Labour Law
What is a transfer of a going concern?
Ivan lsraelstam, Chief Executive, Labour Law Management Consulting
(See: http://myweb.absa.co.za/labourlaw
)
Where an undertaking (or part thereof) of any kind is transferred to another undertaking as a going concern, section 197 of the Labour Relations Act (LRA) forces the new entity to take over all the employment obligations of the old one. This law applies to all entities that employ people.
However, not all transfers qualify under this legislation because not all are transfers ‘as going concerns’. It is vital for employers to know which transfers fall under this legislation because they need to know whether the new employer will be forced to take over all the old employer’s employees together with all their terms and conditions of employment.
The following are likely to constitute a ‘transfer of a going concern’:
- where the transfer agreement itself refers to the transfer of a going concern;
- where the new entity took over the assets of the old entity and continued to serve the same users/clients of the business as before;
- if the new undertaking continued the running of the business in much the same way as it had been run before the takeover;
- the sale of a business as an operating entity; and
- where a function or service of the business is outsourced.
Due to the complex nature of the section 197 legislation and the potentially ruinous costs of making a mistake, employers should not enter into takeovers before consulting reputable experts in the labour law field. Our experience is that employers have found to their cost that going it alone is far more costly than getting the right advice.
Tel: (011) 888-7944
Email: labourlaw@absamail.co.za
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