When a company is sold or bought out by another company, it can cause untold stress and uncertainty if the employees are not kept informed.
I received a letter from a reader who is caught up in a situation such as this. The company where he works has been sold as a going concern and unfortunately the employees have been kept in the dark.
The only information they have been given is that their employment contracts will be transferred to the new employer. The reader, who wrote on behalf of himself and about seventy other employees, has several questions.
What is the new employer’s responsibility towards them? Will their jobs and salaries be affected in any way? Is there a chance that retrenchments may take place?
When transfer of a business takes place, the new employer automatically substitutes the former employer in respect of all existing contracts of employment. This takes place immediately, even before the company is transferred.
All the rights and obligations between the former employer and his employees at the time of the transfer continue in force as if they were rights and obligations between the workers and the new employer.
Anything done prior to the transfer by or in relation to the former employer, including the dismissal of an employee or the commission (ruling by the CCMA) of an unfair labour practice or act of unfair discrimination, is considered to have been done by or in relation to the new employer.
The transfer of a company does not interrupt employees’ continuity of service and their salaries may only be changed or adjusted by mutual agreement.
The new employer does however have the right to change, by agreement, employment conditions or existing, less favourable working conditions that may have existed prior to the transfer.
The new employer also has the right to transfer the employees to a new pension, provident, retirement or similar fund.
The former employer however has certain responsibilities towards his old employees. For example, he has an obligation to reach an agreement with the new employer, at the date of transfer, as to the value of accrued leave pay.
He must also see to it that severance pay payable to transferred employees who have been dismissed due to the new owner’s operational requirements, is fair.
The former employer must also ensure that any other accrued payments due to the transferred employees, be paid to them.
Lastly, the former employer has a responsibility to conclude a written agreement with the new employer that specifies who is liable for paying the amounts referred to above.
For twelve months after transfer of the company, the former employer is jointly and severally liable with the new employer to employees who become entitled to leave or severance pay.
Retrenchments may thus take place when a company is transferred as a going concern, but the correct procedures must be followed.
Both the former and the new employer will be liable for the payment of severance packages for a period of one year following the sale or transfer of a business.
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Booysen & Rossouw Attorneys in Port Elizabeth specialises in labour related legislation. The firm also covers injury on duty cases as well as all other aspects of the law.
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