Motor Industry Staff Association and Another v Eastvaal Motors (Pty) Ltd (JS927/2019) [2024] ZALCJHB 256; (2024) 45 ILJ 2349 (LC) (17 July 2024)

FLYNOTES: LABOUR – Transfer of contract – Going concern – Respondent took transfer of business as going concern – Conducted same business with same assets – Same customers, workforce and from same premises without interruption – Recognized prior service of employees and prior leave entitlement of employees – Applicant dismissed shortly after transfer – Dismissal related to transfer and was therefore automatically unfair – Compensation awarded to applicant – Labour Relations Act 66 of 1995, s 197(2).

THE LABOUR COURT OF SOUTH AFRICA, JOHANNESBURG

Reportable

Case no: JS927/2019

In the matter between:

MOTOR INDUSTRY STAFF ASSOCIATION

First Applicant

HELENA DOROTHEA STOFFBERG

Second Applicant

and

EASTVAAL MOTORS (PTY) LTD

Respondent

Heard: Trial set down from 25 – 28 March 2024, and heads of argument

. filed on 25 April, 10 May and 17 May 2024.

Delivered: 17 July 2024.

Summary: Application to declare that business of the old employer transferred to respondent as a going concern in terms of section 197(2) of the LRA, and second applicant’s dismissal automatically unfair. Dismissal found to be automatically unfair and compensation awarded, respondent to pay the costs.

JUDGMENT

DANIELS J

Introduction

[1] In this matter the applicants allege that the respondent took transfer of the business in which the second applicant was employed,

namely Motomid (Pty) Ltd (hereafter “MM”) and the transfer was one contemplated by section 197(2) of the Labour Relations Act No. 66 of 1995 as amended (the “LRA”). The applicants submit that the second applicant’s dismissal, shortly after the transfer, related to the transfer and was therefore an automatically unfair dismissal in terms of section 187(1)(g) of the LRA. Accordingly, the second applicant seeks compensation, from the respondent, in an amount equal to 24 months wages, together with the costs of suit.

[2] The respondent challenges the jurisdiction of this court to determine the dispute. It argues that it has never been the second applicant’s employer and the court therefore has no jurisdiction. In accordance with an earlier directive from this court, the respondent set out its challenge in terms of a formal application filed under the same case number. The application was opposed. During the parties’ opening addresses, it was agreed that the jurisdictional issue should be determined after all the oral evidence had been presented.

[3] It is necessary to begin with a brief summary of the facts.

Material facts

[4] Many of the facts in this matter are common cause:

4.1 MM, the shares of which are wholly owned by the Geoffrey Bernitz Family Trust (the “Family Trust”) operated the business of a car dealership from the premises located at 22A Webber Street, Middelburg, Mpumalanga (the “premises”) which premises were leased to it by Henry Bernitz Motor Holdings (Pty) Ltd.

4.2 MM operated as a dealership, and the franchisee of two large corporations, namely Ford Motor Company South Africa (Pty) Ltd (hereafter “Ford”) as well as Honda Motor South Africa (Pty) Ltd (hereafter “Honda”).

4.3 On 23 October 2001, MM engaged the services of Ms Helena Stoffberg (hereafter “Stoffberg”) as its accounts administrator.

4.4 At some point between mid-2007 and early 2018, Stoffberg resigned from MM, but was then engaged by it on a part time basis. By agreement, her working hours were amended with no reduction of salary.

4.5 On 14 December 2018, Mr Geoffry Bernitz (hereafter “Bernitz Jnr”), the managing director and dealer principal of MM, passed away in tragic circumstances.

4.6 Mr Henry Bernitz (hereafter “Bernitz Snr”) the father of Bernitz Jnr, who had retired by that stage, had no appetite to continue with the business of MM.

4.7 Accordingly, following the death of his son, Bernitz Snr[1] contacted a friend, who also operated car dealerships in Mpumalanga, Mr Clive Blechman and advised him that he no longer wished to continue the business of MM.

[5] Mr Blechman, the Chief Executive Officer of the respondent, Eastvaal Motors (Pty) Ltd (hereafter “EVM”) owned two Ford dealerships in Secunda and Witbank.

[6] Mr Blechman, who was eager to extend his business into Middelburg, met with Bernitz Snr and concluded a verbal “gentleman’s

agreement” regarding the future of MM. Following their discussion, and further email correspondence, they reduced their agreement to writing. The agreement was then signed by Mr Blechman and Bernitz Snr. This agreement, signed on 30 December 2018, was titled “Heads of Agreement”. Mr Blechman signed it in his capacity as the CEO of EVM, and Bernitz Snr signed as an agent of the Family Trust and MM. At the trial, the provisions of the Heads of Agreement were the subject of much evidence and debate. Several provisions featured most prominently, including the following (those parts of the agreement which did not feature at all, or did not feature prominently, are omitted):

INTRODUCTION

Clive will acquire and take over the running of the Ford and Honda franchises operated by The Motomid Group with immediate effect, subject to the approval of the Ford Motor Company (FMC)

THE DEAL

It was mutually agreed that:

(a) There will be no goodwill payable.

