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

Schnellecke Logistics Parts and Accessories (Pty) Ltd (the applicant) provided warehousing and operations management services to Mercedes-Benz South Africa Ltd (MBSA) at MBSA's Parts Logistics Centre (PLC) from 1 January 2017, with the contract extended multiple times until expiry on 28 February 2025. MBSA awarded a new contract to Schenker South Africa (Pty) Ltd (first respondent) to provide these services from 1 March 2025. The applicant contended that the service Schenker would provide was the same or substantially the same, constituting a transfer of business under section 197 of the Labour Relations Act. Schenker argued there would be no transfer of business, merely a change of service provider. The applicant employed 111 blue-collar and 17 white-collar employees. MBSA provided the warehouse premises, equipment, IT systems, office space, furniture, and other assets. The applicant had previously taken over employees from the previous service provider (Neovea) under a section 197 agreement in 2017. The applicant and MBSA had agreed in their contract that if the applicant was unsuccessful in retaining the contract, all staff would form part of a section 197 transfer agreement.

• Whether there was a transfer of a business or part thereof from the applicant to Schenker
• Whether the warehousing and operations management services constituted a discrete business or merely a service provision
• Whether the business, if any, was transferred as a going concern within the meaning of section 197 of the Labour Relations Act
• Whether section 197 of the LRA applied to the transaction
• Whether Schenker was obliged to receive the applicant's employees into its service in compliance with section 197

1. It is declared that the process in terms of which the applicant will cease rendering services to MBSA at the PLC and Schenker will commence rendering those services as 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 in terms of section 197 of the LRA, inclusive of receiving the fifth to sixtieth respondents and sixty-first and further respondents into its service in compliance with section 197 of the LRA. 3. Schenker is ordered to pay the costs of the application.

A transfer of business as a going concern under section 197 of the LRA occurs where: (1) there is a transfer of a discrete business (not merely a service); (2) the business remains the same but in different hands; and (3) the new employer takes over the essential components of the business including premises, assets, equipment, IT systems, and performs the same or substantially the same functions. In determining whether there is a transfer of business as a going concern, courts must have regard to the substance and not the form of the transaction. Where services are asset-reliant or asset-heavy, and the new service provider will operate from the same premises using the same equipment, IT systems, and infrastructure to perform the same or substantially the same services, this constitutes a transfer of business as a going concern. The warehousing and operations management services performed at the client's premises using the client's assets and infrastructure constitute an economic entity and therefore a business capable of transfer under section 197. The mere fact that a new service provider may use fewer employees or claim to have different operating methods does not preclude a finding of transfer where the essential business components and functions remain the same.

The Court observed that the agreement between the applicant and MBSA that employees would form part of a section 197 transfer agreement if the applicant was unsuccessful, while not decisive, showed that the parties contemplated that the services constituted a business which may be transferred. The Court noted that Schenker's contention that it had limited knowledge of the specifics of the applicant's services was not persuasive, as this did not change the nature of what was being transferred. The Court commented that Schenker's claim to use its own methods and systems was not supported by evidence, particularly as Schenker did not produce its actual agreement with MBSA to show any material differences from the scope of work in the RFQ. The Court emphasized that the absence of an agreement between the new employer and the client regarding employee transfers does not disqualify a transaction from being a section 197 transfer.

This case provides important guidance on the application of section 197 of the Labour Relations Act in the context of outsourced services, particularly warehousing and operations management. It clarifies the distinction between a mere change of service provider and a transfer of business as a going concern. The judgment emphasizes that the substance of the transaction, not its form, must be examined. It reaffirms that in asset-reliant businesses, the transfer of premises, equipment, IT systems, and infrastructure are strong indicators of a transfer of business as a going concern. The case confirms that agreements between parties regarding employee transfers, while not decisive, are relevant considerations. It reinforces that where a discrete business operation has been outsourced and continues to operate from the same premises using the same assets and performing the same functions, a change of service provider likely constitutes a section 197 transfer. The judgment protects employees' rights upon the change of service providers in outsourcing arrangements and ensures continuity of employment where a business transfers as a going concern.