Schnellecke Logistics Parts and Accessories (Pty) Ltd v Schenker South Africa (Pty) Ltd and Others

The applicant, Schnellecke Logistics Parts and Accessories (Pty) Ltd, provided warehousing and operations management services to Mercedes-Benz South Africa Ltd (MBSA) at its Parts Logistics Centre (PLC) from 1 January 2017 until 28 February 2025. The contract was extended several times over the years. In 2024, MBSA issued a new Request for Quotation (RFQ) and awarded the contract to the first respondent, Schenker South Africa (Pty) Ltd, effective 1 March 2025. The applicant contended that the services Schenker would provide were the same or substantially the same as those it had been providing, and that this constituted a transfer of business under section 197 of the Labour Relations Act. The applicant had 128 employees (111 blue-collar and 17 white-collar). Schenker opposed the application, arguing there was no transfer of business but merely a change in service provider. The applicant and MBSA had previously agreed that if the applicant was unsuccessful in retaining the contract, all employees would form part of a section 197 transfer agreement. Schenker maintained it would use its own methods, systems, and only 67 employees to render the services more efficiently. The services were rendered on MBSA's premises using MBSA's warehouse, equipment, IT systems, furniture, and other assets.

• Whether there was a transfer of a business under section 197 of the Labour Relations Act
• Whether the services rendered constituted a discrete business or merely a service provision
• Whether the business was transferred as a going concern
• Whether the three jurisdictional requirements for section 197 application were satisfied: (1) transfer, (2) of a business in whole or in part, (3) as a going concern

1. It is declared that the process whereby the applicant ceased rendering services to MBSA at the PLC and Schenker commenced rendering those services from 1 March 2025 constitutes a transfer of a business, alternatively part of a business, as a going concern for purposes of section 197 of the LRA. 2. Schenker is ordered to give effect to its obligations under section 197 of the LRA, including receiving the applicant's employees into its service in compliance with section 197. 3. Schenker is ordered to pay the costs of the application.

Where services are rendered on the client's premises using the client's substantial infrastructure, equipment, IT systems, and other assets, and a new service provider takes over the provision of the same or substantially similar services at the same location using the same assets, this constitutes a transfer of a business (or part of a business) as a going concern under section 197 of the LRA, not merely a change in service provision. The determination must be made objectively based on the substance rather than the form of the transaction. Relevant factors include: (1) the transfer or continued use of tangible and intangible assets; (2) whether the same business is being carried on; (3) the asset-reliant nature of the services; (4) continuity of the economic entity; and (5) whether the business remains the same but in different hands. In asset-heavy service provision, where the economic entity (the organized grouping of persons and assets) continues unchanged except for the identity of the service provider, section 197 applies to protect employees' rights and ensure automatic transfer of employment to the new employer.

The court noted that the agreement between the applicant and MBSA that employees would form part of a section 197 transfer if the applicant was unsuccessful in its bid, while not decisive on its own, demonstrated the parties' recognition that the services constituted a transferable business. The court also observed that Schenker's limited knowledge of the specifics of the applicant's service provision did not prove there was no transfer; rather, it was consistent with a transfer situation where the new employer takes over an existing operation. The court remarked that Schenker's claim to use only 67 employees instead of the applicant's 128 based on superior efficiency and systems was unsupported by evidence and contradicted by the similarity of the scope of work in the RFQ. The court emphasized that neither the agreement between parties for a section 197 transfer nor the absence of such agreement is determinative; what matters is the objective substance of the transaction.

This case provides important guidance on the application of section 197 of the Labour Relations Act in the context of outsourcing and service provision changes. It clarifies that where an outsourcer provides substantial infrastructure, assets, and premises for the performance of services, and the same or substantially similar services continue to be rendered at the same location using the same assets by a new service provider, this constitutes a transfer of business as a going concern rather than merely a change in service provision. The judgment emphasizes the asset-reliant nature of the services and the continuity of the economic entity as key indicators of a section 197 transfer. It demonstrates that the form of the transaction (described as a new contract) must yield to its substance (continuation of the same business operations). The case reaffirms the dual purpose of section 197: protecting employees from job losses while facilitating commercial transactions. It also confirms that agreements between parties regarding section 197 application, while not determinative, are relevant considerations. The judgment provides clarity on distinguishing between genuine service provision changes and transfers of discrete businesses in outsourcing contexts.