(b) There would be no sale of any of the businesses as such but solely of the respective assets detailed herein and/or as attached.

(c) Clive would purchase all the assets.

(d) Clive would take over all the employees subject to full disclosure of all accrued responsibilities under section 197 of the LRA.

(e) Clive would lease all the properties currently being used by The Motormid Group excluding….

(f) Henry undertakes to not offer this deal to anyone else unless not approved by the Ford Motor Group or not signed by Clive.

1. Goodwill

As this is a sale of assets, no goodwill is charged nor payable in respect of the assets sold or the dealerships ….

4. Rental

4.3. Rentals will be payable immediately on the date of takeover….

7. Staff

7.1 Clive undertakes to employ, subject to full disclosure if the effect thereof in terms of the LRA, the entire staff complement of The Motormid Group including Ford and Honda and South East Rentals business, at their present cost to company and benefits.

8. Vehicles

8.1 Clive undertakes to take over all the new and demo floor planned vehicles with Ford Credit for the Ford’s and Wesbank for the Honda’s.

9. Parts

9.1 …The parts inventory valuation at the time of takeover will be the price to be paid.

10. Service Areas

10.1 ….but any current Ford of Honda special tools and particular computer equipment are included in the assets.

10.2 All vehicle lifts, oil dispensers, power generator, air compressors, work benches and tool boxes (excluding privately owned technician tools) are included in the assets.

11. Operating systems

11.3 The software costs, therefore remain Henry’s responsibility but the hardware which has been upgraded consistently is in perfect order and part of the assets.

12. Assets

Assets will be defined as:

12.1 Anything that can be removed from the facility and not part of the building

12.3 All security installations and camera equipment installed to secure the business.

12.4 The purchase price payable will be that determined at the takeover date based on the precepts of this agreement with a total cap of all the assets value at R5 million.

Conclusion

It is agreed that the name of the business may be changed to Eastvaal Motors if so desired, but the name of Motormid, has been agreed to be used as id (sic) the intention of the purchaser ….

(Own emphasis by underlining)

[7] The Heads of Agreement provided for the transfer of all assets, the transfer of all signage, tools, workshop equipment, and furniture. The contents of this agreement indicates that the business of MM would be continued by EVM, whether under the name MM or EVM. Though this Court’s determination of the legal issue cannot be guided by the opinions of the parties, it is notable that, on several occasions, the Heads of Agreement refers to a “takeover”. In addition, the text used in clauses (d) and 7.1 (of the Heads of Agreement) both suggest an awareness of the provisions of section 197 of the LRA, and its implications.

[8] The respondent contended that the Heads of Agreement was drafted by a layperson, or laypersons (Bernitz Snr and Mr Blechman) and language was used loosely. However, respondent’s witnesses conceded that the Heads of Agreement was perused by attorneys before signature.

[9] In clause 2 of the Heads of Agreement, the parties trumpet the reputation of MM as the “oldest and most trusted motor

dealership” and state that its “reputation and integrity is untainted”. Despite this, there was no transfer of the goodwill associated with MM. The reason for this is explained by an email from Bernitz Snr to Mr Blechman dated 30 December 2018 (the same date the Heads of Agreement was signed) in which Bernitz Snr states:

“Any delay in consummating or finalising this deal immediately, will certainly be a deal breaker, as the major goodwill concession was primarily there to obviate this and get me released from the responsibility of having to oversee the business for any protracted period (while haggling with you) under my present circumstances”. (Own emphasis)

[10] On 25 January 2019, Ford sent a letter to Mr Blechman confirming receipt of EVM’s application for the Ford franchise in Middelburg. In the letter, significantly, Ford confirmed that EVM must have: “Staffing and processes (to be) in place on takeover to ensure continuity of business”.

[11] The parties, and their representatives, initially envisaged the effective date of the “takeover” to be 1 March 2019. This was postponed to 1 April 2019 largely because the agreement required MM to engage with its employees and, where necessary, their union representatives.

[12] On 28 February 2019, an agreement, titled “Sale of Assets Agreement” was signed by MM, the Henry Bernitz Motor Investments (Pty) Ltd[2] and EVM. The Sale of Assets Agreement contained a number of provisions of importance to this dispute. The agreement recorded, or

provided for, the following:

12.1 It records a decision, by MM, to “close its business” with effect from the day prior to the effective date of the sale;

12.2 It records that the “effective date” of the sale is 1 April 2019;

12.3 It records that the agreement would supersede all earlier agreements;

12.4 It records, in clause 5, the sale of fixed assets and tools, parts, demo vehicles that are not under floor plan, and used vehicle stock (which the purchaser may choose). It records the sale of assets (identified in schedules) to EVM.[3] It is unclear, from the agreement, whether all the assets of MM were sold. However, the asset breakdown in schedule D indicates that the assets included most or all that was necessary for the uninterrupted continuation of the business. The assets sold included, for example, furniture, workshop tools and equipment, as well as (used) demo vehicles. As was pointed out during the trial, it even included two popcorn machines.

