Section 197 of retrenchment

 

Section 197 of the Labour Relations Act (LRA) in South Africa deals with the situation of a transfer of a business as a going concern. This means when a business is sold or changes ownership, but it continues to operate in the same way, offering similar products or services. In such cases, Section 197 protects the employment rights of the transferred employees.

 

 

Here’s a breakdown of the key aspects of Section 197 and its role in retrenchment:

 

Protection for Transferred Employees

 

• Automatic Transfer of Contracts: Section 197 dictates that the employment contracts of the employees working for the old employer automatically transfer to the new employer. This means the new owner inherits the existing employment contracts, including:
  • 📌 Terms and Conditions: The salary, benefits, leave entitlements, and other terms outlined in the original employment contract remain applicable.
  • 📌 Length of Service: The employee’s length of service with the old employer counts towards their total service with the new employer.

 

 

No Automatic Right to Retrench

 

• ➡️ Business Continuity: The purpose of Section 197 is to ensure continuity of employment for the transferred workforce. The new employer cannot automatically retrench employees simply because of the ownership change.

 

 

Redundancy as a Possibility

 

• ➡️ Restructuring After Takeover: While automatic retrenchment isn’t allowed, the new employer might restructure operations after the takeover. If this results in genuine redundancy, then retrenchment might be a possibility. However, strict adherence to fair retrenchment procedures outlined in the LRA (including consultation and fair selection criteria) would be required.

 

 

Impact on Retrenchment Process

 

• ➡️ Consultation with Transferred Employees: If the new employer considers retrenchment due to restructuring after a business transfer, they must consult with the transferred employees or their representatives (e.g., unions) as per Section 189 of the LRA.

 

In essence, Section 197 safeguards the employment rights of employees when a business changes hands. It ensures they retain their existing employment contracts and cannot be laid off solely due to the transfer. However, if genuine redundancy arises due to restructuring after the takeover, retrenchment might be possible, but only following a fair retrenchment process outlined in the LRA.