Transport Fleet Maintenance (Pty) Ltd and Another v National Union of Metal Workers of South Africa and Others (PA1/02) [2003] ZALAC 10 (6 August 2003)

[1] The first respondent is a registered trade union. The second to the twenty seventh respondents are members of the union who were employed by the second appellant, namely, TFM Cape (Pty) Ltd, until the 5^th August 1998 on which date the second appellant dismissed them from its employ. A dispute then arose between the second appellant, on the one hand, and the union and the second and further respondent’s, on the other, on whether that dismissal was fair and, if it was unfair, what relief the second and further respondent’s should be granted.

[2] On the 15^th September 1998 the dispute was referred to the Commission for Conciliation, Mediation and Arbitration (CCMA) for conciliation. Ordinarily it would have had to be referred to the Labour Court for adjudication but the parties agreed that the CCMA arbitrate it. On the 4^th June 1999 the first appellant and the second appellant concluded and signed a sale agreement in terms of which the second appellant effectively sold and transferred its business as a going concern to the first appellant. In terms of the agreement, the first and second appellants agreed that the sale and transfer of the second appellant’s business to the first appellant would be with effect from the 1^st November 1998.

[3] The arbitration proceedings took place on the 22^nd June and 3^rd August 1999. The second appellant’s management did not inform the respondents and the commissioner of the sale and transfer of the second appellant’s business to the first appellant. On the 18^th August 1999 the commissioner handed down his arbitration award. The arbitration award was to the effect that the second and further respondents’ dismissal by the second appellant was unfair and that the second appellant reinstate those of the second and further respondents who reported for duty within 14 days of the award. The commissioner decided not to make the reinstatement order retrospective.

[4] The second and further respondents reported for duty on the 24^th August at the premises where the second appellant had conducted business at the time of their dismissal. Mr Gordon Thompson, who had been the second appellant’s general manager in the same premises prior to the second and further respondents’ dismissal, informed them that the second appellant was no longer in business. According to the second and further respondents it was apparent on the 24^th August that the undertaking that had been there at the time of their dismissal was continuing with the normal business operations in which the second appellant had been engaged prior to their dismissal and that substantially the same workforce, including the managers, had been retained.

[5] In due course the respondents learnt of the sale and transfer of the second appellant’s business to the first appellant. A dispute then arose between them and the appellants on which of the two appellants had the obligation to give effect to the arbitration award that had been made against the second appellant. The respondents brought an application in the Labour Court for, among others, an order that the first appellant give effect to the award which meant that it should reinstate them with effect from the date when they had reported for duty.

[6] The respondents’ case before the Labour Court was that, when the second appellant’s business was transferred to the first appellant as a going concern, all the rights that they had against the second appellant at the time of such transfer and all the obligations which the second appellant had towards them were transferred by operation of law to the first appellant. This, they contended, was because of the application of sec 197(2)(a) of the Labour Relations Act, 1995 (Act NO 66 of 1995) (“the Act”). The first appellant’s defence was that, although the transfer of the second appellant’s business to the first appellant was a transfer of such business as a going concern to which sec 197 applied, the rights and obligations which existed between the second appellant and the individual respondents, if any, were not transferred to it because at the time of the transfer of the business, the second and further respondents were not employees of the second appellant as contemplated by sec 197(2)(a) as they had been dismissed prior to such transfer and their reinstatement by the CCMA was not so retrospective as to cover the date of the transfer. Waglay J, who heard the matter, held that sec 197 applied to the second and further respondents even though they had been dismissed prior to the transfer of the business and despite the fact that the award of reinstatement that the CCMA had made was not sufficiently retrospective to cover the date of the transfer of the business. Accordingly, he granted an order to the effect, in regard to this issue, that the arbitration award could be made an order of the Labour Court. Subsequently the appellants sought leave to appeal to this Court against that judgement and order. The application for leave to appeal was refused. The appellants then petitioned this Court for leave to appeal. This Court granted such leave; hence this appeal.

