PRACTITIONER, AS DERIVED FROM THE JURISPRUDENCE OF THE COURT OF JUSTICE OF THE EUROPEAN UNION
by
RAUL-ANDREI DIMITRIU
thesis submitted in compliance with the requirements for the degree of
MASTER OF LAWS (LLM)
in
EUROPEAN AND INTERNATIONAL LABOUR LAW
in the
FACULTY OF LAW
of the
UNIVERSITY OF AMSTERDAM
SUPERVISOR: PROF. DR. RONALD BELTZER
CHAPTER ONE: INTRODUCTION
Page
[1.1] RESEARCH TOPIC 1
[1.2] RESEARCH QUESTION AND HYPOTHESIS 1
[1.3] RATIONALE FOR CHANGING CONDITIONS OF EMPLOYMENT 2
[1.4] RESEARCH METHODOLOGY 2
[1.5] CHAPTER STRUCTURE 3
CHAPTER TWO: LEGISLATIVE FRAMEWORKS
[2.1] EUROPEAN UNION LAW 4
2.1.1 Transfers of Undertakings Directive 4
[2.2] SOUTH AFRICAN LAW 5
2.2.1 Labour Relations Act 5
[2.3] COMMON FEATURES OF TUD AND LRA 6
CHAPER THREE: KEY DEFINITIONS AND ASSUMPTIONS
[3.1] KEY DEFINITIONS 7
3.1.1 “Undertaking” 7
3.1.2 “Transfer of undertaking” 7
3.1.2.1 Retention of identity of economic entity 7
3.1.2.2 Non-typical transfer – contracting 9
3.1.2.3 Transfer of part of an undertaking (outsourcing) 9
3.1.3 “Changes in conditions of employment” 9
[3.2] KEY ASSUMPTIONS 10
3.2.1 Existence of employment relationship 10
3.2.2 Focus on labour law implications 10
CHAPTER FOUR: STATE OF THE DEBATE
[4.1] ENTREPRENEURIAL DISCRETION 11
[4.2] EMPLOYEE PROTECTION 12
[4.3] BALANCING THE INTERESTS OF ALL PARTIES 13
4.3.1 Duty of good faith 13
4.3.2 Facilitating consensus 13
CHAPTER FIVE: TRANSFEROR DISMISSALS
[5.1] RATIONALE FOR TRANSFEROR DISMISSALS 15
[5.2] VOLUNTARY RETRENCHMENT 15
[5.3] FORCED RETRENCHMENT 16
5.3.1 Substantive fairness 16
5.3.2 Procedural fairness 17
[6.1] LEGALITY OF AGREEMENT 19
6.1.1 Timing of agreement 19
6.1.2 Less favourable conditions 19
[6.2] TYPES OF AGREEMENT 20
6.2.1 Individual employment contracts 20
6.2.2 Collective agreements 22
CHAPTER SEVEN: DELAYING HARMONISATION
[7.1] TIMING OF HARMONISATION 24
7.1.1 Effluxion of time 24
7.1.2 Causation 25
[7.2] TAKING ON EMPLOYEES LATER 26
7.2.1 Agreement between stakeholders 26
7.2.2 Objection by employee to be transferred 26
CHAPTER EIGHT: RED CIRCLING
[8.1] IMPLICATIONS OF RED CIRCLING 28
8.1.1 Restricting future benefits 28
8.1.2 Caution against unfair discrimination 28
[8.2] AVOIDING LEGITIMATE EXPECTATIONS 29
[8.3] IMPACT ON INDUSTRIAL RELATIONS 30
CHAPTER NINE: MEASURES ADAPTED FOR SOUTH AFRICA –
1) CHANGING JOB FUNCTIONS AND 2) TEMPORARY EMPLOYMENT
[9.1] SOUTH AFRICAN CONTEXT 31
[9.2] CHANGING THE EMPLOYEE’S JOB FUNCTIONS 31
9.2.1 Unilateral variation 31
9.2.2 “Substantial changes” in conditions 32
9.2.3 Changes in work practices 34
[9.3] TEMPORARY EMPLOYMENT 35
9.3.1 Successive fixed-term contracts 35
9.3.2 Non-renewal/retention of fixed-term employees 36
CHAPTER TEN: REFLECTIONS AND CONCLUSION
[10.1] METHODS IMPLEMENTED TO ACHIEVE AIM OF THESIS 38
[10.2] SUMMARY OF FINDINGS TO BE APPLIED IN SOUTH AFRICA 38
10.2.1 Transferor dismissals 38
10.2.2 Post-transfer harmonisation by agreement 38
10.2.3 Delaying harmonisation 39
10.2.4 Red circling 39
10.2.5 Measures adapted for South Africa – changing job functions and
temporary employment 40
CHAPTER ONE INTRODUCTION
[1.1] RESEARCH TOPIC
The aim is to analyse the legal effects of the transfer of an undertaking – specifically, the changing of employment conditions between the transferee and transferred employees. By “transferor” is meant the person who, due to transfer, ceases to be the employer in the undertaking. “Transferee” is the person who, due to transfer, becomes the employer.1 I wish to determine under what circumstances the transferee can amend conditions in compliance with section 197(2)(b) of the Labour Relations Act 66 of 1995 (“LRA”) (South Africa). Section 197(2)(b) prescribes that “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”. I shall embark upon a comparative normative assessment of the application of the Transfers of Undertakings Directive (“TUD”),2 through the jurisprudence of the Court of Justice of the European Union (“CJEU”). In so
deriving practical insights from European Union (“EU”) law, my intention is to recommend possible courses of action for the South African legal practitioner involved in the transfer of an undertaking.
[1.2] RESEARCH QUESTION AND HYPOTHESIS
My research is premised on the following primary research question:
In South Africa, when can the transferee avoid the prohibition on changing employment conditions following the transfer of an undertaking, by utilising legal principles developed by the Court of Justice of the European Union adjudicating on the Transfers of Undertakings Directive?
My hypothesis is that the South African legal practitioner must advise the transferee/transferor of measures to be incorporated into work practices. In South Africa, “conditions” are non-derogable employment rights and obligations arising by contract or operation of law, and which can be judicially enforced. “Practices”, on the other hand, are operational methods of carrying out the work that employees must adhere to on the basis of their common law duty of subordination towards the employer.3 Practices can be unilaterally changed by the employer, based on inherent entrepreneurial discretion. My hypothesis suggests that the parties should conduct due diligence to identify the:
1. timeline for the prospective transfer and harmonisation measures; and
2. avoidance of the creation of legitimate expectations with regard to incremental benefits.
