THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Case No:   123/2010

In the matter between:

SOUTH AFRICAN AIRWAYS (PTY) LIMITED
Appellant

and

AVIATION UNION OF SOUTH AFRICA
First Respondent

BARNES, M R AND 62 OTHERS
2nd to 64th Respondents

SOUTH AFRICAN TRANSPORT AND
ALLIED WORKERS UNION
65th Respondent

LGM SOUTH AFRICA FACILITY
MANAGERS AND ENGINEERS (PTY)
LIMITED
66th Respondent

ALLAN AND 204 OTHERS
67th to Further Respondents

Neutral citation:
SAA v Aviation Union of SA (123/10) [2011] ZASCA 1 (11 January
2011)

Coram:
MPATI P, LEWIS, MHLANTLA and SHONGWE JJA and EBRAHIM
AJA

Heard:
8 November 2010
Delivered:
11 January 2011
Summary:
Labour Law – s 197 of the Labour Relations Act 66 of 1995 –
interpretation – termination of outsourcing agreements and „second generation‟
transfers.

____________________________________________________________________           _

ORDER

On appeal from: Labour Appeal Court (Johannesburg) (Zondo JP and Davis and
Leeuw JJA sitting as court of appeal).

1 The appeal is upheld with costs including those consequent upon the employment
of two counsel.
2 The order of the Labour Appeal Court is set aside and replaced with:
„The appeal is dismissed with costs.‟

___________________________________________________________________
JUDGMENT

LEWIS JA and EBRAHIM AJA    (Mpati P, Mhlantla JA concurring)

[1] This appeal concerns the interpretation of s 197 of the Labour Relations Act
66 of 1995. The section regulates, among other things, the employment rights of
employees of a business, or part of a business, that is sold as a going concern. It
has been the subject of much judicial interpretation, this case being one where what
is termed „second-generation outsourcing‟ is in issue.

[2] Before turning to the facts it is useful to deal with some terminology.
Outsourcing itself refers to the transfer of certain work by an enterprise to a
contractor. It generally occurs where the managers of a business prefer to
concentrate on the core work of the business and to enter into a contract with
another entity to perform services that are peripheral: typical examples include
catering and cleaning.1

1 A useful discussion of outsourcing by Malcolm Wallis is to be found in „Is Outsourcing In? An
Ongoing Concern‟ (2006) 27 ILJ 1.

[3] In National Education Health and Allied Workers Union v University of Cape
Town2 the Constitutional Court affirmed that where an entity such as a university
enters into contracts with service providers to perform work previously done by it,
such as catering or cleaning, s 197 applies since the entity is transferring a part of its
business. The section reads:
„197 Transfer of contract of employment
(1)
In this section and in section 197A –
(a)
“business” includes the whole or a part of any business, trade, undertaking or
service; and
(b)
“transfer” means the transfer of a business by one employer (“the old employer") to
another employer (“the new employer”) as a going concern.
(2)
If a transfer of a business takes place, unless otherwise agreed in terms of
subsection (6) –
(a)
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;
(b)
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;
(c)
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
(d)
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.‟

[4] At issue in this appeal is whether there has been a second or further transfer
of a business as a going concern by an old employer to a new employer where there
has been one transfer of a business as a going concern (from A to B) and possibly
subsequent transfers: by B back to A, or by B to C or by A to C, but none of the
transactions post the first transfer from A to B has been proved to have occurred.
Transfers of workers‟ employment contracts from A to B have, as we have said,
been termed „first generation outsourcing‟. Subsequent transfers by B (back to A or
to C, or from A to C) have in the legal literature generally, and in several cases, been

2 2003 (3) SA 1 (CC).

referred to as „second-generation outsourcing‟. As Malcolm Wallis3 points out, the
transfer from A to C, or from B to C, is nothing of the sort. Either the contract with the
first service provider is terminated and A resumes performing the services in issue,
or A enters into a second (or third and so on) contract with a different service
provider. In the latter case there will be a transfer from A to C – a „first generation
outsourcing‟. As we shall show, there was no evidence in this matter that in fact B
had transferred the business back to A or to a third party, C, or that A had
transferred the business as a going concern to C, and the appeal requires a
consideration of this as well as the interpretation of s 197.

[5] The appellant, South African Airways (Pty) Ltd (SAA), is the former employer
of a large number of employees whose contracts of service were transferred to the
66th respondent, LGM South Africa Facility Manager and Engineering (Pty) Ltd
(LGM), when SAA entered into an outsourcing agreement with LGM in terms of
which its infrastructure and support service department were transferred to LGM.

