On 23 January 2015, the Competition Commission (“Commission“) published Draft Guidelines (“draft Guidelines“) on the assessment of public interest provisions in merger regulation under the Competition Act 89 of 1998 (“the Competition Act“).

INTRODUCTION

Although it remains to be seen how the Commission will give effect to the draft Guidelines once they become final, it is axiomatic that employment is a major public interest consideration and that the Commission intends to widen their scope of investigating and role going forward when considering employment as one of the public interest considerations that the Competition Act provides for. What is also apparent is that the recently enacted Labour Relations Amendment Act 6 of 2014 (“LRAA“) will further impact on employment as a public interest consideration from a competition law perspective.

LABOUR RELATIONS ACT AMENDMENTS

The relevant amendments by the LRAA relate to “Temporary Employment Services“[1] (“TES“) and “fixed-term contracts“[2]. It is important to note that these provisions are only applicable to employees who earn below the earnings threshold, which is R 205, 433.30 per annum. Further, in relation to fixed-term contracts, the amendments are not applicable to fixed-term contracts that are permitted by any statute, sectoral determination or collective agreement.

In general, the amendments provide as follows –

• in relation to fixed-term contracts, an employer may only employ an employee on a fixed-term contract or successive fixed term contracts for a period of up to three months. An employer would need to demonstrate a justifiable reason for engaging an employee on a fixed-term contract for a period of more than three months. It is important to note that the period of three months may be varied by a sectoral determination or a collective agreement concluded at a bargaining council; and
• in terms of TES providers, the position remains that the TES provider and not the client is the employer. However, the employee will only be regarded to be temporarily employed by the TES provider if such employment is for a period not exceeding three months.
• A TES provider means any person who for a reward, procures for or provides to a client other persons –
• who perform work for the client; and
• who are remunerated by the TES provider.

Accordingly, in the event that an employee is employed for a period exceeding three months, he or she will no longer be deemed to be an employee of the TES provider, instead he or she becomes an employee of the TES provider’s client.

IMPACT ON MERGER NOTIFICATIONS

Generally, the impact of a merger on employees who are on fixed-term contracts has never been considered to be a significant factor as the employment contract, it could be argued, was in any event going to come to an end. Employees provided by TES providers have not received significant focus as they were deemed to be employees of the TES provider.  However, in light of the LRAA, the scope and the potential negative impact a merger may have on employment will indeed be broader than before going forward.

The time period limitation of three months placed on fixed-term contracts and TES means that firms should also contemplate fixed-term contracts and TES when notifying the Commission of the potential impact of a merger on employment in terms of section 12A(3)[3] of the Competition Act. For example, if a target firm has outsourced some labour and the relevant employees have offered services to the target firm for a period of 5 months, such employees will be deemed to be permanent employees of the target firm in terms of the LRAA TES provisions. Therefore, if the merging parties wish not to engage the services of these employees post the merger, they cannot merely terminate the agreement with the TES provider on the basis that the latter is the employer. The employees are deemed to be employees of the target firm and any possible retrenchments or dismissals of such employees will need to be disclosed in a merger notification.

In relation to fixed-term contracts, where the contract has exceeded a period of three months at the time of the merger or will have exceeded three months post the merger, then such contracts, in light of section 12A(3) of the Competition Act, must be considered by the merging parties in notifying the Commission of the impact of the merger on employment. The rationale behind this is that, in terms of the LRAA, unless there are justifiable reasons, these employees are deemed to be permanent employees of the target firm. Therefore, should their services no longer be required, they would need to be retrenched and the termination of their employment would not be as a result of the lapsing of their contracts through effluxion of time. Consequently, if the merging parties do not intend to retain the employees that were on fixed-term contracts, which have exceeded a period of three months, then it may be concluded that the merger has a negative effect on employment and it must be considered whether this effect is justifiable.

CONCLUSION

In light of the above, it is prudent that in considering merger notifications, the companies must disclose all fixed-term contracts and TES they may have engaged (such must be in relation to employees who earn below the earnings threshold), in order to enable the Commission to assess whether the merger will indeed have a negative effect on employment. It is imperative that merging parties disclose this information as it may save them from encountering time delays, wasted costs and the risk of having their merger approval revoked.

[1] Section 198 of the Labour Relations Act 66 of 1995

[2] Section 198B of the Labour Relations Act 66 of 1995

[3] Section 12A (3) of the Competition Act 89 of 1998 provides that –

When determining whether a merger can or cannot be justified on public interest grounds, the Competition Commission or the Competition Tribunal must consider the effect that the merger will have on-

• (a)  a particular industrial sector or region;
• (b)  employment;
• (c)   the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; and
• (d)   the ability of national industries to compete in international markets.

Written by Ahmore Burger-Smidt, Director: Werksmans Advisory Services, with Zaryl Bhero, Candidate Attorney