1 Articles 2(1)(a)-(b) Transfers of Undertakings Directive and section 197(1) Labour Relations Act 66 of 1995. I will explore these definitions in Ch. 3 2 Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’
rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses
3 Ram Transport v SATAWU [2011] JOL 26805 (LC), para 6 [online]: “This distinction has its roots in the principle that employees do not have a vested
[1.3] RATIONALE FOR CHANGING CONDITIONS OF EMPLOYMENT
There is a need in legal practice to devise solutions to limit the legislative constraints to the imperatives of business profitability and efficiency. Such constraints may require harmonising employment conditions or amending job functions. Without such solutions, the transferee faces unfair dismissal claims from employees who demand compensation for unilateral variation of contract, on the basis of changed conditions of employment. Beyond this strictly practical view, there is also a purposive interest in such solutions as a counterbalance to increasingly employee-slanted labour law. The transferee will usually already be operating in the relevant economic sector, and will aim to limit the number of employees transferred, alternatively, to amend conditions in order to harmonise with the transferee’s current conditions.4 These aims are relevant because:
1. the transferee’s existing employees may be specially trained and familiar with the business; 2. the transferor may have a surplus of employees for the transferee’s future requirements; or 3. the transferor’s employees may not be suitably trained for their new functions.5
One might suggest that my research is aimed at benefiting employers, at the expense of employees. However, this is not an accurate assumption. Having previously worked as a trade union official at Old Mutual, South Africa’s largest financial services company, I endorse labour peace. Rather, my research aims to encourage business practices to amend employment conditions legally, the ultimate intention being to avoid retrenchments by securing the transferee’s future economic and operational viability. South African case law has not widely dealt with changes of conditions, and the legislation does not expressly offer many alternatives. The innovative approaches in the EU, specifically the jurisprudence of the CJEU, can equip South African practitioners with new perspectives.
[1.4] RESEARCH METHODOLOGY
I have enacted my external perspective as a legal scholar of European labour law in order, firstly, to set out the applicable EU legal rules and, secondly, to propose solutions for the South African legal practitioner based upon a comparative law perspective. This approach is to be distinguished from the internal perspective, which prescribes the interpretation of a legal issue based upon existing domestic legal rules and rulings. I shall critically analyse the applicable EU legal rules and rulings, and subsequently adopt a comparative law approach, first to describe the relevant EU legal principles and then, more importantly, to normatively assess their prospective application in South Africa. Accordingly, my research will not be overly descriptive. The analysis will be a micro-comparison,
4 Smit, Should transfer be statutory regulated?, SLR 2003 14(2), p. 205 [online] 5 Riesenhuber, European Employment Law, 2012, p. 562
not of entire legal systems, but of provisions on the chosen subject matter, namely transfers. This will involve comparisons between the following EU and South African law:
1. Articles 3 & 4 TUD and section 197 LRA;
2. case law of the CJEU and the South African Labour Court and Labour Appeal Court; and 3. EU member states’ national legislation discussed in the case law of the CJEU and the LRA.
When interpreting the constitutional right to fair labour practices (section 23(1) Constitution of South Africa), South African courts must consider international law, and may consider foreign law (section 39(1) Constitution). Interpreting and transposing the TUD’s principles into South Africa thus has direct constitutional relevance. The TUD and LRA are comparable because both regulate the legal effects of transfers of undertakings, specifically the automatic transfer of employment rights and obligations from transferor to transferee,6 and the prohibition of transfer-related dismissal.7 The
application of EU principles will also depend on a brief description of applicable South African law so as to identify the gaps in the law that may allow for the incorporation of EU methods. I shall also rely on case precedents undertaken by me during my employment as a trade union official at Old Mutual. Therefore, my study is a critical analysis, not a positive restatement. While the assessment is comparative, my intention is not to restate EU and South African law, namely it is not to “harmonise” their common principles. Rather, the intention is to “borrow” EU legal approaches and transpose them into the South African context. My approach will be one of positive morality because I will only make recommendations compatible with South African law. Transposing my recommendations into South African legal practice will be unhindered by normative restrictions.
[1.5] CHAPTER STRUCTURE
In Chapter Two, key definitions and assumptions will be discussed, notably the consistent interpretation of the common terms and references used. Then, in Chapter Three, the EU and South African labour law frameworks for transfers of undertakings will be evaluated. Chapter Four will investigate the ‘state of the debate’ in Europe and South Africa, surrounding the imperatives for and against changes of conditions. Attention will be paid to trends in EU and South African labour law. Chapters Five to Eight will introduce solutions from the case law of the CJEU, while Chapter Nine will add contributions particularly pertinent to South Africa. Chapter Ten will summarise the Thesis’ key findings and evaluate the implementation of the hypothesis introduced in Chapter 1.2 above.
6 Article 3 TUD & section 197(2) LRA 7 Article 4 TUD & section 187 LRA
CHAPTER TWO
LEGISLATIVE FRAMEWORKS
[2.1] EUROPEAN UNION LAW
2.1.1 Transfers of Undertakings Directive
The purposive development of the TUD is revealed in recitals 2, 3 and 5 of the TUD preamble, where the legislator implies that the transfer of employment relationships together with the undertaking is a matter of social policy. The imperative is that workers’ interests in preserving their
employment should supersede an employer’s purely economic incentives.8 The TUD moves beyond
limited views on the freedom of the internal market, even though the original TUD, enacted in 1977,9 and amended in 1998, was based upon the internal market harmonisation competence contained in Article 100 of the Treaty Establishing the European Economic Community (now Article 115 Treaty on the Functioning of the European Union).10 The TUD is the labour law supplement of the Directives on Mergers11 and Divisions of Companies.12 While it recognises entrepreneurial
discretion, the TUD severely limits it by safeguarding employee rights (Article 3), prohibiting transfer-related dismissal (Article 4) and requiring information disclosure and consultation with employee representatives (Article 7). In 2007 the European Commission issued a report on the Directive, stating that the Commission considered it desirable to extend the material scope of the Directive to cross-border transfers, and to strengthen the rights to information and consultation.13 The TUD is the legal act that has likely led to the highest number of decisions of the CJEU in the field of labour law. This cannot be attributed solely to the economic impact of the Directive, but must surely be linked to the vague wording of some of its provisions, extending the scope for purposive interpretations.14
Article 3(1) TUD safeguards employee rights:
The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee.
Article 4(2) TUD prohibits unilateral variations in conditions of employment:
8 Ghosheh & Gill, Transfer of undertakings directive: the history, IJES 2002 10(1), p. 50 [online]
9 Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees’
rights in the event of transfers of undertakings, businesses or parts of businesses
10 Riesenhuber, European Employment Law, 2012, p. 564
11 Directive 2011/35/EU of the European Parliament and of the Council of 5 April 2011 (mergers of public limited liability companies)
12 Sixth Council Directive 82/891/EEC of 17 December 1982 based on Article 54(3)(g) of the Treaty (division of public limited liability companies) 13 Commission Report on Council Directive 2001/23/EC of 12 March 2001
If the contract of employment or the employment relationship is terminated because the transfer involves a substantial change in working conditions to the detriment of the employee, the employer shall be regarded as having been responsible for termination of the contract of employment or of the employment relationship.
