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THE LABOUR COURT OF SOUTH AFRICA

JOHANNESBURG

Not reportable

Case no: J389 /16

In the matter between:

SODEXO SOUTHERN AFRICA (PTY) LTD                                                               Applicant

and

OLIVES AND PLATES FOODS 2 (PTY) LTD                                               First Respondent

COMMERCEZONE (PTY) LTD                                                                Second Respondent

MULTICHOICE SOUTHERN AFRICA                                                          Third Respondent

FOOD AND ALLIED WORKERS UNION                                                  Fourth Respondent

FEDERAL COUNCIL OF RETAIL AND ALLIED

WORKERS UNION                                                                                        Fifth Respondent

SOUTH AFRICAN EQUITY WORKERS

ASSOCIATION                                                                                             Sixth Respondent

DHLAMINI AND 33 OTHERS                                            Seventh and further Respondents

Heard:           1 March 2016

Delivered:     29 March 2016

Summary:    Application in terms of the provisions of section 197 of the Labour Relations Act. Transfer of business as going concern took place.

JUDGMENT

PRINSLOO, J

Introduction:

[1] The Applicants approached this Court on an urgent basis in terms of the provisions of section 197 of the Labour Relations Act[1] (‘LRA’) seeking the following relief:

a.    That the termination of the agreement in terms whereof the Applicant provides staff restaurant operations on the MNET site of the Third Respondent (‘Multichoice’) and the conclusion of an agreement for the provision of similar services by the First Respondent (‘Olives’) constitutes a transfer or undertaking in terms of section 197 of the LRA;

b.    That the employment contracts of the seventh to further Respondents (‘the employees’) transfer automatically from the Applicant to Olives on the date of the transfer, 1 March 2016;

[2] The application is opposed by Olives.

[3] Olives takes issue with urgency and submitted that the matter is not urgent as the Applicant knew since November 2015 that its contract would terminate on 29 February 2016. The Applicant’s case is that on 8 January 2016 the Second Respondent invited potential suppliers to participate in the tender process and to be considered as potential supplier as a ‘catering service provider for Multichoice’. Responses had to be submitted by 22 January 2016 and the Applicant participated in this process. The contract for the Randburg MNET site was awarded to Olives and on 8 February 2016 a meeting took place between the Applicant and Olives. Olives confirmed that it would not take over any of the Applicant’s staff employed on the MNET staff restaurant operation.

[4] Subsequently further meetings were held and correspondence exchanged and I do not intend to deal with those in detail for purposes of deciding whether the matter should be heard on an urgent basis.

[5] I am of the view that this application should be dealt with on an urgent basis.

[6] Olives also took issue with the citation of the Respondents and submitted that the Second Respondent had nothing to do with the appointment of Olives and hence the Second Respondent is incorrectly cited. Olives submitted that NMS COM ought to have been cited and the application is fatally defective for the reason that a party having an interest in the matter is not cited.

[7] I do not understand the Applicant to seek relief against any party apart from Olives. No relief is sought against the Second Respondent and if relief was sought against the Second Respondent and it was of the view that it should not have been cited or that any relief sought against it was not competent, the Second Respondent should have raised that issue.

[8] Insofar as NMS COM having an interest in the outcome of this application, it is joined to the proceedings by virtue of the provisions of Rule 22(2)(a) of the Rules of the Labour Court.

Brief history

[9] The Applicant, through its international holding company provides a foodservice or catering operation that entails the preparation of food outside a home environment. This includes restaurants and cafeterias and such services are rendered in 80 countries through 380 000 employees at 34 000 sites.

[10] In 2010 the Second Respondent published a ‘request for proposal’ for the provision of a catering service provider for the staff restaurants and coffee shops at Multichoice and MNET. The Second Respondent intended to appoint a supplier to provide the catering related services.

[11] Subsequent to a tender process and as from 1 June 2010 the Applicant was awarded the contract to operate the staff restaurants and coffee shops at the Third Respondent’s sites.

[12] Prior to 1 June 2010 Tsafrika Catering Solutions (Pty) Ltd provided the same services at the Third Respondent’s sites. The Applicant took over the business as a going concern from Tsafrika and the parties concluded a transfer agreement wherein it was provided that the Applicant would take over Tsafrika’s employees based at MNET, Multichoice and 271 Oak Avenue as the new employer.

