Constitutional Court Confirms Limits on Labour Appeals and Awards Costs in Dispute Arising from Terminated Municipal Services Agreement

By Riaan du Plessis | Director

The Constitutional Court has delivered a useful judgment for municipalities, organs of state, and private service providers involved in outsourcing and insourcing arrangements.

In King Cetshwayo District Municipality v Water and Sanitation Services South Africa (Pty) Ltd and Others [2026] ZACC 14, the Court refused the Municipality leave to appeal in a section 197 dispute arising from the termination of a long-running service level agreement for water services. The judgment is significant not only because leave to appeal was refused, but because it reinforces an important appellate principle in labour matters and confirms that a costs order may be justified where the dispute is, in substance, commercial rather than purely labour related.

The dispute and the appeal

The underlying dispute concerned whether the termination of the service level agreement triggered section 197 of the Labour Relations Act, with the result that employees would transfer automatically to the Municipality as the new service provider. The Labour Court ruled in favour of Water and Sanitation Services South Africa (Pty) Ltd, and the Labour Appeal Court dismissed the Municipality’s appeal. The Municipality then sought leave to appeal to the Constitutional Court.

The Municipality contended that the matter engaged the Constitutional Court’s jurisdiction because it involved the interpretation and application of section 197, and because disputes of this nature have broader significance in both the public and private sectors. The Court accepted that jurisdiction was engaged. However, it stressed that this was only the first step in the enquiry. The further and decisive question was whether it was in the interests of justice to grant leave to appeal.

The Court repeated that, even in labour matters, constitutional jurisdiction does not entitle a litigant to a further appeal as of right. The interests of justice requirement serves an essential gatekeeping function and prevents the Constitutional Court from becoming a general super-appellate court for labour disputes merely because the Labour Relations Act is implicated.

The Court’s approach to the Municipality’s grounds of appeal

A central feature of the judgment is the Court’s treatment of the Municipality’s grounds of appeal. It found that no new legal principle arose for determination. Instead, the Municipality’s complaints were, in substance, fact-based challenges presented as points of law. The Court held that the law on section 197 was settled and that there was no proper basis for it to interfere with the factual findings of the Labour Court and Labour Appeal Court as two specialist labour courts. Leave to appeal was therefore refused.

The judgment is a reminder that an appeal to the Constitutional Court is unlikely to succeed where:

• The applicable legal principles are already settled;
• The dispute is chiefly factual in nature; or
• The appellant is, in reality, challenging the way in which lower courts applied established legal principles to the facts.

That is particularly relevant in labour and employment disputes. It is not uncommon for an unsuccessful litigant to seek to elevate a matter to constitutional level by relying on the fact that the Labour Relations Act gives effect to constitutional rights. This judgment makes clear that such an approach will not succeed where the real complaint is fact-driven and no new principle requires consideration by the apex court.

Costs in a dispute characterised as commercial in substance

The costs order is also noteworthy. The Constitutional Court reaffirmed the established principle that costs do not ordinarily follow the result in labour matters, in part because of the need to preserve access to labour dispute-resolution institutions. However, it found that the present matter was not a purely labour dispute. In its view, it was essentially a commercial dispute between an organ of state and a private company, with the section 197 issue concerning the workforce being incidental to that broader dispute.

The Court was also critical of the Municipality’s conduct. It referred to concerns already identified by the Labour Court regarding the Municipality’s version on the arrangements following termination of the agreement and it noted the lengthy delay before the appeal was heard in the Labour Appeal Court. That delay, the Court said, had a harmful effect on the security of employment of the affected workforce and is inimical to the constitutional and statutory objective of efficient dispute resolution in labour matters. In those circumstances, the Court ordered the Municipality to pay costs, including the costs of two counsel.

The judgment therefore confirms that the conventional no-costs approach in labour matters is not absolute. Where the true nature of the dispute is commercial, or where the conduct of a party justifies a departure from the ordinary position, a costs order may be granted.

Practical Implications

For municipalities and public entities, the judgment underlines the importance of assessing section 197 risks carefully when service agreements are terminated, renewed, or restructured. Employment consequences should form part of the planning process from the outset.

For private contractors and service providers, the judgment provides support against attempts to prolong section 197 disputes through further appeals that raise no new point of law.

For litigants more generally, the case confirms that the existence of constitutional or general jurisdiction is not enough. The interests of justice enquiry remains decisive and that enquiry will be shaped by the nature of the issues raised, the presence or absence of new legal principles and the extent to which the appeal is truly legal rather than factual.

More broadly, the judgment shows that a court may look beyond the formal labour framing of a dispute and determine its real commercial character. That may affect both appellate prospects and exposure to an adverse costs order.

If your organisation is reviewing an outsourcing model, terminating a service agreement, or dealing with a possible section 197 transfer, early legal advice remains important. By the time the matter reaches the appellate stage, the scope to alter the course of the dispute may already be limited.