[2.2] SOUTH AFRICAN LAW 2.2.1 Labour Relations Act
The legislator promulgated the LRA to give effect to section 23 of the Constitution of South Africa, which entrenches the fundamental right to fair labour practices. The LRA aims to correct the imbalances of the common law approach, which gave employees little job security or bargaining power.15 In section 1, the stated purpose of the LRA is to “advance economic development, social justice, labour peace and the democratisation of the workplace”. The LRA regulates minimum employment standards and industrial relations, with particular reference to 1) fair labour practices, 2) substantively and procedurally fair dismissals, and 3) recourse to labour courts and arbitration.16
Section 197 LRA regulates transfers of undertakings:
(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;
(3) (a) The new employer complies with subsection (2) if that employer employs transferred
employees on terms and conditions that are on the whole not less favourable to the employees than those on which they were employed by the old employer.
(b) Paragraph (a) does not apply to employees if any of their conditions of employment are
determined by a collective agreement.
Sections 186, 187 and 191 regulate “dismissal” and “automatically unfair dismissal”:
186(1) "Dismissal" means that-
(f) an employee terminated a contract of employment with or without
notice because the new employer, after a transfer in terms of section 197 or section 197A, provided the employee with conditions or circumstances at work that are substantially less favourable to the employee than those provided by the old employer.
187(1) A dismissal is automatically unfair if the employer, in dismissing the employee, acts contrary to section 5 or, if the reason for the dismissal is-
(g) transfer, or a reason related to a transfer, contemplated in section 197
or 197A; or
191(5) (a) the council or the Commission must arbitrate the dispute at the request of the employee if-
(ii) the employee has alleged that the reason for dismissal is that the employer made continued employment intolerable or the employer provided the employee with substantially less
15 Grogan, Workplace Law, 2009, p. 6-7 16 sections 185, 186 & 191 LRA
favourable conditions or circumstances at work after a transfer in terms of section 197.
[2.3] COMMON FEATURES OF TUD AND LRA
Article 3(1) TUD and section 197(2)(a) LRA impose the automatic transfer of rights and obligations to the transferee, arising out of the employment contracts/relationships existing at the time of transfer. Being mandatory provisions, it is not open to the transferee/transferor or the employees/representatives to consent to exclude the automatic transfer. This is aimed at preventing derogations from the minimum employee protection.17 However, this provision does not remove the employee’s fundamental right to freedom of contract. He/she can refuse the transfer of the contract of employment, namely either to resign or insist on being kept on by the transferor. The latter option is not without risks because an outsourced activity, for instance, might no longer hold any operational need for such employee. His/her job role might be rendered redundant for operational reasons, and he/she may be lawfully retrenched.18 The severity with which EU and South African law regard a transfer-related change in conditions of employment is revealed in Article 4(2) TUD and section 186(1)(f) LRA, which deem such a change to constitute a constructive dismissal. A constructive dismissal means that an employee who has resigned can claim unfair dismissal compensation at the appropriate dispute resolution forum. This is on the basis of the legal fiction that an employee whose employment relationship has been rendered intolerable by the employer is deemed by operation of law to have been dismissed.19 The critical question is thus: when can it be
said that there has been a change in conditions? Causation with the transfer is critical. The burden of proof remains on the employee to demonstrate through evidence that the reason for the dismissal was the transfer. Once this prima facie evidence has been submitted, the employer bears the burden of demonstrating that the dismissal was unrelated to the transfer itself.20 Additionally, under section 187(1) LRA, an employer-initiated transfer-related dismissal is deemed to be automatically unfair. The distinction between automatically unfair dismissals and unfair dismissals determines the remedies for dismissed employees, with the former imposing far more stringent sanctions against employers.21 In Schatz,22 the court found no unfairness in a dismissal because the sales function was not an identifiable part of the undertaking and the employee had refused a voluntary retrenchment offer as well as the option to continue working as an independent contractor.
17 CJEU 25-07-1991, C-362/89 (d'Urso v Marelli) ECR 1991 I-4105, para 11 [online]. In South Africa, Moore v Telkom (2002) 8 BLLR 761 (LC),
paras 12-13: the consent of employees is not required
18 CJEU 16-12-1992, C-132/91, C-138/91 & C-139/91 (Katsikas v Konstantinidis) ECR 1992 I-6577, paras 31-37 [online] 19 NEHAWU v University of Cape Town (2002) 23 ILJ 306 (LAC), para 82 [online]
20 s 192 LRA
21 sections 193-194 LRA
22 Schatz v Elliot International (2008) 29 ILJ 2286 (LC), paras 44-47 [online]. In Kroukam v SA Airlink (2005) 26 ILJ 2153 (LAC) paras 91-92 [online],
CHAPTER THREE
KEY DEFINITIONS AND ASSUMPTIONS
[3.1] KEY DEFINITIONS 3.1.1 “Undertaking”
Article 1(1)(a) TUD prescribes that the Directive applies to any “transfer of an undertaking, business, or part of an undertaking or business to another employer as a result of a legal transfer or merger”. Section 197(1) LRA defines “business” as the “whole or a part of any business, trade, undertaking or service”. The TUD expressly includes both public and private undertakings under its substantive scope, irrespective whether operating for gain.23 Unfortunately, neither the TUD nor LRA define what “undertaking” means. In Scattolon,24 the CJEU defined an undertaking as an “economic entity
organised on a stable basis, whatever its legal status and method of financing”. This presupposes a grouping of persons/assets and an economic activity that has an objective. The defining feature is the entity’s independence, which factor could be demonstrated by sufficient structural integrity.25 The
TUD and LRA subscribe to analogous definitions of “transferor” and “transferee”, although section 197(1) LRA refers to “old employer” and “new employer”. For the sake of convenience, my research will use the EU terminology, which in Articles 2(1)(a)-(b) defines as follows:
1. “transferor”: person who, due to transfer, ceases to be the employer in the undertaking; and 2. “transferee”: person who, due to transfer, becomes the employer in the undertaking.26
3.1.2 “Transfer of undertaking”
3.1.2.1 Retention of identity of economic entity
Article 1(1)(b) TUD defines “transfer of an undertaking” as a “transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary”. The South African equivalent in section 197(1) LRA is less clear: “the transfer of a business by one employer (‘the old employer’) to another employer (‘the new employer’) as a going concern”. The existence of a transfer is to be determined factually. The term “transfer” is not restricted to a contractual, formal sale of business; it may include successive subcontracting, outsourcing, change of lessees and
23 Article 1(1)(c) TUD. Note the exception of administrative reorganisation/transfer of admin functions 24 CJEU 06-09-2011, C-108/10 (Scattolon v Ministero dell’Istruzione), ECR 2011 I-07491, para 42 [online]
25 This interpretation was reinforced in the South African Constitutional Court in Aviation Union v SAA (2011) 32 ILJ 2861 (CC), para 52 [online] 26 See also: City Power v Grinpal Energy Management 2015 (6) BCLR 660 (CC), para 37 [online]
transfers of assets/staff. In the landmark Spijkers27 judgment, the CJEU held that the following circumstances should be considered holistically to determine the occurrence of a transfer:
1. nature of the transferred undertaking;
2. whether there is a transfer of assets, for instance of buildings and movable property; 3. the value of the transferred undertaking’s intangible assets at the time of transfer;
4. whether the transferor and transferee have contemplated that the transfer is conditional upon the transferee taking on the majority of the transferor’s employees;
5. the transfer of the transferor’s customers;
6. the similarity between the undertaking’s pre- and post-transfer operational activities; and 7. the length of the period during which the undertaking’s activities were suspended.
