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Legal insight: Business transfer and employees

By Jan Truter

One of the most significant amendments to the Labour Relations Act that became effective on 1 August 2002, relates to the transfer of business as a going concern. In many respects the law is clarified. But here are some sticky questions.

Automatic substitution

The amendments include an automatic substitution of new employer for the old employer. Consequently the rights and obligations of the employee and new employer remain the same as they were between the employee and the old employer. The employee’s service remains uninterrupted.

Terms and conditions of employment may be changed, provided that they are on the whole not less favourable than before the transfer. Resignation due to terms and conditions of employment being changed could amount to constructive dismissal. The issue of transfer of pension, provident, retirement or similar funds is clarified and seemingly facilitated by the amendment.

Retrenchment prior to sale

What to do if somebody is interested in buying your business, but only if you retrench some of your staff? One of the more controversial amendments is that a dismissal as a result of a transfer or related to a transfer may be regarded as automatically unfair. Although it is unlikely that the intention of the Act is to prevent one from dismissing employees if there are sound reasons for termination based on operational requirements. This notwithstanding, it would be wiser to leave any such considerations until after the sale or transfer.

A further provision is that the old employer must take reasonable steps to ensure that the new employer can meet the obligations in respect of leave pay, severance pay and other monies payable to the employees. Not doing so can result in liability for a period of 12 months after the transfer.

In the case of insolvency or scheme of arrangement, the new employer (liquidator) would be automatically substituted for the old employer, but rights and obligations would not be transferred.

On the whole, the entire issue of the transfer of a business as a going concern, is much clearer than before the introduction of the amendments.

Jan Truter has been practicing as an attorney from 1985 and specialising in labour law since 1990. His articles can be read online at Labourwise, on http://www.labourwise.co.za/

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The Big Change is a business strategy blog and newsletter published by Arthur Goldstuck, managing director of World Wide Worx, a leading technology research organisation based in Johannesburg, South Africa.

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