Harsco Metals SA (Pty) Ltd v AMSA (Arcelormittal SA Ltd) [2012] 4 BLLR 385; (2012) 33 ILJ 901 (LC) J2923/11 (LC) per Van Niekerk J.
Declared that section 197 of the LRA applied; mainly because of the transfer of assets to the new contractors and the employment by the new contractors of the majority of the outgoing contractor’s employees.
In what may well be the first case of its kind in the history of the Labour Court one employer has sought and been granted a declaratory order against another employer, with the trade union NUMSA, sitting on the side-lines, as it were.
On 29 December 2011 Justice André Van Niekerk granted an urgent declaratory order concerning a transfer of part of a business as a going concern due to take place on January 1, 2012 – see Harsco Metals SA (Pty) Ltd v AMSA (Arcelormittal SA Ltd) J2923/11 (LC).
After a tender process new contractors were appointed to replace the “old” existing contractor. A transfer of a business as a going concern for the purposes of s 197 takes place where, on the facts, the whole or part of a business is transferred, as a going concern, from the outgoing contractor to the new.
Extracts from the judgment [some footnotes omitted]
“[3] It is not disputed that the application is urgent (given that the date of any transfer for the purposes of s 197 is 1 January 2012), or that declaratory relief is appropriate should the applicants succeed”.1
“Footnote 1: In Aviation Union of South Africa & another v South African Airways (Pty) Ltd & others (case CCT 08/11, [2011] ZACC 31 24 November 2011), the Constitutional Court held that a dispute as to whether or not a specific transaction triggers the application of s 197 and whether as a consequence the new employer is substituted for the old as the employer of the affected employees is a justiciable dispute, and one that the parties are entitled to have determined, even if the agreements concerned have not yet been implemented (see paragraphs [115] and [116] of the judgment)”.
“[4] The business that forms the subject of these proceedings comprises the services performed by the applicants to the first respondent (AMSA) in terms of six separate service contracts, two each in Vanderbijlpark and Newcastle, and one each at Vereeniging and Saladanha. The services, in broad terms, comprise slag management and processing services. The key question raised in these proceedings is whether on termination of the service agreements between the applicants and the AMSA and the appointment by AMSA of the second and third respondents (to which I shall refer as ‘Phoenix’ and ‘Tube City’ respectively) and the continuation of the services by them, triggers the application of s 197. The applicants contend that it does; AMSA, Phoenix and Tube City contend that it does not”.
“[6] The applicants (to which I shall refer collectively as ‘Harsco’) conduct business at more than 160 locations world-wide (13 of these being in South Africa), in over 30 countries. Harsco provides services to AMSA in terms of the service agreements, and in doing so operates the four sites mentioned above at which it employs a total of 445 employees; 247 at Vanderbijlpark, 95 at Saldanha, 63 at Newcastle and 40 at Vereeniging. Each site is managed by a site manager”.
“[7] As mentioned above, Harsco provides AMSA with a variety of services relating to the management and processing of slag, a by-product from the smelting of ore. In essence, during the iron and steel-making process, impurities are generated (slag) from which any residual value is extracted before it is disposed of in an environmentally friendly way. The services rendered by Harsco include the processing of slag and waste, the separation and recovery of metallic content, the upgrading of the recovered metallics, crushing and screening of de-metallised slag and the sale of recycled slag to various manufacturers for the production of various products, including the production of filter media, fertilisers, road making construction materials, cement, abrasives and roofing granules. For this purpose, Harsco operates a number of metal recovery plants, and crushing and screening plants. These plants have been established by Harsco and are operated at Vanderbijlpark, Newcastle and Saldanha, but not at Vereeniging”.
