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. It can also arise as a result of merger of entities or demerger/unbundling of an entity.
It is imperative for a potential investor or potential buyer of a going concern to understand the obligations placed upon the shoulders of the new employer by the law before concluding any deal to take over a going concern lest the new employer will be riddled by legacy issues. Put differently, any agreement of sale of a going concern should adequately canvass the rights of the employees.
One of the famous transfer of an undertaking in Zimbabwe is that of BP Shell who sold its services as a going concern to Zuva Petroleum. (See Don Nyamande & Anor v Zuva Petroleum (Pvt) Ltd SC 43/15 page 1). Another example is that of First Capital Bank which took over Barclays Bank operations in Zimbabwe as a going concern.
Section 16(1) of the Labour Act Chapter 28:01 provides that 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.
This means that the new owner of the undertaking is legally obligated to ensure that the employees enjoy the same conditions which were obtaining in the previous entity or more favourable once. At the same time the employees’ record of employment is deemed continuing and no break will be read into the employees’ service. In the event that the new employer does not require the services of particular employees, it is paramount to lawfully terminate the service of such through lawful means such as retrenchment.
The law also allows the new employer to agree on more favourable terms. It provides that nothing shall 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; or 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 of Labour.
The statute also grants the employees concerned the right to sue over 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 and nothing shall be deemed to derogate from or prejudice the benefits or rights conferred upon employees under the law relating to insolvency.
It further states that 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.
Transfer of an undertaking is a legal minefield which if not handled properly may prove costly to the new owner hence it is essential for potential buyers of any going concern to seek legal advice to avoid legal pitfalls emanating from legacy issues.
The contents of this article are for general information purposes only and do not constitute our legal or professional advice. We accept no responsibility for any loss or damage of whatsoever nature which may arise from reliance on any of the information published herein.
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