One of the aims of the legislature in introducing section 197 into the Labour Relations Act (LRA) was to deal with the common law rule that the obligations under a contract cannot be transferred unilaterally.
In terms of a section 197 transfer, the employees involved in the transfer of the business or service, transfer their employment from the old employer to the new employer on terms and conditions that are on the whole no less favourable than those they were employed on with the old employer.
Section 197(5) provides that where there is a collective agreement in place, the new employer is bound by it and cannot change any terms and conditions regulated by that collective agreement.
In dealing with the transfer of collective agreements, the question arises as to whether the organisational rights contained in a recognition agreement automatically transfer from the old employer to the new employer by operation of section 197(5).
In considering this, section 197(5)(b)(ii) - as read with section 197(5)(a) of the LRA - provides that "... collective agreements ... are agreements ... that bind the old employer in respect of the employees to be transferred, immediately before the date of transfer, ... unless otherwise agreed in terms of Section 197(6), the new employer is bound by any collective agreement binding in terms of section 23."
On a plain reading of this section, any collective agreement will transfer to the new employer, provided it qualifies in the sense that it is "in respect of employees". This leaves room for the argument that only those collective agreements that regulate the contractual relationships between the employer and its employees (or the terms and conditions of employment) can be automatically transferred. If correct, it will mean that this class of collective agreement can be distinguished from collective agreements that regulate the employer's relationship with a trade union, such as a recognition agreement containing organisational rights.
The corresponding European Directive specifically safeguards organisational rights (as opposed to individual rights) created in collective agreements. This is something that the South African legislature did not import when drafting our own transfer of undertakings provisions in section 197. Whether the phrase "in respect of employees" can bear the inclusion of some of the organisational rights set out in sections 11-16 of the LRA, remains to be seen, as this aspect has not yet been tested in a reported judgment. In our view, the new employer need not merely accept that all collective agreements applicable to the old employer and relevant business or section will transfer automatically on the transfer of the business or service under section 197.
Collective agreements must be examined to assess in the wording whether or not the terms can be cogently construed to regulate employer/union relationships solely, or further regulate employer/employee relationships. Where a right accrues to the employee, it transfers with the employee from the old employer to the new employer in the section 197 transfer. However, employers taking over businesses or services may have grounds for refusing to accept the transfer of collective agreements regulating only organisational rights.