“[8] Harsco has provided the above services for some 40 years. The current service agreements were due to expire on 31 March 2011, but they were extended to 31 December 2011. Shortly before the initial expiry of the applicable service agreements in March 2011, AMSA initiated a tender process in respect of all the operations mentioned above, but for Vanderbijlpark Slag where the service agreement with Harsco remains in force. Harsco, Phoenix and Tube City, all direct competitors in the South African market, were amongst those who submitted tenders. But for Vanderbijlpark Slag, Harsco was unsuccessful in its bid to renew its agreements with AMSA. Phoenix was awarded the tender in respect of the operations in Vereeniging, Newcastle Slag and Newcastle; Tube City was awarded the tender in respect of the operations in Vanderbijlpark and Saldanha Bay. As a result, Harsco will cease to provide services to AMSA at the above plants, but for the arrangement in relation to the Vanderbijlpark metal recovery plant and the Newcastle aggregate plant, where Harsco has been retained to continue business operations until the end of January 2012 and April 2012 respectively, to ensure a seamless transition of those operations to Tube City and Phoenix at the end of the transitional period”.
“[10] …
The judgment of the Constitutional Court in Aviation Union of South Africa & another v South African Airways (Pty) Ltd & others2 (to which I shall refer as the ‘SAA judgment’) has to some extent clarified the meaning of s 197(1) and the circumstances in which it will apply. The interpretation of certain passages of the SAA judgment is central to the determination of the application or otherwise of s 197 in the present instance”.
“[12] Both the majority and minority judgments record that the purpose of s 197 is to alter the employment–related consequences of the transfer of a business as a going concern at common law, consistent with the constitutional right to fair labour practices and in an effort to safeguard workers’ security of employment and to facilitate the smooth transfer of the business by guaranteeing the employer a workforce to continue the business. Both judgments further reject the contention that the reference in s 197 (1) (b) to the transfer of a business ‘by one employer… to another employer…’ necessarily excludes the application of the section to what have been termed ‘second- generation outsourcing’. They also reject the contention that outsourcing ought to be treated as a discrete category for the purposes of s 197”.
“[13] The Constitutional Court further affirmed that whether there has been a transfer of a business as a going concern by the old employer to the new employer is a matter of fact, to be determined objectively, and which necessarily entails an enquiry into
- (1) the existence of a transfer,
- (2) whether there was a transfer of a business, and
- (3) whether the business is transferred as a going concern”.
“[14] The Constitutional Court split only on the issue of whether on the facts, there had been a transfer as a going concern. The majority found on the basis of the relevant agreements that there had been a transfer; the minority preferred to remit the matter to this court to make a factual finding”.
“[15] To sum up: SAA resolves the debate on whether second (and further) generation outsourcing may in principle trigger the provisions of s 197. The court’s unanimous answer is that they may. The judgment also affirms that whether an outsourcing attracts the application of s 197 is to be determined in the same way as any other transfer. Section 197 is triggered when on the facts there is a transfer by one employer to another, in circumstances where the transferred entity is the whole or part of a business, and where the business (or part of it) is transferred as a going concern. If the transfer meets these criteria (a matter for objective determination), the transferee is substituted automatically and by operation of law for the transferor as the employer of those of the transferor’s employees engaged in the business on the date of the transfer”.
Is there the transfer of a business?
“[25] Section 197 (1) defines a ‘business’ to include ‘the whole or any part of a business, trade or undertaking, or service. The definition is broad, but it requires the court to subject the entity that is the subject of a transfer to scrutiny. In doing so, the courts have drawn on the jurisprudence developed by the European Court of Justice in applying EU Directives on the Transfer of Undertakings, and adopted the concept of an ‘economic entity defined as an organised grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective’. This formulation suggests that there may be a distinction, especially in the case of a labour-intensive business, between an ‘economic entity’ and an ‘activity’; the latter comprising only the provision of services under a specific contract”.
“[27] Useful as these authorities are, in South Africa, in relation to the definition of a ‘business’ for the purposes of s 197, the judgment of the Labour Appeal Court in SAMWU v Rand Airport Management Co Ltd remains the authority by which I am bound”.
