Merger: Two-Year No-Retrenchment Condition

This highlights the interplay between the Labour Relations Act, (LRA) and the Competition Act. The LRA regulates what happens to employees in the event of a commercial transaction, for example to protect employees’ continuity of employment in a transfer of a business as a going concern. However, this merger was a share acquisition. One of the purposes of the Competition Act is to promote and maintain competition in South Africa in order to promote employment and social and economic welfare.

In the merger notification lodged with the Competition Commission, the merging parties indicated that no retrenchments were envisaged as a result of the proposed transaction.

During the commission’s investigation, it became aware of possible retrenchments following from section 189 notices having been issued by Gold One prior to the merger notification. The section 189 process was subsequently withdrawn as there was a concern that the retrenchment exercise would impact adversely on the proposed transaction.

The commission made enquiries regarding these effects and reviewed information submitted by merging parties, but was unable to conclusively determine whether the retrenchments were merger-specific or not.

The commission recommended to the tribunal that the merger be approved subject to the condition that the merged entity is prevented from retrenching any employee as a result of the merger for a two-year period following the merger implementation date. The condition doesn’t preclude voluntary retrenchments. The merging parties didn’t contest the condition.

An entity looking to merge or expand into SA should keep the interplay between competition and labour legislation in mind.