[7] On appeal the only issue for determination is whether sec 197(2)(a) applied to the second and further respondents at the time of the transfer of the business of the second appellant to the first appellant. If it applied, the appeal must fail. If it did not apply, the appeal must succeed. Whether or not sec 197(2)(a) applied depends on whether or not the second and further respondents can be said to have been employees of the second appellant as contemplated by sec 197(2)(a) at the time of the transfer of the business. It is the provisions of sec 197(2)(a) as they stood in 1999 that fall to be considered. It is convenient to quote not only sec 197 (2)(a) but also sec 197 (1) and the whole of ss(2). Sec 197(1) and (2) read thus at the time:-

(2)(a) If a business, trade or undertaking is transferred in the circumstances referred to in subsection (1) (a), unless otherwise agreed, all the rights and obligations between the old employer and each employee at the time of the transfer continue in force as if they had been rights and obligations between the new employer and each employee and, anything done before the transfer by or in relation to the old employer will be considered to have been done by or in relation to the new employer.

[8] Counsel for the appellants contended that the provisions of sec 197(2)(a) require that the second and further respondents should have been employees of the business transferor at the time of the transfer of the business before the provisions could be triggered. He submitted that the second and further respondents were not employees of the business transferor at the time of the transfer of the business because they had been dismissed from the business transferor’s employ prior to the transfer of the business. Section 213 of the Act defined the word “employee” thus at time:

[9] Counsel for the appellants conceded, however, that the principle established in the decision of the then Appellate Division in National Automobile and Allied Workers Union (now known as the National Union of Metal Workers of SA) v Borg-Warner SA (Pty) (1994)15 ILJ509 (A), which was decided under the now repealed Labour Relations Act, 1956 (Act No28 of 1956) (‘the old Act’), applied with equal force to the current Act. In Borg-Warner’s case a trade union had concluded an agreement with an employer to the effect that, when suitable vacancies arose in the future, the employer would fill such vacancies by employing from a pool of employees who had previously been dismissed by the employer. A dispute arose later between the parties when the employer failed to appoint from the pool in filling certain vacancies that had arisen. The trade union brought an unfair labour practice claim in the Industrial Court alleging that the employer’s conduct in not hiring from the pool constituted a breach of the earlier agreement and constituted an unfair labour practice as defined in sec 1 of the old Act.

[10] The employer took the point that the Industrial Court had no jurisdiction in the matter as the persons who formed the pool of employees for whose benefit the agreement had been concluded were not employees within the meaning of that term in the old Act because they had been dismissed. The Appellate Division rejected this contention. The Court referred to the City Council of Cape Town v Union Government 1931 CPD 366 at 380 where, in relation to the Industrial Conciliation Act 11 of 1924, Gardiner JP had said that “(i)t does not follow that [a] man dismissed may not be an employee in terms of the Act. It seems to me that to hold that once a man is dismissed he ceases to be an employee would defeat the whole object of the Act, because anyone with knowledge of labour history knows that such disputes constantly arise and that serious strikes often take place owing to the fact that a person has been dismissed”. At 518B in Borg-Warner the Court said in relation to the old Act:- “The relationship envisaged by the Act between employer and employee is therefore clearly not one that terminates as it would at common law”. At 516 A in Borg-Warner’s case the Appellate Division said:

“........... (t)he legislature clearly had in mind that once a particular employment relationship is established, the parties to it remain ‘employee’ and ‘employer’ as defined , beyond the point of time at which the relationship would have terminated under the common law. Where it includes also former employees seeking re-employment or reinstatement, it has placed no limitation suggesting when - or why - a former employee no longer falls within the definition. What is clear, is that when both parties so agree, or when equity permits, the relationship does come to an end”. (My underlining).

[11] The principle established in Borg-Warner is, therefore, that an employment relationship could continue between an employer and an employee beyond the termination of the contract of employment by the employer and, where such a relationship existed, the dismissed person was an employee as defined in the old Act. It was said that such an employment relationship comes to an end when parties have so agreed or when equity so demands. That certainly was the case under the old Act and that remains the position under the current Act. The employment relationship was found to have continued to exist in the Borg-Warner case beyond the termination of the contract of employment despite the fact that the employees forming part of the pool no longer had any contracts of employment with the company. The employment relationship certainly continues to exist where the dismissed person challenges the fairness of the dismissal and seeks relief through procedures provided for by the Act.

