UCHENA
JA: This
is an appeal against the whole judgment of the Labour Court handed
down on 1 August 2019, dismissing an application for the confirmation
of a draft ruling of a labour officer (second respondent), to the
effect that transfer of the employees (appellants) from Kwekwe
Brewery to the first respondent constituted a transfer of an
undertaking in terms of s16(1) of the Labour Act [Chapter
28.01].
FACTUAL
BACKGROUND
The
detailed facts of the case can be summarised as follows;
The
appellants are former employees of Kwekwe Brewery a company duly
incorporated in terms of the laws of Zimbabwe. The first respondent
(Kwekwe City Council) is Kwekwe Brewery's sole shareholder. As a
result of Kwekwe Brewery's financial difficulties the first
respondent entered into a management agreement with Limsol Trading
which was to manage the affairs of Kwekwe Brewery for five (5) years
between 2010 and 2015.
As
early as 2011, Limsol Trading started experiencing viability problems
in its management of Kwekwe Brewery.
In
2012, the first respondent applied for and was granted a Bank loan to
support the financial position of Kwekwe Brewery. According to
minutes of a meeting of 6 May 2016 on Kwekwe Brewery's financial
position the Brewery owed the Bank USD53,000 and was making a loss of
USD23,000 per month.
A
decision was made to lay off all casual employees and reduce working
hours of permanent employees with immediate effect.
Kwekwe
Brewery was eventually closed.
To
avoid loss of employment due to the Brewery's closure, the
appellants entered into and signed contracts of employment on
transfer from Kwekwe Brewery to the first respondent.
They
were on 5 September 2016 offered jobs totally different
from those they had with Kwekwe Brewery. For example, the first
appellant who was a Marketing Manager with Kwekwe Brewery was
employed as a debt collection Supervisor grade 4. The fourth
appellant who was a Production Manager with Kwekwe Brewery was
employed as a Municipal Policeman Grade B3.
They
worked for the first respondent from 5 September 2016 to 19
October 2017 when they raised an issue of unfair labour practice with
a labour officer.
The
appellants lodged a complaint of unfair labour practice with the
second respondent alleging that they had been transferred to the
first respondent on less favourable terms and conditions in
contravention of s16(1) of the Labour Act [Chapter
28:01].
They
alleged that the first respondent had unilaterally altered their
contracts of employment upon transfer of an undertaking and that they
were put under less favourable terms which had resulted in their
salaries and other benefits being reduced.
They
prayed that they be reinstated in their former jobs and the terms and
conditions which applied to them before the transfer be restored.
In
response to the complaint, the first respondent denied that there had
been a transfer of an undertaking as envisaged by s16(1) of the
Labour Act.
It
submitted that the undertaking, (Kwekwe Brewery) had closed due to
viability challenges. It, therefore, submitted that there was no
undertaking which could be transferred in the circumstances. It
averred that s16(1) of the Labour Act was intended to apply to a
situation where an undertaking or business is transferred to another
person and that it was not intended to apply to a situation where
employees are transferred to another organisation following the
closure of the undertaking by which they were employed.
Alternatively,
it was submitted that if indeed there had been a transfer of an
undertaking, it had been one in which the appellants voluntarily
agreed to terms and conditions which were less favourable than those
they enjoyed before the transfer.
In
determining the dispute between the parties, the second respondent
found that there had been a transfer of an undertaking and ruled that
the first respondent pay the appellants salaries equivalent to those
they enjoyed before the transfer.
Thereafter,
the second respondent in compliance with the provisions of s93(5a)(a)
and (b) applied to the court a quo,
for the confirmation of her draft ruling.
The
first respondent opposed the application, arguing that there had been
no transfer of an undertaking from Kwekwe Brewery to it. The first
respondent argued that it was not legally possible for Kwekwe
Brewery, which it owned, to be transferred to it. It argued that
there was no change of ownership of the Brewery.
After
perusing documents filed of record and hearing the parties, the court
a
quo
held
that the facts of the matter did not support the claim that there had
been a transfer or alienation of Kwekwe Brewery as an undertaking to
the first respondent. It further held that it was not proved that the
first respondent acquired the assets, liabilities and total
operations of Kwekwe Brewery, but that there had been a transfer of
employees by way of the contracts of employment entered into by the
parties.
As
a result, it held that there had been no transfer of an undertaking
and dismissed the application for the confirmation of the draft
ruling.
Aggrieved
by the decision of the court a
quo,
the appellants noted an appeal to this Court on the following
grounds:
GROUNDS
OF APPEAL
“1.
