Chemco Holdings (Private) Limited v L Tendere & 24 Ors

The appellant (Chemco Holdings) sold its timber building supplies division, TS Timbers, to Rutimba Housing (Pvt) Ltd as a going concern on 20 September 2012, with an effective transfer date of 1 June 2012. The agreement expressly provided that the transfer would be on terms not less favourable to employees than those previously enjoyed. The respondents, 18 former employees of the appellant who were transferred to Rutimba, subsequently complained through their trade union (ZFTU) in July 2013 about alleged unlawful transfer of undertaking. They alleged that their new employer, Rutimba, was arbitrarily dismissing, reshuffling and demoting workers, and had scrapped allowances and changed conditions without explanation. The matter was referred to conciliation, which failed, and then to compulsory arbitration. The arbitrator found the transfer unlawful due to failure to consult employees before the transfer occurred, and awarded terminal benefits against the appellant. The appellant appealed to the Labour Court, which upheld the arbitrator's award. The appellant then appealed to the Supreme Court.

• Whether the arbitrator had jurisdiction to make a declaratory determination as to the lawfulness of the transfer of undertaking
• Whether the arbitrator correctly found that the appellant committed an unfair labour practice
• Whether the award of terminal benefits to the respondents was competent
• Whether failure to consult a works council before transfer of ownership in terms of section 25 of the Labour Act constitutes an unfair labour practice
• Whether employees transferred to a new employer could claim terminal benefits from their former employer when their grievances arose after the transfer

The appeal was allowed. The judgment of the Labour Court was set aside and replaced with an order allowing the appeal with costs and setting aside the arbitrator's award. No costs order was made in respect of the Supreme Court appeal as none was prayed for in the Notice of Appeal.

The binding legal principles established are: (1) Arbitrators appointed under the Labour Act have the same powers as the Labour Court, which does not include jurisdiction to issue declaratory orders - that jurisdiction is reserved to the High Court. (2) Section 25 of the Labour Act requires consultation with works councils regarding transfers of ownership, but non-compliance does not nullify the transfer, does not give works councils a veto power, and does not constitute an unfair labour practice. (3) Unfair labour practices under the Labour Act are limited to violations of sections 8 and 16(3); failure to comply with section 25 is not designated as an unfair labour practice. (4) When an undertaking is transferred, section 16 provides for continuity of employment with the new employer on terms not less favourable than before. The new employer assumes all responsibilities for the employees from the date of transfer. (5) Section 16(2)(c) permits employees to enforce rights against either the former or new employer, but only in respect of causes of action that arose and could have been enforced against the former employer before the transfer occurred. Employees cannot claim terminal benefits from their former employer when their employment was transferred and continued with the new employer, and their grievances arose after the transfer.

The Court observed that the legislature has, through section 16 of the Labour Act, provided adequate recourse for employees affected by transfer of undertakings, with the aim being to ensure that tenure and conditions of employment are not reduced or diminished by the new employer without employees' consent. This may explain why section 25 imposes no sanction for failure to consult and does not grant veto power to works councils. The Court also noted discrepancies between the respondents named in the proceedings (18 persons) and those listed in the union's annexure, and clarified that the judgment related only to the 18 respondents properly named in the proceedings. There was also an observation that the terms of reference contained an inaccuracy in stating that TS Timbers (which was a division) effected the transfer, when the transferor was actually the appellant Chemco Holdings.

This case is significant in Zimbabwean labour law (applicable by analogy in South African law given similar statutory provisions) as it clarifies several important principles regarding transfer of undertakings: (1) It confirms that arbitrators and the Labour Court lack jurisdiction to make declaratory orders regarding the validity of commercial transactions like transfers of undertakings - such jurisdiction lies with the High Court. (2) It establishes that failure to consult a works council before transfer of ownership, while potentially a procedural irregularity, does not invalidate the transfer and is not designated as an unfair labour practice under the Labour Act. (3) It clarifies the scope of section 16 of the Labour Act (equivalent to South African transfer of business provisions), particularly that employees transferred to a new employer cannot claim terminal benefits from their former employer for grievances arising after the transfer - their recourse lies against the new employer. (4) It interprets section 16(2)(c) to limit claims against former employers to causes of action that arose before the transfer. The case reinforces the principle that transfer of undertakings results in continuity of employment with the new employer assuming all responsibilities, and employees cannot simultaneously claim termination benefits while continuing in employment.