Karen Harverson.
More than 2 000 companies were liquidated in 1994 alone, resulting in thousands of employees not only losing their jobs but also losing out on unpaid salaries, accrued leave and various other benefits.
When it comes to protecting the rights of employees of insolvent companies, South Africa’s laws lag far behind international norms.
One of the shortcomings being addressed in the new Labour Relations Act is the employees’ right to keep their jobs if the insolvent company is transferred, or if it is transferred without being formally declared insolvent, such as when a company is sold, merged with anothercompany or transferred without payment.
Under the existing law employees automatically lose their jobs, unless the new owner agrees to continue their employment contracts.
The new Labour Relations Bill, due to come into effect in 1996, stipulates the employment contract will continue whether the company is declared insolvent and transferred, or transferred without being declared insolvent.
It also ensures the principle of continuity of employment is respected. This implies an employee’s severance package would be based on the number of years worked in total, including years with the old company.
“The main point is that employees now get to keep their jobs,” says Rand Afrikaans University law professor Marius Olivier.
However, he points out that no other claims or obligations are transferred to the new owner.
“The employee still has to lodge claims for unpaid salaries, unpaid accrued leave and other claims against the liquidators if the company is declared insolvent.”
Most often there is little left in the estate after the secured creditors, such as banks, are paid out, and the employee usually gets nothing, even though some employee claims enjoy privileged status.
Similarly, if the company is transferred without being declared insolvent, employees can lodge claims against the old owner under common contract law but it is still unlikely that assets will be available to meet their
In the United Kingdom (UK) — if a company is transferred whether insolvent or not — not only are the employees’ employment contracts continued but their claims are also transferred to the new owner.
Under European Union (EU) law, this occurs only in the case of the company being transferred without being formally declared insolvent.
Olivier comments this could encourage the placing of a company into insolvency rather than rescuing it so that the new owner is not liable for claims.
He believes South Africa needs to do more to protect workers’ rights in the area of lost wages.
In most European countries and certain provinces of Canada, employers are obligated by law to contribute to guaranteed payment systems.
“This system ensures that in the event of a liquidation, certain employee claims up to a certain amount will be met, irrespective of whether there are assets available or the number of secured creditors first in line,” he says.
The fund, financed by employer contributions — and in the case of the UK also by the state — automatically pays out claims or certain claims with regard to salaries, holiday payments and so forth.
“The other advantage is that employees don’t have to make use of the lengthy claim system and are paid out quite quickly,” says Olivier.
Another important difference between South African and European insolvency law relates to the transferral of collective rights.
This refers to agreements reached by trade unions with the company prior to going insolvent and being transferred or being transferred without being declared insolvent.
In the EU, these agreements, in principle, pass on to the new employer who has to honour them.
“This clause was deliberately left out of South Africa’s new Labour Relations Act,” Olivier maintains.