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Imagine the following scenario, whether through the lens of employer or employee: an employee is involved in a serious accident or suffers from an illness that leaves the employee disabled. Consequently, the employee applies and is approved for medical boarding as an alternative to dismissal. Then, the employer’s business/service, or part thereof, in which the affected employee is deployed is transferred as a going concern (in terms of section 197 of the Labour Relations Act (“the LRA”). Within that context, the new employer refuses to accept the affected employee into their employment on the basis that it does not consider the affected employee to be ‘an employee’ as envisaged by section 197 of the LRA, because the employee is, in essence, unable to render services for reward in accordance with how an employee is defined in the LRA. What do you do?

One of our clients found itself in this situation. Our client (the claimant) and the defendant were engaged in a transfer of business as a going concern as contemplated by section 197 of the LRA. The claimant was the so-called ‘old employer’ and the defendant the ‘new employer’.

Prior to the section 197 transfer, individuals employed by the claimant, at different periods, had applied for medical boarding or had their application for medical boarding approved. Those with their medical boarding approved were declared as persons with disabilities under the relevant insurance policies. Those whose applications were pending at the time of the transfer were on sick leave, and their respective applications were approved after the transfer date. The affected employees were unable to render services to the claimant as at the transfer date because of their disabilities. Once medically boarded, the affected employees received a disability income benefit.

The defendant, being the new employer had refused to take transfer of the affected employees for the reason mentioned above.

There is no reported judgment on this issue outlined above. However, our client and the defendant agreed to refer the dispute for determination by way of private arbitration in the matter of D v D (the parties’ names remain private). This matter is crucial because it sets precedent (albeit only persuasive), for the first time, in respect of this nuanced issue.

The crisp legal issue was whether the four affected employees should transfer to the defendant in terms of section 197 of the LRA. The claimant asserted that at the time of transfer the individuals were employees as envisaged by the LRA, and therefore their contracts of employment necessarily should transfer with the transfer of the business. The defendant denied this, contending that because the individuals were not rendering services to the claimant (on account of their “disability”) for remuneration at the transfer date, they were not considered to employees as contemplated by section 197 of the LRA.

The arbitrator (a senior counsel) accepted our client’s case, being that section 197 of the LRA and the definition of an employee must be interpreted purposively to include employees who had applied for, or had been approved for, medical boarding at the date of a transfer. Medical boarding is an alternative to dismissal and the affected employees thus remained employees as at the transfer date.

The arbitrator held that the defendant was incorrect in stating that only employees who are rendering services at the date of transfer may be considered employees for purposes of section 197 of the LRA, and thus transfer. The arbitrator further held that the affected individuals were employees of the claimant because (i) they were never dismissed by the claimant; and (ii) they still received “remuneration” from the claimant, albeit in the form of a disability income benefit from the insurer.

Should you find yourself in a similar situation, which may have its own nuances, we suggest you obtain legal advice in order properly to consider whether affected employees ought to transfer from the old employer to the new employer.