Navigating Business Transfers in South Africa: Understanding Section 197 of the Labour Relations Act

In the dynamic landscape of business transactions, the sale of a going concern can present intricate challenges, particularly in terms of safeguarding the rights of employees. Section 197 of the Labour Relations Act (“LRA”) in South Africa is a pivotal provision that outlines the rights and obligations of employees when businesses change hands. This article delves into the nuances of Section 197 within the context of business transfers, offering a comprehensive guide to legal practitioners and stakeholders involved.

Introduction to Section 197: Protecting Employee Rights in Business Transfers

Section 197 of the LRA was introduced to ensure that employees are not unfairly prejudiced when businesses are transferred from one owner to another. The provision applies to situations where a business or part thereof is sold as a going concern, ensuring the continuity of employment and the protection of employee rights.

Understanding the Basics

Business Transfer: A transfer of a business occurs when the whole or part of a business is sold, leased or otherwise transferred to another entity as a going concern. This ensures that the business can continue operating without interruption.

Going Concern: A business is considered a going concern when it has an established customer base, assets and ongoing operations.

Key Elements of Section 197

1. Automatic Transfer of Employment: When a business is transferred as a going concern, all employment contracts, rights, and obligations of employees transfer automatically to the new owner. This includes benefits and terms of employment.

2. Protection Against Unfair Dismissals: Section 197 prohibits the dismissal of employees due to the transfer itself. Any dismissal related to the transfer is deemed unfair, unless the dismissal is for a valid reason unrelated to the transfer.

3. Employee Consultation: Both the old and new employers must consult with the affected employees or their representatives regarding the implications of the transfer. This includes discussing any measures to be taken to mitigate adverse effects on employees.

4. Liabilities and Obligations: The new employer inherits all obligations, liabilities, and benefits associated with the employment contracts, as well as any collective agreements in place.

Exceptions and Limitations

1. Small Businesses: Certain provisions of Section 197 may not apply to small businesses with fewer than 10 employees.

2. Employment Equity: The new employer is obligated to comply with employment equity obligations as per the LRA.

3. Trade Union Changes: If an employee is a member of a trade union, their membership is not automatically transferred to the new employer.

Benefits and Considerations

• Employee Protections: Section 197 safeguards employees from abrupt job losses and ensures their rights are preserved during business transfers.

• Continuity: The automatic transfer of employment contracts ensures business continuity, minimizing disruptions and maintaining stability.

• Business Investment: Knowing that employee rights are protected encourages potential buyers to invest in businesses as going concerns.

Conclusion: Navigating Business Transfers with Employee Rights Intact

Section 197 of the Labour Relations Act plays a pivotal role in maintaining a delicate balance between protecting employee rights and facilitating business transfers. By understanding the provisions and implications of this section, stakeholders can navigate business transactions with a commitment to fairness, continuity, and respect for the rights of the workforce. This safeguards not only the interests of employees but also contributes to a stable and thriving business environment in South Africa.

If you would like to find out more, contact our offices today to schedule a call with one of our specialist labour law attorneys.