[6] The material terms of the outsourcing agreement were the following. The
agreement took effect on 1 April 2000 and would expire at midnight on 31 March
2010; SAA retained an option to renew the agreement for a further five years after
the initial expiry of the agreement; assets and inventory of SAA pertaining to the
transferred services were sold to LGM and, on termination of the outsourcing
agreement, SAA would be entitled to repurchase the assets and inventory of LGM
dedicated to providing the services under the agreement; LGM and SAA agreed that
transferred employees were deemed to have been employed by LGM in terms of s
197(1)(b) and s 197(2)(a) of the LRA;4 LGM was afforded the access which was
reasonably required to render the services, to use the office space, workshops, the
airport apron, computers and the network of SAA at all designated airports; LGM
was entitled to an annual fee for rendering the outsourced services to SAA; the
agreement was administered by a Joint Executive Committee comprising

3 Op cit p 2.
4 The section itself now provides expressly that 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. The provision was inserted in 2002: previously there had been some doubt –
settled in Nehawu above – whether there was an automatic transfer of rights of employment to the
new employer.

representatives of SAA and LGM and of importance to the present dispute was a
provision in the agreement (clause 27) that SAA retained the right to transfer certain
services and all functions to itself or to a third party and to obtain transfer or
assignment of LGM to SAA of all third party contracts.

[7] In June 2007, due to a change in ownership of LGM, SAA gave LGM notice of
termination of the outsourcing agreement with effect from 30 September 2007, as it
was entitled to do in terms of clause 26.12 of the agreement. In August 2007, SAA
advertised for tenders for the various services then performed by LGM in terms of
the outsourcing agreement. On 17 August, SAA called on LGM to implement the
handover plan in terms of the outsourcing agreement and indicated that it had no
obligation towards the staff of LGM who had been engaged in the services provided
pursuant to the agreement.

[8] LGM in turn gave notice to the affected employees of its intention to dismiss
them on the basis of reduced operational requirements.  The 64 individual
respondents were originally employees of SAA whose employment contracts were
transferred to LGM in terms of the outsourcing agreement or were subsequently
employed by LGM. All were engaged in the services provided by LGM in terms of the
agreement.

[9] On 14 September, partly in an effort to obtain certainty about the employment
status of these respondents as from 1 October, and partly to obtain a commitment
from SAA to assume responsibility for the transfer of the contract of the individual
respondents, the Aviation Union of South Africa (AUSA), the union representing
them, and which is the first respondent in this appeal, wrote to SAA requesting
confirmation that the employees would be transferred back to SAA on 1 October and
that they should report for duty on that date.

[10] SAA responded that it was not prepared to give such an undertaking. This
deadlock culminated in the launching by AUSA and others (including the 65th
respondent, the South African Transport and Allied Workers‟ Union (SATAWU) of an
application for interim declaratory relief in the Labour Court. In essence the
respondents claimed an order that the termination of the outsourcing agreement, or

SAA‟s resumption of part or all of the undertaking or services previously conducted
by LGM, gave rise to a transfer to SAA in terms of s 197 of the Act. In the alternative,
an order was sought that if SAA granted specific tenders to third parties, the award
of such tenders would amount to a transfer to the new contractors under s 197. Only
AUSA and SATAWU have participated in this appeal. We shall refer to these
respondents for convenience as „the trade unions‟.

[11] The question to be determined, in the view of Basson J in the Labour Court,
was „whether there can be a section 197 transfer between the unsuccessful outgoing
contractor and the successful incoming contractor? Put differently, the question
which arises is whether this “second outsourcing” constitutes a transfer as
contemplated by section 197 of the LRA‟.

[12] The Labour Court found that it could not, on the facts, conclude that there
would be a transfer of employees from LGM to SAA. It also found that s 197
contemplated only „first generation outsourcing‟ and that, accordingly, s 197 was not
applicable to this matter. Basson J said that the intention of the legislature was clear:
only a transfer of a business by an old employer was governed by s 197.  There had
not, in this case, been any transfer by SAA of a business as a going concern to any
entity other than the first transfer to LGM. The prerequisite for the application of s
197 was thus not met. She dismissed the application with costs.