[13] Since June 2010 and for the duration of the agreement the Applicant rendered the said services at the Randburg MNET site. On this site services were rendered at the MNET coffee shop, the MNET restaurant, the Bojangles restaurant and a central storeroom which supplies the restaurants and coffee shop. Services were also rendered at the Randburg Multichoice site. On this site services were rendered at the Multichoice coffee shop, the Multichoice restaurant and a central storeroom which supplies the restaurants and coffee shop. Services were also rendered at the Randburg MNET Oak Avenue restaurant. All these sites were collectively referred to as the Multichoice Randburg campus.

[14] The Applicant also rendered the same services at the Cape Town Multichoice restaurant.

[15] The restaurants and coffee shops were operated within the various premises of Multichoice with the aim of providing employees and visitors access to meals and drinks at a subsidized rate. Multichoice provides the existing restaurants, coffee shops and store rooms and the service provider is responsible to purchase, prepare and serve the food and drinks on the agreed menus. The service provider does that by utilising its own resources and staff.

[16] On 3 November 2015 the Second Respondent notified the Applicant that the supplier agreement would terminate on 29 February 2016.  

[17] On 8 January 2016 the Second Respondent invited potential suppliers to participate in the tender process to be considered as a supplier and ‘catering service provider for Multichoice’. Responses had to be submitted by 22 January 2016 and the Applicant participated in this process.

[18] The contract for the Randburg MNET site was awarded to Olives and on 8 February 2016 a meeting took place between the Applicant and Olives. Olives confirmed that it would not take over any of the Applicant’s staff employed on the MNET staff restaurant operation.

[19] The Applicant’s 34 staff members employed on the MNET site (the seventh and further respondents) are affected and on 24 February 2016 the Applicant sought an undertaking from Olives that it would enter into a section 197 agreement with the Applicant.

[20] Olives did not provide the requested undertaking and did not enter into a section 197 agreement with the Applicant, which led to this urgent application.

[21] It is the Applicant’s case that there was a section 197 transfer of the business at the MNET site from the Applicant to Olives and that the employees should be transferred automatically to Olives.

[22] Olives denied that the tender was formally awarded to them, there was only a verbal understanding but no service level agreement was signed. This however is neither here nor there for purposes of the application currently before me.

The opposition

[23] Olives denied that a section 197 transfer took place and stated that the Applicant has not lost the right to carry on trading the type of business it has and that it retained its business and the right to contract with other entities and thus section 197 cannot be triggered in respect of Olives.

[24] Olives’ case is that the cancellation of the contract as between Sodexo and the Second Respondent and the fresh establishment of a contract or service level agreement between Olives and the Second Respondent do not attract the provisions of section 197 of the LRA. The Applicant still retains its business and is free to offer the same services to other clients with its workforce still intact.

[25] There is no basis in law for the individual employees to be transferred within the context of section 197 to Olives as nothing is transferred from the Applicant to Olives that would enable Olives to render the services it was contracted to render. Olives has been awarded the new contract for services and has not taken over the business of the Applicant.

[26] The Applicant was awarded a contract to operate the staff restaurants at the Third Respondent’s sites and since the contract was awarded to Olives, the Applicant is still able to provide the same or similar services to other clients. Olives’ case is that it has not taken over the business of the Applicant.

[27] This is disputed by the Applicant. The Applicant’s case is that the provision of food services at outsourced restaurants creates a small business at the client sites and the fact that the Applicant could still operate as a business is not determining in deciding whether a specific client site constitutes a ‘going concern’ when the contract for providing the food service was terminated.

[28] Olives’ case is that the mere fact that the Applicant has lost a contract, does not trigger the operation of section 197 automatically. This is a case where service providers merely changed hands, the Applicant has lost the right to provide the service required by Multichoice and no business entity was transferred to Olives.

[29] Olives took issue with the fact that the Applicant has not made out a case for final relief in that it has not made any submissions in respect of a clear right, that it has no alternative remedy or that it would suffer irreparable harm or prejudice should the relief not be granted. In my view this argument is misconceived. The requisites for a final interdict is a clear right, an injury actually committed or reasonably apprehended and the absence of a satisfactory alternative remedy. It is evident from the Applicant’s notice of motion and supporting affidavit that it does not seek an interdict from this Court and the requisites for an interdict are not relevant or required in this application.

The application of section 197

[30] Section 197 (1) and (2) reads as follows:

'(1) In this section and in section 197A

(a)       "business" includes the whole or a part of any business, trade, undertaking or service; and

(b)       "transfer" means the transfer of a business by one employer ("the old employer") to another employer ("the new employer") as a going concern.

