INTERPRETATION OF SECTION 197 OF THE LRA

Section 197 of the Labour Relations Act (LRA) states that where a business is transferred from an old employer to a new employer the new employer is automatically substituted in the place of the old employer in respect of all contracts of employment in existence immediately prior the transfer. This Section altered the Common law rule that a transfer had the effect of terminating all contracts of employment between the transferring employer and the employees of the business.

Section 197 of the LRA was passed to advance and regulate the exercise of the right to fair labour practices, enjoyed by both employees and employers and to give effect to Section 23 of the Constitution.

In the Constitutional Court case of Aviation Union of South Africa and Another v South African Airways (Pty) ltd and others the proper interpretation of Section 197 of the LRA was determined by the Court.

The Court held that from the text of Section 197(2) it is evident that the section is only applicable on the existence of a transfer. Therefore once a business is transferred (changes hands from one person to another) as a going concern it automatically carries all the contracts of employments that existed immediately prior to the transfer taking place. Therefore the person to whom the business is transferred replaces the employer in terms of those contracts and assumes all obligations and acquires all the rights of the previous employer.

The Court held that whether a transfer as contemplated in Section 197 has/will occur is a factual question. The objective facts of each case must be referred to. There must be components if the original business passed to the third party, for example assets or workers.

The Court further held that the whole section must be read in its proper context, giving sufficient attention to its purpose and the objects of the LRA