12.5 It records that MM, including its directors and shareholders, will not for a period of two years and within a fifty kilometre radius, operate a retail motor dealer business.

12.6 It records EVM’s undertaking to offer employment to all the employees of MM. It records that MM must procure such consent of employees, “as may be required for the purposes of the agreement”. MM must engage with any union to which the employees are affiliated. MM indemnified EVM against any claims brought by employees who refuse to accept an offer of employment from EVM.

12.7 EVM would take all current and annual leave obligations of MM, as at the effective date of the sale, to a maximum amount applicable in 12 months leave cycle.

12.8 It records that a lease agreement has been entered into by EVM permitting it to operate its business from the same premises previously used by MM.

[13] Importantly, the Sale of Assets Agreement contained a suspensive condition, or conditions – the agreement only comes into effect upon the approval by Ford and Honda permitting EVM license to act as their franchisee. Of equal importance, the Sale of Assets Agreement comes closest to defining the business of MM as a “retail motor dealer business” (in clause 20).

[14] Between January and April 2019, approximately three meetings were held, attended by, among others, EVM, MM and its staff. Though the precise dates of the meetings are unimportant, the meetings were most likely held on 26 February, 11 March, and 19 March 2019. The attendees of each meeting varied, and, at one time or another, included Bernitz Snr, Advocate Holliday, Advocate Landman, Mr Allan Govender (the chief financial officer of EVM), Ms Zelda Gericke (the human resources manager of MM), and Ms Anna-Marie Bodenstein, an official of the Motor Industry Staff Association (“MISA”). Stoffberg herself attended one of these meetings. There are no minutes for the meetings, and the cryptic notes taken by Ms Bodenstein do not qualify as minutes. The purpose of the meetings

were to inform the employees of MM that the assets of MM would be sold to EVM and to encourage them to accept the offers of employment

which were (or would be) extended to them by EVM. In at least one of these meetings, the parties debated the differences in the terms and conditions of employment applicable at MM, and those applicable at EVM. At the meeting that she attended, Stoffberg enquired whether MM would be willing to retrench her and pay her severance pay. She was firmly told that this would not be possible. Bernitz Snr told Stoffberg that: “she must take it (the offer) or leave it”. Bernitz Snr told Stoffberg that if she did not want to accept the offer of employment from EVM she ought to resign.

[15] While the handwritten notes of Ms Bodenstein, taken during these meetings, refer to section 197, they also make reference to “company to be closed” and “not sale of company”. Ms Bodenstein testified that, during the meetings, she understood that the nature of the transaction between MM and EVM related to a transfer of a business as a going concern. Whether the representatives of the respondent, or MM, used the terms “section 197”, “transfer”, or “takeover” at these meetings, is irrelevant. The test of whether a business, or part thereof, has been transferred as a going concern must be objectively determined on all the relevant facts.

[16] On 29 March 2019, EVM furnished Stoffberg with an offer of employment. In effect, the offer was to employ her on a full-time

basis at roughly the same salary she earned on a part time basis. Unsurprisingly, given that her work hours would increase with no corresponding pay increase, she rejected the offer.

[17] It was common cause that, except for the second applicant, and one other employee, EVM employed all the employees previously engaged by MM.

[18] The sale of assets was effective from 1 April 2019, from which date EVM commenced as a “retail motor dealer business” in Middleburg, from the same premises, with substantially the same staff, vehicles, signage, furniture, tools and equipment. None of this was in dispute.

Evidence and Evaluation Of Witnesses

[19] The court must resolve factual disputes by considering the credibility of witnesses, their reliability, and the probabilities.[4] When credibility compels in one direction, but the probabilities in the other, then the probabilities must prevail. Furthermore, rather than separate criteria, credibility of a witness is inextricably bound up with a consideration of the probabilities of the case.[5] With that in mind, I now evaluate the evidence presented by the parties.

