Does insourcing trigger employee transfer obligations in South Africa?

06 Oct 2017

Pursuant to a nationwide protest in the tertiary education environment throughout South Africa, many Universities succumbed to the demands of protestors to “insource” certain services previously provided by service providers to the Universities. Such services included cleaning and security services.

The legal question that arose was whether such “insourcing” would trigger section 197 of the Labour Relations Act (“the LRA”), which sets out the employee transfer obligations on employers whenever there is a transfer of business as a going concern. On the face of it, it may appear that a transfer of services from a service provider to the Universities would trigger this provision.

If this is the case, Universities would inherit significant legal and financial risk. This is because if section 197 is triggered, the new employer (the Universities) take automatic transfer of all employees who previously provided the services to them.

This means inter alia that:

• the Universities would be automatically substituted in the place of the old employer (the service providers) in respect of all employment contracts entered into immediately preceding the date of transfer
• all rights and obligations between the old employer and the transferring employees would continue to be in force as if they had been rights and obligations between the Universities and the employees
• anything done before the transfer by or in relation to the old employer (including the dismissal of an employee) would be considered to have been done by the Universities
• the transferring employees’ years of service would continue with the Universities as if with the old employer.

There was no clear answer as to whether or not section 197 would be triggered by the said insourcing. We had advised our University clients that section 197 would not be triggered by the manner in which they intended insourcing the service providers’ employees, which was well-received.

Clarity in this regard has recently been provided by the courts in the recent Labour Court decision of Imvula Quality Protection and Others v University of South Africa. The Court was required to determine whether or not insourcing services previously provided to the University of South Africa (“UNISA”) by various service providers triggered section 197 of the LRA.

Importantly, UNISA did not take transfer of any of the assets or other business infrastructure, nor were any of the service providers operating methods transferred to UNISA. UNISA intended implementing a “shared services” business model in terms of which the staff would be employed by UNISA but the services would be provided by a new outsourced service provider, appointed to provide management/business bundle and infrastructure for the services such as assets (vehicles) and technology that would be utilised by UNISA. Whereas UNISA’s role would be limited to managing the human resources required for the service.

The Court reiterated the long-standing position that something more than a mere transfer of service is required before section 197 will be triggered. In addition to the requirement that a transfer of service takes place, there must also be a transfer of business. Where there is no transfer of assets, infrastructure, business methods, contracts, goodwill “and the manner in which the business is organised and performed”, section 197 of the LRA is not likely to be triggered.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)