The integral consideration of all the factors above is aimed at denoting the retention of the economic entity’s identity; not necessarily of organisational structure, but of functional independence. This implies that TUD applies to an undertaking transferred as a going concern. The court affirmed that the TUD’s purpose was to continue the employment relationships; linking such continuity to the notion of “change of ownership” would undermine this purpose.28 For instance, in a labour-intensive sector, where there is joint activity of workers on successive projects, retention of the economic entity will depend more on the assimilation of the transferee’s labour force than of its assets, which may be minimal. Some industries may be heavily capital-intensive,29 while others may be based on ‘human capital’.30 The South African Labour Appeal Court (“LAC”) in NEHAWU31 endorsed the
Spijkers judgment and held that the intention of the transferor/transferee was not conclusive. The essential consideration was: what would happen to the undertaking’s goodwill, assets, workforce, customers and activities after the transfer? In Ny Mølle,32 the CJEU found that the temporary closure of an undertaking and the absence of staff at the time of transfer did not preclude a transfer. What is important is that there be a certain temporal link between the cessation of the transferor’s operations and the transferee taking these over. To summarise – for purposes of my research – “transfer” means the situation, irrespective of change of ownership, where there is a change in the natural/legal person responsible for the operational activities of an undertaking, and the obligations as an employer.33
27 CJEU 18-03-1986, C24/85 (Spijkers v Gebroeders Benedik Abattoir), ECR 1986-01119, paras 12-13 [online]
28 Ibid, para 11. However, see Klarenberg v Ferrotron Technologies (CJEU 12-02-2009, C-466/07, para 53): a transfer may also occur where
organisational autonomy is lost, provided that there is a functional link between the elements of production
29 CJEU 25-01-2001, C-172/99 (Oy Liikenne Ab v Pekka Liskojärvi), ECR 2001 I-00745, paras 38, 39 & 42 [online]
30 CJEU 11-03-1997, C-13/95 (Süzen v Zehnacker Gebäudereinigung), ECR 1997 I-01259, paras 18 & 21 [online]. In Schmidt v Spar (CJEU
14-04-1994, C-392/92, para 16), the absence of assets was not conclusive. See also Merckx v Ford (CJEU 07-03-1996, C171/94 & C-172/94, para 32)
31 NEHAWU v University of Cape Town (2002) 23 ILJ 306 (LAC), para 64 [online]. In the subsequent Constitutional Court judgment in NEHAWU v University of Cape Town (2003) 24 ILJ 95 (CC), para 56 [online], the court emphasised the substance over form of the transaction
32 CJEU 17-12-1987, C287/86 (Landsorganisationen i Danmark v Ny Mølle Kro), ECR 1987-05465, paras 19-20 [online]. See also Allen v Amalgamated Construction (CJEU 02-12-1999, C-234/98, para 33)
3.1.2.2 Non-typical transfer – contracting
In Temco,34 undertaking A (original contractor) contracted with B (original co-contractor) for cleaning A’s industrial plants. In turn, B subcontracted to undertaking C (subcontractor, transferor). B subsequently lost the contract from A, and C dismissed its employees. Undertaking D (new co-contractor, transferee) then obtained the original contract from A and took over some of C’s staff, but none of its assets. That there was no contractual relationship between C and D was irrelevant. The court held that a transfer could occur through successive contracts, even though C had not concluded the first contract with A. A and C were still tied through the web of contracts and practical links, for instance supervision of work done. The court found Article 1(1) TUD applicable.35 In Süzen,36 the CJEU made the TUD’s applicability conditional upon the employees being taken on by the transferee having formed an essential part (in number or skills) of the transferor’s employees assigned to the specific activity. The re-awarding of a contract to a competitor did not automatically result in a transfer. The mere loss of the contract to a new co-contractor does not presuppose the ceasing of the activities of the original co-contractor, nor of the loss of a part of its business.
3.1.2.3 Transfer of part of an undertaking (outsourcing)
Article 1(1)(a) TUD and section 197(1)(a) LRA recognise the transfer of a part of an undertaking. In the CJEU case, Watson Rask,37 A was contracted to operate B’s canteen. B continued to pay the costs of crockery and cleaning materials, while A took over B’s canteen staff under the same wages and seniority. The court held that the continued legal existence of the transferor after the transfer of an activity did not remove the transfer from the scope of the 1977 TUD. The transferred activity is an economic entity in and of its own. The implication is that even the transfer of an ancillary activity that is unconnected to the undertaking’s primary objects can fall under TUD’S scope. In SAMWU,38
the South African LAC held that outsourcing non-core activities falls under section 197 LRA if the activities are a part of an undertaking, and not merely reflect a type of undertaking.
3.1.3 “Changes in conditions of employment”
My references to “conditions of employment” are based on Article 3(1) TUD, namely: “rights and obligations arising from a contract of employment or from an employment relationship existing on
34 CJEU 24-01-2002, C-51/00 (Temco Industries v Imzilyen), ECR 2002 I-00969, paras 30-33 [online]
35 Ibid, para 33. In South Africa, successive outsourcing was recognised in COSAWU v Zikhethele Trade (2005) 26 ILJ 1056 (LC), paras 36, 37 & 40
[online], where the court recognised a transfer following the handing back to the outsourcer and the re-awarding of the contract
36 CJEU 11-03-1997, C-13/95 (Süzen v Zehnacker Gebäudereinigung), ECR 1997 I-01259, para 16 [online]. This position was also followed in Aviation Union v SAA (2011) 32 ILJ 2861 (CC), para 47 [online]
37 CJEU 12-11-1992, C-209/91 (Watson Rask v Iss Kantineservice), ECR 1992 I-05755, paras 17 & 21 [online]
38 SAMWU v Rand Airport Management (2005) 26 ILJ 67 (LAC), paras 9-10 [online]. However, this cannot be taken too far: in PE Pack v Sanders
the date of a transfer”. This definition includes conditions from individual employment contracts, collective labour agreements and by operation of law. My research will only focus on changes that do not derogate from statutory minimum standards. Changes that are inherent and authorised from the legal nature of a transfer are prima facie deemed to be valid. For instance, necessary changes in workplace location cannot reasonably be challenged by a transferred employee and the law protects the transferee’s discretion in such an instance.39 I will limit “changes” to mean those new
post-transfer terms and conditions that are, on the whole, less favourable than the ones employees enjoyed before the transfer. New conditions that are more beneficial – or legally required – are permitted by section 197(3)(a) LRA, whose purpose is to secure minimum standards of employment.