(2) If a transfer of a business takes place, unless otherwise agreed in terms of subsection (6) - 

(a)       the new employer is automatically substituted in the place of the old employer in respect of all contracts of employment in existence immediately before the date of transfer;

(b)       all the rights and obligations between the old employer and an employee at the time of the transfer continue in force as if they had been rights and obligations between the new employer and the employee; 

(c)        anything done before the transfer by or in relation to the old employer, including the dismissal of an employee or the commission of an unfair labour practice or act of unfair discrimination, is considered to have been done by or in relation to the new employer; and 

(d)        the transfer does not interrupt an employee's continuity of employment, and an employee's contract of employment continues with the new employer as if with the old employer.'

[31] The Constitutional Court in Aviation Union of SA and another v SA Airways (Pty) Ltd and others[2] (‘Aviation’) held that section 197 must be interpreted against the background that its purpose is to preserve all contracts of employment between the workers and the owner of the business which is transferred as a going concern. In this way, on the one hand, the workers' employment is safeguarded and, on the other, a new owner is guaranteed a workforce to continue with the operation of the business.

[32] The question whether or not there has been a transfer of a business as a going concern entails an enquiry into (1) the existence of a business (is there an economic entity capable of being transferred) (2) whether there was a transfer of a business and (3) whether the business is transferred as a going concern (does the economic entity that is transferred retain its identity after the transfer?)[3]. If the transfer meets these criteria, the transferee is substituted automatically and by operation of law for the transferor as the employer of those of the transferor's employees engaged in the business on the date of the transfer. The transfer occurs by operation of law and irrespective of the wishes or intentions of the parties.

[33] In summary, section 197 will apply if all conditions are met and will be triggered with reference to three requisites namely a business, transfer and going concern.

The existence of a business

[34] The first enquiry is whether there is a ‘business’ as defined in section 197(1)(a).

[35] The Courts have considered the question of what would constitute a business with reference to the concept of an autonomous economic entity capable of being transferred.

[36] The Courts found that a transfer of the same services in itself is not adequate to bring the transaction within the ambit of section 197. What is transferable in terms of the section is not a service itself but a business or entity that provided the service concerned. For a transfer to trigger the application of the section, it must constitute a transfer as a going concern.[4] 

[37] In Aviation the Constitutional Court held that[5]:

‘Although the definition of business in s 197(1) includes a service, it must be emphasized that what is capable of being transferred is the business that supplies the service and not the service itself. Were it to be otherwise, a termination of a service contract by one party and its subsequent appointment of another service provider would constitute a transfer within the contemplation of the section. That this is not what the section was designed to achieve is apparent from its scheme, historical context and its purpose.’

[38] The application of section 197 where there is a change in service provider in circumstances where there are no assets that pass to the transferee, but the transferee assumes control of the assets, equipment and infrastructure provided by the client and required for the services to be performed was considered in Unitrans Supply Chain Solutions (Pty) Ltd v Nampak Glass (Pty) Ltd[6] (Unitrans).

[39] In Unitrans the Court also considered the cancellation of a service agreement and the application of section 197 where a new contractor took over the service without interruption. The Court held that the warehousing service provided by Unitrans to Nampak constituted an economic activity or an organized grouping of resources, comprising of the contractual right to perform the service using the assets owned by Nampak. This economic entity constitutes a service for purposes of section 197(1).

[40] The Labour Appeal Court upheld the judgment[7] and went further to endorse and confirm the approach adopted by the European Court of Justice. The Labour Appeal Court held that:

‘The scope of these provisions is well illustrated in the decision in Abler and others v Sodexho MM Catering GmbH. In this case, a hospital had appointed a service provider to provide catering services to its patients and its staff. This service was to be provided by using the hospital's canteen premises and equipment. The termination of the old service provider and the appointment of a new service provider were held to constitute a transfer of the business as a going concern and the Transfers Directive was held to be applicable. Of particular relevance to the present dispute is the following passage from the judgment of the court:

'The national court, in assessing the facts characterizing the transaction in question, must take into account the type of undertaking or business concerned. It follows that the degree of importance to be attached to each criterion for determining whether or not there has been a transfer within the meaning of Directive 77/187 will necessarily vary according to the activity carried on, or indeed the production or operating methods employed in the relevant undertaking, business or part of a business (Süzen, paragraph 18, and Hidalgo, cited above, paragraph 31).

