OUTSOURCING WORKING DOCUMENT (to be read along with the overarching document addressing s 197 as well as the slide show)
When a client first takes a decision to outsource a business, service or part thereof to a service provider, this process is generally referred to as First Generation Outsource. The recommended procedure to be followed by the client company in this regard is dealt with in the over-riding document. This could, under certain circumstances, be seen as a Section 197 Transfer of Contract of Employment under the LRA.
In addition to the above, when one service provider, for whatever reason, loses the contract to supply its services to a client company and is required to make way for another service provider, the process to be followed would generally be a Section 197 Transfer of Contract of Employment but once again the merits of each case must be traversed. This stage of the process is referred to as a Second Generation Outsource, regardless of how many times service providers have been replaced.
This section has been included as an annexure for ease of reference. See Annexure D.
CONTRACTUAL AGREEMENT WITH CLIENT
The ideal situation would be to have this matter negotiated with the client at the outset, i.e. before any services are provided or taken over. In other words, the exit plan should be predetermined. As much as the incumbent service provider would like to think that they will have the business forever, there is always the possibility that the contract to supply will be lost and, where the client wishes to appoint another service provider, it is better for the client, for the staff and for the current service provider to already know how this exit and transfer will happen and know that the client will be able to exert influence on the incoming service provider at that stage to facilitate an agreement between the service provider parties.
A sample of a clause for insertion into a contract with a client is attached as Annexure A.
GUIDELINES IN DECIDING WHAT KIND OF TRANSACTION IS REQUIRED
When a client approaches a service provider in order to have the it take over the services that are currently being attended to by the client, this would be a First Generation Outsource and the following questions must to be asked:
- Is this the whole or an easily identifiable part of a department to be transitioned?
- Are assets being transferred? e.g. are premises, equipment etc., being purchased or leased from the client?
If the answers to the above are “no”, then the process to be followed in this First Generation Outsource scenario would be that it would be the responsibility of the client to commence consultation with their staff in terms of Section 189 (Operational Requirements Dismissal). The affected staff would be retrenched and employment with the new company could be seen as a reasonable alternative to such dismissal, if indeed the conditions are reasonable. Failing which, the terminated employee would be entitled to a severance package and is free to seek employment elsewhere
If the answer to the second question is “yes”, i.e. only the staff are being transitioned, but not the assets, equipment etc., then, as above, the process to be followed would again be that it would be the responsibility of the client to commence consultation with their staff in terms of Section 189 (Operational Requirements Dismissal). The affected staff would be retrenched and employment with the new company could be seen as a reasonable alternative to such dismissal, if indeed the conditions are reasonable. Failing which, the terminated employee would be entitled to a severance package and is free to seek employment elsewhere.
As mentioned above, further information on this process can be gained from the over-riding document.
However, if the answers to both of the above are “yes”, this would become a Section 197 Transfer of Contract of Employment, regardless of the fact that this is the first service provider to take on this business.
In addition to the above reason, when Service Provider A no longer has the contract to supply the services and a new service provider “B” is appointed to conduct the same or similar services, Section 197 Transfer of Contract of Employment will generally apply.
SECTION 197 TRANSFER OF CONTRACT OF EMPLOYMENT
Once the decision that s197 Transfer of Contract of Employment should take place, the process that must then be followed is that an agreement in terms of Section 197 (7) must be negotiated between the incoming and outgoing service providers. This agreement must deal with the apportionment and provision for severance, apportionment and payment of outstanding leave pay and other payments as well as the issues of joint and several liability in terms of Sections 197 (8) and (9). It is for the purposes of successfully concluding this agreement that the assistance of the client may become vital – particularly where the incoming or outgoing service provider is not au fait with the changes that case law have made or is recalcitrant or merely wishes to escape the responsibilities that such an agreement will so clearly define. A sample of this kind of agreement is attached as Annexure B.
Once the agreement is finalised, the employees would be notified in terms of a declaration as mentioned in Section 197 (7) (c). A sample of such a declaration is attached as Annexure C
DRAFT CLAUSE FOR INSERTION IN CLIENT CONTRACT:
The parties acknowledge that the termination of this Service Level Agreement and the awarding of this contract to another service provider (“second generation outsourcing”) will result in the transfer of the part of whole of a business or service which, in law, would result in the automatic transfer of the employees / assignees constituting this business as a service, to the new service provider.
The parties acknowledge further that, in law, such automatic transfer of employees/assignees has to take place on terms and conditions of employment that are, on the whole, not less favourable to the employees/assignees than those on which they are employed at that time such transfer of employees/assignees takes place.
Accordingly, should second generation outsourcing take place, the client undertakes to bind the new service provider to conclude an agreement with the outgoing service provider on the transfer of the employees as contemplated in Labour Legislation and/ or appropriate case law.
