Aviation Union of South Africa and Another v South African Airways (Pty) Ltd and Others

South African Airways (SAA) outsourced its facilities management operations to LGM South Africa Facility Managers and Engineers (Pty) Ltd (LGM) through a 10-year outsourcing agreement commencing in April 2000. The agreement transferred the relevant business as a going concern, including SAA employees who were automatically transferred to LGM under section 197 of the Labour Relations Act (LRA). The agreement entitled SAA to repurchase assets, obtain access to LGM's services and inventory, and have services transferred back to SAA or a third party upon termination. In June 2007, SAA terminated the agreement due to LGM's breach, effective 30 September 2007. SAA put certain services out to tender while planning to appoint an interim service provider. LGM contemplated retrenching affected employees. The Aviation Union of South Africa (Aviation Union) sought assurances from SAA that employees would be transferred back, which SAA denied. Aviation Union then launched an application in the Labour Court seeking a declaratory order that the termination and continued performance of services constituted a transfer of business as a going concern under section 197 of the LRA, and sought interdictory relief.

• Whether section 197 of the Labour Relations Act applies to 'second generation' outsourcing agreements or transfers that do not originate directly from the original employer
• The proper interpretation of the word 'by' in the definition of 'transfer' in section 197(1)(b) - whether it means transfer 'by' the old employer or can include transfer 'from' the old employer
• Whether the termination of the outsourcing agreement between SAA and LGM and the performance of services either by SAA or a third party constituted a transfer of business as a going concern within the meaning of section 197
• Whether a court can grant declaratory relief concerning the applicability of section 197 before a transfer has actually taken place
• What constitutes a transfer of business 'as a going concern' for purposes of section 197

Leave to appeal granted. Appeal upheld. Orders of the Supreme Court of Appeal, Labour Appeal Court and Labour Court set aside. Declaratory order granted that the cancellation of the agreement between SAA and LGM obliges LGM to transfer a business as a going concern within the meaning of section 197(1) and (2) of the LRA. SAA ordered to pay costs of Aviation Union (including costs of two counsel where employed) in all courts, and costs of South African Transport and Allied Workers' Union in the Constitutional Court.

Section 197 of the Labour Relations Act applies to any transaction that transfers a business as a going concern, regardless of whether it is characterized as 'first generation' or 'second generation' outsourcing. The proper interpretation of section 197 requires a contextual, purposive approach that gives effect to the section's dual purpose of protecting workers' employment and facilitating business transfers as going concerns. The word 'by' in the definition of 'transfer' in section 197(1)(b) must be given its ordinary meaning and encompasses situations where a transaction creates rights and obligations requiring one entity (the transferor/old employer) to transfer something to or for the benefit of another entity (the transferee/new employer). The concepts 'old employer' and 'new employer' are not static but relational - an entity can be a new employer in one transfer and an old employer in a subsequent transfer of the same business. Whether a transaction amounts to a transfer of business as a going concern is a question of fact to be determined objectively by examining the substance rather than form of the transaction, considering factors including transfer of tangible and intangible assets, taking over of workers, transfer of customers, and whether the same business is carried on by the new employer, with no single factor being determinative. Courts have jurisdiction to determine whether an agreement is subject to section 197 before the transfer is implemented, to ensure seamless transfer of employees and avoid the mischief the section was designed to prevent.

Yacoob J observed that section 197 only has practical application where a business is transferred as a going concern but the employees are not transferred - if all employees were transferred, the section 197 inquiry would be irrelevant. The judgment noted that in determining whether contracting out amounts to transfer of business as a going concern, the substance of the initial transaction remains significant during subsequent transfers - if the initial outsourcing was merely contracting for a service rather than transfer of a business, subsequent transfers are less likely to constitute transfers of business as going concerns. Jafta J in his concurrent judgment observed that speedy resolution is a distinctive feature of labour dispute adjudication, and that the process had already taken too long in this case. He noted that proof that the same services continue to be performed, albeit under different hands, does not by itself establish a transfer as a going concern - something more is required. He also observed that the tender conditions did not impose an obligation on successful tenderers to receive transfer, and non-party tenderers would have no contractual obligation to accept transfer, which could prevent transfer from occurring.

This case provides authoritative guidance on the interpretation and application of section 197 of the Labour Relations Act, particularly in the context of outsourcing agreements. It establishes that section 197 is not limited to 'first generation' outsourcing but can apply to subsequent transfers of the same business, rejecting a formalistic approach based on labels or 'generations' of outsourcing. The judgment clarifies that the concepts of 'old employer' and 'new employer' are relational and contextual, not fixed identities. It confirms that courts should adopt a purposive, contextual interpretation of section 197 that advances its dual purpose of protecting workers' employment while facilitating business transfers. The case also establishes that courts can grant declaratory relief about the applicability of section 197 before a transfer is implemented, enabling proactive protection of workers' rights. It emphasizes that the inquiry must focus on substance over form - whether there is in fact a transfer of business as a going concern, assessed holistically considering factors such as transfer of assets, employees, customers and continuation of the same business operations. This decision is significant for its worker-protective approach while maintaining commercial flexibility, and for providing clarity on section 197 in the increasingly common context of outsourcing arrangements.