Catering cannot be regarded as an activity based essentially on manpower since it requires a significant amount of equipment. In the main proceedings, as the Commission points out, the tangible assets needed for the activity in question — namely, the premises, water and energy and small and large equipment (inter alia the appliances needed for preparing the meals and the dishwashers) — were taken over by Sodexho. Moreover, a defining feature of the situation at issue in the main proceedings is the express and fundamental obligation to prepare the meals in the hospital kitchen and thus to take over those tangible assets. The transfer of the premises and the equipment provided by the hospital, which is indispensable for the preparation and distribution of meals to the hospital patients and staff is sufficient, in the circumstances, to make this a transfer of an economic entity. It is moreover clear that, given their captive status, the new contractor necessarily took on most of the customers of its predecessor.'  (Emphasis added.)

In my view, the approach adopted by the European Court of Justice in Sodexho accords with the approach which has been adopted to s 197 by the Constitutional Court, both in Aviation Union of SA and in its earlier decision of National Education Health & Allied Workers Union v University of Cape Town & others’

[41] In casu the Applicant was responsible to purchase, prepare and serve the food and drinks on the agreed menus at the restaurants and coffee shops that are operated within the various premises of Multichoice. Multichoice provides the existing restaurants, coffee shops and store rooms and the service provider is responsible to provide the catering service by utilising its own resources and staff.

[42] The catering services provided at the Multichoice restaurants and coffee shops is an economic entity and constitutes a service for purposes of section 197(1)(a).

Transfer as going concern

[43] In City Power (Pty) Ltd v Grinpal Energy Management Services (Pty) Ltd and others[8] (Grinpal) the Labour Appeal Court held that:

‘In essence, the approach adopted in NEHAWU follows that of the European Court of Justice in the application of the Business Transfers Directive (2001/23/EC) which is applicable in the European Union, and dictates that a transfer must relate to an autonomous economic entity (defined to mean an organized group of persons and assets facilitating the pursuit of an economic activity that promotes a specific objective). In turn this involves a determination whether that entity retains its identity after the transfer; that is, the transferor must carry on the same or similar activities with the personnel and/or the business assets without substantial interruption.’

[44] In Grinpal the Court further held that:

‘The question is whether the activities conducted by a party, such as first respondent, constitute a defined set of activities which represents an identifiable business undertaking so that when a termination of an agreement between first respondent and appellant takes place, it can be said that this set of activities, which constitutes a discrete business undertaking, has now been taken over by another party[9].’ 

[45] In Unitrans the Court held that:

‘To the extent that the contractual right to provide warehousing services now vests in TMS, the same assets are used to provide those services and the activities conducted at Nampak’s behest are substantially the same as those performed by the first applicant prior to 1 February, the business performed by the first applicant has transferred as a going concern to TMS’.

[46] The Court in Unitrans accepted that a change in service providers triggered the application of section 197 in circumstances where the incoming contractor is permitted the right of use of infrastructural assets owned by the client necessary for the purpose of continuing the relevant service.

[47] As already indicated the Labour Appeal Court upheld the judgment[10] and held that the business was indeed transferred as a going concerns as the service provided was that of ‘warehousing’ and it was performed at the same site and fixed premises, using the same equipment and IT systems as well as other assets such as forklifts, a computer system and printers.

[48] In casu Olives will perform the catering services previously performed by the Applicant at the MNET site, using the same infrastructure owned by the client and necessary for the purposes of continuing the catering services.

[49] In the circumstances where Olives acquired the right of use of the infrastructural assets and where it will provide the same service from the same premises the business was transferred as a going concern and it falls within the ambit of section 197.

[50] It follows that the Seventh and Further Respondents, by operation of law and on the same terms and conditions, are employed by Olives.

[51] The parties submitted that the costs should follow the result and I can see no reason to disagree.

Order

[52] In the premises, I make the following order:

52.1 The termination of the agreement whereof the Applicant provides staff restaurant operations on the MNET site of the Third Respondent and the conclusion of an agreement for the provision of similar services by the First Respondent constitutes a transfer in terms of section 197 of the Labour Relations Act 66 of 1995;

52.2 The employment contracts of the Seventh to further Respondents transfer automatically from the Applicant to the First Respondent on the date of the transfer;

52.3 The First Respondent is to pay the costs of the application.

_______________________

Connie Prinsloo

Judge of the Labour Court

Appearances

For The Applicant                     : Advocate A J Nel

Instructed by                             : Lee and McAdam Attorneys                 

For the First Respondent         : Advocate F Venter

Instructed by                             : Christelis Artemedis Attorneys

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