[3.2] KEY ASSUMPTIONS
3.2.1 Existence of employment relationship
Under Article 2(1)(d) TUD, “employee” is to be interpreted under national labour law. The South African LRA specifically defines “employee”.40 Even though it has not been defined autonomously
by the CJEU in the TUD context, the national member states’ definitions largely overlap with the South African one. My research infers the existence of valid employment relationships between the transferor and its employees at the time of the transfer. Both in the EU41 and South Africa, the courts
have established the existence of such relationships on the basis of substance, not contractual form. Part-time and fixed-term employment relationships are also covered by EU42 and South African law.
3.2.2 Focus on labour law implications
The transfer of an undertaking is to be distinguished from a merger or transfer of shares, in the latter case there being no change in the employer’s legal personality, but merely in business ownership.43
My research is aimed at the situation whereby the employer changes from transferor to transferee. Therefore, I will not investigate company law, tax law or other commercial variables that surround a transfer. It is assumed the transfer complies with commercial/company law in the EU.44 It is also assumed that the undertaking is a solvent business, and that the TUD45 and LRA46 provisions on changes and liability for employment obligations arising before the transfer do not apply.
39 CJEU 06-11-2003, C4/01 (Martin v South Bank), ECR 2003 I-12859, para 44 [online] 40 s 213 LRA
41 CJEU 04-06-2002, C-164/00 (Beckmann v Dynamco Whichloe), ECR 2002 I-04893, para 27 [online] 42 Article 2(2) TUD
43 In Ndima v Waverley Blankets (1999) 20 ILJ 1563 (LC), para 66 [online], the sale of the majority of shares did not constitute a transfer
44 For context, in the EU see: Directive 2011/35/EU (mergers of public limited liability companies), and Directive 2009/102/EC (company law on
single-member private limited liability companies). In South Africa: Companies Act 71 of 2008 and Competition Act 89 of 1998
45 Article 5 TUD provides that, unless member states provide otherwise, joint and several liability of the transferor and transferee for employment
obligations before the transfer shall not apply, implying that the transferor shall be liable for these
CHAPTER FOUR STATE OF THE DEBATE
[4.1] ENTREPRENEURIAL DISCRETION
Entrepreneurial discretion in reorganising the workforce is centrally recognised in EU and South African law. However, John McMullen, British scholar, points out that such discretion does not exist in a void. Discretion is trammeled by substantive and procedural limits. He contextualises the TUD in the British setting, where the Transfer of Undertakings Regulations of 1981 (TUPE) render a transfer-related dismissal automatically unfair, unless it is substantively fair – namely, there are economic, technological or operational (“ETO”) reasons. 47 ETO reasons justify corporate
restructuring on the basis of the continued survival or increased profitability of the company. This restructuring may imply staff redundancies (dismissals) or changes to work conditions. McMullen argues that the difficulty with this benchmark is that the court’s decision must be based on “reasonableness”. Deciding on what is reasonable will depend on objective evidence, because second-guessing the subjective intention, business savvy and inside organisational knowledge of a manager is not the task of the courts.48 He looks at two leading British cases dealing with post-transfer dismissals, namely Berriman49 and Hazel,50 where the Court of Appeal found no ETO
reasons to justify the dismissals, because the intention to harmonise conditions with existing staff out of convenience did not constitute an ETO reason. McMullen’s view on such reasoning is that “every rule has its exception; every legal problem generates devices and practical suggestions to circumvent it if found to be inconvenient”.51 It is in this spirit that I have found McMullen’s work useful in my
research. He has devised six methods by which conditions of employment can be changed lawfully, namely: harmonisation by agreement; red circling; delaying harmonisation; vendor dismissal; short-serving workers; and changing the employee’s function.52 I have evaluated his methods in detail in
Chapters Five to Eight, because they form the cornerstone of my research. My contribution is to develop these principles in line with the recent jurisprudence of the CJEU and the South African courts. I have also adapted two new approaches for the South African context in Chapter Nine.
47 Regulation 8 of the 1981 TUPE rendered a transfer-related dismissal automatically unfair unless it was for an ETO reason requiring workforce
changes. The 2006 TUPE replaced the 1981 TUPE, with the equivalent provision now being Regulation 7 of the 2006 TUPE
48 McMullen, Variation of Employment Terms, ILJ 2014 43(3), p. 368 [online] 49 Berriman v Delabole Slate [1985] ICR 546 [online]
50 Hazel v Manchester College [2014] EWCA Civ 72 [online]
51 McMullen, Transfers and Re-organizations, ILJ 1992 21(1), p. 25 [online]. McMullen critiqued the Berriman approach to Reg 8 1981 TUPE 52 Ibid, p. 25-29
Stephen Hardy and Nick Adnett, British scholars, submit that ETO reasons are difficult to establish, firstly because the CJEU has not been consistent in defining the valid reasons.53 Secondly, because ETO reasons presuppose the redundancy of the transferred job role and the provision of a “new” job role as a lawful alternative to retrenchment. When the transferor’s employees’ conditions are significantly different from those of the potential transferee, the commercial implications of these restrictions are twofold: they may affect the transfer price, or deter transferees altogether.54 The risk with attempting to avoid transfer provisions is that their interpretation is deliberately purposive, meaning that artificial formal schemes will immediately be crushed by the courts. The transferee must tread a fine line between avoiding the transfer altogether, or changing conditions with the participation (ideally) of employees, for it is their endorsement that will ensure labour peace.
[4.2] EMPLOYEE PROTECTION
By imposing the automatic transfer of employment rights and obligations, the TUD and LRA prevent the vagaries of company law or insolvency law from discarding employee protection in favour of commercial expedience.55 In South Africa, the common law position prior to the LRA was
precarious for all parties because there was no automatic transfer of employment relationships. The transferor could retrench the employee merely on contractual notice, with no need for substantive reasons or procedural fairness. Transfer-related reasons were permitted, and it was left to the transferee to decide whether to employ the dismissed employee. This arrangement favoured neither the employee, who lost his/her employment, nor the transferor, who was liable for severance payments.56 Barney Jordaan, a South African scholar, argues that transfers cause tension between:57
1. the employer’s interest in the undertaking’s efficiency, and the employee’s job security; 2. the employer’s right to protect sensitive/confidential information, and the employee’s right to
be informed as early as possible of structural changes to the organisation; and
3. the employer’s right to dispose of his undertaking to a purchaser of his/her choosing, and the employee’s freedom to choose his/her own employer.