[13] Basson J recognized, however, that s 197 should be interpreted so as to
protect the work security of employees affected by a business transfer. This was
made clear in Nehawu5 where Ngcobo J said:
„But the purpose of the Legislature involves protecting the interests of both the employers
and the workers. Employers are at risk as far as severance pay is concerned. Workers are at
risk in relation to their jobs. Properly construed s 197 is for the benefit of both employers and
workers. It facilitates the transfer of businesses while at the same time protecting the
workers against unfair job losses. That is a balance consistent with fair labour practices.‟

[14] However, Basson J concluded that the wording of the section could not be
rewritten so as to make it apply when there was a transfer „from‟ an entity – the

5 Above, para 70.

argument of the trade unions being that there had been a transfer in 2007 from SAA
once LGM ceased to be the employer. In any event, given that there was no
evidence of a transfer to SAA of any business, nor of a transfer to the service
providers who took over the work on 1 October 2007, s 197 was inapplicable.

[15] It should be noted that Basson J considered the judgment of Murphy AJ in
Cosawu v Zikhethele Trade (Pty) Ltd6 where it was held that if a business is
transferred as a going concern in a second generation outsourcing agreement, such
a transfer would fall within the ambit of s 197. She distinguished Cosawu on the
basis that there the second business was so closely aligned to the first business that
s 197 was applicable: in effect she considered that they were the same business.

[16] The trade unions and the other respondents appealed against the decision of
the Labour Court to the Labour Appeal Court which found that the Labour Court had
erred in its approach to s 197. Davis JA (Leeuw JA concurring) adopted the
approach in Cosawu, as did Zondo JP in a concurring judgment. They held that if a
business is transferred as a going concern in a second generation outsourcing
agreement, such a transfer (in this case from SAA) would fall within the ambit of s
197.

[17] In Cosawu Murphy AJ, after referring to Nokeng Tsa Taemane Local
Municipality v Metsweding District Municipality,7 said:8
„Likewise, I am persuaded that a less literal and more purposive approach is justified in the
context of s 197. . . . [T]he section is intended to protect employees whose security of
employment and rights are in jeopardy as a result of business transfers. A mechanical
application of the literal meaning of the word „by‟ in s 197(1)(b) would lead to the anomaly
that workers transferred as part of first generation contracting-out would be protected
whereas those in a second generation scheme would not be, when both are equally needful
and deserving of the protection. The possibility for abuse and circumvention of the statutory
protections by unscrupulous employers is easy to imagine. . . .‟

6 [2005] 9 BLLR 924 (LC).
7 (2003) 24 ILJ 2179 (LC) at 2183.
8 Para 29.

[18] Murphy AJ considered that in the circumstances it would be pragmatic to read
„by‟ as „from‟. He said:9
„A pragmatic interpretation of this kind allows a finding that a business in actual fact can be
transferred by the old employer in such circumstances, but that the transfer occurs in two
phases: in the first the business is handed back to the outsourcer and in the second it is
awarded to the new employer. Importantly this interpretation will be in conformity with the
prescriptions of s 39(2) of the Constitution obliging courts when interpreting legislation to
promote the spirit, purport and objectives of the Bill of Rights. By affording the same
protection to employees affected by first and second generation contracting out
arrangements, courts will promote the spirit and advance the purport of equal treatment and
fair labour practices.‟
As Wallis10 observed of this reasoning, interpreting „by‟ to mean „from‟ changes the
meaning of the definition, and there was no justification for the court‟s changing the
words that the legislature had used after consideration and debate.

[19] Nonetheless, this was the reasoning of the Labour Appeal Court in this matter
too. But, as we shall demonstrate, this approach to interpreting legislation, and to the
invocation of s 39(2), is not consonant with the approach of the Constitutional Court
and this court, and the disregard of the words used by the legislature on the basis of
a general „fairness‟ principle leads not only to uncertainty but also to a failure to
observe the doctrine of separation of powers.

[20] SAA appealed against the Labour Appeal Court‟s decision, with the special
leave of this court, on two bases: first, that the court below erred in its interpretation
of s 197 which is at odds with its ordinary meaning; and second, that it erred in
finding on the facts that there was a transfer of a business as a going concern.

[21] The trade unions argued, on the other hand, that the „purposive‟ interpretation
given to s 197 by the Labour Appeal Court is correct and should be adopted.
Secondly, it contended that the continuation of the services by SAA amounted to the
transfer of a business as a going concern, as contemplated in s 197(1)(b).