[20] Advocate Tinus Holliday (“Holliday”), the respondent’s representative at the trial, testified. Holliday informed the court that, as member of the Independent Bar, there was no rule against him acting as witness and representative. Prior to taking the stand, Holliday was warned by the Court that he was exposing himself to an adverse credibility finding. He indicated that he was prepared to take that risk. Holliday testified principally about an email he had sent to various individuals including Bernitz Snr and Mr Govender (as previously mentioned, he was the chief financial officer of EVM). In that email, dated 16 September 2019, sent at 20h27, Holliday stated:

“Numerous discussions, meetings and agreements took place between the parties (MISA/EVM/the Estate) and East Vaal has offered all the employees employment and no severance pay was applicable as it was a section 197 purchase and transfer of business to the new owners, making severance pay obsolete. Motomid does not exist anymore.” (Own emphasis)

20.1 Holliday testified that the email was typed and sent by his secretary and she had made an error. He testified that his secretary mistakenly omitted the word “not” (before the words “section 197”) in the email. This evidence was nonsensical. If the word “not” is included then the sentence reads that severance pay is not applicable because it was not a section 197 transfer. Holliday attempted to explain that severance pay was not applicable because a reasonable offer of alternative employment was made and, in the case of Stoffberg, declined. This does not assist Holliday because it does not explain why his secretary would, on her own initiative, make reference to section 197 of the LRA. I must also take into consideration that the email was transmitted at 20h27, when most secretaries are not at the office. Holliday confirmed that none of the recipients of the email replied to his email to deny that the transaction between EVM and MM related to the transfer of a business as a going concern. Holliday himself did not subsequently email the recipients to correct his earlier reference to section 197.

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20.2 Holliday testified that it was a matter of great concern to Bernitz Snr that the employees of MM be catered for in the agreement he was contemplating with EVM. In the words of Holliday, this was a “very sensitive issue”. Holliday testified that there was a feud between Bernitz Snr and Stoffberg, but he was not aware of the details. The alleged feud, denied by Stoffberg, is irrelevant to the legal issues. Holliday testified that Stoffberg was adamant that she wanted to be retrenched and she did not want to work for EVM. This too, was irrelevant to the legal issues.

[21] I must, unfortunately, reject the evidence of Holliday with respect to the email. His version was highly improbable, and therefore lacked credibility. In addition, Holliday’s secretary was not called to confirm that she had incorrectly typed up the email. His evidence that his secretary had made an error was hearsay evidence, which is inadmissible unless admitted in accordance with section 3 of the Law of Evidence Amendment Act No. 45 of 1988. Accordingly, Holliday’s email suggests that he believed that the transaction between EVM and MM related to a transfer of a business as a going concern.

[22] Mr Leslie Jamieson (“Jamieson”), the sole director of MM (appointed soon after the death of Bernitz Jnr) and a trustee of the Family Trust, testified as follows:

22.1 The shares of MM, which were registered in the Family Trust, were not transferred to EVM. MM did not sell all of its assets to EVM. EVM did not purchase, from MM, its computer software, management controls and systems, bank accounts; or its debtors.

22.2 MM had subsidiary businesses which were not sold to EVM. Jamieson did not clarify what these subsidiary businesses were.

22.3 Bernitz Snr was authorized to act as an agent of MM when he concluded and signed the Heads of Agreement, but that agreement was not implemented because it was superseded by the Sale of Assets Agreement. He testified that the franchises were of cardinal importance to the business of MM.

22.4 Jamieson could not explain why EVM had decided to recognize the prior service of the employees with MM, or the leave entitlement of such employees, if they were in fact new employees of EVM.

22.5 Jamieson conceded that EVM had purchased from MM all the assets required to immediately continue with the dealership of MM. He stated that MM ceased trading on 31 March 2019, and EVM commenced trading on 1 April (or possibly 2 April).

[23] Jamieson struck me as a credible witness. He was forthright, succinct, and readily made concessions when these were required. I accept his evidence that EVM purchased all the assets that it required to immediately commence trading after MM ceased trading.

[24] Advocate Andre Landman (“Landman”) also testified.[6] Landman testified that he was consulted by MM as to whether the deal between MM and EVM was permitted under our competition law, and whether notice was required to the Competition Commission. He attended a meeting with representatives of EVM, MM, NUMSA, and MISA. At that meeting, Ms Gericke (human resources manager of MM) pointed out that Stoffberg worked a half day. Mr Govender (chief financial officer of EVM) replied that that was a problem because EVM only has full time staff. Bernitz Snr said, in that case, Stoffberg would continue working for MM. Landman testified that he did not apply his mind to whether section 197 of the LRA was applicable. Landman struck me as a credible witness, though his evidence was largely irrelevant to the contested issues in this matter.

[25] Mr Govender (“Govender”), called by the respondent, testified that:

25.1 He was employed as the respondent’s chief financial officer as at 2018 and 2019, and is presently retired, though he sits on the Board of EVM as a non-executive director. EVM sold several brands including Ford and, with the death of Bernitz Jnr, this presented an opportunity for EVM because franchises are not transferrable or purchasable.

