We are faced with a complex issue this week involving change of ownership, new contracts and retrenchment.
Our reader has been in her present job since 1997. In 2005, the company for which she works was sold to new owners, who asked her to sign a new contract which incorporated a restraint of trade clause.
Last month, she was retrenched and given one month’s notice pay and four weeks’ severance pay. The shocked employee queried why she did not receive severance pay from 1997 and was told that since the new owner only bought the assets of the company, she was therefore only entitled to severance pay from 2005.
Our reader is feeling “done in” by the company, saying that she was never advised about the company’s terms of sale in 2005. During the takeover, she was a key staff member in the running of the entire operation, so felt that she should have been informed of these facts.
She has an uninterrupted service record and wants to know if I believe her case is strong enough to be put before the CCMA?
Let’s examine this closely. If the business was sold to the new owner as a going concern, then Section 197 of the Labour Relations Act – which deals with closures, mergers and transfer of business – comes into play.
If it was not – and the business actually closed – then the former owners should have retrenched their workers and paid severance pay and other monies due to them at the time.
The new employer could then have re-employed staff under new contracts. Under present circumstances, however, the new owner has no right to change a contract and conditions of employment should stay the same, with our reader’s years of service being recognised.
The act is quite clear – transfer of business will not interrupt an employee’s continuity of employment.
Labour courts have found and agree that parties to Section 197 of the act may agree to vary or alter an employee’s rights and obligations under his or her contract of employment, but they cannot expect him or her to “. . . forfeit his/her period of service with the old employer . . .”
The new employer may only transfer his employees to a new pension, provident, retirement or similar fund.
Our reader’s former employer, too, has certain responsibilities towards his staff. He and the new owner were obligated to agree on a valuation, at date of transfer, of leave pay accrued to transferred employees.
In addition, he must ensure that severance pay payable to transferred employees is, in fact, paid in the event of a dismissal by reason of the employer’s operational requirements. This amount being one month’s salary for every year of completed service.
Other payments accrued to transferred employees, but not yet paid to them, must also be settled.
Lastly, the former employer is responsible for concluding a written agreement specifying which employer is liable for paying any of the amounts listed above.
For 12 months from date of company transfer, he is jointly and severally liable, with the new employer, to any employee entitled to receive monies such as leave or severance pay.
So, retrenchments may take place when a company is transferred as a going concern, but correct procedures must be followed, with both the old and new employers held liable for severance package payments for one year following sale or transfer.
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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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