Introduction
Many times I have been asked by both employees and employers to advise on what happens to the rights of employees when an undertaking or part of a business is transferred. Such a transfer may be in the form of part of the business being sold off. Examples of undertakings may include a mine owned by a company, a branch or a plant. Section 16 of the Labour Act (Chapter 28:01) or “the Labour Act” provides for this situation, as explained below.
Rights of employees on transfer of part of business or undertaking
According to section 16(1) of the Labour Act, 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.
For ease of understanding, section 16(1) is broken down as follows:
- The section applies to any undertaking in which any persons are employed. In other words the undertaking has to have employees in it.
- Such undertaking is alienated or transferred in any way whatsoever. In other words how the undertaking is transferred can be interpreted widely in that there can be different ways this can be done.
- The employment of such persons shall, unless lawfully terminated… In other words it is not just about termination but lawful termination thereof.
- Be deemed to be transferred to the transferee or receiving entity, for example the purchaser.
- 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 very simple terms, the implications are that if a business transfers a part of it that employs people, such employees are deemed to be transferred to the new entity and on the same terms and conditions of employment immediately before such transfer, unless the employees were lawfully terminated.
Common challenges
Some of the common challenges include the following:
- Lack of understanding of the law as it applies to such situations.
- Lack of clarity by the transferring or receiving entity.
- Assumptions that are not sound at law. For example, employees may assume that upon transfer they are being terminated by the previous employer and are therefore entitled to terminal benefits applicable when employment is terminated. The transferee / receiving employer may assume that the employees were lawfully terminated by the transferring or previous employer.
- Termination that is unlawful, usually to prejudice employees.
- The agreement of sale or business agreement between the transferring entity and transferee / receiving entity may not address the situation at all, may do so partially or the provisions in such an agreement are not the same as what would have been communicated to the employees.
- No formal paperwork or documentation from the previous or new employer to the employees whether they are being terminated or transferred.
Further legal provisions under section 16 of the Labour Act
According to section 16(2) of the Labour Act, nothing is section 16(1) shall be deemed:
- To prevent the employees concerned from being transferred on terms and conditions of employment which are more favourable to them.
- To prevent the employees concerned from agreeing to terms and conditions of employment less favourable but lawful. This applies 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
- 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.
- To derogate from or prejudice the benefits or rights conferred upon employees under the law relating to insolvency
Unfair labour practice
According to section 16(3) it shall be an unfair labour practice to violate or evade or to attempt to violate or evade in any way the provisions in section 16.
Conclusion
Section 16 is important to understand as it covers situations that arise from time to time.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He sits on the Council of Estate Administrators in Zimbabwe and was recently appointed to the Board of an Engineering company. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@gmail.com. Visit www//:hofisilaw.com for more articles.