25.2 The sale agreement between MM and EVM did not relate to a transfer of a business as a going concern because EVM did not absorb the debtors, creditors, it did no due diligence (which would have required an inspection of the annual financial statements) and new vehicles were not purchased (because such vehicles are owned by financial institutions - such as Wesbank). The Honda franchise and the Ford franchise were separate businesses which operated from the same premises. In order to secure the Ford franchise, it was necessary for EVM to secure the staff, the equipment and the workshop - to ensure continuity and avoid inconvenience to customers.

25.3 EVM applied to Ford for a franchise in Middleburg between 30 December 2018 and 25 January 2019. Ford required assurances relating, inter alia, to the show room, available and properly qualified staff, corporate identity, the workshop, and the equipment necessary to run the workshop. Initially he testified that EVM did not purchase all the assets and equipment, it took only the equipment which was in good working order. Under cross-examination, he conceded that the majority of the equipment was in good working order, and was purchased from MM.

25.4 Govender confirmed the accuracy of his affidavit filed in this Court on 13 December 2023, in relation to the jurisdictional challenge brought by the respondent. In that affidavit, at paragraph 20, Govender stated that EVM “needed” the employees of MM. In his affidavit, and his oral evidence, he stated that the parties to the business transaction did not intend for their deal to fall within the scope of section 197 of the LRA.

[26] Govender struck me as a credible witness. He was not evasive, and he did not contradict himself, the pleadings, or the documents. He was forthright, and succinct, in his responses. I accept his evidence that EVM and MM did not intend to bring about a transfer of a business as a going concern.

[27] Mr Clive Blechman (hereafter “Blechman”) the owner and director of EVM, testified. Blechman too ventured his view on the legal issue before the court, testifying that there was no transfer of a business as a going concern. He testified that EVM did not buy all the assets of MM - but he did not attempt to clarify which assets were not sold. Demo vehicles were purchased, but new vehicles were not (because they were owned by financial institutions, and not MM). Blechman stated that EVM had placed an advertisement in the newspapers that MM was “under new management” but the advert could not be located. In relation to the motor vehicles in the MM workshop (for services or repair) at the time of the sale, MM was paid for the work done by it (as at the effective date of the sale) and EVM finalised the further work required, for its own account. In this manner, customers of MM were taken over by EVM. He testified that management policies of EVM differ greatly from MM, and the corporate structure of EVM is very different to MM. He testified that he had no interest in the business of MM and desired only the “Ford badge”. With respect, this testimony cannot be accepted. It was clear from the evidence of all respondent’s witnesses that Ford required an established dealership, in the relevant area, which could immediately commence business according to its own stringent standards. Accordingly, to acquire the “Ford badge” in Middelburg it was necessary for EVM to acquire (or establish) a retail motor dealer business in Middelburg.

[28] The applicant called three witnesses, Mr Tumelo Lebeloane (“Lebeloane”) of MIBCO, Ms Anne-Marie Bodenstein (hereafter “Bodenstein”) of MISA, and Stoffberg herself.

28.1 Lebeloane testified that MIBCO has a system called Saleslogix to which employers in the industry have full access. Employers may amend or update information on the system but unions have limited access – they may only view the information. Lebeloane testified that he extracted and printed out information relating to EVM, from Saleslogix. The printout reflects that Stoffberg was discharged by EVM on 2 April 2019 because she had absconded. This information could only have been inserted by the employer. Furthermore, a form submitted to MIBCO, completed and signed by management of EVM, titled “Annexure A” indicated that MM changed its trading name to Eastvaal Motors on 1 April. I have no reason not to accept his evidence. It was clear and undamaged by cross-examination. I therefore accept that EVM amended the details of MM on Saleslogix to indicate that MM changed its trading name to Eastvaal Motors.

28.2 Bodenstein testified that she was telephoned by Gericke and informed that Bernitz Jnr had passed away. She was also told that MM was being taken over by EVM. She was invited to a meeting on 26 February. She attended that meeting inter alia with Bernitz Snr, Holliday, Blechman and Govender. At the meeting, she was informed that EVM would be taking over the two dealerships from MM and EVM would take over all employees of MM. She enquired if any employees would be retrenched and was informed that this would not happen. Bodenstein’s evidence was reliable. She did not embellish and made concessions where necessary. I accept that Bodenstein was informed that EVM would “takeover” the business and employees of MM.

28.3 As previously mentioned, Stoffberg also testified. Stoffberg gave evidence about how she was first employed by MM, and how she later came to be employed on a half-day basis without reduction to her salary. She attended one of the meetings with representatives of MM and EVM. EVM offered her full-time employment at her current salary, which would require her to work for more hours at the same salary (which would amount to a significant reduction to her salary). She declined the offer. She had accrued a large number of leave days, and MM requested her to apply for leave while it decided how to deal with her situation. She was on leave for the entire period from 1 April until 3 May. On 30 April, Holliday sent an email to Bodenstein advising her that Bernitz Snr was adamant that he would not offer voluntary retrenchment to Stoffberg; but MM would issue a letter to her recording that she was no longer employed, for the purposes of UIF. Stoffberg returned to the premises on 6 May but was again requested to apply for leave. She was on annual leave from 6 May until 31 May, at which time she had exhausted all her leave. Stoffberg tendered her services to EVM on 3 June 2019, but was informed by Gericke that she did not work for EVM.