9 Para 29.
10 Op cit p 11.

[22] As we have said, to invoke the protection of s 197 the transfer must comprise
two elements: there must be a transfer of a business as a going concern; and that
transfer must be by the old employer to the new employer. But the court below
reasoned that an examination of the multiple meanings of the word „by‟ indicated that
the literal interpretation of the section, which would preclude any possible extension
to second generation transfers, was not justified linguistically. This was so because
the wording of the section does not necessarily mean that the transferor has to play
an immediate positive role in bringing about the transfer. Relying on the judgment of
Murphy AJ in Cosawu, it approved the view that a literal meaning of the word „by‟
would lead to the anomaly that workers transferred as part of first generation
contracting out would be protected, but not those of the second generation scheme,
despite both being equally deserving of the protection afforded by s 197.

[23] Moreover, a literal interpretation, the Labour Appeal Court found, again relying
on Cosawu, was susceptible to abuse by unscrupulous employers: employees might
not only lose their continuity of employment but also their severance benefits
because the old employer, having lost its business to the new employer, would lack
the means to pay its debts and in addition owed no more obligation to any of those
employees. Thus the court below held that a literal interpretation of the word „by‟ in s
197 was subversive of the very purpose of the section and found that a purposive
construction of the section was warranted.

[24] The trade unions argued that this is a permissible form of interpretation when
one is attempting to give effect to the right to fair labour practices, guaranteed by s
23(1) of the Constitution, and the right to equality enshrined in s 9 of the Bill of
Rights. These rights, they submitted, inform the proper meaning of s 197, which
would reinforce the primary object of the Act – to promote economic development,
social justice, labour peace, and the protection of employees against loss of
employment. On the facts of the present matter, the „transaction‟ would be covered
by the wording of s 197 – a transfer from SAA.

[25] SAA, on the other hand, urged us to consider the plain and unambiguous
choice of language in s 197 as indicative of the legislature‟s intention that s 197
should apply to a situation only where there are two elements to a transaction: the

transfer of a business as a going concern, made by an old employer to a new
employer. It argued further that it was now trite that s 39(2) of the Constitution, which
compels an interpretation of legislative provisions in light of the values embedded in
the Bill of Rights, applies only where the language of the statute is not unduly
strained. The Constitutional Court, in Investigating Directorate: Serious Economic
Offences & others v Hyundai Motor Distributors (Pty) Ltd & others; In Re Hyundai
Motor Distributors (Pty) Ltd & others v Smit NO & others,11 stated:
„. . . [J]udicial officers must prefer interpretations of legislation that fall within constitutional
bounds over those that do not, provided that such an interpretation can be reasonably
ascribed to the section.

Limits must, however, be placed on the application of this principle. On the one hand,
it is the duty of a judicial officer to interpret legislation in conformity with the Constitution so
far as this is reasonably possible. On the other hand, the Legislature is under a duty to pass
legislation that is reasonably clear and precise, enabling citizens and officials to understand
what is expected of them. A balance will often have to be struck as to how this tension is to
be resolved when considering the constitutionality of legislation. There will be occasions
when a judicial officer will find that the legislation, though open to a meaning which would be
unconstitutional, is reasonably capable of being read “in conformity with the Constitution”.
Such an interpretation should not, however, be unduly strained.‟

[26] Harms DP in Minister of Safety and Security v Sekhoto12 most recently
summarized these principles, in so far as relevant here, as follows:
„. . . There is a distinction between interpreting legislation in a way which "promote[s] the
spirit, purport and objects of the Bill of Rights" and the process of reading words into or
severing them from a statutory provision under s 172(1)(b), following upon a declaration of
constitutional invalidity under s 172(1)(a).
. . . The first process, being an interpretative one, is limited to what the text is reasonably
capable of meaning. The second can only take place after the statutory provision,
notwithstanding the application of all legitimate interpretative aids, is found to be
constitutionally invalid.‟

[27] And of course in S v Zuma13 the Constitutional Court cautioned against using
the Constitution to interpret the language of legislation to mean whatever a court

11 2001 (1) SA 545 (CC) paras 23-24.
12 (131/10) [2010] ZASCA 141 (19 November 2010).

wants it to mean. It would appear that in Cosawu and this case the courts considered
that a particular outcome promoted the objects of the Act and the section in
particular, and disregarded the intention of the legislature as manifested in the clear
language of the section.

