Rights of employees in an undertaking

When does a transfer of undertaking happen? This is a starting point in this conversation.

IN terms of the law, a transfer of an undertaking occurs when the whole or part of an employer’s business or undertaking is sold or transferred as a going concern to another employer.

There are other instances that also result in transfers of undertakings, and these include merger of entities or demerger/unbundling of an entity.

In the past years Zimbabwe has witnessed some mergers and acquisitions of companies. This also follows the direction of the economy at times as other entities will be seeking ways to keep themselves in existence or attempting to cut their losses.

Some notable transfers in Zimbabwe include BP Shell, which sold its business as a going concern to Zuva Petroleum. First Capital Bank took over Barclays Bank operations in Zimbabwe as a going concern.

There is no legal basis for an employee to object to a transfer of an undertaking. This is the decision of the shareholders of the company. It is not within the Court’s remit to determine the business strategy for an organisation. The interest of the law is to ensure that the interests of the employees are safeguarded during the process of transfer of undertaking.

There is need to invest proper due diligence before considering to do a transfer of undertaking as it comes with legal effects. You can inherit serious obligations from the previous company.

The Law

Transfer of undertaking is regulated in terms of Section 16 of the Labour Act [Chapter 28:01] which provides that;

“(1) 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.”

There are pertinent points that arise from the above cited section are worth noting for purposes of this opinion;

1.1 The employment of the employees in the particular shall not be affected.

1.2 They are deemed to be transferred on the terms and conditions that they were in the previous undertaking.

1.3 They can only be transferred to better conditions not inferior conditions

1.4 They are deemed to have continued with their employment

In terms of Section 16 the transfer of undertaking, does not interrupt an employee’s continuity of employment. The contract of employment remains intact. What this also means is that if the employees were owed salaries and arrears, these remain due and are owing and payable to the employees by the new entity. Rights and obligations are passed on by a transfer of the undertaking. This also means that any pending cases against the old entity remain valid, and they can be brought up against the new entity.

An employee who was unlawfully dismissed by the old entity can successfully sue the new entity if their case has merit. This is because the contract of employment cannot be wished away.

The Supreme Court in the case of Premier Wholesalers v Regional Hearing Officer and 15 others SC83/93 held that Premier Wholesalers acted unlawfully by subjecting the employees to less favourable conditions without their consent. In that case Premier Wholesalers had taken over the operations, including Staff of Premier Milling in Mutare with effect from January 1 1991. The employer proceeded to unilaterally reduce their pay from what they were earning from the previous employer.

There is no legal basis for the new entity to force employees to sign contracts of employment. By operation of the law the employees’ contracts remain extant, and their employment as well. Any attempt to make them sign new contracts actually constitute a variation of a contract of employment. The parties can always refer to the previous contract to determine the terms and conditions.

There is nothing at law that precludes parties from signing an addendum to the main contract to provide for better conditions of employment as provided for in terms of Section 16 of the Labour Act. There is also no legal basis for an employer to ask employees from the previous employer to apply for jobs in the new entity, the contracts of employment are deemed to have been transferred automatically. There is tendency by some entities to demand the employees to apply for new jobs. This is unlawful.

There is a reason for demanding that contracts continue. Any benefits that the employees accrued from long services are protected by virtue of the extension of the contracts.

The employees’ contracts are passed on to the new entity without variation of conditions of their employment contract. Any variation of the contracts has to be done in term of the law as the employer cannot unilaterally vary the terms of employment. The principles of sanctity of contract comes into play.

The only way for new contracts to be signed is for the existing contracts to be terminated in terms of the law. This can be done by means of retrenchment, expiration of employment contract or by mutual agreement. Otherwise if the contracts have not been terminated the default position in terms of Section 16 of the Labour Act applies. In the event of termination of the contracts the employees are entitled as well to their terminal benefits in terms of Section 13 of the Labour Act.

The employer in question is barred at law from forcing employees to sign a new contract as that would be amount to an unlawful and a unilateral variation of contract of employment. The settled position of law is that the contracts remain extant and cannot be wished away unless they have been terminated earlier in terms of Section 16 of the Labour Act, in which case a new relationship commences on the basis of a new contract. Absent that the attempts to coerce employees to new contracts are without legal merit.

LEGAL DISCLAIMER: The material contained in this post is set out in good faith for general guidance in the spirit of raising legal awareness on topical interests that affect most people on a daily basis. They are not meant to create an attorney-client relationship or constitute solicitation. No liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made in the post. Laws and regulations are complex and liable to change, and readers should check the current position with the relevant authorities before making personal arrangements.

‘‘There is nothing at law that precludes parties from signing an addendum to the main contract to provide for better conditions of employment as provided for in terms of Section 16 of the Labour Act’’

◆ Arthur Marara is a corporate law attorney practicing law in Harare, Zimbabwe. He is also a notary public and conveyancer. He is also passionate about labour law, commercial law, family law and promoting legal awareness and access to justice. He writes in his personal capacity. You can follow him on social media (Facebook Attorney Arthur Marara), or WhatsApp him on +263780055152 or email attorneyarthurmarara@gmail.com