employment news update | 25 November 2011

the final word by the Constitutional Court on the application of section 197 of the LRA to second generation outsourcing

by stuart harrison and lizle louw

The Constitutional Court judgment in the matter of The Aviation Union of South Africa and the South African Transport and Allied Workers’ Union v South African Airways (Pty) Limited and LGM South Africa Facility Managers and Engineers (Pty) Limited and Allan and 204 others became available on 24 November 2011.  The judgment overturns the ruling of the Supreme Court of Appeal on second generation outsourcing.  The Constitutional Court found that section 197 of the LRA indeed applies to second generation outsourcing.  In fact, the Court commented that section 197 of the LRA could even apply up to “fifth generation outsourcing”.

The Court found that when it has to be determined whether or not section 197 of the LRA is applicable, the focus should be on "what" is being transferred, as opposed to who the parties to the transfer are and what "generation" transfer it is.  The Court found that as long as:

  •  "a business" is being transferred,
  •  "as a going concern",
  •  from an "old employer" to a "new employer", section 197 of the LRA will be applicable.

The Court found further that the emphasis previously placed on the identities of the old and new employers were misplaced as the concept of an old and new employer cannot be static, i.e. in a first transfer by A to B, A is the old employer and B is the new employer; in a second transfer by B to C, B is the old employer and C is the new employer; if the second transfer is by B back to A, B will be the old employer and A will be the new employer, etc.

The Court, however, distinguished a transfer of a business as a going concern from a pure outsourcing agreement, i.e. if the outsourcing institution from the outset did not provide the service, the service cannot be said to ever have been part of the institution’s business and can therefore not be transferred from it as a going concern for the purposes of section 197 of the LRA.  In other words, section 197 of the LRA is applicable to the transfer of a business as a going concern, irrespective of the “generation”, but not to a pure outsourcing agreement.

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