[29] I found the evidence of Stoffberg to be credible and reliable. She was unshaken under vigorous cross examination. Importantly,

respondent did not challenge her evidence that she was employed by MM as at the date when EVM commenced trading (1 April). Respondent also did not challenge her evidence that she was dismissed as a result of the business transaction between MM and EVM.

[30] In summary:

30.1 I accept the evidence from the respondent that it did not purchase, from MM, its computer software, management controls and systems, bank accounts; or its debtors.

30.2 I do not accept that MM had any subsidiary businesses which were not purchased. Firstly, the nature of these businesses was never

clarified, secondly this version was not put to any of the applicants’ witnesses, and thirdly, this version was not pleaded.[7]

30.3 It is clear that EVM purchased, from MM, all the assets that were necessary to immediately commence (or continue) the business of the two dealerships. None of the respondent’s witnesses disputed this.

30.4 I accept that MM treated the Ford and Honda dealerships as separate business units, operating from different parts of the same premises. No doubt this was done for the sake of convenience, in order to easily fulfil the different requirements of the two franchisors. Nothing turns on this given that there are no material distinguishing facts, between these two franchises, which are relevant for the purposes of this matter.

30.5 In addition, I accept that, while EVM purchased the dealerships from MM, it could not and did not purchase the franchises of Ford and Honda. The franchises could only be awarded to EVM by Ford and Honda. Ultimately however, both of these franchises were awarded to EVM before 1 April 2019.

[31] The respondent did not dispute that the second applicant had been dismissed during early June 2019, and it did not dispute that she was in the employ of MM on the effective date of the business transaction, namely 1 April 2019. In addition, respondent did not deny that the second applicant’s dismissal occurred because of the business transaction, however this may be characterised.

[32] The respondent contended that, even if there was a transfer of a business as a going concern, section 197(3)(a)[8] of the LRA was not applicable because the terms and conditions of all MM’s employees were determined by the collective agreements of the Motor Industry Bargaining Council (“MIBCO”). I do not understand the relevance of this contention given that this dispute does not relate to whether Stoffberg’s terms and conditions of employment were changed, or could be changed.

Legal principles and analysis

[33] Section 197(2) of the LRA states inter alia that if a transfer of a business takes place, unless otherwise agreed in terms of section 197(6), the new employer is automatically substituted in the place of the old employer in respect of all employment contracts in existence immediately before the date of the transfer. The term “business” is defined to include the whole or part of any business, trade, undertaking or service. The term “transfer” means the transfer of a business by one employer to another employer

as a going concern. There is no definition of “going concern” in the LRA.

[34] It is well established that three elements are necessary for any transaction to fall within section 197 of the LRA:[9]

34.1 There must be a transfer from one employer to another;

34.2 The transferred entity must be the whole or part of a business;

34.3 The entity must be transferred as a going concern.

[35] In National Education Health & Allied Workers Union v University of Cape Town and Others[10] (“NEHAWU v UCT”) at para 56 the Constitutional Court held:

“What is transferred must be a business in operation “so that the business remains the same but in different hands.” Whether that has occurred is a matter of fact which must be determined objectively in the light of the circumstances of each transaction. In deciding whether a business has been transferred as a going concern, regard must be had to the substance and not the form of the transaction. A number of factors will be relevant to the question whether a transfer of a business as a going concern has occurred, such as the transfer or otherwise of assets both tangible and intangible, whether or not workers are taken over by the new employer, whether customers are transferred and whether or not the same business is being carried on by the new employer. What must be stressed is that this list of factors is not exhaustive and that none of them is decisive individually.” (Own emphasis)

[36] In Aviation Union of South Africa and another v SA Airways (Pty) Ltd and others[11] (“AUSA”) Jafta J stated: “For a transfer to be established there must be components of the original business which are passed on to the third party. These may be in the form of assets or the taking over of workers who were assigned to provide the service.” (Own emphasis)

[37] In Road Traffic Management Corporation v Tasima (Pty) Ltd; Tasima (Pty) Ltd v Road Traffic Management Corporation[12] the Constitutional Court stated:

“A business can consist of a variety of components, including both tangible and intangible assets, goodwill, a management staff, a general workforce, premises, a name, contracts with particular clients, the activities it performs, and its operating methods…[These] components …[do] not constitute a closed list, but must be sufficiently connected to one another so as to form an “economic entity” that is capable of being transferred.”

