On 7 February 2019, President Cyril Ramaphosa announced plans to unbundle Eskom into three separate and wholly owned entities under Eskom Holdings. This announcement saw backlash from trade unions who complained that Eskom should have consulted them before making the announcement. What obligation, if any, does an employer have to consult with its employees when it unbundles an entity?

Section 197 of the Labour Relations Act 66 of 1995 (LRA) regulates the transfer of employment contracts where a business transfers as a going concern. The LRA defines business to include the whole or a part of any business, trade, undertaking or service; while transfer is defined as “the transfer of a business by one employer (“the old employer”) to another employer (“the new employer”) as a going concern”. It appears that the plan to unbundle Eskom would trigger section 197 of the LRA, as Eskom Holdings will be split into three different businesses, namely generation, transmission and distribution. Each of the three different entities will become "the new employer" of the Eskom employees that are sufficiently connected to that business unit.

Generally, and provided that the employees are transferred "on terms and conditions that are on a whole not less favourable", there is no obligation to consult with the transferring employees. However, there are two exceptions to this provision, namely:

  • where there is a collective agreement in play that creates a duty to consult with employees in a business transfer scenario; and
  • where the new employer wants to transfer the employees on terms and conditions that are less favourable than those enjoyed with the old employer.

Should an employer wish to deviate from the protection set out in the LRA, employees must consent to this change and an agreement will have to be reached with:

  • either the old employer, the new employer or the old and new employers acting jointly on the one hand; and
  • the appropriate person or body that the employer is obliged to consult with, namely:
    • the person who the employer is obliged to consult with in terms of a collective agreement; or
    • where there is no collective agreement, the workplace forum and registered trade union; or
    • the trade union where a workplace forum doesn't not exist; or
    • where none of the above mentioned bodies exist, the employer is obliged to consult directly with the affected employees

In the absence of a collective agreement stipulating otherwise, Eskom has no duty to consult with the trade union or its employees, provided that the employees will transfer on terms and conditions that are, on a whole, not less favourable than those currently enjoyed by them.

The purpose of section 197 of the LRA is to protect employees and to ensure the continuity of employment. It further protects their terms of employment. Ultimately, it ensures that the transfer of a business will not result in job losses for the employees.

Although the Minister of Finance has provided some clarity on government’s unbundling plans for Eskom (in that each entity would have its own debts and assets), there remains a lot of uncertainty as to how these entities will be established and whether section 197 of the LRA will be triggered.

During the 2019 South African Budget Speech, it was announced that a Chief Re-organisation Officer would be appointed to oversee the restructuring of Eskom. Hopefully this will shed some light on Eskom’s restructuring plans.

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