When Your Employer Sells the Business: Section 197 and Your Job

An email goes round on a Friday. The business has been sold, or merged, or outsourced. The new owner takes over on the first of the month.

The anxiety that follows is usually about the wrong thing. Employees brace to be re-employed on new terms, or to apply for their own positions, or to lose the years they have built up. Section 197 of the Labour Relations Act 66 of 1995 says none of that happens automatically — and in fact says close to the opposite.

What counts as a transfer

Section 197(1) defines the two terms that do the work, and both are broader than people expect.

"Business" includes the whole or a part of any business, trade, undertaking or service.

"Transfer" means the transfer of a business by one employer to another as a going concern.

Two things follow from the width of that.

A part counts. You do not need the whole company to be sold. A division, a depot, a service line, a contract — if a part of the business moves as a going concern, section 197 applies to the employees in that part.

"Going concern" is the test, not the label. The question is whether what moved was a functioning business capable of continuing to operate, rather than a pile of assets. Selling the machinery is not a going concern. Selling the operation that uses it, with its customers and its staff, generally is. Outsourcing arrangements and changes of service provider have kept South African courts busy on exactly this question, and the label the parties put on the contract does not settle it.

What section 197(2) does, automatically

Where a business transfers as a going concern, and unless the parties agree otherwise, four things happen by operation of law:

1. The new employer is substituted. It steps into the old employer's position in respect of all existing contracts of employment. There is no new contract, no offer, and nothing for you to accept.

2. All rights and obligations continue unchanged. Whatever was owed between you and the old employer continues between you and the new one. Your salary, your benefits, your notice period, your leave balance — the terms come across with you.

3. Anything the old employer did is treated as having been done by the new employer. Including a dismissal, and including an unfair labour practice. That is a striking provision: an employee with a live dispute against the seller does not lose it when the business changes hands. The buyer inherits it.

4. Continuity of service is not broken. Your employment with the new employer continues as if uninterrupted. Your years count from when you started, not from the transfer date.

Read together, these dispose of most of what people fear.

• You are not re-employed. You are the same employee, of a different employer.
• You do not apply for your own job. There is no vacancy to apply for; your contract already transferred.
• You do not restart your service. Long-service benefits, notice periods that scale with service, and severance calculations all run from your original start date.
• You do not sign a new contract unless something is genuinely being changed — and a change requires agreement, like any other change to terms.

"Unless otherwise agreed" — who may agree what

Section 197(2) opens with the qualification that it applies unless otherwise agreed. That phrase does not mean the buyer and seller can agree to strip your rights between themselves.

Your terms and conditions are terms of your contract. Changing them requires your agreement, in the ordinary way. A transfer is not an occasion on which an employer acquires a unilateral power it did not have the day before.

What the two employers can and do arrange between themselves is the apportionment of accrued liabilities — who carries the accumulated leave, who carries severance exposure, and how that is valued. The Act deals with those arrangements in later subsections which we have not set out here, and they are an issue between the employers rather than something that reduces what you are owed.

If you are presented with a new contract "because of the transfer", read it as what it is: a proposed variation. You may accept it, and you may decline it, and declining does not end your employment, because your employment transferred by operation of law.

Where the pressure usually shows up

Harmonisation. A buyer with its own staff on different terms will often want everyone on one set. That is a variation, needing agreement, and where it cannot be agreed there is a proper process for it. It is not something the transfer accomplishes on its own.

Restructuring after the transfer. A genuine operational requirement can lead to retrenchment after a transfer, with the usual process and the usual protections. What it may not be is a way of undoing section 197 by dismissing the transferred staff and rehiring on new terms. A dismissal related to a transfer attracts particular scrutiny under the Act, and the burden on the employer is heavy.

"Sign here to transfer." There is nothing to sign. If a form is presented as a condition of your job moving across, ask what it actually says. It may be a harmless administrative record, or it may be a variation of terms wearing a transfer's clothes.

Terms made materially worse. If the new employer provides conditions or circumstances at work that are substantially less favourable than those provided by the old employer, and you terminate as a result, the Act treats that as a dismissal — a lower bar than the ordinary "intolerable" test for resigning under pressure. That route is worth knowing before you resign in frustration.

If the job does go, rather than the employer, the money and the process are set out in our guide to retrenchment and severance rights. And where a dispute has to be referred, how the CCMA works covers the mechanics.

What to do when a transfer is announced

Keep your own record of service. Start date, current salary, benefits, leave balance, notice period. Continuity is preserved by law, but proving what your terms were is much easier with a payslip and a contract than with a recollection.

Ask, in writing, whether the transfer is as a going concern. The answer determines whether section 197 applies at all, and an employer that will not answer plainly is worth watching.

Do not sign a new contract in the first week. Take the time to compare it, clause by clause, with what you had. Anything worse is a variation you are being asked to agree to.

Raise reduced terms immediately. Delay makes acceptance look implied.

If you are an employer buying a business, understand that you are acquiring the workforce, the service history, and the outstanding disputes — not a clean slate. Employees transfer with everything attached. For the obligations that follow on the payroll side, see hiring your first employee.

Frequently asked

My company was sold. Do I have to apply for my job? No. Section 197(2) substitutes the new employer in respect of your existing contract automatically. There is no vacancy to apply for.

Do my years of service start again? No. The transfer does not interrupt continuity of employment, and your service with the new employer continues as if uninterrupted.

Can the new owner change my salary or benefits? Not unilaterally. Your terms transferred with you, and changing them is a variation requiring your agreement, exactly as it would have been before the sale.

I had a dispute with the old employer. Is it gone? No. Anything done by the old employer, including a dismissal or an unfair labour practice, is treated as having been done by the new employer.

Only my department was outsourced. Does section 197 apply? It can. "Business" includes the whole or a part of any business, trade, undertaking or service, so a transferred part is covered if it moved as a going concern.

What if my new conditions are much worse? Terminating because a new employer provides conditions or circumstances substantially less favourable than the old employer's is treated by the Act as a dismissal. Take advice before resigning, and get the comparison in writing first.

The new employer says the sale was of assets, not a business. That is the live question. "Going concern" turns on whether a functioning operation transferred, not on how the sale agreement describes itself.