Role of honour: The Constitutional Court.
In a judgment that could have wide-ranging implications for government, the Constitutional Court on Monday held that state organs, as employers, have to take over the employment contracts of workers — previously employed by an outsourced contractor — if a contract or tender is cancelled, and if the work that was outsourced is transferred back to the state.
The question before the court was the relationship between Section 197 of the labour relations Act (LRA) and the municipal systems Act. Section 17 says that when business is transferred between one employer and another, the contracts and employment conditions of employees must be taken over the new employer unless otherwise agreed to between the two parties. The municipal systems Act governs how municipalities are supposed to spend their budgets.
The dispute arose when City Power terminated a contract it had with Grinpal Energy Management Services, a company employed to provide prepaid metres and electrification infrastructure to 38 000 residents of Alexandra. The contract came to an end in 2010 because Grinpal’s tax certificate was allegedly fraudulent.
In terms of the LRA, workers employed by Grinpal should have been transferred to City Power, according to the contractor. But City Power argued in court that, as a municipal entity, it was obliged to abide by the relevant sections of the municipal systems Act which meant that it could not exceed its annual budget.
City Power lost in the Labour Court and the Labour Appeal Court, and then appealed to the Constitutional Court. The matter was heard in November 2014.
On Monday, City Power lost the appeal and was ordered to pay costs of three counsel.
All the while, with no one in the dispute willing to take responsibility for them, workers have been in limbo, with no clear employer, and have reportedly gone without pay at times.
In a unanimous judgment, written by Acting Judge Tshiqi, the ConCourt on Monday ruled that City Power, as an entity employed by a municipality, is obliged to abide by Section 197. The court went further, stating that the LRA overrides other legislation when it comes to matters of employment, and that this applies to the state and to private companies.
This means that state entities have to plan for the possibility that, if contracts or tendered are cancelled or lapse, they will have to absorb workers if the contract is transferred to the state entity.
Tshiqi wrote that a question raised by Judge Davis in the Labour Appeal Court is “more nuanced” than what the ConCourt had previously considered. In explaining why the ConCourt granted City Power leave to appeal from the Labour Appeal Court, Tshiqi said: “It pertains to whether municipal entities like City Power, tasked with public functions, funded from public resources and regulated through the municipal systems Act and local government: municipal finance management Act,11 are immune from the financial consequences of a transfer in terms of section 197.
“The provision of basic municipal services is the most important function of every municipal government. As noted by the Labour Appeal Court, municipalities are constrained by limited available public resources to fulfil their important obligations of providing services to all residents who fall within their jurisdiction.”
There was also some debate about whether City Power was a municipal entity at all.
At the ConCourt, City Power argued that section 197 does not apply to it because the laws governing its functioning give it its own recruitment and selection policy. And, when additional staff have to be hired, City Power said it cannot simply go against what was approved in its annual budget because that would put strain on its finances, ultimately affecting the community its serves.
But Grinpal argued that City Power, while it is owned by the City of Johannesburg, is not a municipal entity but a private company, and so the municipal systems Act does not apply to it.
Yet the court held otherwise. “A mere reliance on the fact that City Power is a private company does not take into account the fact that these entities are usually established for the sole purpose of performing public functions as required in terms of (the relevant legislation) …
“The public nature of the functions performed by City Power and the restrictions imposed on such municipal entities by the municipal systems Act distinguish them from other private entities.”
Tshiqi said City Power is a private company performing a public function.
“The Johannesburg municipality cannot void its constitutional obligations and public accountability by forming a municipal entity like City Power,” the court held.
But this principle applies his to Grinpal, too, because it is employed by a municipality, the court said.
So the next question before the court was whether Section 197 of the LRA applies to both entities.
If this was not the case, Tshiqi said, the consequence would be that all municipal entities would be immune from section 197 of the LRA.
“That was not the purpose of the legislation. A reading of both acts shows that the LRA supercedes the municipal systems Act,” Tshiqi wrote.