[12] To construe the provisions of sec 197(2)(a) on the basis that the word “employee” includes a person who has been dismissed but still has an employment relationship with his former employer because he is still pursuing legal remedies in relation to such dismissal would, it seems to me, accord with the purpose of EC Council Directive 77/187 of 14 February 1977 of the Council of European Communities. I say this because, in P Bork International A/S (in liq) v Foreningen af Arbejdsledere i Danmark Case 101/87 [1989] IRLR 41 at 44, the Court of Justice of the European Communities had the following to say in respect of who may invoke the EC Council Directive 77/187:-

“It follows that the workers employed by the undertaking whose contracts of employment or employment relationship has been terminated with effect on a date before that of the transfer, in breach of Article 4(1) of the Directive must be considered as still employed by the undertaking on the date of the transfer with the consequence, in particular, that the obligations of an employer towards them are fully transferred from the transferor to the transferee, in accordance with article 3(1) of the Directive....”. (my underlining)

[13] In Wendelboe v LJ Music Aps ( in liq) Case no 19/83 [1985] ECR 457 at par 16 of the judgement the Court, inter alia, said that: “The existence or otherwise of a contract of employment or an employment relationship on the date of the transfer within the meaning of Article 3(1) of the directive must be established on the basis of the rules of national law, subject however to observance of the mandatory provisions of the directive and, more particularly, Article 4(1) thereof, concerning the protection of employees against dismissal by the transferor or the transferee by reason of the transfer”. The Court then said that “(i)t is for the national court to decide, on the basis of those factors, whether or not, on the date of the transfer, the employees in question were linked to the undertaking by virtue of a contract of employment or employment relationship”. In Foreningen af Arbejdsledere i Danmark v Daddys Dance Hall A/S Case 324/86 [1988] IRLR 315 at 317 par 14 the Court said, among other things, that “....... Directive 77/187 aims at ensuring for workers affected by a transfer of undertaking the safeguarding of their rights arising from the employment contract or relationship”. (my underlining).

[14] It is, therefore, clear from the decision of the European Court of Justice in P Bork International A/S (in liq) v Foreningen af Arbejdsledere i Danmark (above) that the existence of a contract of employment or of an employment relationship qualifies an employee to claim protection under the EC Council Directive 77/187. In other words the absence of a contract of employment does not disqualify a person from such protection and a person who has no contract of employment at the time of the transfer of the business can seek such protection if he can show the existence of an employment relationship. It is clear also from the decision in Wendelboe’s case referred to above that it is left to the domestic courts to decide whether in a particular case there is an employment relationship or a contract of employment or not. It is made clear in Foreningen af Arbejdsledere i Danmark v Daddys Dance Hall that the Directive “aims at ensuring for workers affected by a transfer of undertaking the safeguarding of their rights arising from the employment contract or relationship”.

[15] Against the above background it is appropriate to observe that in Borg-Warner it was decided that the termination of a contract of employment does not terminate the applicability of the definitions of “employer” and “employee” to the relationship of the parties for purposes of the old Act and that the definition of “employee” in the old Act included a former employee seeking re-employment or reinstatement. It was also said in Borg-Warner that what was clear was that the employment relationship comes to an end when the parties have so agreed or if “equity permits”. If equity is applied to this case, it seems to me that it cannot be said that it permits that the matter be dealt with on the basis that the employment relationship came to an end when the individual respondents were dismissed despite the fact that they did not accept the dismissal but instead set the statutory machinery in motion to have their dismissal reversed. On the contrary it seems to me that the employment relationship continued beyond the termination of their contract of employment.

[16] Counsel for the appellants further submitted that, where, as in this case, an employee’s dismissal from the business transferor’s employ occurred before the transfer of the business and the employee is still pursuing his legal remedies at the time of such transfer, the dismissed employee can only be said to be an employee as contemplated in sec 197 (2)(a) if he subsequently obtains an order of reinstatement which is so retrospective that it covers the date of the transfer of the business. He submitted that, if the employee does <

South Africa: Labour Appeal Court

Transport Fleet Maintenance (Pty) Ltd and Another v National Union of Metal Workers of South Africa and Others (PA1/02) [2003] ZALAC 10 (6 August 2003)