Employment law update – Does the perfection of a notarial bond amount to a transfer of a business as a going concern?

October 1st, 2018

Nadine Mather BA LLB (cum laude) (Rhodes) is an attorney at Bowmans in Johannesburg.

In Spar Group Ltd v Sea Spirit Trading 162 CC t/a Paledi and Others (2018) 39 ILJ 1990 (LAC), Mr and Mrs Vermaak were employed by Paledi Superspar and Paledi Tops, respectively, to manage the businesses (the Paledi Businesses). The Paledi Businesses obtained trading stock on credit from Spar. As security for their indebtedness to Spar, two general notarial covering bonds were registered over the movable property of the Paledi Businesses in favour of Spar. On default, Spar was entitled to take possession of, and retain, all and any moveable property, and sell and dispose of it. This included Spar’s right to conduct the Paledi Businesses in their name, to purchase goods, and to dispose of the Paledi Businesses.

In June 2015, the Paledi Businesses informed Spar that they were no longer in a position to meet their expense and wage obligations. Consequently, Spar obtained an order from the High Court perfecting the notarial bonds. The court order granted Spar the right to manage the Paledi Businesses temporarily for purposes of recovering its debts.

Spar then presented the Vermaaks with a draft management agreement in terms of which they would continue as store managers for an initial three-month period at a lower salary. The Vermaaks declined the offer and as a result, Spar appointed a new store manager and informed the Vermaaks that they were released from their duties. The Vermaaks subsequently contended that the perfection of the notarial bonds by Spar led to a transfer of business as a going concern from Paledi Businesses to Spar in terms of s 197 of the Labour Relations Act 66 of 1995 (the LRA) and, consequently, that their dismissals were automatically unfair in terms of s 187(1)(g) of the LRA. This section provides that if the reason for a dismissal is a transfer, or a reason related to a transfer, contemplated in s 197 of the LRA, the dismissal is automatically unfair.

The Labour Court (LC) held that Spar’s perfection of its notarial bonds and its taking control of the businesses was a transfer of a business as a going concern in terms of s 197 of LRA and accordingly, that the subsequent dismissals of the Vermaaks were automatically unfair. Spar took the matter on appeal to the Labour Appeal Court (LAC) and argued that the LC had failed to recognise that the court order had authorised Spar to take control of the Paledi Businesses for a specific and limited purpose, namely to sell movable property to customers in order to realise their indebtedness.

In determining whether the perfecting of the notarial bonds in the present circumstances constituted a transfer of a business as a going concern, the LAC had regard to the following:

  • Spar only assumed responsibility of the Paledi Businesses for a limited purpose of recovering its debts.
  • Spar was not authorised to dispose of the Paledi Businesses’ movable property in its own name.
  • Spar was not authorised to sell the Paledi Businesses’ immovable property or to retain movable or immovable property belonging to them after its debt had been realised.
  • The leases in the names of the Paledi Businesses were not transferred to Spar.
  • It was common cause that if the debt was settled, the responsibility for running the Paledi Businesses would have been returned and that any revenue generated in excess of the amount due to Spar would have been for the benefit and account of the Paledi Businesses.

The LAC held that a creditor perfecting a notarial bond over movable property does not ordinarily intend to acquire responsibility for conducting the business of the debtor to make a profit on an ongoing basis. Requiring a creditor perfecting a notarial bond to assume responsibility for the employment contracts of a debtor would thus render this form of security unduly burdensome and ineffective.

In this matter, Spar had acted as a creditor and not as an employer. Similarly, to a sale of shares, the perfection of the notarial bond did not result in a transfer from one legal entity (the Paledi Businesses) to another legal entity (Spar) as envisaged by s 197 of the LRA. The LAC held that the perfecting of the notarial bonds by Spar taking possession of the Paledi Businesses to recover monies due does not trigger the application of s 197 and there was thus no basis for the Vermaaks’ claim that they were automatically dismissed by Spar.

The failure to provide a qualified interpreter for an employee during a disciplinary hearing

In Mmola v Commission for Conciliation, Mediation and Arbitration and Others [2018] 8 BLLR 822 (LC), the employee was dismissed by the employer for misconduct after he refused to obey a reasonable instruction from his manager and failed to report to work. The employee referred an unfair dismissal dispute to the Commission for Conciliation, Mediation and Arbitration (CCMA). The arbitrating commissioner found the employee’s dismissal to be substantively unfair and he was awarded compensation equal to three months’ salary.

The employee sought a review of the award on the grounds that the commissioner should have found that his dismissal was procedurally unfair and that he should have been reinstated.

The court noted that the employee’s claim that his dismissal was procedurally unfair was based on the failure of the employer to provide a Sepedi interpreter for him at the disciplinary hearing, although he had requested one. The employer had provided an interpreter capable of interpreting only Sesotho and Tswana. The commissioner rejected the employee’s claim on the basis that the employer conducted its business in English and that the employee was proficient enough in English to understand the allegations of misconduct against him. The court held that this was an error in law. The employee and his representative had raised the need for a Sepedi interpreter on a number of occasions during the disciplinary hearing. The court held that the right to have an interpreter at the hearing is a cardinal right, which cannot be easily waived. Accordingly, the lack of a qualified interpreter in this case rendered the dismissal procedurally unfair.

As regards the issue of reinstatement, the court found that despite the clear indication from the employee that he did not wish to be reinstated, the commissioner still considered the issue. This was a mistake in law. Section 193(2) of the Labour Relations Act 66 of 1995 expressly provides that reinstatement cannot be granted if the employee does not wish to be reinstated, which was the case here. The court held that in spite of the commissioner incorrectly entertaining the issue, the final award of compensation was correct.

Having regard to the above, the court upheld that employee’s review application and substituted the commissioner’s award for an order that the employee’s dismissal was both procedurally and substantively unfair. Since the commissioner had also taken into account a number of irrelevant factors in assessing the substantive fairness of the dismissal, the compensation awarded to the employee was increased from three to seven months’ salary.

This article was first published in De Rebus in 2018 (Oct) DR 51.