[28] There was no challenge to the constitutionality of s 197 in this matter. A
collateral challenge in the guise of reading a word to mean something different is
simply not legitimate. See in this regard The Law Society of the Northern Provinces v
Mahon.14 It would be tantamount to usurping the role of the legislature.

[29] In Standard Bank Investment Corporation Ltd v Competition Commission &
others; Liberty Life Association of Africa Ltd v Competition Commission & others15
this court dealt with the interpretation of the Competition Act 89 of 1998, the issue in
the appeal being whether the Competition Commission is one of the regulatory
authorities whose approval of a bank merger and an insurance merger is required.
Various arguments against a literal interpretation of the section were raised in favour
of a purposive construction. Whilst recognizing the need to give effect to the object
or purpose of legislation, the court stressed that it is not the function of a court to do
violence to the language of a statute and impose its view of what the policy or object
of a measure should be. It quoted the the dictum of Innes CJ in Dadoo Ltd & others v
Krugersdorp Municipal Council:16
„Speaking generally, every statute embodies some policy or is designed to carry out some
object. When the language employed admits of doubt, it falls to be interpreted by the Court
according to recognized rules of construction, paying regard, in the first place, to the ordinary
meaning of the words used, but departing from such meaning under certain circumstances, if
satisfied that such departure would give effect to the policy and object contemplated. I do not
pause to discuss the question of the extent to which a departure from the ordinary meaning
of the language is justified, because the construction of the statutory clauses before us is not
in controversy. They are plain and unambiguous. But there must, of course, be a limit to
such departure. A Judge has authority to interpret, but not to legislate, and he cannot do
violence to the language of the lawgiver by placing upon it a meaning of which it is not

13 1995 (2) SA 642 (CC) paras 17-18.
14 (86/2010) [2010] ZASCA 175 (2 December 2010).

15 2000 (2) SA 797 (SCA).
16 1920 AD 530 at 543.

reasonably capable, in order to give effect to what he may think to be the policy or object of
the particular measure.‟
Thus the court stressed the limits of judicial interpretation and held that to do
otherwise would be to fail to respect the separation of powers and to usurp the
function of the legislator. In our view, the advent of the Constitution has not changed
this fundamental principle.17

[30] In South African Police Service v Public Servants Association18 the
Constitutional Court dealt with the interpretation of the Police Service Regulations in
a purposive and contextual sense, where the regulations in question were designed
to serve diverse purposes in a complex context. The court emphasised that a
purposive approach to interpretation does not give a court licence, through an
interpretative exercise, to distort the ordinary meaning of words beyond that which
those words are reasonably capable of bearing. Sachs J said:
„Interpreting statutes within the context of the Constitution will not require the distortion of
language so as to extract meaning beyond that which the words can reasonably bear. It
does, however, require that the language used be interpreted as far as possible, and without
undue strain, so as to favour compliance with the Constitution. This in turn will often
necessitate close attention to the socio-economic and institutional context in which a
provision under examination functions. In addition it will be important to pay attention to the
specific factual context that triggers the problem requiring solution.‟

[31] SAA contended that the interpretation favoured by the Labour Appeal Court
represents a radical departure from the fundamental rule of statutory construction:
that when the language chosen by the legislature is clear, words have to be given
their ordinary grammatical meaning in the context in which they appear in the
statute. The choice of language in s 197 is plain and unambiguous. By the deliberate
use of the word „by‟, the legislature showed that it intended s 197 to apply to a
situation where there are at least two positive actors in the process. The ordinary
meaning of the word „by‟ requires positive action from the old employer who transfers
the business to the new employer. Broken down to its essential components s
197(1)(b), in the context of the section as a whole, has the following unambiguous

17 See also Wallis op cit p 11.
18 2007 (3) SA 521 (CC) para 20.

meaning: the word „by‟ identifies the old employer as the means or instrumentality for
effecting the transfer of the business; the definition of „transfer‟ identifies the entity to
which the business is transferred, namely the new employer; and the section then
identifies the consequences of the transfer for the new employer, the old employer
and the affected employees. To interpret the word „by‟ to mean „from‟, as the court
below did, argued SAA, not only strains the meaning of the word but also
fundamentally changes the meaning of the section as a whole since it no longer
requires any action on the part of the old employer. This is not consonant with the
intention of the legislature as evinced by the ordinary meaning of the word „by‟.

