Employers involved in mergers or acquisitions face legal risk when terminating the services of employees who transferred from the old employer to the new employer. Under South African law, employees receive additional protection against dismissal where a transfer of a business as a going concern had taken place.
Section 187(1)(g) of the Labour Relations Act ("LRA") stipulates that a dismissal is automatically unfair where the reason for the dismissal is a transfer, or reason related to the transfer, in terms of section 197 of the same Act. Section 197 provides that employees transfer from the old employer to the new employer on terms and conditions of employment that are, on the whole, not less favourable than what they enjoyed with the old employer.
Where the old employer agreed with an employee that his retirement age will be sixty-five, the effect of section 197 is that the new employer remains bound by this undertaking. Agreements with employees on the applicable retirement age is a critical factor to consider when considering the buying or taking over any business.
Whilst there is no general retirement age applicable to all employees in South Africa, an employer may retire an employee where the employee has reached either the agreed or normal retirement age (see section 187(2)(b) of the LRA). An agreed retirement age contained in an employment contract or binding policy is the most common vehicle used by employers to retire staff.
Establishing what constitutes a 'normal' retirement age is fraught with difficulties, as the employer found out in SACTWU v Rubin Sportswear  5 BLLR 505 (LC). The court will not readily infer a retirement age if an agreement between the parties is absent.
Where the new employer, after a transfer of the business, establishes that the employment contract is silent on retirement age, it is not entitled to unilaterally impose one (unless it can convince a court that the age is the normal one for its workplace or industry or category of employees).
In the recent matter of Harris v Ocean Traders International (Pty) Ltd (unreported judgment handed down on 23 February 2016, case number JS 710/13) the new employer asked employees who transferred from the old employer to sign new employment contracts that contained a retirement age of sixty. Mr Harris declined to do so as, he stated, he reached agreement with the old employer to retire at age sixty five. The new employer was reluctant to accept this on face value in the absence of a written agreement and terminated Mr Harris' employment (for reason of retirement) at age sixty three, the standard retirement age with the new employer. Mr Harris declared a dispute, alleging that his employment was terminated for a discriminatory reason (age) which is a contravention of section 187(1)(f) of the LRA.
The Labour Court agreed with Mr Harris. It held that the probabilities favoured Mr Harris' version that he reached agreement with his old employer on retiring at age sixty-five only. As there was no agreement with him to retire at age sixty-three the new employer could not rely on that age as the agreed retirement age. Unable to rely on the statutory defence (section 187(2)(b)) the new employer was found to have terminated Mr Harris service for an impermissible discriminatory reason - age. The court awarded Mr Harris sixteen months' remuneration as compensation. It also awarded him legal costs.
Employers involved in mergers and acquisitions should take heed of the judgment. It is important to accurately establish the status of critical employment terms and conditions of employment of those employees who will transfer to the new employer. The LRA provides mechanisms to amend unpalatable employment terms but the new employer should act with caution where it has to terminate employment of transferred employees or adjust their terms and conditions of employment.