(“the Current Service Provider”)
(“the New Service Provider”)
1.1.The following terms shall have the meanings assigned to them hereunder and cognate expressions shall have corresponding means, namely :
1.1.1“the Current Service Provider”means ……………………… a company duly incorporated in terms of the company laws of South Africa;
1.1.2“the effective date”-means ………………….;
1.1.3 “the New Service Provider”-means ……..………..[details of entity];
1.1.4“the Employees”-means all employees employed by the Current Supplier to perform work for or to provide services to the Client who are supplied by the Current Supplier immediately preceding the effective date and who may or may not be re-assigned to the Client at the discretion of the New Supplier; a list of which is annexed hereto marked “A”;
1.1.8“the Client”-means the ………………….details of entities being of which services are being provided to]
2.1 The parties record that :
2.1.1 the Current Service provider currently supplies the Client with particular services;
2.1.2 the Current Service Provider will no longer be supplying the Client with the Services as from the effective date;
2.1.3 the New Service Provider will provide the Client with particular services as from the effective date;
2.1.4 the Current Service Provider currently employs the Employees listed in annexure “A” hereto, which list incorporates :
184.108.40.206 date of inception of employment;
220.127.116.11 current wage;
18.104.22.168 leave pay owing as at the effective date;
22.214.171.124 severance pay calculated as at the effective date;
126.96.36.199 Other relevant information as the case may be.
2.2 The Parties confirm that the retention by the Client of the same or similar services, but in different hands, would result in the applicability of Section 197 of the Labour Relations Act 66 of 1995 (as amended) (LRA).
2.3 In order to ensure a smooth and problem free transition of the contract, the New Service Provider hereby enters into an agreement with the Current Service Provider in respect of registering and using the Employees for purposes which shall be determined by the New Service Provider. It is specifically noted that only the Employees of the Current Service Providere listed in Annexure A will be transferred.
3 NATURE OF TRANSFER
3.1 It is recorded that:
3.1.1 In terms of Section 197 (2) (a) of the LRA the New Service Provider will be automatically substituted in the place of the Current Service Provider in respect of all contracts of employment of the Employees in existence immediately before the effective date.
3.1.2 In terms of Section 197 (2) (b) of the LRA all the rights and obligations existing between the Current Service Provider and each Employee as at the effective date will continue in force thereafter with the New Service Provider.
3.5In terms of Section 197 (2) (c) of the LRA the New Service provider shall recognise and give effect to the length of service record of each of the Employees, as recognised by the Current Service Provider, and as reflected in annexure “A”.
4.1Arising out of its obligations in terms of Section 197(7) of the Labour Relations Act 66 of 1995 (as amended), the Current Service Provider and the New Service Provider agree that the valuation of the liability in respect of leave pay, severance pay and other payments accruing to transferred Employees as at the effective date is the sum of that reflected in annexure “A” hereto.
4.2The Current Service Provider shall assume liability for all payments accruing to the Employees in terms of any legal or contractual requirements, up to the effective date, except in so far is specifically otherwise provided for in this agreement.
4.3The Current Service Provider shall make payment to the New Service Provider of all amounts owing to the Employees as reflected in Annexure “A” as at the effective date and the New Service Provider will assume liability for payment of outstanding leave pay to Employees in due course.
4.4 The Current Service Provider hereby indemnifies the New Service Provider and holds it harmless against all claims that may be made against the New Service Provider and all liabilities that may be incurred by the New Service Provider in respect of any claims that may be instituted by any of the Employees against the New Service Provider resulting from the failure of the Current Service Provider to comply with 4.3 above
4.5 In compliance with Sections 197 (7) and (8) of the LRA, should any Employee be retrenched by the New Service Provider within 12 months after the effective date, the Current Service Provider, as the old employer, shall only be liable for that portion of the severance pay to be paid to such Employee in respect of the length of service of such Employee with the Current Service Provider prior to the effective date on the basis of one weeks’ remuneration for every completed year of service with the Current Service Provider.
4.6 The said retrenchment provisions must be agreed with the Client and in the event of retrenchments being contemplated after the effective date, the Current Service Provider will be informed thereof one week prior to this taking effect in order to ensure that the Current Service Provider has sufficient time to confirm the necessity for payment of the contemplated retrenchments.
- TRANSITIONAL ARRANGEMENTS
- Both parties undertake to act in the utmost good faith during this period to ensure the smooth transition of the services to the Client.
- To ensure the smooth transitioning of the services to the Client, a hand over period is envisaged, from ______to ______.
- The Current Service Provider will provide the New Service Provider with a standard document setting out the terms and conditions of employment of the Employees (including all benefits) by ______.
- The final payment of wages to the Employees will be made by the Current Service Provider on ______.
