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Matthias Ruziwa : HR Issues

When a transfer of undertaking takes place, all employees employed in the organisation (or part of the organisation) that is transferring will be entitled to carry on working for the new organisation with their existing terms and conditions of employment; their continuity of service is also preserved. In the increasingly turbulent context of today’s business environment, it is more likely that organisations are employing various strategies to survive and thrive which

include transfer of undertakings. Does an employee really understand what a transfer of an undertaking entails?

Section 16 (1) of the Labour Act, Cap 28:01 states that “subject to this section, whenever any undertaking in which any persons are employed is alienated or transferred in any way whatsoever, the employment of such persons shall, unless otherwise lawfully terminated, be deemed to be transferred to the transferee of the undertaking on terms and conditions which are not less favourable than those which applied immediately before the transfer, and the continuity of employment of such employees shall be deemed not to have been interrupted”.

In this article the writer shall make an attempt to articulate the in-depth meaning of a transfer of undertaking to help employees understand their rights in terms of the Labour Act.

A transfer of an undertaking falls into one of two broad categories, either a business transfer or a service provision change. It applies the business changes to a new owner. Put in simple terms, when a transfer of undertaking is perceived to be taking place, you must ask yourself the following questions;

Is the type of business being conducted by the ‘transferee’ (the new owner, or the employer who is receiving staff) the same as the ‘transferor’s (the old owner, or the employer who is transferring staff)?

Has there been a transfer of tangible assets such as building and moveable property (although this is not essential)?

Are there intangible assets (such as patents, trademarks, copyright, goodwill or brand recognition) transferred at the time of the transfer?

Have the majority of employees been taken over?

Have the customers been transferred?

Is there a high degree of similarity between the activities carried on before and after the transfer?

If the answer to several of the above questions is ‘yes’, then Section 16 of the Labour Act, Cap 28:01 does apply.

Section 16 (2) & (3) of the Labour Act, Cap 28:01 reads; “Nothing in subsection (1) shall be deemed—

(a) to prevent the employees concerned from being transferred on terms and conditions of employment which are more favourable to them than those which applied immediately before the transfer, or from obtaining terms and conditions of employment which are more favourable than those which applied immediately before, or subsequent to, the transfer;

(b) to prevent the employees concerned from agreeing to terms and conditions of employment which are in themselves otherwise legal and which shall be applicable on and after the transfer, but which are less favourable than those which applied to them immediately before the transfer: Provided that no rights to social security, pensions, gratuities or other retirement benefits may be diminished by any such agreement without the prior written authority of the Minister;

(c) to affect the rights of the employees concerned which they could have enforced against the person who employed them immediately before the transfer, and such rights may be enforced against either the employer or the person to whom the undertaking has been transferred or against both such persons at any time prior to, on or after the transfer;

(d) to derogate from or prejudice the benefits or rights conferred upon employees under the law relating to insolvency.

(3) It shall be an unfair labour practice to violate or evade or to attempt to violate or evade in any way the provisions of this section.

The Labour Act protects employees by entitling them to the same terms and conditions, with continuity of employment, as they had before the transfer.

Transfer of undertakings normally apply in the following situations; mergers, sales of businesses by sale of assets, a change of licensee or franchisee, transfers out of companies in administration and situations where all or part of a sole trader’s business or partnership is sold or otherwise transferred.

When a transfer of undertaking takes place, all employees employed in the organisation (or part of the organisation) that is transferring will be entitled to carry on working for the new organisation with their existing terms and conditions of employment; their continuity of service is also preserved.

It is paramount for both the seller and the buyer to agree on this position and where there is no agreement; the seller must engage the Retrenchment Regulations envisaged in Section 12C of the Labour Act before handing over business to the buyer.

The transferee (buyer) also takes over the liability for all statutory rights, claims and liabilities arising from the contract of employment. In my view, if an employee is dismissed because of the transfer, their dismissal is automatically unfair.

Section 25A (5) of the Labour Act, Cap 28:01 stipulates that “without prejudice to the provisions of any collective bargaining agreement that may be applicable to the establishment concerned, a Works Council shall be entitled to be consulted by the employer about proposals relating to (c) partial or total plant closures and mergers and transfers of ownership.

Therefore the transferor must conduct a full and meaningful consultation with employees at the earliest feasible time. Employers who failure to consult properly can be required to pay the minimum compensation for loss of employment set out in Section 12C of the Labour Act Cap 28:01.

From my experience, the employer must provide the following information to the Works Council: that a transfer is to take place, the reason for the transfer and when it is expected to take place, the implications for the employees, the measures that the current employer expects to take in relation to the employees and the measures that the new employer expects to take in relation to the employees.

Transfer of an undertaking is a complex legal area, and so it’s essential for employers to seek legal advice to avoid complications. Where a business, or part of one, is being transferred, both parties (the transferor and the transferee) should be very open to each other concerning whether or not the employees are being transferred along with the business at an earliest possible stage.

I therefore strongly recommend that when an organisation is planning for a transfer of undertaking, there is need to hold a genuine dialogue with employees through the Works Council.

Disclaimer: Opinions expressed herein are solely those of the author.

Matthias Ruziwa is an experienced and progressing Strategic Human Resource Practitioner based in the Midlands Province, City of Kwekwe. You can contact Matthiasat the following email address: [email protected] <mailto:[email protected]> /whatsapp 0773 470 368