SAA (Pty) Ltd v Aviation Union of SA & others (SCA Case No: 123/2010 Judgment 11 January 2011)
Where parties wish to enter into an outsourcing agreement, and then for the business to revert to the outsourcer, or to be transferred to another provider, there must be a clear re-transfer, demonstrated through written contracts or conduct, of all assets and obligations of the business, including the transfer of workforce rights and obligations so that no difficulty arises in invoking the protection afforded by s 197 to affected employees who have been involved in carrying out the services provided for in the initial outsourcing agreement.
A ‘purposive’ interpretation of legislation cannot be used if it is at odds with the ordinary meaning of the words chosen by the legislature.
SAA concluded a collective agreement with three trade unions in terms of which its infrastructure and support services departments were transferred to LGM. Shortly thereafter, a further agreement for the outsourcing of the infrastructure and support services was concluded between LGM and SAA.
The agreement provided that the contracts of employees would be transferred to LGM in terms of s 197 of the LRA. Assets and inventory of SAA relating to the transferred services were sold to LGM and, on termination of the outsourcing agreement, SAA was entitled to repurchase the assets and inventory of LGM. Of critical importance to the dispute was a provision in the agreement that SAA retained a right to transfer certain services and all functions to itself or to a third party and to obtain transfer or assignment of LGM to SAA of all third party contracts.
During 2007 there was change of ownership of LGM. On this basis, SAA considered that it was entitled to cancel the agreement which included change of control as a ground for cancellation.
In August 2007 SAA called for tenders for various services performed by LGM in terms of this outsourcing agreement. There was some suggestion by SAA that it intended to extend the outsourcing agreement until January 2008, but LGM declined to accept this offer. SAA called on LGM to develop and implement the hand-over plan in terms of the outsourcing agreement. It also adopted the stance that it had no obligation towards the staff of LGM who had been engaged in the services provided pursuant to the agreement.
SAA then advertised tenders for the various services which had been performed by LGM. Of particular importance was the following provision of the tender agreement: “SAA currently uses the services of an establishment service provider whose contract with SAA is coming to an end soon.”
On 7 September 2007, the union and each of the individual applicants received a letter from LGM advising of possible retrenchments in the light of SAA’s cancellation of the agreement. The 62 individual applicants were all either transferred in terms of the agreement or subsequently employed by LGM, and were all engaged in the services provided by LGM in terms of the agreement.
At a meeting between representatives of union and LGM on 10 September 2007, the management of LGM informed these representatives that the last working day for LGM would be 30 September 2007; LGM would not render further services to SAA after that date. LGM had obtained advice from senior counsel which indicated that the current position could constitute a transfer in terms of section 197 of LRA and accordingly, LGM had applied to the CCMA for the appointment of a facilitator in terms of section 189A of the LRA.
On 14 September 2007, partly in an effort to obtain certainty about the employment status of the employees as from 1 October 2007, and partly to obtain a commitment from SAA to assume responsibility for the transfer of the contracts of these employees, the union wrote to the CEO of SAA requesting it to confirm that the employees would be transferred back to SAA as at 1 October 2007 (because only an interim service provider had been appointed) and that they should report for duty on that date. SAA indicated that it was not prepared to make any such undertaking, nor did it regard itself obliged to do so under the law.
The question which arose in this case was whether there can be a s 197 transfer between the unsuccessful outgoing contractor and the successful incoming contractor? Does this ‘second outsourcing’ constitute a transfer as contemplated by section 197 of the LRA?
Extract from the judgment:
 SAA appealed against the Labour Appeal Court’s decision, with the special leave of this court, on two bases: first, that the court below erred in its interpretation of s 197 which is at odds with its ordinary meaning; and second, that it erred in finding on the facts that there was a transfer of a business as a going concern.
 The trade unions argued, on the other hand, that the ‘purposive’ interpretation given to s 197 by the Labour Appeal Court is correct and should be adopted. Secondly, it contended that the continuation of the services by SAA amounted to the transfer of a business as a going concern, as contemplated in s 197(1)(b).
 As we have said, to invoke the protection of s 197 the transfer must comprise two elements: there must be a transfer of a business as a going concern; and that transfer must be by the old employer to the new employer. But the court below reasoned that an examination of the multiple meanings of the word ‘by’ indicated that the literal interpretation of the section, which would preclude any possible extension to second generation transfers, was not justified linguistically. This was so because the wording of the section does not necessarily mean that the transferor has to play an immediate positive role in bringing about the transfer. Relying on the judgment of Murphy AJ in Cosawu, it approved the view that a literal meaning of the word ‘by’ would lead to the anomaly that workers transferred as part of first generation contracting out would be protected, but not those of the second generation scheme, despite both being equally deserving of the protection afforded by s 197.
 Moreover, a literal interpretation, the Labour Appeal Court found, again relying on Cosawu, was susceptible to abuse by unscrupulous employers: employees might not only lose their continuity of employment but also their severance benefits because the old employer, having lost its business to the new employer, would lack the means to pay its debts and in addition owed no more obligation to any of those employees. Thus the court below held that a literal interpretation of the word ‘by’ in s 197 was subversive of the very purpose of the section and found that a purposive construction of the section was warranted.
 The trade unions argued that this is a permissible form of interpretation when one is attempting to give effect to the right to fair labour practices, guaranteed by s 23(1) of the Constitution, and the right to equality enshrined in s 9 of the Bill of Rights. These rights, they submitted, inform the proper meaning of s 197, which would reinforce the primary object of the Act – to promote economic development, social justice, labour peace, and the protection of employees against loss of employment. On the facts of the present matter, the ‘transaction’ would be covered by the wording of s 197 – a transfer from SAA.