[32] The „purposive‟ interpretation adopted by the Labour Appeal Court was
aimed, it said, at preventing abuse. This concern on the part of the court is
misconceived because there is, as SAA argued, no suggestion of any abuse in the
present case. And even if we accepted that such abuse is possible, that is no reason
to distort the plain meaning of the section. We accordingly conclude that the Labour
Appeal Court erred in adopting an approach to the interpretation of s 197 which is at
odds with the ordinary meaning of the words chosen by the legislature. By
interpreting the word „by‟ to mean „from‟ the court impermissibly distorted the
meaning of the word.

[33] The second ground on which the LAC erred, argued SAA, is that the evidence
did not establish that there was a transfer of a business activity as a going concern.
What is meant by „going concern‟ is „a business in operation‟ and whether transfer
has occurred is a factual matter, to be determined objectively by reference to all
relevant factors considered cumulatively, the list not being exhaustive and none of
the factors being individually decisive: Nehawu.19

[34] The Labour Court, in concluding that there was no transfer of a going
concern, had regard to the lack of an agreement regulating the re-transfer of
employees back to SAA from LGM, and the lack of any indication that the services
would revert to SAA. The Labour Appeal Court, on the other hand, did not delve into
the factual question whether there was a transfer as a going concern: instead it held

19 Above, para 56.

that s 197 covers the situation „whereby, after SAA cancelled the mutual outsourcing
agreement, it invoked clause 27 of the outsourcing agreement to compel LGM to
implement the handover plan‟. That court did not consider what this handover plan
entailed and whether the issues dealt with in it permitted the conclusion that there
was a transfer of a business as a going concern. On the evidence, argued SAA, the
only document referring to the „hand over plan‟ was a letter from SAA, annexed to
the second and third respondent‟s answering affidavit. In the letter SAA pointed out
that a plan must, without delay, be developed for a hand-over process as envisaged
in the outsourcing agreement and be implemented. There is no evidence whatsoever
that such a hand-over process was actually implemented, what it entailed and when
the process was completed. Thus no facts existed, when the application was
brought, to sustain a finding that a transfer as a going concern did take place.

[35] In this respect the approach of the Labour Appeal Court, in finding that an
evidential basis did exist for finding that any transfer of a business as a going
concern occurred, was clearly wrong. Where parties wish to enter into an
outsourcing agreement, and then for the business to revert to the outsourcer, or to
be transferred to another provider, there must be a clear re-transfer, demonstrated
through written contracts or conduct, of all assets and obligations of the business,
including the transfer of workforce rights and obligations so that no difficulty arises in
invoking the protection afforded by s 197 to affected employees who have been
involved in carrying out the services provided for in the initial outsourcing agreement.
As was held in Crossroads Distribution (Pty) Ltd t/a Jowells Transport v Clover SA
(Pty) Ltd:20
„The entity which provided the service in this case was not transferred at any stage. There
was no transfer of any kind, only the conclusion of separate transactions starting with the
termination of one contract and ending in a new contract. A transferring party (“old
employer”) and a transferee (“new employer”) as envisaged by section 197 are also not
identifiable in this case. Here is a situation where an institution ─ if I may borrow a term from
counsel for Crossroads ─ on termination of a contract which it has concluded as principal for
the provision of services, contracts with another provider for the same service. Section 197
as it stands does not apply to such a situation. This can be demonstrated with an example in
the heads of argument filed by Crossroads. A municipality has a contract with a certain car

20 [2008] 6 BLLR 565 (LC) para 15.

hire company (“company A”) to meet the travel needs of its employees. If it then terminates
that contract and concludes a contract with “company B”, must all the employees of
company A now be employed by company B? Surely not.‟

[36] The trade unions argued, however, that on termination of the outsourcing
agreement between LGM and SAA, the only probable inference to be drawn was
that there was a „double transfer‟, that is a transfer by LGM to SAA at midnight on 30
September 2007, and a transfer by SAA thereafter to the entity that commenced
providing the services in question. Counsel argued that it is an absolute precondition
that every time there is an outsourcing agreement, on its termination there is
automatically a transfer back to the original owner, provided the latter remains the
owner of the assets which had been transferred in terms of the initial agreement.

