Imvula Quality Protection (Pty) Ltd and Others v University of South Africa

The University of South Africa (UNISA/respondent) had contracted with Imvula Quality Protection (Pty) Ltd (first appellant) and Red Alert TSS (Pty) Ltd (third appellant) to provide security services at its various campuses. These agreements, concluded in May 2015, were for five years but could be terminated by UNISA after 12 months with one month's notice. During 2015, student protests under the "fees must fall" movement demanded, among other things, that universities insource functions previously outsourced, including security services. UNISA responded by constituting a multi-stakeholder task team which recommended insourcing. On 19 October 2016, UNISA's executive council resolved to support insourcing of workers. A new business model called the "shared services model" was developed whereby 910 of 1413 outsourced staff would be insourced as permanent UNISA staff. Under this model, while the majority of security staff would be UNISA employees, security services would continue to be provided by outsourced service providers employing UNISA staff as security personnel. On 18 November 2016, UNISA terminated its agreements with the appellants effective 3 March 2017. UNISA then employed approximately two-thirds of the security personnel previously employed by the appellants. However, UNISA did not take over the management, equipment, infrastructure, training systems, monitoring systems, vehicles, or supervisory functions previously provided by the appellants. Instead, a new service provider would provide equipment, infrastructure, management and supervisory services, while UNISA would employ the security guards. The appellants contended that this constituted a transfer of business as a going concern under s197 of the LRA, triggering the automatic transfer of employment contracts and obligations.

• Whether the termination of security service contracts with appellants and UNISA's subsequent employment of the majority of security personnel previously employed by appellants constituted a 'transfer of a business as a going concern' as contemplated by s197 of the Labour Relations Act 66 of 1995
• Whether the absence of transfer of tangible assets (equipment, infrastructure, management systems) is material to the application of s197 of the LRA
• Whether the transfer of an organised group of employees, without the transfer of essential business infrastructure, can amount to a transfer of business as a going concern
• The proper interpretation and application of s197 of the LRA in the context of insourcing initiatives by public institutions

The appeal was dismissed with costs.

The ratio decidendi (binding legal principle) of this case is: A transfer of business as a going concern under s197 of the LRA requires the transfer of those assets and personnel that are essential to the business as it was operated by the transferor, enabling the business (or a clearly demarcated portion thereof) to operate seamlessly after the transfer. The mere transfer of a significant portion of employees, without the transfer of essential business infrastructure, management systems, equipment and operational capacity necessary to conduct the business, does not constitute a transfer of business as a going concern within the meaning of s197. In the context of a security services business, essential elements include not only security personnel but also management and supervisory structures, equipment, monitoring systems, training capacity, and strategic deployment capabilities. Where these essential elements are not transferred but instead remain with or are provided by a third party service provider, there is no transfer of business as a going concern, even if the majority of security guards are employed by the new entity. The inquiry under s197 is fact-specific and requires consideration of the substance rather than the form of the transaction, with particular attention to what is essential to enable the particular business in question to continue operating without disruption.

The Court made several obiter observations: 1. Comparative Law Application: While the Court considered European Court of Justice decisions applying the Acquired Rights Directive (ARD) and Transfer of Undertakings (Protection of Employment) Regulations (TUPE), particularly Securitas v ICTS Portugal and Sodexho, it noted that the ECJ approach "accords with the approach in our law" but emphasized that each case depends on its specific facts. The Court distinguished European cases involving changes of service providers from the unique insourcing context presented in this case. 2. Purpose of s197: The Court observed that while the protection of workers is of primary concern in interpreting and applying s197, employee protection is not solely governed by s197. Employees are also protected by retrenchment provisions in s189 of the LRA. The choice in these situations is which employer should be responsible for workers affected by changed circumstances. 3. Asset-Intensity Analysis: The Court implicitly rejected the argument that security services are not asset-intensive. While not all businesses require the same degree of asset transfer, the Court's analysis suggests that the degree of asset-intensity is relevant to determining what must be transferred for a business to continue as a going concern. 4. Political Context: The Court acknowledged the "fees must fall" movement and intense political protests that led universities to insource previously outsourced functions. However, the Court did not allow this political context to override the proper legal interpretation of s197's requirements. 5. Seamless Operation Test: The Court suggested that an important indicator of whether a business has been transferred as a going concern is whether the business can "operate seamlessly" after the transfer without reliance on external parties for essential business functions.

This case is significant in South African labour law for several reasons: 1. Insourcing Context: It addresses the application of s197 of the LRA in the specific context of insourcing by public institutions, particularly universities responding to the "fees must fall" movement. This distinguishes it from typical business transfer scenarios involving two private entities. 2. Interpretation of "Going Concern": The judgment clarifies that a transfer of business as a going concern requires more than just the transfer of employees. Essential business infrastructure, management systems, equipment and operational capacity must be transferred to enable seamless continuation of the business. 3. Fact-Specific Analysis: The judgment reinforces that the s197 inquiry is intensely fact-specific and requires consideration of what is essential to the particular business in question. For security services, this includes not just guards but management, equipment, monitoring systems and strategic deployment capabilities. 4. Limits of Employee Transfer: The case establishes that even where a majority of employees are taken over, this does not automatically trigger s197 if the essential means of conducting the business are not transferred. This protects employers from unintended s197 consequences when restructuring service delivery models. 5. Shared Services Model: The judgment recognizes and validates the "shared services model" as a legitimate restructuring approach that does not necessarily trigger s197, provided essential business functions remain with external service providers. 6. Protection of Both Parties: The judgment balances employee protection (which is the primary purpose of s197) with the recognition that employees also have protections under s189 (retrenchment provisions), and that the choice of which employer should be responsible for affected workers must be determined by proper application of s197's requirements. The case provides important guidance for public institutions, universities and other employers seeking to restructure outsourced services through insourcing arrangements while understanding their obligations under s197 of the LRA.