When a business is sold as a going concern, the Labour Relations Act (“The LRA”) provides that a contract of employment transfers automatically from the old to the new employer. The dual purpose of section 197 of the LRA is to facilitate commercial transactions and protect the security of employment of employees in the process. However, it is important to note that the new employer has an exercisable discretion to accept or repudiate the transfer of any of the said employees.
The LRA however, gives the new and old employer scope to enter into a termination agreement or “no-fault” termination agreement with the existing employees. affected employee(s) must be notified in writing of the process to be followed and must be invited to consult with the new and/or old employer accordingly. The aforementioned sections and sub-sections provide the employers, old and new, with an option to contract out of automatically transferring all the existing employees.
In the absence of any agreement concluded under section 197(6) of the LRA, the new employer will be automatically substituted into the place of the old employer, making the new employer liable and bound by all employment agreements, verbal or otherwise, in existence immediately before the transfer.
