Second generation outsourcing: Did
the LAC get it right?
Introduction: s197
• The consequences if s197 applies to a business transfer
• When does it apply?
– Transfer
– Of a ‘business’
– As a going concern
• ‘Business’? = the whole or part of any business, trade
undertaking or service. Or a coherent collection of
resources that facilitates a business activity.
Introduction: continued
• As a going concern?
– NEHAWU v University of Cape Town: ‘the business remains the
same but in different hands’
– An objective test having regard to substance and not form taking
into account what has transferred i.e. activity, employees,
customers, tangible and intangible assets etc.
Second generation outsourcing?
• What is it?
• Why is it a problem in the context of s197?
• Beware of getting distracted by terminology: it has no
magic and is of little help.
AUSA v South African Airways (LAC)
• The facts
• Zondo JP: Contest between the literal and purposive
approaches to statutory interpretation. It would be
destructive of the purpose of s197 if it did not apply to
second generation and further contracting out. The court
could thus depart from the literal meaning of the statute
to give effect to its clear purpose.
AUSA v South African Airways (LAC)
• Davis JA:
– Was not convinced that ‘by’ indicates that the old employer plays
an immediate and positive role in the transfer.
– Was concerned that the interpretation of s197 advanced by SAA
would undermine its purpose and could only be sustained if the
provision could bear no other meaning.
– Emphasised the fact that the contract between SAA and LGM
required LGM to take positive action to transfer the business
back to SAA or to another designated contractor.
AUSA v South African Airways (LAC):
Discussion
• Clear that there is no reason in principle why s197
cannot apply to second generation and further
outsourcing.
• To prevent that across the board would undermine the
purposes of s197
• But Davis JA’s judgment leaves room for an argument
that s197 was only found to apply to second generation
outsourcing because of the facts before the court in the
SAA case.
Why should s197 apply to second
generation transfers?
• That gives effect to the purposes of s197, the LRA and,
ultimately, the Constitution.
• Why would a limitation of rights be appropriate?
– Reduced employment security
– Terms and conditions whittled away
– Arbitrary distinction between initial and subsequent outsourcing
• But challenges remain
Example
• Employer A sells luxury motor vehicles. When vehicle
are purchased they come with a five year maintenance
and service plan. In addition, the vehicles that are sold
by Employer A are brought to it to be serviced even once
the service and maintenance plan has expired. Employer
A wanted to concentrate its energies on its core business
of vehicle sales. It therefore contracted with Employer B
in 2005 to provide a vehicle repair and maintenance
service.
Example (cont.)
• Employer B was responsible for all vehicle repairs and
services. The vehicles were referred via Employer A. The
work on the vehicles was done by highly-skilled
mechanics on premises owned and supplied by
Employer A using tools and equipment owned by
Employer A. Employer B was responsible for purchasing
parts for the vehicles.
In 2010 the contract between Employer A and Employer
B came to an end and the opportunity to provide the
vehicle repair and maintenance service was put out to
tender. Employer C is considering tendering to provide
the service.
Example (cont.)
• Employer B’s 50 employees want to know whether they
will be transferred to work for the new contractor. The
successful tenderer will work from the same premises as
those used by Employer B and will use the same tools
and equipment. Employer B, if it loses the opportunity to
provide the service, is intending to sell the spare parts it
has collected given that Employer B will have no further
use for them.
Discussion
• Will there be a s197 transfer between Employer B and a
new contractor if Employer B was unsuccessful in the
tender process?
– Does it matter that this is a second generation outsourcing?
– Is what will be transferred a ‘business’? i.e. the whole or any part
of a business, trade, undertaking or service. Is B being deprived
of a coherent grouping of resources that facilitates a business
activity?
Discussion
• Will the business be transferred as a going concern?
– Does it matter that B does not own everything that will be
transferred?
– Does it matter if there is no contract between B and the new
contractor?
– Will the business be essentially the same business in the hands
of the new contractor as it was in the hands of B?
Discussion: practical problems
• How will potential tenderers know how to price and pitch
their bids? i.e. how will they access the information they
need from a potential competitor?
• Use sources other than the existing contractor?
• Time for legislative intervention?
Discussion: practical problems
• Is the section too rigid?
• Consider using:
– s197(6)
– s197(3)
– s189
Finally . . .
• What of the temporary service provider in SAA?
• Was there possibly a s197 transfer from LGM SA to that
entity and then another to someone else?
• Or was there only one transfer, in two stages, from LGM
SA to the ultimate service provider?