Generalisation and Second Generation Outsourcing – Aviation Union of South Africa and Another v South African Airways (Pty) Ltd and Others [2011] ZACC 31

Posted: November 25, 2011 in Uncategorized

The minority per Jafta J at paragraphs 47 and 48 held that “[w]hether a transfer as contemplated in section 197 has occurred or will occur is a factual question… “[S]peaking generally, a termination of a service contract and a subsequent award of it to a third party does not, in itself, constitute a transfer as envisaged in the section. In those circumstances, the service provider whose contract has been terminated loses the contract but retains its business. For a transfer to be established there must be components of the original business which are passed on to the third party. These may be in the form of assets or the taking over of workers who were assigned to provide the service” (own underscoring).

Jafta J then concludes (at paragraph 55) that “[r]eading section 197 as a whole in the context of where it is located in the LRA and paying sufficient attention to its purpose and the objects of the LRA, reveal that it applies to any transaction that transfers a business as a going concern. It follows that the majority in the Supreme Court of Appeal erred in holding that the section does not apply to second generation outsourcing agreements”.

The majority judgment, as pronounced by Yocoob J, finds common cause with the above findings by Jafta J and goes as far as stating (at paragraphs 15 and 106) that “[i]t does not matter in principle what the ‘generation’ of the outsourcing is, or even whether the transaction is concerned with contracting out at all. The true inquiry is whether there has been a transfer of a business as a going concern by the old employer to the new employer… In determining whether contracting out amounts to the transfer of a business as a going concern, the substance of the initial transaction, more specifically whether what is outsourced is a business as a going concern rather than the provision of an outsourced service remains significant during subsequent transfers. If the outsourcing institution from the outset did not offer the service, that service cannot be said to be part of the business of the transferor. What happens here is simple contracting out of the service, nothing more, nothing less”.

Yacoob J on analysing the facts concludes that in casu a transfer took place and more specifically records (at paragraph 121 et seq.) that “[L]GM became obliged to sell all fixed assets and inventory dedicated only to providing the services in terms of the agreement back to SAA and to transfer or assign all third party contracts to SAA… [M]oreover, the cancellation of the agreement would necessarily mean that LGM would no longer be entitled to the use of property and to the leases already described… [I]n the circumstances, the cancellation clause of the agreement contemplated a transfer of the business as a going concern. The only debate was about whether the business as a going concern was to be transferred to SAA or to an interim service provider. As long as there is a transferor, the identity of that entity or person is of no material significance. The agreement contemplates transfer by LGM to SAA or to the interim service provider. It requires a transfer by a transferor, the old employer, to the transferee, the new employer”.

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