR 296
2) Kebeni v Cementile Products [1987]8 ILJ 442(IC)
3) Schmidt v Spar[1994] IRLR 302
4) Suzen v Zenhacker [1997] IRLR 255 (ECJ)
5) Schutte and Others v Powerplus [1999] 20 ILJ
6) Nehawu v UCT [Case C3999/99]

transfer in a situation where a bank had contracted out its

cleaning services to an outside organization. These are some contradictions in the jurisprudence of the respective

countries’ was held in the matter of Schutte and others v Powerplus [1999] 20 ILJ 655, that in answering the

question of whether or not the whole or part of a business of an employer is deemed to have been transferred as a

going concern, the court must look into the substance and not the form of the transfer. It was further held that

the court must weigh the factors that are indicative of a transfer and those which are not. In this matter, reference was made to certain English cases in which it was held that outsourcing schemes amounted to transfers of business in terms of comparable British Regulations. The South African Labour Court has constantly referred to English law in its approach to the transfer of undertakings.

Conclusion

The discussion of the notion that South African law should or shouldn’t lag behind the developments of the developed world, particularly those of the United Kingdom and the European Union is now settled. When the Labour Relations Act 66 of 1995 came into effect, with a particular reference to Section 197, it was indeed premised on the legal standing of transfer of undertakings in the United Kingdom during those years. However, many developments have taken place since then, including the decisions of the European Court. However, it was only in 2001 that we saw a movement by the South African government amending this Section and thus bringing to the fore some very important amendments. “The problem of applying labor law norms is complex in the study of national law and much more so in comparative legal research. Indeed, to arrive at correct conclusions, it is not enough to make a formal judicial comparison of norms, it is also essential to know how fully a foreign norm is applied.”

pension fund in Africa. He also serves as a member of the Board of Directors of the Public Investment Corporation (PIC), the state asset management company of South Africa. Ndaba was awarded a British Chevening Scholarship Award in 2000. In 2004, he was awarded the South Africa-Netherlands Partnership on Research Development Scholarship (SANPAD). He holds a Masters in Employment Law from the University of Central Lancashire, United Kingdom and he is an admitted Advocate of the High Court of South Africa. He has served as a Senior Pension Funds Adjudicator in South Africa. His main focus is on Pension Fund Governance, Social Security and Retirement Fund policy analysis and development. He has presented extensively in conferences on pension fund matters internationally.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.