The protection of job security remains a central objective of the Labour Relations Act 66 of 1995 (LRA). Two provisions of this Act play a particularly significant role in this regard, namely section 186(1)(b), which regulates expectations of renewal in fixed-term contracts within the context of dismissals and unfair labour practices, and section 197, which governs the transfer of employees when a business changes hands as a going concern. Both provisions seek to balance flexibility for employers with security for employees. Notions of good practice during business transfers and recent jurisprudence on the topic continues to refine how these sections must be interpreted and applied in practice.

Fixed-Term Contracts and Reasonable Expectation of Renewal

Section 186(1)(b) of the LRA expands the definition of “dismissal” to include circumstances where an employee employed on a fixed-term contract reasonably expected the employer to renew the contract on the same or similar terms, but the employer failed to do so or the employer offered renewal on less favourable terms; or the employee reasonably expected employment on an indefinite basis, otherwise on the same or similar terms as their current fixed-term contract, but such employment and retention was not offered or it was offered on less favourable terms. This provision recognises that the expiry of a fixed-term contract is not always neutral. In certain circumstances, non-renewal may amount to an unfair dismissal.

The enquiry into what would constitute a “reasonable expectation of renewal” is both subjective and objective. An employee must demonstrate a genuine expectation that the contract would be renewed and that such expectation was objectively reasonable considering the surrounding circumstances. Our courts have consistently emphasised that repeated renewals, while relevant, are not decisive. Commissioners and judges must examine factors such as the wording of the contract and any renewal clauses; representations made by the employer; the nature and duration of the work; whether the work was project-based or linked to external funding; and the conduct of the parties during the employment relationship. Importantly, repeated renewals do not automatically convert fixed-term employment into permanent employment. Each dispute turns on its own facts. Employers who rely on successive fixed-term contracts without operational justification or clear communication, however, expose themselves to potential unfair dismissal claims before the CCMA or the Labour Court.

Section 197 and the Automatic Transfer of Employees

Section 197 of the LRA fundamentally altered the historical position that employment contracts terminate upon the sale of a business. The provision now ensures continuity of employment where a business is transferred as a going concern. The central features of section 197 are, in summary:

  • Automatic substitution of the new employer in place of the old employer;
  • Transfer of all contracts of employment;
  • Preservation of terms and conditions of employment;
  • Transfer of all rights and obligations, including accrued benefits and pending disputes.

The purpose of the section is to protect employees from losing their employment merely because ownership or control of a business had changed.

Whether a transfer triggers section 197 depends on substance rather than form. Courts apply an objective test, considering factors such as whether the business retains its identity after the transaction; the transfer of tangible and intangible assets; the continuation of core activities; the transfer of employees; and the similarity between operations before and after the transaction. Not every outsourcing, insourcing, or service provider change will constitute a transfer as a going concern. The enquiry is factual and context specific. What matters is whether the economic entity remains substantially the same.

Protection of Terms and Conditions

Section 197(3) prohibits the new employer from altering employees’ terms and conditions to their detriment solely because of the transfer. Employees move across with their continuity of service intact. In addition, accrued leave, unpaid remuneration, and other employment-related liabilities transfer automatically; the new employer inherits both contractual and statutory obligations; and liability between old and new employers may be apportioned by agreement, but such arrangements cannot prejudice employees. This framework reinforces the principle that employees are not commodities in a commercial transaction. Section 197(6) permits the old employer, the new employer, and affected employees (or their representatives) to conclude a written agreement varying the automatic consequences of transfer. However, this is not a mechanism for unilateral exclusion or selective retention. However, any agreement to this effect must be concluded in writing; follow a meaningful joint consensus-seeking process; be entered into voluntarily and in good faith; and comply with statutory protections, including severance pay where termination is based on operational requirements.

Case Study: Limits on Selective Transfers

In Njokweni and Others v Mobile Telephone Networks (Pty) Ltd (JS 612/20) [2023] ZALCJHB 250 (21 July 2023), the employer took over a call centre operation and attempted to offer employment to only some of the employees and imposed relocation conditions, as a form of “cherry-picking”. The Court, however, held that section 197 of the LRA applied automatically and that the employer could not pick and choose which employees to transfer. The employees were found to have been unfairly dismissed, resulting in a substantial back-pay order. The judgment reinforces that failure to comply with section 197 can carry serious financial and reputational consequences. Employer preference or commercial convenience cannot override this statutory consequence. Compliance with section 197 is not optional, but a statutory imperative designed to safeguard employment continuity.

Conclusion

Sections 186(1)(b) and 197 of the LRA reflect the legislature’s commitment to protecting employees from disguised dismissals and transactional job losses. Fixed-term contracts must be structured and managed with clarity and operational justification. Employers should avoid conduct that may create objectively reasonable expectations of renewal unless such renewal is intended. Business transfers must be assessed carefully to determine whether they constitute transfers as a going concern. Where section 197 applies, employees transfer automatically and on existing terms, unless a lawful written agreement provides otherwise. Both provisions demonstrate that while labour law recognises commercial realities, it does not permit flexibility at the expense of statutory fairness. Careful compliance, supported by sound legal advice, remains essential to managing risk and maintaining lawful employment practices within South Africa’s evolving labour framework.