Legislative action threatens to enlarge public-interest scope of merger review

south_africa

The Potential Impact on Public Interest Considerations of the Labour Relations Amendment Act

The recently enacted Labour Relations Amendment Act, 6 of 2014 (the “LRAA”) has potentially increased the scope and role employment, as a specified public interest ground listed in Section 12A of the Competition Act, 89 of 1998 (the “Act”), could have on merger reviews in South Africa.

Section 12A of the Act places an obligation on the South African Competition Authorities to (the “Authorities”), when evaluating a merger, to consider the impact that a proposed merger will have on a number of public interest grounds which are listed in the Act.

The Authorities have become increasingly proactive in imposing conditions on approved mergers, which aims to alleviate their concerns in relation to the potential impact that a proposed merger may have on any of the public interest grounds.

The most often relied upon public-interest ground is employment. In 2015 alone there have been five large mergers that have been approved, subject to conditions in relation to employment. [1]

When assessing the impact that a proposed merger will have on employment, the most crucial factor is the potential immediate retrenchments that may result from the merger.

Previously, the impact that a merger may have on employees who were on ‘fixed term’ employment contracts would not be a significant factor as the employment contract, it could be argued, was in any event to come to an end. However, the LRAA has now changed the position somewhat in this regard, as an employer may no longer conclude fixed term contracts with employees for a period of 3 months, unless the nature of the work to be performed is for a definite or limited duration, or there is another justifiable reason for concluding a fixed term contract.

Should the requirements for concluding a fixed term contract for a period of longer than three months not be met, such an employee will be deemed to be employed for an indefinite term.

Thus, for companies who make use of fixed term employment contracts (that are concluded for a period longer than three months), the scope and the potential negative impact (in the eyes of the Authorities) that a proposed merger will have on employment, could be significantly broader than previously the case.

[1] Delatrade 83 (Pty) Ltd and The JHI Retail Division of JHI Properties (Pty) Ltd and LP Manco, The Property Management Business of Liberty Holdings Ltd; Sasfin Bank Limited and Fintech (Pty) Ltd; Bytes People Solutions a Division of Bytes Technology Group South Africa (Pty) Ltd and Inter-Active Technologies (Pty) Ltd; Dimension Data (Pty) Ltd and The Following Three Business Divisions of Mweb Connet (Pty) Ltd: Mweb Business, Optinet Networks and Optinet Services; Shoprite Checkers (Pty) Ltd and The Assignment of Certain Leases and the Employment of Employees of Final Selected Stores OR Ellerines Furnitures (Pty) Ltd

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