- The New Service Provider undertakes to make first payment of wages to the Employees on ______.
- In so far as the New Service Provider needs to take any disciplinary action against an Employee arising from an incident that took place before the effective date, the Current Service Provider, on reasonable notification, undertakes to provide the reasonable assistance required for the New Service Provider to take such action.
- Except insofar as specifically provided for in this agreement, the New Service Provider hereby indemnifies the Current Service Provider and holds the Current Service Provider harmless against any claim which may be made against the Current Service Provider by any of the Employees arising from a dispute that arose after the effective date, or arising from the failure of the New Service Provider to ensure that the terms and conditions of employment are on the whole not less favourable.
- The Current Service Provider indemnifies the New Service Provider and holds the New Service Provider harmless against any claim which may be made against the New Service Provider by any of the Employees (current or previous) arising from a dispute that arose before the effective date, in so far as such dispute is not directly related to the transfer which forms the subject of this agreement.
7.1The Current Service provider has disclosed to its Employees of the transfer of their contracts of employment by the Current Service Provider to the New Service provider in terms of the provisions of Section 197 of the Act.
7.2The communication to each transferring employee included statements attached hereto as Annexure C
8.1The Current and the New Service Providers nominate the following addresses as those at which all notices and legal processes served (their domicilium citandi et executandi) when sent by pre-paid post as:
8.1.1Current Service provider:
8.1.2New Service Provider :
8.2Any notice or communication required or permitted to be given in terms of this agreement shall be valid and effective only if in writing, but it shall be competent to give notice by telefax;
8.3Either party may by notice to the other party change the physical address chosen at its domicilium citandi et executandi to another physical address in South Africa or its telefax number, provided that the change shall be effective on the 7th (seventh) day from the deemed receipt of the notice by the other party;
8.4Any notice to a party –
8.4.1sent by prepaid registered mail (by airmail if appropriate) in a correctly addressed envelope to it at its domicilium citandi et executandi shall be deemed to have been received on the 7th (seventh) business day after posting (unless the contrary is proved);
8.4.2delivered by hand to a responsible person during ordinary business hours at its domicilium citandi et executandi shall be deemed to have been received on the day of delivery; or
8.4.3sent by telefax to its chosen telefax number stipulated herein shall be deemed to have been received on the date of despatch (unless the contrary is proved);
8.5Notwithstanding anything to the contrary herein contained, a written notice or communication actually received by a party shall be an adequate written notice or communication to it, notwithstanding that it was not sent or delivered at its chosen domicilium citandi et executandi.
9.1This agreement constitutes the whole agreement between the parties relating to the subject matter hereof.
9.2No amendment or consensual cancellation of this agreement or any provision or term hereof or of any agreement, bill of exchange or other document issued or executed pursuant to or in terms of this agreement and no settlement of any disputes arising under this agreement and no extension of time, waiver or relaxation or suspension of any of the provisions or terms of this agreement or of any agreement, bill of exchange or other document issued pursuant to or in terms of this agreement shall be binding unless recorded in a written document signed by the parties (or in the case of an extension of time, waiver or relaxation or suspension, signed by the party granting such extension, waiver or relaxation). Any such extension, waiver or relaxation or suspension which is so given or made shall be strictly construed as relating strictly to the matter in respect whereof it was made or given.
9.3No extension of time or waiver or relaxation of any of the provisions or terms of this agreement or any agreement, bill of exchange or other document issued or executed pursuant to or in terms of this agreement, shall operate as an estoppel against any party in respect of its rights under this agreement, nor shall it operate so as to preclude such party thereafter from exercising its rights strictly in accordance with this agreement.
9.4To the extent permissible by law no party shall be bound by any express or implied term, representation, warranty, promise or the like not recorded herein, wherein it induced the contract and/or whether it was negligent or not.
10.GOVERNING LAW AND JURISDICTION
This agreement shall be governed and interpreted by the substantive laws of the Republic of South Africa.
Any provisions in this agreement which is or may become illegal, invalid or unenforceable in any jurisdiction affected by the agreement shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability and shall be treated pro non scripto and severed from the balance of this agreement, without invalidating the remaining provisions of this agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
12.1In the event of either party committing a breach of the terms of this agreement and failing to perform and/or remedy such breach within 7 (seven) days of receipt of written notice, calling upon it to do so, the other party shall be entitled to proceed for specific performance and/or damages.
SIGNED AT ON THIS THE DAY OF 200 .
CURRENT SERVICE PROVIDER
SIGNED AT ON THIS THE DAY OF 201 ..
NEW SERVICE PROVIDER
SIGNED AT ON THIS THE DAY OF 201 .
RE:AUTOMATIC TRANSFER OF EMPLOYMENT