South Africa’s recent protests across tertiary institutions demanding the insourcing of services such as cleaning and security has sparked an interesting conversation around what conditions trigger section 197 of the Labour Relations Act (LRA).

In terms of section 197 of the LRA, a company that takes over a business as a going concern is mandated to retain the old business’ employees on the same terms under which they were employed before the transfer. In this instance, ‘transfer’ is broadly interpreted as including both the purchase and sale of a defined business entity, as well as the termination of an outsourcing arrangement.

However, as the case of insourcing at tertiary institutions has illustrated, there are several factors to be considered when assessing whether the provisions of section 197 are triggered or not.

Following the demands of the #FeesMustFall protestors to insource certain services, many Universities succumbed to creating full time roles in lieu of paying a service provider for cleaning and security. On the face of it, this shift should have triggered section 197.

This would mean the University would be liable for the following:

  • All employment contracts entered into prior to the date of transfer
  • All rights and obligations between the old employer and the transferring employees
  • Any action taken by or in relation to the old employer (legal action or dismissal, for example)
  • The years of service already accrued by employees, as if with the previous employer

The Labour Court decision of Imvula Quality Protection and Others v University of South Africa has, however, provided clarity on the matter. The Court was required to assess whether or not the insourcing of services previously provided to the University of South Africa (“UNISA”) by various service providers triggered section 197 of the LRA.

In this case, UNISA did not take any transfer of assets, operating methods or infrastructure relating to the service providers. This was justified by UNISA’s intention to employ a “shared services” business model in which staff were employed by UNISA but the services would be provided by a new outsourced service provider, appointed to provide a management/business bundle and infrastructure for the services including assets and technology. UNISA’s role was, therefore, limited to managing the human resources required for the service.

In this case, the Court emphasized that something greater than the transfer of a service is required in order for section 197 to be triggered. There should be, for example, a transfer of a holistic business operation. Where, as in the UNISA case, there is no transfer of assets, infrastructure, business methods, contracts, goodwill or “the manner in which the business is organised and performed”, section 197 of the LRA is not likely to be triggered.