“[28] For these reasons, I am satisfied that there is an economic entity capable of being transferred, in the form of Harsco’s business operations conducted pursuant to the six service agreements concluded with AMSA”.
Is there the transfer of a business as a going concern ?
“[29] Section 197 does not define what is meant by a transfer of a business ‘as a going concern’. The South African courts have drawn inspiration from the ECJ”.
“[32] I can think of no basis to depart from this approach, other than to say that a primary consideration, in my view, is the nature of the business. This will in most instances provide some useful indication of the weight to be attached particularly to the transfer of assets and whether any workers are taken over by the new employer, and if so, the number and significance of each”.
“[33] … As I have mentioned, it is not disputed that the majority of Harsco’s workers engaged in the business are to be taken over by Phoenix and Tube City. The figures are set out above – some 300 of Harsco’s 445 employees (roughly 70% will transfer”.
“[34] In so far as any transfer of customers is concerned, it is common cause that the only recipient of services in terms of the service agreements is AMSA, and that post-transfer, AMSA will remain the sole recipient of services”.
“[35] It is common cause that there are no intangible assets (in the form particularly of intellectual property) that is the subject of the transfer. Harsco will retain its goodwill, intellectual property and patents and its operational methodology. The factor that has generated more disputes (and paper) than any other in these proceedings is that of the tangible assets to be transferred”.
“[36] In relation to movable assets, there is a dispute of fact on the papers, and I accept for present purposes the figures and calculation thereon produced by AMSA”.
“[37] The fact that Phoenix and Tube City will not take transfer of the plants is an important factor, but not in itself an overriding one. The assets that the new service providers will acquire from Harsco are not entirely insignificant”. . . .
“In the present case, the service contracts concluded between AMSA on the one hand and Phoenix and Tube City on the other hand require the new service providers to perform substantially similar services to those performed by Harsco, at the same locations, broadly using the same operational methods. Viewed from an employment perspective, the majority of Harsco’s’ employees will work for Phoenix or Tube City. It makes no difference, in my view, that offers of employment were made by Phoenix and Tube City and accepted by Harsco’s employees, as opposed to agreement on any transfer of employment. What is relevant is whether any of Harsco’s employees will be employed by Phoenix and Tube City after the termination date, and if so, the number of employees”. . . .
“Viewed cumulatively though, and taking into account that in the present instance, both of these criteria are met and that on the transfer date, substantially the same services will be provided from the same locations, and viewed through the lens of the actual activities of and the employment situation in the undertaking before and after the transfer, to use the words of Mummery J in Kelman, there exists an economic entity which, despite changes, remains identifiable, though not necessarily identical, after the transfer”.
“[38] It remained open to Phoenix and Tube City to employ none of Harsco’s employees, and to decline to take transfer of any or of Harsco’s assets. In this event, my conclusion would have been different, and there would I think have been no more than the termination of one contract and the beginning of another. But that is not what is to occur”.
“[39] For the above reasons, I am persuaded that the entity that comprises Harsco’s business operations performed in terms of the service agreements with AMSA will continue as a discrete economic entity in the hands of Phoenix and Tube City on termination of the service agreements between Harsco and AMS, and that for the purposes of s 197, there is a transfer of a business as a going concern”.
Order
“[1] It is declared that the cancellation of service agreements concluded between the Applicants [Harsco Metals SA (Pty) Ltd & another] and the First Respondent [Arcelormittal SA Ltd] and engagement of the Second and Third Respondents [Phoenix Services International LLC & Tube City IMS SA (Pty) Ltd] by the First Respondent to conduct business operations for and on behalf of the First Respondent in the place and stead of the First and Second Applicants at the First Respondent’s plants in Saldanha, Vanderbijlpark, Vereeniging and Newcastle, amounts to the transfer of a business as a going concern for the purposes of s 197 of the Labour Relations Act, 66 of 1995”.