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Automatic transfer of Employees when a business is sold

by Hayley Langdon

In terms of Section 197 of the Amended Labour Relations Act:

“(1)If a transfer of a business takes place, unless otherwise agreed in terms of subsection (6)

  1. 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;
  2. 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. anything done before the transfer by or in relation to the old employer, including the dismissal of an employee or the commission of an unfair labour practice or act of unfair discrimination, is considered to have been done by or in relation to the new employer; and
  4. the transfer does not interrupt an employee’s continuity of employment, and an employee’s contract of employment continues with the new employer as if with the old employer.”

The Act defines a business rather broadly as the whole or part of any business, trade, undertaking or service and includes the requirement of “as a going concern” in the definition of transfer. Should you therefore be purchasing the whole or any part of a business as a going concern, the automatic transfer of employees would apply. As the new employer you would be obliged to continue the employment of all employees on terms that are not less favourable.

In addition to the above the purchaser needs to be aware that:

  1. For a period of 12 months from the date of the transfer, the old employer is jointly and severally liable with the new employer to any employee who becomes entitled to receive a payment as a result of the employee’s dismissal for a reason relating to the employer’s operational requirements or the employer’s liquidation or sequestration, unless the old employer is able to show that it has complied with the provisions of this section.
  2. The old and new employer are also jointly and severally liable in respect of any claim concerning any term or condition of employment that arose prior to the transfer.

As a purchaser you will need to be aware of any accrued leave or leave pay, bonus’s due and notional severance pay liability. This should be considered when making an offer to purchase. The purchaser and seller of a business are obliged to enter in an agreement which deals with the transfer of employees and the employees are entitled to be informed of the provisions of this agreement.

9 March, 2015

**Please note that these comments are summarised, may not be applicable to your particular situation and do not constitute legal advice. Please consult your legal professional should you wish to obtain a formal legal opinion.**