South African Airways (Pty) Limited v Aviation Union of South Africa

SAA entered into an outsourcing agreement with LGM in 2000, transferring its infrastructure and support service department to LGM for a 10-year period. The employment contracts of SAA employees were transferred to LGM in terms of section 197 of the Labour Relations Act 66 of 1995. In June 2007, due to a change in ownership of LGM, SAA gave notice of termination of the outsourcing agreement effective 30 September 2007. SAA then advertised tenders for the various services previously performed by LGM. LGM gave notice to affected employees of intention to dismiss them based on reduced operational requirements. The Aviation Union of South Africa (AUSA) and other trade unions sought declaratory relief in the Labour Court that the termination of the outsourcing agreement or SAA's resumption of the services would give rise to a transfer under section 197, or alternatively, that award of tenders to third parties would amount to a section 197 transfer. The Labour Court dismissed the application, finding that section 197 only applied to "first generation outsourcing" and there was no evidence of a transfer of business as a going concern. The Labour Appeal Court allowed the appeal, adopting a "purposive interpretation" that section 197 applies to second generation outsourcing. SAA appealed to the Supreme Court of Appeal with special leave.

• Whether section 197 of the Labour Relations Act 66 of 1995 applies to 'second generation outsourcing' - where services are transferred from the initial contractor back to the original employer or to a third party contractor
• Whether the word 'by' in the definition of 'transfer' in section 197(1)(b) can be interpreted to mean 'from' so as to include transfers not actively effected by the old employer
• What interpretative approach should be adopted in light of section 39(2) of the Constitution when interpreting labour legislation
• Whether there was factual evidence of a transfer of a business as a going concern in the circumstances

The appeal was upheld with costs including those consequent upon the employment of two counsel. The order of the Labour Appeal Court was set aside and replaced with: 'The appeal is dismissed with costs.'

Section 197 of the Labour Relations Act 66 of 1995 requires two essential elements for its application: (1) a transfer of a business as a going concern, and (2) that transfer must be 'by' the old employer to the new employer. The word 'by' in section 197(1)(b) requires positive action from the old employer who transfers the business to the new employer and cannot be interpreted to mean 'from'. Courts may not adopt a purposive interpretation that distorts the plain and ordinary meaning of statutory language beyond what the words can reasonably bear, even to promote constitutional values under section 39(2) of the Constitution. Section 197 does not automatically apply to 'second generation outsourcing' situations where an initial outsourcing agreement is terminated. For a transfer of a business as a going concern to be established, there must be clear evidence (through written contracts or conduct) of transfer of all assets and obligations of the business, including workforce rights and obligations. In motion proceedings, courts cannot make findings of fact based merely on probabilities where there is a genuine factual dispute on the papers.

The court noted that where parties wish to enter into an outsourcing agreement with provision for the business to revert to the outsourcer or be transferred to another provider, there must be a clear re-transfer demonstrated through written contracts or conduct. The court observed that the concern about potential abuse by employers is not a reason to distort the plain meaning of a statute, and there was no suggestion of abuse in the present case. The court distinguished the English case of Dines v Initial Health Care Services Ltd, noting it involved different factual circumstances where there was clear evidence of transfer. The dissenting judgment of Shongwe JA expressed the view that courts should avoid becoming too legalistic in matters of interpretation, and that the structure of outsourcing transactions and the purpose of section 197 should inform the interpretation. The dissent emphasized that circumstantial evidence and the understanding between parties in second generation outsourcing should be sufficient, and that employees should not be prejudiced by approaching the court before termination to protect their rights.

This case is significant in South African labour law as it clarifies the scope and application of section 197 of the Labour Relations Act. It establishes that section 197 does not automatically apply to 'second generation outsourcing' situations where an outsourcing agreement is terminated and services revert to the original employer or are transferred to a new contractor. The judgment emphasizes the limits of purposive statutory interpretation and reaffirms that courts cannot distort plain statutory language even to achieve a perceived fair outcome. It reinforces the separation of powers doctrine and limits the use of section 39(2) of the Constitution to situations where statutory language can reasonably bear the constitutional interpretation without undue strain. The case provides important guidance on what constitutes a 'transfer by' an old employer and the evidentiary requirements to establish a transfer of a business as a going concern. It clarifies that section 197 protection requires clear evidence of transfer of assets, obligations, and workforce, not merely continuation of similar services by different entities.