The court a
quo
erred at law in holding that there was no transfer of an undertaking
when this is clear in the circumstances of the case as envisaged in
terms of s16(1) of the Labour Act [Chapter
28:01].
2.
The Court a
quo
erred at law in giving s16(1) of the Labour Act [Chapter
28:01]
an unreasonable restrictive interpretation which interpretation
defeats or contradicts the purpose the section was enacted to achieve
when the Court ruled that:
(i)
There was a transfer of employees and not a transfer of assets which
transfer of employees on its own is transfer of an undertaking.
(ii)
First Respondent acquired no assets, no liabilities and no total
operation of Kwekwe Brewery but such transfer of employees is
transfer of assets and liabilities. No question was in issue on this.
(iii)
There was a distinction between the facts in Mutare
Rural District Council v Chikwena
2000
(1) ZLR 534 (S) when in actual fact there was no such distinction.”
The
appeal raises two issues for determination.
(a)
Whether or not the court a
quo
correctly found that there was no transfer of an undertaking in terms
of s16(1) of the Labour Act?
(b)
Whether or not if a transfer took place the appellants accepted less
favourable terms than those they enjoyed before the transfer.
SUBMISSIONS
MADE BY THE PARTIES
Ms
Masikati
for the appellants submitted that the court a
quo
erred by failing to give s16(1) of the Labour Act a broader meaning
in light of the words “in anyway whatsoever”.
Counsel
for the appellants contended that the words “in anyway whatsoever”
demonstrated that a transfer of an undertaking may take any form as
long as there is a change of hands.
She
argued that a transfer of employees from Kwekwe Brewery to the first
respondent constituted a transfer of an undertaking as held in the
case of Mutare
Rural District Council v Chikwena
2000
(1) ZLR 534 (S).
She
further averred that the first respondent unilaterally varied the
appellants' conditions of employment to less favourable conditions
without consultation.
Counsel
for the appellants asserted that this constituted a breach of s16 of
the Labour Act and prayed that the decision of the court a
quo
be vacated.
Mr.
Nyarota
for the first respondent submitted that Kwekwe
Brewery was not alienated or transfered as a going concern as it
merely ceased operations due to viability challenges. He contended
that the transfer of employees alone did not constitute a transfer of
an undertaking as envisaged by s16(1) of the Labour Act.
He
further submitted that the court a
quo
did not decide on whether or not the appellants had agreed to less
favourable terms and conditions than those they enjoyed before the
alleged transfer which he submitted had a bearing on the relief
sought by the appellants and was an issue which the court a
quo
was seized with.
Counsel
for the first respondent prayed that the appeal be dismissed with
costs as it was devoid of merit.
THE
LAW
The
law which the court a
quo
had to interpret and apply in determining whether or not to confirm
the draft ruling related to, the question in what circumstances can
an undertaking be said to have been alienated or transferred in terms
of s16(1) of the Labour Act. Section 16(1) of the Labour Act reads as
follows:
“16
Rights of employees on transfer of undertaking
(1)
Subject to this section, whenever
any undertaking in which any persons are employed is alienated or
transferred in any way whatsoever, the employment of such persons
shall, unless otherwise lawfully terminated, be deemed to be
transferred to the transferee of the undertaking
on terms and conditions which are not less favourable than those
which applied immediately before the transfer, and the continuity of
employment of such employees shall be deemed not to have been
interrupted.” (emphasis added)
The
critical words which determine the issue and have to be interpreted
are, “whenever
any undertaking
in
which any persons are employed
is
alienated or transferred in any way whatsoever,
the
employment of such persons shall, unless otherwise lawfully
terminated, be deemed to be transferred to the transferee of the
undertaking”.
Section
16(1), therefore simply means, when an undertaking/business is
alienated or transferred, its employees whose employment is not
otherwise lawfully terminated, are deemed to have been transferred
with it to the transferee.
This
means the undertaking/business must first be alienated or transferred
to the transferee, before the employee's rights to continued
employment can be deemed to have been transferred to the transferee.
The
employees' rights to continued employment under the transferee are,
therefore, activated by the alienation or transfer of the
undertaking/business to the transferee.
The
words “whenever
any undertaking
in
which any persons are employed is alienated or transferred”
are significant.
It
is the undertaking's/business' alienation or transfer which
triggers the simultaneous transfer of the employees to the
transferee. The employees' transfer arises from their being
employees of the alienated or transferred undertaking/business.
