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The Application of Section 197 of the Labour Relations Act to Second-generation Outsourcing

Section 197 of the Labour Relations Act 66 of 1995 provides that where an employer transfers the whole or part of a business, trade, undertaking or service to another employer as a going concern, the contract of employment and other obligations are transferred to the new employer. This means that the new employer is substituted for the old employer. In the light of pertinent case law in this regard, it is generally accepted that section 197 also applies to first-generation outsourcing of work. In this case, the employees performing the work or service being outsourced are absorbed by the contracted party, now the new employer. However, uncertainty still prevails as to whether the application of this provision may be extended to a secondary contractor who takes over the outsourced work after the expiry or termination of the first contactor’s contract. The question persists whether or not a section 197 transfer occurs when a new contractor is appointed (second-generation outsourcing). If it does apply, how is the longevity of such an application to be determined? With the aid of case law, this article seeks to investigate these questions and the potential imbalance created by the way in which the courts have interpreted the application of this section.