In Foodgro,58 the South African LAC made sense of the above clashes by balancing the imperatives of entrepreneurial discretion, contractual freedom and employee protection: “[t]he pursuit of
53 In the EU there is no autonomous definition of “ETO reasons”. In South Africa, section 213 LRA defines “operational requirements” as
“requirements based on the economic, technological, structural or similar needs of an employer”
54 Hardy & Adnett, ‘Entrepreneurial Freedom Versus Employee Rights’, JESP 1999 9(2), p. 133 [online] 55 Schutte v Power Plus (1999) 20 ILJ 655 (LC), paras 30-31 [online]
56 Ntuli v Hazelmore Group (1988) ILJ 709 (IC), p. 713C-D [online]
57 Jordaan, Transfer, closure and insolvency of undertakings, ILJ 1991 12(5), p. 935 [online]
58 Foodgro v Keil (1999) 20 ILJ 2521 (LAC), para 11 [online]. In TMS v Unitrans Supply Chain (2015) 36 ILJ 197 (LAC), paras 34-35 [online], the
economic development is qualified by the injunction that it must be done in conjunction with other goals, namely those of social justice, labour peace and the democratisation of the workplace”. Ronald Beltzer, a Dutch scholar, highlights the discrepancy between formal and substantive employee protection. He identifies the ambiguities in employee protection caused by the legal uncertainty of the CJEU’s many diverging judgments on the TUD. Firstly, he submits that the loose definitions of “undertaking” cause uncertainty in the legal consequences of a purported transfer. This is exacerbated by the lack of clarity in national legislation transposing the TUD. Secondly, post-transfer dismissal and – by implication – changes in conditions of employment, are only justifiable for ETO reasons. However, as Beltzer argues, these reasons are difficult to decipher when the ETO reasons are caused by the transfer itself. When will an ETO reason be sufficiently detached from the transfer? Causation, together with the loose term “undertaking”, hinder the appeal for a transferee to consider a transfer, for he/she does not really know what he/she is transferring. In the absence of clearer definitions, the transferee risks being obliged to take over the transferor’s entire workforce.59
[4.3] BALANCING THE INTERESTS OF ALL PARTIES 4.3.1 Duty of good faith
Nicola Smit, a South African scholar, suggests that the tensions around transfer-related changes can be limited by a consensual process between the transferor/transferee and the employee/trade union.60 Consensus is the true “middle way” between entrepreneurial discretion and employee protection. South African common law imposes a duty of good faith on the parties to the employment relationship, in their dealings with each other. For instance, a feature of this duty is the avoidance of conflicts of interest. Good faith recognises that both parties may have diverging interests, but that each party may advance its own interests only to the extent that this does not detract from the interests of the other party. Ultimately, the balanced view is that the employment relationship is not simply a private transaction. Rather, it has a bearing on social peace and welfare, which imperatives should trump exclusively commercial interests. This is the view that the legislators of the TUD and LRA had in mind, when imposing transfer-related protection for employees, while not eliminating entrepreneurial discretion entirely.61 Paul Benjamin, a South African scholar, contends that purely economic costs and convenience should not dislodge fundamental employee protection against transfer-related changes. However, he also acknowledges that there may be ETO reasons that militate for a transfer: it might be the only way to prevent insolvency or retrenchments.62
59 Beltzer, Taking over personnel, IJCLLIR 2007 23(1), p. 140 [online] 60 Smit, Should transfer be statutory regulated?, SLR 2003 14(2), p. 219 [online] 61 Prassl, Employer Rights in EU Labour Law, ILJ 2013 42(4), p. 440 [online]
4.3.2 Facilitating consensus
While transfer-related consensus between the transferor/transferee and employee/union is an ideal that may take time to attain, the fundamental tenet of this approach is that the employment changes should be conducted for substantively fair reasons, and in accordance with a transparent and recorded procedure. Smit suggests that South African employers have been alerted to a number of good industrial relations practices endorsed by the South African labour courts.63 These are measures aimed at ensuring procedural fairness for employees, even in the absence of any statutory requirement. The first-mentioned measure is to give advanced notice to employees of the intended transfer, and of the steps taken by the transferor to safeguard the employees’ interests. Ancillary to this is a meaningful consultation far in advance of the transfer, such that the employees’ views can still be taken into account. A consultation formally undertaken behind closed doors, after the terms of the transfer have already been decided, will be in bad faith. Secondly, transferors should insist on provisions in the transfer agreement (where applicable) that impose the obligation on the transferee to ensure specified safeguards for the employees’ interests. Such good practices are not imposed in statutes, but may still be indirectly enforceable by the courts on the basis of an unfair labour practice, under section 185 LRA. In practice, employees and employers do not have equal bargaining power during negotiations regulating changes to conditions of employment. Acceding to employer-initiated changes is often not a free choice, when the stated alternative is unemployment. In line with this debate, the equilibrium reached through the TUD and LRA is that employees are offered procedural protection through the automatic transfer of rights. They are not bound by any pre-transfer waiver.64
Smit submits that the aim of employee protection is to keep the employee in the same position as he/she would have been had there been no change in the employer. The change in identity of employer is not sufficient reason to unilaterally change conditions. However, changes permitted by law before the transfer should also be valid after the transfer. Post-transfer changes should not be prohibited if their legal basis would have been valid pre-transfer. The proposed approach is that changes should not be prohibited outright, but that heightened scrutiny should be undertaken by courts investigating the free will in a post-transfer waiver of rights. In a pre-transfer waiver, scrutiny is usually not imposed, in the absence of misrepresentation or duress. However, such scrutiny in post-transfer cases is warranted to dispel any causal link between the transfer and the change.65
63 Smit, Should transfer be statutory regulated?, SLR 2003 14(2), p. 217 [online]
64 CJEU 10-02-1988, C324/86 (Arbejdsledere v Daddy's Dance Hall), ECR 1988-00739, paras 14-15 [online]; CJEU 26-05-2005, C-478/03 (Celtec v
Astley), ECR 2005 I-04389, paras 26 & 38 [online]; CJEU 25-07-1991, C-362/89 (d'Urso v Marelli) ECR 1991 I-04105, paras 9 & 11 [online]; Du Toit, Employment benefits, LDD 2004 8(1), p. 104 [online]. I will discuss this point further in Chapter Five
CHAPTER FIVE
TRANSFEROR DISMISSALS
[5.1] RATIONALE FOR TRANSFEROR DISMISSALS
The TUD requires that the employment relationship should exist at the time of the transfer in order for the transfer of the employee’s employment conditions. This implies that a pre-transfer dismissal by the transferor will preclude the transfer of the dismissed employee. This might appeal to a transferee, particularly in contracting/outsourcing arrangements, where the transferee’s lower wage costs are the competitive advantage that enabled it to win the service contract to begin with. It must be remembered that, in view of Spijkers, the taking over of a major part of the workforce may be the trigger for the obligation to take over the entire workforce. This might jeopardise the very commercial rationale for the transfer. The transferee will wish to know as precisely as possible how many employees it will take on, in order to identify what changes to conditions will need to be effected for operational reasons. Furthermore, this knowledge may help the transferee determine a fair transfer fee.66 Below, I have suggested three routes for lawful pre-transfer dismissals.
[5.2] VOLUNTARY RETRENCHMENT
Voluntary retrenchments with enticing severance payments may induce some of the transferor’s employees to terminate their employment before the transfer. In Danmols,67 the CJEU held that Article 3(1) TUD no longer applies where the employee decides, of his/her own will, to discontinue the employment relationship and not be taken over by the transferee. The court here recognises two forms of termination of employment: 1) resignation and 2) a voluntary agreement between the employee and the transferor/transferee. The voluntary agreement will take the form of a voluntary retrenchment or mutual termination agreement. Voluntary retrenchment avoids the scope Article 4(1) TUD and section 186(1)(f) LRA because it is not deemed a constructive dismissal, but a settlement agreement. Article 7(1) TUD prescribes the transferor’s obligation to disclose information:
The transferor and transferee shall be required to inform the representatives68 of their respective
employees69 affected by the transfer of the following:
— the date or proposed date of the transfer, — the reasons for the transfer,
— the legal, economic and social implications of the transfer for the employees, — any measures envisaged in relation to the employees.
