On 9 October 2009 the Labour Appeal Court ruled emphatically on the application of section 197 of the LRA (the section governing transfers of businesses and services or parts thereof as a going concern) to so-called second generation transfers*.

The LAC ruled that section 197 does apply when an outsourcer terminates its outsourcing agreement with a service provider and takes back the service previously outsourced or awards the contract to render such services to another service provider. As a consequence the employees originally transferred with the service to the original service provider are transferred back to the outsourcer or to the new service provider.

What does this mean? Any entity contemplating the outsourcing of a service must ensure not only that its new service provider is able to take over the contracts of employment of the employees associated with the service but also that, when that contract ends, it is ready to receive its erstwhile employees back into its employment. It means also that a service provider tendering for such a contract must be aware that it may have to take over the contracts of employment of the employees previously transferred to another service provider.

*Aviation Union of South Africa obo Barnes and Others v South African Airways (Pty) Ltd and Others (LAC) Case no JA51/07

Written by: Jacques van Wyk of Werksmans incorporating Jan S de Villiers