Telkom SA Limited and Others v P N Blom and Others

Eight respondents were formerly employed by Telkom in its Iuvatek Electronics Services division and were members of the Telkom Pension Fund. In March 2000, Telkom sold the Iuvatek division as a going concern to Molapo Technology (Pty) Ltd. The employment contracts were transferred to Molapo without the employees' consent in terms of section 197 of the Labour Relations Act 66 of 1995. Telkom no longer carried on any operations previously conducted by Iuvatek. The respondents claimed they were entitled to pension benefits under clauses 4.7 and 5.7 of the Fund's statutes on the basis that their employment with Telkom had been terminated as a result of abolition of their posts and reorganization of Telkom's activities. The court a quo granted an order directing Telkom and the Fund to pay the benefits.

• Whether the transfer of employment contracts under section 197 of the Labour Relations Act constitutes termination of employment for purposes of pension benefits
• Whether section 197 brings about a statutory assignment of employment contracts
• Whether the transfer of the business amounted to termination by the employer through abolition of posts or reorganization within the meaning of the pension fund rules
• What happens to pension rights when employment contracts are transferred under section 197

The appeal was dismissed with costs. The order of the court a quo directing Telkom and the Telkom Pension Fund to pay pension benefits to the respondents was upheld.

Section 197 of the Labour Relations Act 66 of 1995 brings about a statutory assignment of employment contracts whereby the new employer is substituted by operation of law in place of the old employer. This assignment, while preserving continuity of employment for the employee with the new employer, nevertheless extinguishes the contractual relationship between the old employer and the employee. Where a business transfer under section 197 involves the reorganization of the old employer's activities and the abolition of employees' posts within that employer's organizational framework, this constitutes termination of employment by the employer for purposes of pension fund rules entitling employees to benefits upon such termination. Pension benefits accrued under the old employer's pension fund cannot be transferred to another fund without the consent of the affected employees, and a pension fund cannot be compelled to accept contributions from an employer who is not a contributing employer under its rules or for persons who are no longer members.

The court observed that section 197 reveals a lacuna regarding the transfer of pension rights when employment contracts are transferred, giving rise to practical difficulties. The court noted that not all rights are capable of unqualified transfer from old to new employer and some form of modification will sometimes be necessary. The court commented on the 2002 amendment to section 197, which introduced subsection (4) dealing with transfer to different pension funds, noting that this amendment is permissive rather than mandatory and indicates the legislature's awareness of difficulties relating to pension rights when contracts are transferred. The court suggested this amendment strengthens the conclusion that under the old section, transfer to another fund was not possible, though it does not adequately address the transfer of pension rights simultaneously with employment contracts where employees are not party to the transfer by agreement.

This case is significant in South African labour and pension law as it establishes that the transfer of employment contracts under section 197 of the Labour Relations Act, while effecting a statutory assignment that preserves continuity of employment, nevertheless constitutes a termination of the employment relationship with the old employer for purposes of pension fund entitlements. The judgment highlighted a lacuna in the Labour Relations Act regarding the protection of pension rights when employment contracts are transferred, which the legislature subsequently addressed through amendments to section 197. The case clarified that pension fund rules must be respected and that employees cannot be compelled to transfer to different pension schemes without their consent, even where employment contracts are transferred by operation of law.