.
66 Benjamin, Interpretation and misinterpretation of section 197, LDD 2005 9(2), p. 174 [online] 67 CJEU 11-07-1985, C105/84 (Arbejdsledere v Danmols), ECR 1985-02639, paras 16-17 [online]
68 Article 7(6) TUD imposes the duty to inform employees directly, when there are no representatives in the undertaking
69 In CJEU 10-07-1986, C235/84 (Commission v Italian Republic), ECR 1986-02291, paras 20-23 [online], the court held that Italy failed to transpose
The LRA does not require the disclosure of the above information in transfer cases,70 but the South African transferor would be prudent to observe the above EU position and provide as detailed information as possible. This will enable the transferor’s employees to make an informed decision about whether to insist on the transfer, or agree to a voluntary retrenchment. It may be that the transferee’s career prospects, work practices or work location do not appeal to some of the transferor’s employees. A highly trained or experienced employee from the transferor will have good bargaining power to secure an advantageous severance package, and seek better benefits and employment conditions at a new employer. The risk of unemployment is lower for such an employee, whose skills will be highly sought after on the labour market. The number of such employees will depend on whether the undertaking is predominantly labour- or capital-intensive. However, the viability of severance packages will largely depend on the financial health of the undertaking.71 The other challenge is that the transferee may actually wish to take over the more
highly trained or experienced employees. Unfortunately for such a transferee, these employees are also likely predominantly the ones applying for the voluntary retrenchment. The way around this is to impose qualifying criteria for the voluntary retrenchments and a quota on the number of highly prized employees that will be let go. Such criteria need to be carefully implemented to avoid allegations of procedural unfairness or discrimination in the selection of qualifying candidates.72 In
my experience at Old Mutual, the best way to ensure consistency is for the transferor to implement – in advance of any prospective transfer – a company policy on voluntary retrenchment. The severance benefits should be negotiated with the trade union, which can obtain mandates from its members on the terms they would consider appropriate. This may be time-consuming, but it will be prudent to make the negotiations transparent and dispel allegations of undue influence or duress.
[5.3] FORCED RETRENCHMENT 5.3.1 Substantive fairness
Article 4(1) TUD prohibits transferor and transferee dismissals for transfer-related reasons. In Temco,73 the CJEU held that a transfer-related dismissal a few days prior to the transfer was unlawful and that the employees should be deemed to have still been employed at the time of transfer. Accordingly, the transferee was required to recognise them as its own employees. Article 4(1) TUD and section 188(1)(a)(ii) LRA provide one exception: dismissals will be fair if they take place for ETO reasons entailing changes in the workforce. Article 4(1) implies that unlawful
70 However, there is an analogous provision in the LRA for forced retrenchments (see Chapter 5.3 below) 71 Smit, The power to object, TSAR 2003(3), p. 481 [online]
72 Grogan, Workplace Law, 2009, p. 284
73 CJEU 24-01-2002, C-51/00 (Temco v Samir Imzilyen), ECR 2002 I-00969, paras 28 & 30 [online]. See also Bork v Foreningen (CJEU 15-06-1988,
transfer-related dismissals are those that aimed at making the undertaking easier to transfer. Such a reason is the very focus of the prohibition of transfer-related dismissal, and cannot properly be termed an ETO reason.74 The CJEU’s interpretation of what constitutes ETO reasons has been inconsistent, making it difficult to determine these reasons outside of a factual matrix.75 For guidance on what this might constitute, the transferor would do well to rely on factual circumstances analogous to its previous retrenchment exercises. Past practice may reveal what factors, figures and economics are relevant. ETO reasons will, however, be easier to justify if the dismissal takes place far in advance of the transfer. A long record of the pending transfer deal will likely undermine the transferor’s ability to disprove causation between the dismissal and transfer. In Bork,76 the CJEU
held that in order to determine causation between the dismissal and the transfer, it is necessary to consider the dismissal’s objective circumstances. In that case, the transferor dismissed all the staff and the transferee took over only some of the staff. The court imputed causation between the dismissals and the transfer because the dismissals had occurred only a few weeks before the transfer, and more than half the staff had been taken over by the transferee. I suggest that causation will be more difficult to link when the identity of the transferee is not yet known. In the TUD, the EU legislator did not regulate the objection of an employee to the transfer, under the assumption that transfers are in the employee’s best interest.77 But, the CJEU has held in Merckx and Europièces that
the TUD does not impose mandatory transfer upon the employee. The LRA is also silent on this point, but the court in Mdluli held that an unreasonable refusal to accept an outsourcing could qualify as an ETO reason for dismissal.78 Therefore, an employee may run the risk of redundancy.
5.3.2 Procedural fairness
Section 188(1)(b) LRA requires that ETO-related dismissals must be conducted in accordance with a fair procedure, which in practice will involve due consultation with the trade union/employees, and the imposition of fair selection criteria. The transferor cannot avoid this duty simply by obtaining the endorsement of the trade union. In Daddy’s Dance Hall,79 the CJEU emphasised the social nature of the TUD protection by insisting that employees (and by implication) trade union representatives are precluded from agreeing to waive the application of TUD. Section 197(2)(c) LRA prescribes that “anything done before the transfer by or in relation to the old employer, including the dismissal of an
74 Barrett, G., Light acquired on acquired rights, CMLR 2005 42(4), p. 1090 [online]
75 See, for instance, the failure of the CJEU to give a comprehensive definition of ETO reasons in CJEU 16-10-2008, C-313/07 (Kirtruna v Red Elite)
ECR 2008 I-07907, paras 45-46 [online] and CJEU 12-03-1998, C-319/94 (Dethier v Jules Dassy) ECR 1998 I-01061, para 36 [online]
76 CJEU 15-06-1988, C101/87 (Bork v Foreningen), ECR 1988-03057, paras 4 & 18 [online] 77 Riesenhuber, European Employment Law, 2012, p. 593
78 CJEU 07-03-1996, C171/94 & C-172/94 (Merckx v Ford), ECR 1996 I-01253, paras 34-35 [online]; CJEU 07-05-1998, C-399/96 (Europièces v
Sanders), ECR 1998 I-06965, para 18 [online]; Mdluli v Tillmor (1999) 20 ILJ 2626 (LC), paras 33 & 38 [online]
employee, is considered to have been done by or in relation to the new employer”.80 The transferor
must ensure that it has conducted due diligence before the dismissals in order to avoid rendering the transferee liable for compensation or reinstatement claims by an employee unfairly dismissed by the transferor. It may be prudent for the transferor to settle existing claims before the transfer in order to ensure that the transferee takes over the employees unencumbered by debts or pending legal claims.81 It is also worth noting that, in CAWU,82 the South African arbitrator held that the obligation to pay severance for ETO dismissals passed to the transferee together with the transfer.
