On November 24 2011 the Constitutional Court judgment in Aviation Union of South Africa v South African Airways (Pty) Limited became available. The judgment overturns the ruling of the Supreme Court of Appeal on second-generation outsourcing. The Constitutional Court found that Section 197 of the Labour Relations Act indeed applies to second-generation outsourcing. The court commented that Section 197 could even apply up to fifth-generation outsourcing.

The court found that when it must be determined whether Section 197 is applicable, the focus should be on what is being transferred, as opposed to who the parties to the transfer are and what 'generation' transfer it is. The court found that Section 197 will be applicable as long as a business is being transferred "as a going concern" from an old employer to a new employer.

The court found further that the emphasis previously placed on the identities of the old and new employers was misplaced, as the concept of an old and new employer cannot be static. For example, in a first transfer by A to B, A is the old employer and B is the new employer, while in a second transfer by B to C, B is the old employer and C is the new employer, and if the second transfer is by B back to A, B will be the old employer and A will be the new employer.

However, the court distinguished a transfer of a business as a going concern from a pure outsourcing agreement – that is, if the outsourcing institution from the outset did not provide the service, the service cannot be said ever to have been part of the institution's business and therefore cannot be transferred from it as a going concern for the purposes of Section 197. In other words, Section 197 is applicable to the transfer of a business as a going concern irrespective of the generation, but not to a pure outsourcing agreement.

For further information on this topic please contact Stuart Harrison or Lizle Louw at ENS-ENSafrica by telephone (+27 21 410 2500), fax (+27 21 410 2555) or email ([email protected] or [email protected]).