Issue in dispute

If a franchisor terminates a franchise agreement and subsequently awards the franchise to a new franchisee, does this amount to a transfer of a business as a going concern and do the employees of the original franchisee transfer to the new franchisee?

Court's decision

In PE PACK 4100CC v. Adam Sanders and others [Case no PA08/10 (22 January 2013 LAC)], the LAC was faced with this question. It held that no transfer of a business as a going concern as contemplated in section 197 of the LRA occurs because there was never a transfer of business in the first instance. The original allocation of the franchise was merely a contractual arrangement between the parties involving the granting of a right to the original franchisee to utilize the name and trademarks of the franchisor. The termination of the franchise agreement was then merely a termination of such right and therefore the contracts of employment of the employees of the 'old' franchisee would not be automatically transferred to the ‘new' franchisee.

Importance

It would seem that this decision permits the parties to contract out of the effect of section 197 of the LRA. In addition, when the agreements terminate the old franchisee may be obliged to terminate its employee's contracts for operational reasons and, conversely, the new franchisee will be under no obligation to employ the old franchisee's employees. This approach to when section 197 of the LRA applies should be relied upon with caution as it tends to go against other recent judgments on the application of section 197.