[38] For the reasons set out above, the facts appear, overwhelmingly, to indicate that there was a transfer of a business as a going concern. On the common cause facts EVM conducted the same business, with the same assets, the same customers, the same workforce, and from the same premises, without interruption. Furthermore, EVM recognized the prior service of the employees and it recognised the prior leave entitlement of the employees. These concessions can only be understood in the context of a transfer of a business as a going concern. However, this matter cannot be fairly decided without full consideration of the respondent’s spirited defences.

Respondent’s submissions

[39] Before consideration of respondent’s arguments, it is necessary to acknowledge that franchise agreements don’t come in a single shape or format. Though there are only two main forms of franchises; (1) product distribution franchises, and (2) business format franchises, there are many variations or sub-groups such as single and multi-unit franchises, area development franchises, or master franchises. And, of course, further variations can always be negotiated. When it comes to section 197, each transaction must be separately considered, without undue reference to the label. Substance takes precedence, not form.

Franchises cannot be transferred

[40] In NEHAWU v UCT the Constitutional Court cautioned that when deciding if a business (or part thereof) has been transferred as a going concern, regard must be had to the substance and not the form of the transaction. That principle is binding on this Court, and it is the approach I must take.

[41] While it may be correct that MM was dependent on the Ford and Honda franchises for its sustainability, the franchises cannot be said to constitute the business. The business of MM was a car dealership – the business of which is the sales, service or repairs of vehicles. The respondent did not contend that all car dealerships necessarily operate on a franchise basis.

[42] It was telling that Govender (the chief financial officer of EVM) conceded that the transaction was much more than a sale of assets. As the chief financial officer of EVM he would know. This was confirmed inter alia by the restraint of trade clause in the Sale of Assets Agreement. MM not only sold its assets but its right to compete with EVM. Effectively, MM abandoned its name and brand.

[43] The respondent submits that franchises are not businesses capable of being transferred in terms of section 197 of the LRA, for the reasons explained in PE Pack 4100CC v Sanders and others (“PE Pack”).[13]

[44] In my view, PE Pack is distinguishable. Here, the franchise itself played no role in the transfer of the business.

[45] In PE Pack, the franchisor, a cell phone service provider (which sold items including airtime, contracts, handsets etc) to the public, developed its business on a franchise basis. The franchisor terminated its franchise agreements with the third and fourth respondents (the franchisees) and concluded a new franchise agreement with the appellant. The franchisor leased the premises from which the franchisees operated. The franchisees were granted use of the premises and the assets of the franchisor, in exchange for a fee or a share of the profits. The furniture and the fittings on the premises belonged to the franchisor and remained with it upon termination of

the franchise. The stock, owned by the initial franchisees, had to be removed by them upon the termination of the franchise. No assets transferred from the original franchisees to the new franchisee.

[46] In PE Pack, the LAC correctly noted that the Constitutional Court[14] held that, in the absence of a transfer of some component of the original business, it could not be said that there was a transfer of a business (or part thereof) as a going concern.

[47] In PE Pack, because no component of the business was transferred, the LAC found that there was no transfer of a business as a going concern.[15] At para [18] the LAC stated that, if there had been a transfer of infrastructure or assets this could have sustained an argument that there had been a transfer of a business as a going concern. PE Pack is not authority for the proposition that all franchise arrangements are exempt from the provisions of section 197. Whether there has been a transfer of a business, or part thereof, remains a factual exercise as required by NEHAWU v UCT.

[48] The facts of this matter are distinguishable from PE Pack. Here, several components of the original business was transferred. Here, the assets and the infrastructure were transferred. Here, the stock (demo vehicles) was transferred. Here, all the tools and equipment, necessary to run a workshop, was transferred. Here, the lease agreement (including the show room and storage areas) was transferred. Here, the customers and the existing job orders were transferred. Here, the employees were (effectively) “transferred” - with recognition of their past service, and recognition of accrued leave. Finally, unlike PE Pack, here the franchisee (MM) terminated the franchise agreement and then (subject to the condition that EVM be awarded the franchise) transferred its business to EVM. The business was transferred to EVM, the business was that of a retail motor dealer business. The transfer occurred after EVM was awarded the franchises by Ford and Honda.

[49] It is correct that the franchises could not be transferred by MM; but this is superficial. As a result of the suspensive condition, the transfer of the business of MM only took effect after the franchises had been awarded to EVM. The franchises did not need to be transferred by MM to EVM. The business of MM was transferred to EVM, after it had been awarded the franchises.

EVM did not purchase all the assets of MM

[50] The respondent submits that there is no transfer of a business because it never perused the balance sheet of MM, it did not do a due diligence, it did not purchase debtors, and it did not purchase the goodwill. This is correct, but it does not mean that there was no transfer. The Court must consider all the evidence in its proper context. It was conceded by the respondent that it purchased all the assets it required to operate the business of MM without interruption. It was common cause that EVM purchased most of the assets, including security equipment, furniture and workshop equipment. This comprised the infrastructure and core assets. There is no requirement in section 197 that all the assets of a business must be transferred.

