This blog is co-authored by Jose de Faria (Candidate Attorney) and Saajidah Simjee (Candidate Attorney).
Employers undertaking restructuring or outsourcing should take careful note of an August 2025 judgment by the Labour Appeal Court (LAC) wherein it was found that, due to the automatic nature of section 197 transfers between employers, employees need not tender their services to the new employer to enforce their rights. The LAC re-affirmed that prescription commences running not upon legal confirmation that the debt is due but as soon as applicants become aware of the facts which give rise to the debt. Prescription is subsequently interrupted when an applicant institutes any process to claim payment of the debt.
The matter arose from a restructuring decision in 2010, when a large mobile network operator (the new employer) terminated a service agreement with a Call Centre (the old employer) and brought its call centre operations back inhouse. Pursuant to an application from a group of employees, in 2015, the LAC declared that the termination of the service agreement amounted to the transfer of a business as a ‘going concern’ in terms of section 197 of the Labour Relations Act, 1995, with the legal consequence that the employment contracts of the old employer automatically transferred to the new employer with effect from 1 December 2010.
Capitalising on this decision, a different cohort of employees obtained a similar declaratory order on 6 December 2017 confirming that their employment had also transferred to the new employer with effect from 1 December 2010. Despite the declarators, the new employer did not give the employees back pay from 1 December 2010 and the second cohort of employees brought a claim for backpay for the period of 1 December 2010 to 11 March 2019. The new employer raised two defences, namely that the employees were not due backpay as they had not tendered their services between December 2010 and December 2017 and that their claims were, at least in part, extinguished by prescription.
The LAC rejected the argument that the employees were required to tender their services because the effect of a valid section 197 transfer is automatic, meaning all rights and obligations arising from the employment relationship transfer from the old employer to the new employer by operation of law and a formal tender of services to the new employer is not a prerequisite for the continued receipt of remuneration.
On the issue of prescription, the Labour Court had erroneously found that prescription only commenced running on the date the employees obtained the declaration confirming their status as employees on 6 December 2017. The LAC overtured this on the basis that employees cannot wait for a court to legally confirm the facts which give rise to the debt. The debt becomes due as soon as the applicants have subjective knowledge of the facts which give rise to it. In the circumstances of this case, where the claim for remuneration accrued monthly, the debt first arose on 1 December 2010 (i.e. the date of transfer). Prescription therefore commenced on 1 December 2010 and was interrupted when the employees applied for the declaration on 12 October 2016. In the circumstances, any monthly renumeration which fell more than three years prior to 12 October 2016 (i.e. the claimed period of 1 December 2010 to 12 October 2013) had prescribed and the employees were only awarded remuneration for the period of 13 October 2013 to 12 March 2019.
From a practical perspective, employers should be aware that the effects of section 197 can give rise to claims for remuneration even years after a transfer has occurred – especially if the matter has been tied up in litigation. Where there has been a delay in enforcing such claims, it is crucial to assess whether parts of the claim may have prescribed.