Equity in respect of transfer of contracts

Richard Pemberton
Richard Pemberton

The Labour Relations Amendment Act of 2014 is now law and interpretation issues are going to arise. An important aspect will be the words “must be treated on the whole not less favourably” in Section 198A(5) in respect of labour brokered employees being deemed to be employees of the client.  The same words are used in respect of part time employees in Section 198C(3)(a).  In respect of fixed term contracts the words “on the whole” are missing in Section 198B(8)(a).  This section simply says “must not be treated less favourably”.

In respect of Section 197 (transfers of contracts of employment) the words “on the whole not less favourable” are also used in relation to conditions of service on the transfer of employees from one employer to the next.

The key words are “on the whole” – what do they mean and how will the Courts interpret them when dealing with Section 198?  The Labour Appeal Court in Rubin Sportswear vs SACTWU & Others (2004) 25 ILJ 1671 adopted the view that retirement age was a condition of contract that transferred with the employees in terms of a Section 197(2) transfer.  Prof. Grogan in his latest edition of Workplace Law states that “the new employer cannot vary important benefits such as pension rights or an employee’s retirement age” (Note: Section 197(4) does make an exception in respect of retirement funds provided they comply with Section 14(1)(c) of the Pension Funds Act.  There is no equivalent provision in Sections 198A to D).  Prof. Grogan quotes Rubin Sportswear as authority for retirement age being a fundamental condition of contract and consequently a non-variable term of the transferred employees’ contracts of employment.  According to him, therefore, “on the whole” changes must fall short of being fundamental terms of contract.

Fixed period contracts are not a problem.  The words “on the whole” are absent and consequently they must equate exactly, subject to the exceptions set out in Section 198D(2).

The words “on the whole” clearly do not mean they must equate exactly (leaving aside the exceptions) but on the interpretation of Prof. Grogan, differences can only be in respect of terms not material to the contract.  Materiality will undoubtedly differ in the minds of employees and employers from one enterprise to another.  At the end of the day, it will probably relate to operational issues rather than substantive conditions of contract.

This article has been written by Richard Pemberton an Executive Consultant in the Employment Law Department at Garlicke & Bousfield Inc.

For more information contact Richard on 031 570 5321, email : richard.pemberton@gb.co.za 

NOTE: This information should not be regarded as legal advice and is merely provided for information purposes on various aspects of employment law.

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