[51] It is significant that EVM marketed itself as MM but under new management. Effectively, it announced, publicly, that MM was the same business but in different hands.

No intention to transfer the business as a going concern

[52] The respondent contends that the transaction between MM and EVM cannot be covered by section 197 because there was no intention by them to have section 197 apply to it. In NEHAWU v UCT the Constitutional Court confirmed that, where there is a transfer of a business (or part thereof) as a going concern, employment contracts are transferred by operation of law. The old and new employers’ intention is irrelevant.

No purchase of shares

[53] The respondent emphasised that there was no purchase of shares from MM. This submission was hard to follow, given that our courts have held that a sale of shares does not fall within the scope of section 197 of the LRA - because there is no change to the identity of the employer.[16] The absence of a sale of shares is therefore of no moment.

Jurisdiction

[54] The respondent contends that it was not the employer of the second applicant and therefore this Court has no jurisdiction. However, if there was a transfer of the business from MM to EVM, as a going concern, then section 197 deems the respondent to be the employer, by operation of law. The jurisdictional point is without merit.

Joinder of Motomid

[55] The applicants contend that there was no need for them to join Motomid because they (the applicants) were not parties to the Sale of Assets Agreement (which indemnified EVM against claims from employees of Motomid) and therefore not bound by it. This argument has merit. Furthermore, nothing prevented Motomid itself from applying to intervene, or EVM from applying to join Motomid.

Costs

[56] It is trite that, in labour disputes, costs do not generally follow the result. However, in this matter, it is fair and equitable to award costs to the applicant. The applicants were forced to fight a protracted and unnecessary legal battle, where respondent clearly had no defence. In addition, the points raised by the respondent, regarding jurisdiction and joinder, were so void of merit that I can only infer that they were raised to frustrate and delay the process. The respondent’s conduct of the litigation was vexatious. Furthermore, not only did respondent’s counsel testify when it was unnecessary, but he attempted to contact the first applicant directly without informing the applicants’ representative. Finally, respondents’ counsel disclosed without prejudice settlement discussions to the court.

[57] In the result, I find that the respondent took transfer of the whole of the business of Motomid (Pty) Ltd, as a going concern, on 1 April 2019. The dismissal of the second applicant, on or about 3 June, was automatically unfair in terms of section 187(1)(g) of the LRA.

[58] The respondent is ordered, within 10 days of receipt of this judgment, to pay compensation to the second applicant in an amount

equal to 24 months’ remuneration. The respondent is ordered to pay the applicants’ costs, including the costs of its

application challenging the jurisdiction of this Court.

RN Daniels

Judge of the Labour Court of South Africa

Appearances: For the Applicant: Dr G Ebersöhn Gerrie Ebersöhn Attorneys For the Respondent: Adv ML Holliday Instructed by Rothbart Inc

[1] Mr Henry Bernitz passed away in 2019, well before the trial commenced.

[2] Note that Henry Bernitz Motor Holdings (referred to in para 4.1) and Henry Bernitz Motor Investments are separate entities.

[3] Clause 1.2.1, clause 2.3 and clause 4.1; read with the schedules marked “E” to “D”,

[4] Stellenbosch Farmers' Winery Group Ltd and Another v Martell et Cie and Others 2003 (1) SA 11 (SCA)

[5] National Employers' General Insurance Co Ltd v Jagers 1984 (4) SA 437 (E) at 440

[6] He testified that he was granted permission from the Bar Council to give evidence.

[7] In Minister of Safety and Security v Slabbert [2010] 2 All SA 474 (SCA) at para 11 the SCA held: 'A party has a duty to allege in the pleadings the material facts upon which it relies. It is impermissible for a plaintiff to plead a particular case and seek to establish a different case at the trial. It is equally not permissible for the trial court to have recourse to issues falling outside the pleadings when deciding a case.”

[8] This section states that the new employer complies with section 197(2) if it engages the transferred employees on terms and conditions not less favourable than those on which they were employed by the old employer. Section 197(2) requires that the new employer is substituted for the old employer in all employment contracts, and the rights and obligations between the old employer and the employees become rights and obligations between the new employer and the employees.

[9] Van Niekerk, N Smit, et al in Law@work LexisNexis (6th Edition) at p393

[10] (2003) 24 ILJ 95 (CC)

[11] 2012 (2) BCLR 117 (CC) at para. [47] – [48]

[12] (2020) 41 ILJ 2349 (CC)

[13] [2013] 4 BLLR 348 (LAC)

[14] See AUSA cited in fn. 11

[15] Paras [13] – [18]

[16] Waverley Blankets Ltd v CCMA and others [2003] 3 BLLR 236 (LAC)