The
law on what is an undertaking and how it is alienated or transferred
was discussed in the case of Mutare
Rural District Council v Chikwena
2000
(1) ZLR 534 at p537C-E,
where
GUBBAY CJ said:
“The
word undertaking is of variable meaning. Basically, the idea it
conveys is that of a business
or enterprise.
In the Australian case of Top
of the Cross (Pty) Ltd v Federal Commissioner of Taxation
(1980) 50 FLR 19, Woodward J said at 36:
'Frequently,
the word undertaking is used in circumstances where it could be
interchanged with either the word business
or enterprise
and with varying shades of meaning. Sometimes it is used alone,
sometimes by way of distinction from the assets of the owner and
sometimes as a synonym for business. Sometimes it is used to embrace
the property which is used in connection with the undertaking as well
as the debts and liabilities which have arisen in relation thereto.'
In
this matter, it
is indisputable that what was transferred to CIG was the
appellant's
viable and separate business, the Mutare Furniture and Hardware
factory. It had its own set of employees under the control and
supervision
of production and factory managers. It was an undertaking as
contemplated
and sactioned by s16(1).”
At
p537F to 538C GUBBAY CJ compared our s16(1) with s197 of the South
African Labour Relations Act 1995, which was interpreted in Manning
v Metro Nissan
(1998) 19 ILJ 1181 (LC) at 1189 as follows:
“What
these subsections provide for is
that a business, trade or undertaking is sold as a going concern, the
purchaser for all intents and purposes, vis-a–vis the employees of
the business, trade or undertaking purchased, puts
himself
in the place of the seller. Consequently, all the rights and
obligations that existed between, the seller and its employees are
transferred by operation of this section to the purchaser.”
(emphasis
added)
The
phrase “in any way whatsoever,” concerning alienation or transfer
of an undertaking in s16(1) does not connote a broader interpretation
as submitted by counsel for the appellants because the mere transfer
of the employees cannot be said to be a transfer of an undertaking.
Several
considerations must be taken into account.
This
was aptly illustrated in Aviation
Union of South Africa and Another v South African Airways (Pty) Ltd
and Others
2012 (1) SA 321 (CC), where it was held that “for a transfer to be
established there must be components of the original business which
are passed on to the third party”.
These
components would include, but not be limited to, the taking over of
employees, assets (tangible or intangible), customers, debtors and
the business would maintain or continue its activities whilst
retaining its identity.
Therefore,
the mere transfer of employees from one employer to another on its
own cannot be taken to constitute a transfer of an undertaking.
While
the Labour Act seeks to protect the rights of both the employer and
the employee, for s16(1) to apply there must be an alienation or
transfer of an undertaking/business in any way whatsoever and such
transfer is not of employees alone.
In
Mutare
Rural District Council, (supra),
this Court held that a business, trade or undertaking must be
transferred as a going concern, “that is to say, what is taken over
must be an active and operating business, trade or undertaking.”
These
sentiments were fortified in the
South African case of National
Education Health and Allied Workers Union (NEHAWU) v University of
Cape Town and Others
2003
(3) SA 1 (CC),
where the Constitutional Court stated that:
“…in
deciding whether a business has been transferred as a going concern,
regard must be had to the substance and not the form of the
transaction. A number of factors will be relevant to the question
whether a transfer of a business as a going concern has occurred,
such as the transfer or otherwise of assets both tangible and
intangible, whether or not the workers are taken over by the new
employer, whether customers are transferred and whether or not the
same business is being carried on by the new employer.
What must be stressed is that this
list of factors is not exhaustive and that none of them is decisive
individually. They
must all be considered in the overall assessment and therefore should
not be considered in isolation…”
(emphasis added)
Similar
sentiments were echoed in the case of Spijker
Gebroeders Benedik Abattoir v Alfred Benediken Zonen
[1986] 2 CMLR 296, where it was stated that:
“The
decisive criterion is whether the business in question retains its
identity. Consequently, a transfer of an undertaking; business or
part of a business does not occur merely because its assets are
disposed of.