[37] The trade unions argued also that it was clear on the facts before us that the
respondents had established that a transfer of business activities as a going concern
would take place at midnight on 30 September despite there being a lacuna in the
evidence placed before the Labour Court by way of affidavits from which such a
conclusion could be reached. It referred to its founding papers in which it was
alleged that from 1 October 2007, SAA would either have had to provide the services
itself or it would have had to engage one or more service providers. SAA‟s response
was that after completion of the tender process, the successful bidder would
commence rendering services, without being specific as to who would provide these
services from 1 October 2007 until the tender process had been completed. It
emphasized the fact that SAA had at no stage indicated that the services would not
continue after midnight 30 September.

[38] As authority for the proposition that a transfer contemplated by s 197 was
possible in the circumstances, and does in fact occur in such cases, the trade unions
referred to an English case, Dines & others v Initial Health Care Services Ltd and
Pall Mall Services Group Ltd.21 Here the appellants were employed as cleaners at a
hospital by the first respondent who held a contract for cleaning services for the
Health Authority. On expiration of the contract on 30 April 1991, and after a

21 [1994] IRLR 336 (CA).

competitive tendering process, the contract was awarded to the second respondent
as from 1 May. The appellants were dismissed by the first respondent on the
grounds of redundancy and given redundancy payments. On 1 May they
commenced employment with the second respondent and continued to carry out the
cleaning service at the hospital. In these circumstances the Court of Appeal held that
the Industrial Tribunal before which the appellants had instituted proceedings against
the first respondent for unfair dismissal, had misdirected itself by finding that there
was no transfer of an undertaking when the second respondent took over the
hospital cleaning contract from the first respondent. It held that as the cleaning
services were to be carried out by essentially the same labour force on the same
premises and for the same health authority, there was a transfer of an undertaking
which took place in two phases: the handing back by the first respondent to the
health authority of the cleaning services at the hospital; and the handing over by the
health authority of the cleaning services to the second respondent on the following
day.

[39] Counsel for the trade unions stressed that what is significant in deciding
whether there had been a transfer in circumstances where SAA had played the role
of facilitator, as in a transfer of the business by LGM to SAA, and then yet another
transfer to the third contracting party, are the tangible and intangible assets which
are in fact transferred to ensure continuation of the business activity. But there was
no evidence that any such assets would be transferred, given that the relief was
sought before the date of termination of the contract between SAA and LGM.

[40] In motion proceedings, as these were, courts are bound to decide matters of
fact on the papers before them. It is not permissible to make findings of fact only on
a weighing up of the probabilities: Administrator, Transvaal & others v Theletsane &
others.22 Botha JA said that „in motion proceedings, as a general rule, decisions of
fact cannot properly be founded on a consideration of the probabilities, unless the
Court is satisfied that there is no real and genuine dispute on the facts in question . .
.‟.  He continued to say that „the room for deciding matters of fact on the basis of
what is contained in a respondent‟s affidavits, where such affidavits deal equivocally

22 1991 (2) SA 192 (A) at 196I-197D.

with facts that are not put forward directly in answer to the factual grounds for relief
on which the applicant relies, if it exists at all, must be very narrow indeed‟.

[41] In the absence of a factual basis for the Labour Court to have concluded that
there was a transfer of a business as a going concern by LGM either to SAA or to
another entity, its decision to dismiss the application was correct. Accordingly the
Labour Appeal Court erred in upholding the appeal to it.

[42] 1 The appeal is upheld with costs including those consequent upon the
employment of two counsel.
2 The order of the Labour Appeal Court is set aside and replaced with:
„The appeal is dismissed with costs.‟

____________________

C H Lewis
Judge of Appeal

____________________
S Ebrahim
Acting Judge of Appeal

SHONGWE JA (dissenting)

[ 43] I have read the judgment of Lewis JA and Ebrahim AJA, and regrettably, I do
not agree with the order proposed by them. It will not be necessary for me to deal
with the facts of the appeal as they appear in detail in the main judgment.

[44 ] My point of departure is that when one looks at the nature of the transaction
and the purpose of section 197, it becomes clear that by operation of law there must

have been a continuation of the services provided by LGM to SAA or any third party
resulting from the termination of the outsourcing agreement.

[45] The purpose of section 197 is to protect the interest of both the worker and
the employer. Also to give consideration to the interests of the third party who would
take over the services – see National Education, Health and Allied Workers’ Union v
University of Cape Town 2003 (3) SA 1 (CC) at 29 para 62 (See also Chirwa v
Transnet Ltd & Others 2008 (4) SA 367 (CC) para 110).

[46] The majority judgment makes the point that there is a paucity of evidence
regarding what was actually transferred. Even counsel for SAA argued that there is a
lack of evidence and that the Unions bear the onus. It is further argued that the
Unions could have approached the court with a request to lead further evidence on
or after the termination of the outsourcing agreement.

