Case No: CCT 214/2015 Labour Appeal Court Case No: JA79/2014
In the matter between:
RURAL MAINTENANCE (PTY) LTD First Applicant
RURAL MAINTENANCE FREE
STATE (PTY) LTD Second Applicant
and
MALUTI-A-PHOFUNG
LOCAL MUNICIPALITY Respondent
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RESPONDENT’S PRACTICE NOTE
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1. Nature of the Proceedings
1.1. The application for leave to appeal concerns the proper application of section 197 of the Labour Relations Act, 1995 to the facts in circumstances where certain assets used by the transferor in its operation of the business of providing electricity to consumers in a local municipality were not handed over to the alleged transferee.
1.2. The question for determination is whether or not, with effect from 1 April 2014 the employment contracts of 127 affected employees are recognised as having “transferred” from the applicants to the respondent in terms of section 197(2) of the Labour Relations Act.
1.3. The application for leave to appeal is directed against the Labour Appeal Court’s finding that there was no transfer of a business as a going concern in the circumstances of this matter is correct. The applicant also brings an application for leave to introduced new evidence on appeal.
2. Issues to be argued
2.1. In light of the common cause fact that the applicants did not transfer all of the assets of their business operation to the respondent, the first issue that arises is whether or not the assets not transferred are sufficient to reach the conclusion that only the obligation to provide as service, as opposed to the business which provides the
service was transferred from the applicants to the respondent.
2.2. The respondent argues that a business is only transferred as a going concern, if, in addition to the infrastructure required to provide an electricity reticulation service, the applicant had also transferred the assets utilised by it to provide that service as a revenue producing economic enterprise.
3. Portions of the record necessary for determination of the matter
3.1. The entire record ought to be read.
4. Estimated duration of the argument
4.1. 2 - 3 hours
5. Summary of the argument
5.1. The application for leave to appeal ought to be dismissed as the applicants have not shown an arguable point of law of general public importance for purposes of section 167(3)(b)(ii) of the Constitution. In the event that leave to appeal is granted, the appeal ought to be dismissed as the facts that served before the Labour Courts as well as those sought to be introduced before this Court do not alter the factual scenario that assets crucial to the business
of providing electricity were not transferred by the applicants to the respondent.
5.2. Prior to 2013 the Municipality had allowed its electricity infrastructure to fall into a state of disrepair. In addition to the poor state of the electricity distribution infrastructure, the Municipality could not pay Eskom for the electricity supplied to it. The main reason for this is that the Municipality did not have the ability to effectively collect revenue from its consumers because it did not have the necessary metering, invoicing and collecting systems in place. In short, there was a problem with the infrastructure used to provide the service of electricity to residents as was there a problem with the manner
in which the Municipality operated the business of providing that service.
5.3. The Municipality thus “outsourced” its obligations to provide electricity to persons within its jurisdiction to the applications (“Rural”) at the end of 2013.
5.4. With effect from 1 April 2014, Rural “handed back” to the Municipality what it terms
“possession of the Network and the Capital Assets”, in other words the electricity distribution infrastructure. Despite not similarly transferring many of its business assets such as vehicles, computer hardware and software, intellectual property, debtors books, etc, Rural sought an order that section 197 of the Labour Relations Act
governs the scenario and that all 127 people that it (Rural) had employed must be transferred onto the Municipality’s payroll.
5.5. The Municipality’s case is that a going concern was not transferred. To be classified as a “going concern” what must be transferred is “the same business in different hands.” Thus the business that was operated before the transfer must be substantially the same as the business that is capable of being operated after the transfer. The business that was being operated by Rural immediately before the “hand over” required the use of many essential assets that Rural chose not to hand over to the Municipality. Rural thus retained assets that were an essential part of its trading operation like vehicles, specialized Iveco
4x4 trucks and Iveco 6x6 drill rigs, electrical infrastructure mapping, sophisticated software systems designed to meter the use of electricity, generate invoices and collect revenue – all essential for the running a viable business. Rural also had immovable property situated in Harrismith that it was using as offices and accommodation for employees. This was also not handed over. Ipso facto it was impossible for the Municipality to operate the business of Rural in substantially the same way after “transfer” as it was being operated immediately before “transfer”.
5.6. Rural merely handed back the basic infrastructure needed to supply electricity. It transferred the service to the Municipality but not the actual business that provides the service.
5.7. The Labour Appeal Court’s decision on the facts that served before it was correct. In reaching this decision the Labour Appeal Court did not develop a new “seamless transition” test, but applied the factors extracted from the existing case law on section 197 and found that a business as a going concern had not been transferred by Rural to the Municipality.
5.8. Recognising before this Court for the first time that their papers were defective, Rural seeks leave to introduce new evidence. This application is opposed by the Municipality in that:
5.8.1. Rural have not shown exceptional circumstances which justify this Court
admitting the new evidence on appeal;
and
5.8.2. The new evidence sought to be admitted, does not in any event alter the factual finding made by the Labour Appeal Court.
6. Authorities to which reference will be made in argument
6.1. A list of the respondent’s authorities is filed herewith.
Andrew Redding SC Island Group Tel (011) 291 8600 Kevin Hopkins
Maisels Chambers Tel (011) 535 1800 Sandra Freese Maisels Chambers Tel (011) 535 1800 Respondent’s counsel