 SAA, on the other hand, urged us to consider the plain and unambiguous choice of language in s 197 as indicative of the legislature’s intention that s 197 should apply to a situation only where there are two elements to a transaction: the transfer of a business as a going concern, made by an old employer to a new employer. It argued further that it was now trite that s 39(2) of the Constitution, which compels an interpretation of legislative provisions in light of the values embedded in the Bill of Rights, applies only where the language of the statute is not unduly strained. The Constitutional Court, in Investigating Directorate: Serious Economic Offences & others v Hyundai Motor Distributors (Pty) Ltd & others; In Re Hyundai Motor Distributors (Pty) Ltd & others v Smit NO & others, stated:
‘. . . [J]udicial officers must prefer interpretations of legislation that fall within constitutional bounds over those that do not, provided that such an interpretation can be reasonably ascribed to the section.
Limits must, however, be placed on the application of this principle. On the one hand, it is the duty of a judicial officer to interpret legislation in conformity with the Constitution so far as this is reasonably possible. On the other hand, the Legislature is under a duty to pass legislation that is reasonably clear and precise, enabling citizens and officials to understand what is expected of them. A balance will often have to be struck as to how this tension is to be resolved when considering the constitutionality of legislation. There will be occasions when a judicial officer will find that the legislation, though open to a meaning which would be unconstitutional, is reasonably capable of being read “in conformity with the Constitution”. Such an interpretation should not, however, be unduly strained.’
 The ‘purposive’ interpretation adopted by the Labour Appeal Court was aimed, it said, at preventing abuse. This concern on the part of the court is misconceived because there is, as SAA argued, no suggestion of any abuse in the present case. And even if we accepted that such abuse is possible, that is no reason to distort the plain meaning of the section. We accordingly conclude that the Labour Appeal Court erred in adopting an approach to the interpretation of s 197 which is at odds with the ordinary meaning of the words chosen by the legislature. By interpreting the word ‘by’ to mean ‘from’ the court impermissibly distorted the meaning of the word.
 The second ground on which the LAC erred, argued SAA, is that the evidence did not establish that there was a transfer of a business activity as a going concern. What is meant by ‘going concern’ is ‘a business in operation’ and whether transfer has occurred is a factual matter, to be determined objectively by reference to all relevant factors considered cumulatively, the list not being exhaustive and none of the factors being individually decisive: Nehawu.
 The Labour Court, in concluding that there was no transfer of a going concern, had regard to the lack of an agreement regulating the re-transfer of employees back to SAA from LGM, and the lack of any indication that the services would revert to SAA. The Labour Appeal Court, on the other hand, did not delve into the factual question whether there was a transfer as a going concern: instead it held that s 197 covers the situation ‘whereby, after SAA cancelled the mutual outsourcing agreement, it invoked clause 27 of the outsourcing agreement to compel LGM to implement the handover plan’. That court did not consider what this handover plan entailed and whether the issues dealt with in it permitted the conclusion that there was a transfer of a business as a going concern. On the evidence, argued SAA, the only document referring to the ‘hand over plan’ was a letter from SAA, annexed to the second and third respondent’s answering affidavit. In the letter SAA pointed out that a plan must, without delay, be developed for a hand-over process as envisaged in the outsourcing agreement and be implemented. There is no evidence whatsoever that such a hand-over process was actually implemented, what it entailed and when the process was completed. Thus no facts existed, when the application was brought, to sustain a finding that a transfer as a going concern did take place.
 In this respect the approach of the Labour Appeal Court, in finding that an evidential basis did exist for finding that any transfer of a business as a going concern occurred, was clearly wrong. Where parties wish to enter into an outsourcing agreement, and then for the business to revert to the outsourcer, or to be transferred to another provider, there must be a clear re-transfer, demonstrated through written contracts or conduct, of all assets and obligations of the business, including the transfer of workforce rights and obligations so that no difficulty arises in invoking the protection afforded by s 197 to affected employees who have been involved in carrying out the services provided for in the initial outsourcing agreement. As was held in Crossroads Distribution (Pty) Ltd t/a Jowells Transport v Clover SA (Pty) Ltd:
‘The entity which provided the service in this case was not transferred at any stage. There was no transfer of any kind, only the conclusion of separate transactions starting with the termination of one contract and ending in a new contract. A transferring party (“old employer”) and a transferee (“new employer”) as envisaged by section 197 are also not identifiable in this case. Here is a situation where an institution ─ if I may borrow a term from counsel for Crossroads ─ on termination of a contract which it has concluded as principal for the provision of services, contracts with another provider for the same service. Section 197 as it stands does not apply to such a situation. This can be demonstrated with an example in the heads of argument filed by Crossroads. A municipality has a contract with a certain car hire company (“company A”) to meet the travel needs of its employees. If it then terminates that contract and concludes a contract with “company B”, must all the employees of company A now be employed by company B? Surely not.’
 In the absence of a factual basis for the Labour Court to have concluded that there was a transfer of a business as a going concern by LGM either to SAA or to another entity, its decision to dismiss the application was correct. Accordingly the Labour Appeal Court erred in upholding the appeal to it.
 1 The appeal is upheld with costs including those consequent upon the employment of two counsel.
2 The order of the Labour Appeal Court is set aside and replaced with:
‘The appeal is dismissed with costs.’