Dismissal related to transfer of business
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Sales of businesses are a regular feature of the modern economy. Mergers and acquisitions occur all too often as businesses position themselves for a better share of the market. In all these commercial transactions, the interests of the employees should not be forgotten.
It is for this reason that section 197 of the Labour Relations Act (LRA) requires that contracts of employees be transferred to the new employer whenever a business or part of it is transferred as a going concern. But what if a potential buyer does not want a certain employee? Can the current employer dismiss the unwanted employee in order to make the business attractive to the buyer? Can the two employers agree that the business to be transferred should not have certain employees?
The answer is found in section 187(1)(g). It is automatically unfair to dismiss an employee because a business or part thereof is transferred as a going concern. The dismissal may result from the transfer itself or from another reason related to the transfer.
The LRA only recognises three grounds for a valid dismissal, and transfer of a business is not one of them. So if it is shown that the reason for dismissal was related to transfer of a business, the dismissal would be automatically unfair, with serious consequences, including a compensation order of up to 24 months remuneration.
But what if the transfer leads to slightly increased responsibilities that eventually cause the employee to miss performance targets and a dismissal for incapacity? What if the transfer results in excess capacity and the employer restructures to reduce headcount? Does it matter whether retrenchment occurs immediately after the transfer or after, say, one year? What about incidental redundancy?
If a job genuinely becomes redundant due to the transfer of part of an employer’s business, the retrenchment would be related to the transfer. This may occur where, for example, support staff are retained while the core functions and staff are transferred, leaving the support staff with little or nothing to do and therefore redundant.
To conclude, if the reason for dismissal is linked to transfer of a business as a going concern, it contravenes the LRA. The penalties may not be worth the benefits of the transfer. So employers should tread with care. If staff reduction occurs, it should be for genuine operational requirements.
Lesson: Transferring a business as a going concern should not undermine job security.
Information provided by Kaizer Moyane, Chief Consultant: Labour Relations, Sanlam Personal Finance
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