Instead, it is necessary to consider whether the business was
disposed of as a going concern, as would be indicated, inter
alia
by the fact that its operations were actually continued or resumed by
the (new) employer, with the same or similar activities…”
(emphasis added)
The
provisions of s16(1) are subject to the provisions of the whole
section. Subsections 2 to (3) provide as follows:
“(2)
Nothing in subsection (1) shall be deemed —
(a)
to prevent the employees concerned from being transferred on terms
and conditions of employment which are more favourable to them than
those which applied immediately before the transfer, or from
obtaining terms and conditions of employment which are more
favourable than those which applied immediately before, or subsequent
to, the transfer;
(b)
to prevent the employees concerned from agreeing to terms and
conditions of employment which are in themselves otherwise legal and
which shall be applicable on and after the transfer, but which are
less favourable than those which applied to them immediately before
the transfer:
Provided
that no rights to social security, pensions, gratuities or other
retirement benefits may be diminished by any such agreement without
the prior written authority of the Minister;
(c)
to affect the rights of the employees concerned which they could have
enforced against the person who employed them immediately before the
transfer, and such rights may be enforced against either the employer
or the person to whom the undertaking has been transferred or against
both such persons at any time prior to, on or after the transfer;
(d)
to derogate from or prejudice the benefits or rights conferred upon
employees under the law relating to insolvency.
(3)
It shall be an unfair labour practice to violate or evade or to
attempt to violate or evade in any way the provisions of this
section”.
A
reading of the whole section besides adding that employees can get
more favourable conditions or agree to less favourable conditions and
the preservation and non-diminution of rights to social security,
pensions, gratuities or other retirement benefits, without the
Minister's authority, and the non-derogation of employees' rights
under the law of insolvency, does not change the interpretation
discussed above.
The
meaning remains that, it is the alienation or transfer of the
undertaking/business which triggers the transfer of employees.
There
must, therefore, be alienation or a transfer of an undertaking before
employees of the transferred undertaking can claim to have become
employees of the transferee in terms of s16(1).
WHETHER
OR NOT THE COURT A
QUO
CORRECTLY FOUND THAT THERE WAS NO TRANSFER OF AN UNDERTAKING IN TERMS
OF S16(1) OF THE LABOUR ACT?
Ms
Masikati
for the appellants sought to rely on the case of Mutare
Rural District Council (supra)
to advance an argument that the transfer of employees of an
undertaking can on its own, constitute the alienation or transfer of
an undertaking.
She
also argued that the facts of this case are on all fours with those
of the Mutare
Rural District Council case (supra).
She
did not correctly understand the facts of the case.
In
that case Mutare
Rural District Council
formed a limited liability company known as Council Income Generator
(Private) Limited (CIG) to which it transferred its interests in
Mutare Furniture and Hardware factory. Mutare Rural District Council
held all the shares in CIG. It, however, eventualy sold all its
shares in CIG to third parties who became the transferees of CIG and
took over its employees.
In
this case, Kwekwe City Council (the first respondent) did not sell
its shares in Kwekwe Brewery. It remains the sole shareholder of
Kwekwe Brewery.
As
explained above Kwekwe Brewery was closed and stopped operating
without being alienated or transferred to a third party. Its
employees signed new contracts of employment with the first
respondent which are totally different from those they had with
Kwekwe Brewery. The undertaking that the appellants worked for before
their new contracts with the first respondent was not transferred to
the first respondent. There was, therefore, no alienation or transfer
of Kwekwe Brewery to the first respondent. As a result, there was no
transfer of its employees to the first respondent in terms of s16(1).
A
reading of the record establishes that Kwekwe Brewery has always been
owned by the first respondent, therefore, it is not correct to say
that the business changed hands. The first respondent could not be
both a transferor and a transferee of Kwekwe Brewery. It could not
alienate or transfer its business to itself.
The
court a
quo,
therefore, correctly dismissed the application to confirm the second
respondent's draft ruling to the effect that the appellants had
been transferred to the first respondent in terms of s16(1) and were
entitled to the salaries and benefits that they enjoyed as employees
of Kwekwe Brewery.
WHETHER
OR NOT IF THE TRANSFER TOOK PLACE THE APPELLANTS ACCEPTED LESS
FAVOURABLE TERMS THAN THOSE THEY ENJOYED BEFORE THE TRANSFER
In
view of the definitive finding that there was no transfer of an
undertaking this issue need not be determined.
The
determination of whether or not there was a transfer of an
undertaking also determines this issue as an employee can only
exercise the option of accepting less favourable terms if the
institution he was working for has been transferred to a new
employer.
The
court a
quo,
therefore, correctly abstained from determining this issue.
DISPOSITION
The
appeal has no merit and must be dismissed. Costs will follow the
result.
In
the result the appeal is dismissed with costs.
GWAUNZA
DCJ: I
agree
GUVAVA
JA: I
agree
Mavhiringidze
& Mashanyare,
appellants' legal practitioners
Wilmot
& Bennett,
first respondent's legal practitioners
