LABOURupdate
Farrell Inc. Attorneys
the way forwar d
February 2012
HARSCO METALS SA (PTY) LTD AND
ANOTHER v ARCELORMITTAL SA
LIMITED & OTHERS (J2923/11) [2011]
ZALCJHB116 (29 December 2011)
The Applicant, Harsco Metals,
sought a declarator in the Labour
Court that the transfer of its
business to 2 entities, namely
Phoenix Services International
LLC (“Phoenix”) and Tube City
IMS South Africa (Pty) Ltd (“Tube
City”) constituted a transfer of
a business as a going concern in
terms of Section 197 of the Labour
Relations Act, 1995, as amended
(“LRA”).
Carmen Abboy (Candidate Attorney)
Harsco Metals had performed services for the Respondent,
Arcelormittal SA (“AMSA”) in the form of slag management
and processing services. Prior to the initial expiry of the service
agreement, Harsco Metals and AMSA initiated a tender process.
Harsco Metals together with Phoenix and Tube City submitted
tenders in terms of which Phoenix and Tube City were successful
in relation to different areas. Harsco Metals was unsuccessful in its
tender however it continued to provide services in relation to one
area situated in Vanderbijl Park.
In terms of the arrangements, Phoenix and Tube City would perform
substantially similar services to those performed by Harsco Metals
at the same location. AMSA was to purchase certain assets from
Harsco Metals, some of which would be sold onto Phoenix and
Tube City. Furthermore Phoenix and Tube City were to employ
300 of Harsco Metals’ 445 employees comprising 70% of Harsco
Metals’ work force.
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The Constitutional Court in the
Aviation Union case emphasised
that the statement in NEHAWU’s decision
made it clear that what matters during
the factual enquiry is the substance of the
transaction as opposed to its form.
The
Constitutional Court went on further to state
that although the definition of business in
Section 197(1) includes a service, it must
be emphasised that what is capable of being
transferred is the business that supplied the
service and not the service itself.
According to Van Niekerk J in the Harsco
Metals case this in turn required that there
should simultaneously be a transfer by one
employer to another, an “economic entity”
capable of being transferred and that the
economic entity retain its identity after the
AMSA disputed that the appointment constituted a transfer in terms of Section 197 of the
LRA relying on the initial transaction and establishment of a joint venture between ISCOR,
(AMSA’s predecessor) and “Hecket” (Phoenix’s predecessor). The joint venture continued
until 2000 when ISCOR sold its 49% shareholding when the Vanderbilj contract came into
existence while the joint venture was in existence. According to AMSA there was simply a
contracting out of services to Harsco Metals who became contractor to provide the services by
making proper business infrastructure arrangements.
Van Niekerk J relied on the Constitutional Court’s decision in Aviation Union of South Africa
and South African Transport and Allied Workers Union v South African Airways (Pty) Ltd
(2011) ZACC 31 (“Aviation Union”). The Constitutional Court made reference to transfer
by an old employer to a new employer being a matter of fact to be determined objectively.
According to the Constitutional Court, the enquiry was: • the existence of a transfer;
• whether there has been a transfer of a business; and
• whether the business is transferred as a going concern.
The Constitutional Court in the Aviation Union case made reference to its decision in National
Education Health and Allied Workers Union v University of Cape Town & Others 2003
(BCLR) 154 (CC) (“NEHAWU”) in order to determine whether the transfer of the business
was a transfer as a going concern. According to the Constitutional Court’s decision in
NEHAWU:
“In deciding whether a business has been transferred as a going concern, regard must be had
to the substance and not to the form of the transaction. A number of factors will be relevant
to the question whether a transfer of a business as a going concern has occurred, such as a the
transfer or otherwise of assets both tangible and intangible, whether or not workers are taken
over by the new employer, whether customers are transferred and whether or not the same
business has been carried on by the new employer. What must be stressed is that this list of
transfer.
In deciding whether the transfer of the
business was a transfer of a business as a
going concern as envisaged in Section 197,
Van Niekerk J relied on the case of COSAWU
v Zikhethele Trade (Pty) Ltd & another
(2005) 9 BLLR 924 (LC) (“COSAWU”).
Van Niekerk J stated that although the
Constitutional Court dealt with the factors
relevant to the question regarding a transfer
of a business as a going concern it did not
stipulate the decisive criteria in weighing up
of the factors to be considered. According to
the Labour Court in the COSAWU decision:
“the decisive criteria was whether, after the
transfer, the undertaking had retained its
identity.
One needs to look at substance
rather than form and the mode or method
of transfer is immaterial.
One needs to
look to see whether, taking a realistic view
of the activities in which the employees are
employed, there exists an economic entity
which, despite changes, remains identifiable,
though not necessarily identical, after the
alleged transfer”.
Van Niekerk J went on to state that the
primary consideration was the nature of the
business. In assessing whether there was a
factors is not exhausted and that none of them is decisive individually.”
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transfer of a business as a going concern in
the present case, Van Niekerk J considered
the following the factors: • The majority of Harsco Metals’ workers
engaged in the business were to be taken
over by Phoenix and Tube City;
• The only recipient of the services was
AMSA who would remain the sole
recipient of the services;
Harsco Metals and AMSA and
the engagement of Phoenix and
Tube City by AMSA constituted a transfer of
a business as a going concern for the purpose
of Section 197 of the LRA. AMSA and Tube
City were directed to pay the costs of the
proceedings, jointly and severally, the one
paying the other to be absolved, including
the costs of two counsel.
It is clear from the reasoning in the Harsco
• Phoenix and Tube City would perform
Metals decision, that a determination as to
substantially similar services to those
whether a transfer of a business constitutes
performed by Harsco Metals at the same
a transfer of a business as a going concern
location as Harsco Metals.
as envisaged in Section 197 of the LRA,
According to Van Niekerk J this indicated
a strong indication of the continuation of a
discrete economic entity in different hands.
Van Niekerk J pointed out that:
transaction as opposed to its form. It does
not matter the form of the transaction so long
as an entity retains its identity subsequent
to transfer. Factors relevant to the transfer
“the similarity of services to be provided
by Phoenix and Tube City was not in itself
determinative nor the fact that on transfer
date they would employ the majority of
Harsco’s Metals employees.
involves an analysis of the substance of the
However,
viewed cumulatively and taking into account
that both criteria are met and that on the
transfer date, substantially the same services
would be provided from the same locations,
and viewed through the lens of the actual
activities of and the employment situation in
include the transfer of assets both tangible
and intangible, the transfer of workers, the
transfer of customers and the transfer of
the business or a business that supplied the
service. It is also clear from the decision
that an indication on one of these factors are
not necessarily determinative of a transfer
as envisaged in Section 197 of the LRA,
however, viewed cumulatively, may indicate
a transfer of a business as a going concern as
envisaged in Section 197 of the LRA.
the undertaking before and after the transfer,
there existed an economic entity, which,
despite
changes,
remained
identifiable,
though not necessarily identical, after the
transfer.”
According to Van Niekerk J, Harsco Metals’
business operations would continue as a
discrete economic entity in the hands of
Phoenix and Tube City on termination of the
service agreement between Harsco Metals
and AMSA and therefore the appointment
constituted a transfer of a business as a going
concern in terms of Section 197 of the LRA.
Van Niekerk J ordered that the cancellation
of service agreements concluded between
Carmen Abboy
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