[47] In my opinion there is no need to embark on an exercise to define or analyse
whether the word „by‟ in the definition of transfer means that the old employer must
be the one taking a positive and active role in the proposed transfer. In the present
case clause 27 of the Outsourcing Agreement makes provision for LGM to positively
assist SAA in the manner described in the clause to effect the transfer. Therefore
upon termination of the Outsourcing Agreement the transfer would be effected by
LGM to SAA who will now become the new employer. It is unimaginable how SAA
would conduct the tender process if it did not receive transfer from LGM. Even the
benefits that LGM was enjoying under the outsourcing agreement came to an end.
This clearly demonstrates the understanding by the parties of the concept of
outsourcing.

[48] The transaction is structured in such a manner that upon termination of the
outsourcing agreement, LGM must transfer, as a going concern of course, back to
SAA whatever LGM received from the initial outsourcing agreement.

[49] The factual evidence exists in the form of circumstantial evidence and in the
form of the understanding that exists between the contracting parties dealing with
second generation outsourcing. The purposive interpretation method takes care of

avoiding the potential of abuse by employers of the outsourcing concept of doing
business especially in protecting the employee. I, with respect, embrace the
reasoning and conclusion of counsel for the respondent as explained in para 24 of
the main judgment.

[50] Courts must avoid becoming too legalistic in approaching matters of
interpretation. Lord Greene M R in Bidie v General Accident Fire and Life Assurance
Corporation Limited [1949] 1 Ch 121 at 129 said the following:
„The first thing to be done, I think, in construing particular words in a section of an Act of
Parliament is not to take those words in vacuo, so to speak, and attribute to them what is
sometimes called their natural or ordinary meaning. Few words in the English language have
a natural or ordinary meaning in the sense their meaning is entirely independent of their
context. The method of construing statutes that I myself prefer is not to take out particular
words and attribute to them a sort of prima facie meaning which as a whole and ask myself
the question: “In this statute, in this context, relating to this subject-matter, what is the true
meaning of that word?” In the present case, if I might respectfully make a criticism of the
learned judge‟s method of approach, I think he attributed too much force to the abstract or
unconditioned meaning of the word “representation‟” No doubt in certain contexts the word
“representation” would b e sufficient to cover not merely probate, not merely letters of
administration with the will annexed, but administration simpliciter. The real question that we
have to decide is, what does the word mean in the context in which we here find it, both in
the immediate context of the sub-section in which the word occurs and in the general context
of the Act, having regard to the declared intention of the Act and the obvious evil that it is
designed to remedy.‟

[51] SAA failed to volunteer information after receiving the application initially, as
to what was going to happen upon termination of the outsourcing agreement. There
is no doubt that a second generation outsourcing was on the cards and SAA knew
very well in advance what it was going to do. It would be unfair and unjust to expect
the workers not to have approached the court immediately after hearing that new
tenders had been advertised. It could have been prejudicial to them if they waited
after the termination. For them to stay protected by the law, they deemed it prudent
to approach the court on an urgent basis before termination lest they were estopped
from exercising their right.

[52] Section 39(2) of the Constitution 108 of 1996 provides that „when interpreting
any legislation, and when developing the common law or customary law, every court,
tribunal or forum must promote the spirit, purport and objects of the Bill of Rights.‟ It
is trite that courts should strive to promote the establishment of a society based on
democratic values, social justice and fundamental human rights. To construe the
provisions of section 197 otherwise than to give effect to its purpose, would
encourage the abuse of employees by employers.

[53] I associate myself with the findings and conclusion of the LAC, and would
propose the following order:
„The appeal is to be dismissed with no order as to costs.‟

___________________

J SHONGWE
Judge of Appeal

APPEARANCES

APPELLANT:
GJ Marcus SC (with him Ms K Pillay & Ms N
Mji)
Instructed by Cliffe Dekker Hofmeyr Inc,
Sandown

Naudes, Bloemfontein

FIRST TO 64TH RESPONDENTS:
JG van der Riet SC (with him Ms I de Vos)
Instructed by Ruth Edmonds Attorneys,
Johannesburg
McIntyre & Van der Post, Bloemfontein

65th RESPONDENT:

Webbers, Bloemfontein
Instructed by Cheadle Thompson &
Haysom, Johannesburg