Termination of a service agreement and s 197 of the LRA

In Enviroserv Waste Management v Interwaste (Pty) t/a Interwaste Environmental Solutions and Others (P408/15) [2015] ZALCPE 6, the court had to decide if the expiry of a limited duration contract with a service provider and the awarding of the tender for the provision of such services to a new service provider, constituted a transfer of a business as a going concern.

Enviroserv handled General Motors South Africa’s (“GM”) on-site waste management. When the service provider agreement ended, GM contracted Interwaste as its new supplier.

The crisp question that the court had to decide was whether the termination of a service agreement entitled the employees of the service provider to have their contracts transferred to the new service provider.

The court considered the effect of section 197 of the Labour Relations Act which provides that if a transfer of a business takes place, the new employer will be “automatically substituted for the old employer in respect of all contracts of employment in existence immediately before the date of transfer”.

Section 197 contemplates a transfer of a business as a going concern. The section depends on the presence of three factors, namely, “business”, “transfer” and “going concern”.

The court held that the activities of Enviroserv and GM did not constitute a “business” as envisaged by section 197, on the basis that the nature of the waste management industry is one in which businesses win and lose tenders to provide services for a limited period, which did not constitute a “business” for the purposes of section 197. On that basis, the employees did not have a reasonable expectation of being transferred to Interwaste, and the court dismissed the application to have the employees transferred to Interwaste.

The expiry of a service contract with a service provider and subsequent entering into of a new contract with a new service provider (by reason of, for example, the awarding of a new tender) does not necessarily mean that such a transaction will fall within the scope of section 197. It must be determined whether the above three elements are present before one can claim that the contacts of employment of the old employer’s employees will be transferred to the new employer.

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