Horn and Others v LA Health Medical Scheme and Another

The appellants were former employees of the Local Authorities Medical Aid Fund (LAMAF), which later changed its name to LA Health Medical Scheme (LA Health). They were members of the Cape Joint Retirement Fund (Fund). On 1 January 2005, LA Health transferred its administrative division to Discovery Health (Pty) Ltd (Discovery) as a going concern under section 197 of the Labour Relations Act 66 of 1995 (LRA). The appellants claimed they were entitled to an additional redundancy benefit under Rule 7.1A(1) of the Fund's Rules, which they argued LA Health was obligated to pay to the Fund for distribution to them. The High Court found in favor of the appellants, a decision upheld by the Full Court. However, the Supreme Court of Appeal reversed this decision, holding that the appellants were not entitled to the additional redundancy benefit.

• Whether the appellants' section 34 constitutional right to a fair hearing was violated by the Supreme Court of Appeal
• Whether the appellants were entitled to payment of the additional redundancy benefit under Rule 7.1A(1) of the Fund's Rules
• Whether section 197 of the LRA was applicable to determine whether the obligation to pay the additional benefit was transferred from LA Health to Discovery upon the transfer of business as a going concern
• The interpretation of section 197(2) of the LRA concerning the transfer of rights and obligations upon a transfer of business as a going concern
• Whether a transfer of business as a going concern terminates contracts of employment

The appeal was dismissed with costs. Condonation was granted for the late filing of the statement of facts.

Majority (Nkabinde J): The interpretation of pension fund rules does not, in itself, raise a constitutional issue. Where leave to appeal is granted on misleading grounds (particularly the alleged violation of fair hearing rights which were not substantiated by the record), and the substantive matter does not raise a constitutional issue, the Court lacks jurisdiction and the appeal must be dismissed. Concurring (Zondo J): Section 197(2)(b) of the LRA provides that all rights and obligations existing between the business transferor and an employee at the time of a transfer of business as a going concern continue in force as if they had been rights and obligations between the business transferee and the employee. This includes obligations relating to pension benefits and redundancy payments. Any obligation that LA Health may have had at the time of the transfer was transferred to Discovery by operation of section 197(2)(b). A transfer of business as a going concern does not terminate contracts of employment; the business transferee is substituted in place of the business transferor.

Zondo J (concurring judgment): Provided important obiter on several matters: (1) Courts may and must raise points of law mero motu where apparent on the papers, even if not raised by parties, citing CUSA v Tao Ying Metal Industries; (2) The judgment in Telkom SA Ltd v Blom was wrongly decided insofar as it held that a transfer of business as a going concern terminates contracts of employment; (3) Section 197 was inspired by European Union Directive 77/187/EEC and the UK Transfer of Undertakings (Protection of Employment) Regulations 1981, and jurisprudence from the European Court of Justice is relevant to interpreting section 197; (4) The different temporal requirements in section 197(2)(a), (b), and (c) - "immediately before the date of transfer", "at the time of the transfer", and "before the transfer" respectively - have distinct legal significance; (5) Section 197(2) imposes the business transferee on the pension fund as a participating employer by operation of law, without the fund's consent; (6) Section 13A of the Pension Funds Act obligates the employer to pay contributions and allows anyone to pay contributions on behalf of a member.

This case clarifies the scope of section 197(2) of the LRA regarding the transfer of rights and obligations upon a transfer of business as a going concern. Zondo J's judgment (concurring in result but differing in reasoning) provides important analysis on: (1) the interpretation of section 197(2)(b) - that all rights and obligations existing between the business transferor and employees at the time of transfer are transferred to the business transferee; (2) that a transfer of business as a going concern does not terminate contracts of employment; (3) the transfer of pension-related rights and obligations under section 197; and (4) the relationship between section 197 of the LRA and pension fund rules. The judgment also addresses when this Court has jurisdiction in labor matters and the propriety of raising legal points mero motu.