[5.4] DISMISSALS FOR MISCONDUCT, POOR PERFORMANCE OR INCAPACITY
Under section 188(1)(a)(i) LRA, dismissals that are not transfer-related, namely not automatically unfair, may be substantively fair for a reason related to the employee’s conduct or capacity. Such dismissals should be conducted far in advance of an anticipated transfer in order to preclude allegations of causation between the dismissal and the transfer. As with ETO dismissals, they must be conducted in accordance with a fair procedure. The transferor should conduct disciplinary, performance or incapacity enquiries with strict adherence to the applicable disciplinary or performance management code. As a side-note, this is where the South African attorney should – as good practice – advise his/her clients to adopt comprehensive and procedurally sound disciplinary codes far in advance of any anticipated restructurings. This is to avoid the inference that a disciplinary code has been purposely developed to circumvent causation with the transfer. The procedural fairness requirements of section 188(1)(b) and the LRA Code of Good Practice on Dismissal render the procedures for dismissing employees particularly intricate and time-intensive. Dismissal as a sanction is reserved only for the most serious forms of misconduct/poor performance/incapacity.83 The vast majority of the transferor’s employees will probably not have fallen foul of the undertaking’s policies or their common law employment duties, any more than they will during a non-transfer context. Furthermore, the LRA Code precludes the sanctioning of offences that the employer has acquiesced to in the past. Therefore, it is not open to the transferor to do a “witch hunt” for offences to which it turned a blind eye previously.84 Article 7 of the ILO
Termination of Employment Convention85 prescribes that the employment should not be terminated before the employee has been “provided an opportunity to defend himself against the allegations made, unless the employer cannot reasonably be expected to provide this opportunity”.
80 Article 3(1) TUD leaves it to member states to decide on whether joint and several liability shall be imputed 81 Anglo Office v Lotz (2008) 29 ILJ 953 (LAC), para 22 [online]
82 CAWU v AWS (2001) 22 ILJ 526 (CCMA), p. 529A [online] 83 s 7 LRA Code of Good Practice: Dismissal
84 Ibid. Section 7(b)(iii) requires that the rule or standard has been consistently applied by the employer in the past
85 International Labour Organisation Convention 158 of 1982 concerning Termination of Employment at the Initiative of the Employer. South Africa
CHAPTER SIX
HARMONISATION BY AGREEMENT
[6.1] LEGALITY OF AGREEMENT 6.1.1 Timing of agreement
Agreement between the transferor/transferee and employees is the most direct and immediately enforceable way to change conditions. Richard Painter and Stephen Hardy, British scholars, interpret the CJEU’s case law as permitting agreed changes between the transferor/transferee and the employee only where the reasons for the changes are not transfer-related. Yet again, the CJEU’s inconsistency in determining “non-transfer reasons” causes legal uncertainty for the parties. Painter and Hardy mention two situations in which changes are deemed independent of the transfer:
1. where there were negotiations for changed conditions before the transfer and the changes would have been/were implemented regardless of the transfer; and
2. where changes were agreed after the transfer, but there was no causal link to the transfer.86
The transfer date will determine when the transferee takes over employees and employment rights and obligations. In South Africa, in Van der Velde,87 the parties to the transfer concluded the transfer agreement on 3 April 2003, but agreed that the effective transfer date was 1 January 2003. The plaintiff was retrenched on 28 March 2003. The court held that the transfer date required a factual enquiry, which could not be artificially altered by contract. In other words, even if a transferor were to persuade his employees to agree, before a contractual transfer date, to new conditions (amenable to the transferee), the courts will not allow the artificial date altering by contract.
6.1.2 Less favourable conditions
Article 4(2) TUD and section 186(1) LRA deem changes that result in less favourable conditions, than those existing before the transfer, to be constructive dismissals by the employer. This will apply even if the unfavourable changes have been agreed to by the employee concerned, because the legislation does not allow parties to waive the minimum employee protections. However, what constitutes “unfavourable” can be blurred when the parties agree to new conditions in exchange for incentives or the removal of some of the old unfavourable conditions. For instance, an employee may prefer to agree to a shorter notice period in exchange for the removal of a previously strict restraint of trade. The CJEU in Collino,88 recognises that limited changes are permitted by the TUD, because
86 Painter & Hardy, Business transfers, employers’ strategies, ER 1999 21(4), p. 386 [online] 87 Van der Velde v Design Software (2006) 27 ILJ 1225 (LC), paras 6, 9 & 23 [online] 88 CJEU 14-09-2000, C-343/98 (Collino v Telecom Italia) ECR 2000 I-06659, para 37 [online]
the Directive is aimed only at partial harmonisation and is not intended to establish a uniform level of protection throughout the EU. The court held that changes are allowed to the extent that employees are not in a less favourable position only because of the transfer. The substantive conditions upon which the parties can agree is not a closed list. For instance, the South African Labour Court in SACWU89 upheld a variation of severance benefits for employees facing retrenchment. In Foodgro,90 the transferee agreed with the employee to a new probationary clause. Four months later she was retrenched. The court held that the changes were permissible, but that the transferee could not avoid the statutory obligation to recognise the employee’s continuity of service. This meant that severance pay had to be calculated to include the period of employment completed with the transferor. In my experience at Old Mutual, the most common agreements were consents to be bound by the transferee’s internal company policies. Old Mutual was concerned that new employees could avoid disciplinary action by claiming lack of disclosure of the disciplinary code. John McMullen suggests that agreement might not always be possible without a financial incentive payable by the transferee to the employees; he calls this a “buy out”. The ordinary contractual principles of offer, acceptance and payment should be lawful. Nevertheless, the employee’s exercise of free will may be tainted by duress if the consequences of the change are not fully disclosed.91 If employees refuse the changes, the transferee could resort to a lock-out, and then ultimately a retrenchment as per Chapter Five above. For a lawful lock-out, there will need to be compliance with the collective labour law requirements that the dispute is not about existing contractual rights, but a matter of mutual interest. This route should be a last resort for the transferee because demonstrating that new employment conditions are interest-, and not rights-based, may be evidentially difficult.92
[6.2] TYPES OF AGREEMENT 6.2.1 Individual employment contracts
The leading CJEU case on harmonisation by agreement is Daddy’s Dance Hall,93 where the replacement of a restaurant’s lessee by a new lessee resulted in a transfer. The restaurant manager was re-employed by the new lessee (transferee) on new employment conditions, including a three-month probationary period that entitled either party to terminate the employment on 14 days’ notice. The manager was dismissed during this probationary period and he argued the previous condition of three months’ notice should apply, despite the agreement. The court faced the following question:
89 SACWU v Engen (1998) 19 ILJ 1568 (LC), para 11 [online]
90 Foodgro v Keil (1999) 20 ILJ 2521 (LAC), para 22 [online]. A period of service was deemed a “fact”, not an obligation to be contracted out of 91 McMullen, Transfers and Re-organizations, ILJ 1992 21(1), p. 25 [online]
92 s 65 LRA
