Employment law update – A crucial distinction between ss 197(2)(c) and 197(5)(a) of the LRA

August 1st, 2021
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Fulton and Others v Vita Nova Selection Plant (Pty) Ltd and Others (LC) (unreported case no J3042/18, 11-6-2021) (Nkutha-Nkontwana J).

The facts in this matter brought into focus the following two sections of s 197 of the Labour Relations Act 66 of 1995 (LRA).

Section 197(2)(c) states: ‘If a transfer of a business takes place, unless otherwise agreed in terms of subsection (6) –

(c) anything done before the transfer by or in relation to the old employer, including the dismissal of an employee or the commission of an unfair labour practice or act of unfair discrimination, is considered to have been done by or in relation to the new employer’ (my italics).

Section 197(5)(a) states: ‘For the purposes of this subsection, the collective agreements and arbitration awards referred to in paragraph (b) are agreements and awards that bound the old employer in respect of the employees to be transferred, immediately before the date of transfer’ (my italics).

The three applicants were dismissed by the first respondent, Vita Nova on 24 October 2016. In terms of an arbitration award delivered sometime in August 2017, the employees’ dismissals were found to be substantively and procedurally unfair following which they were collectively awarded compensation of R 774 400.

Vita Nova did not honour the award, nor did it seek to have the award set aside. This prompted the employees to obtain a writ of execution. In an interpleader, brought by the second to fourth respondents in their capacity as trustees of Mooipan Trust, it was argued that the assets which the Sheriff had attached, were assets bought by Mooipan Trust from Vita Nova.

In response, the applicants approached the Labour Court (LC) for an order declaring that the sale of assets from Vita Nova to Mooipan Trust constituted a transfer contemplated in s 197 of the LRA and that both Vita Nova and Mooipan Trust were jointly and severally liable to comply with the award.

Neither respondent opposed the first order sought but denied Mooipan Trust was liable to pay the applicants the compensation awarded. Mooipan Trust argued that the sale of the business occurred in May 2017 whereas the arbitration award was delivered in August 2017. This, according to the respondents meant that the award was not an award envisaged in s 197(5)(a) as it was not an award, which was binding on the old employer prior to the transfer. In addition, Mooipan argued that it was not a party to the arbitration provisions.

Having considered the purpose of s 197 in general, as well as what s 197(5) sought to achieve in particular, the court made two critical findings.

The first was that the general scheme of s 197(5), focussed to ensure the continuation and enforcement of collective bargaining, in the form of either collective agreements or arbitration awards pertaining to collective agreements or organisational rights; when a business was sold as a going concern.

On this point the court held:

‘It is absolutely clear from the above memoranda that the purpose of section 197(5) of the LRA is to facilitate the continuity of collective bargaining by providing that the old employer’s obligations in respect of trade union organisational rights in terms of the arbitration awards or collective agreements, that bound the old employer immediately before the transfer of [a] business as a going concern, shall automatically transfer to the new employer.’

The second point was that arbitration awards in respect of an unfair dismissal, unfair labour practices and/or unfair discrimination; are awards, which ought to be addressed within the context of s 197(2)(c) and not s 197(5).

The court held:

‘In my view, section 197(5) of the LRA does not apply to arbitration awards that are issued consequent to employees successfully challenging the conduct of the old employer in relation to dismissal, unfair labour practice or discrimination. The outcome of those processes would be binding on the new employer in terms of section 197(2)(c) of the LRA irrespective of the date on which they were issued.’

Following this distinction, the court found that s 197(5) was not relevant to the application before it. The arbitration award was in respect of an unfair dismissal dispute and was enforceable against Mooipan Trust as per the provisions of s 197(2)(c), irrespective of the fact that the award was delivered after the date of transfer.

In criticising the argument further, the court noted that the Mooipan Trust’s construction of s 197(5)(a) meant that a new employer would escape liability under circumstances where the old employer dismissed the employee whereafter the latter claimed an automatically unfair dismissal, which has to be adjudicated at the LC. If judgment was delivered in favour of the employee but after the date of the sale of the business, then on the respondent’s argument, the new employer would not be liable for an order of reinstatement or compensation. This, according to the court was not only irrational but would run contrary to the spirit and purpose of s 197.

Dismissing the argument that Mooipan Trust was not a party to the arbitration proceedings, the court noted that the second respondent, acting as a trustee of Mooipan in the declaratory proceedings, also represented Vita Nova as its director in the arbitration proceeding. During the same time, he was also a trustee of Mooipan Trust. It was common cause that at no time before the award was delivered, did he inform the arbitrator or the applicants that the business had been sold hence the applicants could not have joined Mooipan Trust to the dispute.

The court ordered that the sale of the business from Vita Nova to Mooipan Trust was a transaction hit by the provisions of s 197 and that both entities were jointly and severally liable to pay the applicants compensation as set out in the award together with interest running from the date of the award. No order as to costs were made.

 

Moksha Naidoo BA (Wits) LLB (UKZN) is a legal practitioner holding chambers at the Johannesburg Bar (Sandton), as well as the KwaZulu-Natal Bar (Durban).

This article was first published in De Rebus in 2021 (Aug) DR 41.

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