Labour Brokers - Webber Wentzel

Interpretation of section 198 of the LRA: LAC finds in favour of sole employment relationship with client
Source: Norton Rose Fulbright, www.nortonrosefulbright.com/

Judgment was handed down by the Labour Appeal Court in the matter of NUMSA v Assign Services & Others (case no JA96/15) on 10 July 2017 confirming the view that the client becomes the sole employer of an employee assigned to the client by a labour broker for more than three months. This judgment is of critical importance to all businesses making use of labour brokers and could change the way in which the industry operates in future.

The amendments to section 198 of the Labour Relations Act, 1995 introduced a controversial provision in terms of which the client of a labour broker is deemed to be the employer of an employee assigned to the client by a labour broker for more than three months. This deeming provision, which is only applicable to employees under the earnings threshold, has been interpreted in two ways: either to support the creation of a dual employment relationship, with both the labour broker and the client as employers, or to support the creation of a sole employment relationship, with only the client deemed to be the employer.

These two opposing viewpoints were tested in Assign Services. In the CCMA, the commissioner held in favour of the sole employment interpretation, whilst the Labour Court, on review, held in favour of the dual employment interpretation. On appeal, the Labour Appeal Court held as follows:

As the employees no longer engage in temporary work (as defined in section 198) after the 3 month period, they cease to be employees of the labour broker and become employees of the client by operation of statute.
The sole employment interpretation is in line with the provisions of the Explanatory Memorandum accompanying the LRA Amendment Bill.
The purpose of the additional provisions requiring parity between the terms and conditions of the employees of the labour broker and their counterparts employed by the client is “to ensure that the deemed employees are fully integrated into the enterprise as employees of the client.”
The continuing joint and several liability of the labour broker serves to discourage the labour broker “from being further involved in the administrative arrangements regarding employees placed at the client for a period in excess of three months.”
No automatic transfer of employment between labour broker and client takes place as envisaged in section 197 of the LRA. Instead a new “statutory employment relationship” is created between the client and the placed employee.
The continued involvement of the labour broker (by, for example, paying the salary of employees) does not elevate the labour broker to being an employer. Once the labour broker exits the administrative relationship, “the joint liability burden will also cease.”
The dismissal of the employee by the labour broker “has no bearing on the employment relationship created by operation of law between the placed worker and the client.”
The finding of the Labour Appeal Court that the application of the LRA could result in the termination of an employment relationship with one party and the creation of a different employment relationship with another party is quite controversial. Given the importance of the matter, there will no doubt be a further appeal to the Constitutional Court, at which time certainty will hopefully be provided on the interpretation of the amendments to section 198 of the LRA.

Jonathan Jones | Director
Norton Rose Fulbright

Temporary employment services: the Labour Appeal Court decides
Source: ENS Africa, Peter le Roux, www.ensafrica.com

Trade union opposition to the use of temporary employment services (“TESs”) – commonly referred to as labour brokers – and concerns that TES employees were not being accorded rights granted to them in terms of South African labour legislation, led to the introduction of amendments to the Labour Relations Act, 1995 (“LRA”) that came into force in January 2015. Instead of heeding calls from the Congress of South African Trade Unions to ban TESs, the legislature introduced a regulatory regime, albeit a fairly strict one.

This was primarily provided for in the new section 198A of the LRA. It is important to note that the intention was to protect the interests of lower paid, more vulnerable, employees only. The section only applies if the employee concerned earns less than the threshold prescribed by the Minister of Labour in terms of section 6(3) of the Basic Conditions of Employment Act, 1997. The current threshold is R205 433.30.

Where employees earn less than the threshold amount, section 198A applies. It sets out the circumstances where the services of a TES may be utilised (ie, “acceptable use”) and those where they may not be utilised (ie, “unacceptable use”). Use of a TES will be acceptable if it falls within the definition of a “temporary service”. This is defined to encompass the following:

if a TES employee is assigned to a client for a period of less than three months;
if a TES employee is assigned to a client as a substitute for an employee who is temporarily absent from work; or
if a TES employee is assigned to a client to perform a category of work that is determined to be a temporary service by a collective agreement concluded in a bargaining council, a sectoral determination or a notice published in the Government Gazette by the Minister of Labour.
The aim of section 198A is to prevent a client using TES employees on a long-term or “permanent” basis in order to avoid the costs of employing its own permanent employees.

Section 198A imposes two important consequences for the unacceptable use of a TES:

the employee assigned to the client is deemed to be the employee of the client, for the purposes of the LRA and is employed on an indefinite basis by the client; and
the client must treat the deemed employee “on the whole not less favourably” than its own employees who perform the same or similar work, unless there is a justifiable reason for not doing so.
A controversy has arisen as to whether the operation of the deemed employment provision results in the client being regarded as the sole employer of the assigned employee, or whether the TES also remains the employer. If the latter scenario applies, the employee assigned to the client will, in effect, have two employers, at least for the purposes of the LRA.

In Assign Services (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration & Others, the Labour Court held that a Commission for Conciliation, Mediation and Arbitration commissioner had erred in finding that the client became the sole employer and came to the conclusion that the employment relationship between the TES and the assigned employee continued to exist for the purposes of the LRA. As such, there was “dual” or “parallel” employment. This decision was taken on appeal to the Labour Appeal Court (“LAC”), which handed down its decision on 10 July 2017. The LAC overturned the decision of the Labour Court and found that the client was the sole employer of the assigned employee, at least for the purposes of the LRA. According to the LAC, the “sole employer” interpretation is consonant with the main thrust of section 198A. It also stated the following:

“The purpose of the deeming provision is not to transfer the contract of employment between the TES and the placed worker to the client, but to create a statutory employment relationship between the client and the placed worker. Bearing in mind that the purpose of the amendment was to have the temporary employment service restricted to one of ‘true temporary service’ as defined in s198A of the LRA, the intention must have been to upgrade the temporary service to the standard employment and free the vulnerable worker from atypical employment by the TES. It would make no sense to retain the TES in the employment equation for an indefinite period if the client has assumed all the responsibilities that the TES had before the expiration of the three-month period. The TES would be the employer only in theory and an unwarranted ‘middle-man’ adding no value to the employment relationship.”

It appears that many TESs would want to be seen as remaining the employer of the assigned employee, and being regarded as an “unwarranted middle-man” would be seen as a setback. It is likely that there will be an appeal to the Constitutional Court. From the perspective of clients of TESs, it seems that the option of instituting claims in terms of the LRA against the TES disappears and that these claims will now have to be brought against the client only.

The LAC decision may clarify one point of controversy, but others remain. It is not clear from the decision whether it regards the contractual relationship that exists prior to the deeming provision coming into effect as continuing in some form or manner. Given the fact that the LRA provides that the client is deemed to be the employee “for the purposes of” the LRA, it would seem that for other purposes, the TES may remain the employer. Clearly, questions arise in this regard. Can contractual obligations be enforced against the TES? What will happen in regard to employer obligations that arise from other labour statutes? Who is the employer for tax purposes? These are issues that will have to be considered with some care.

A recent judgment by the Labour Appeal Court (LAC) considered the treacherous relationship between a temporary employment service (TES), a client and the placed employees of a TES in relation to the so-called 'deemed relationship'.

The matter between the National Union of Metalworkers of South Africa (NUMSA) and Assign Services (Pty) Limited amongst others, was the first dispute referred to the CCMA, and then reviewed by the Labour Court, on the proper interpretation of section 198A(3)(b)(i) of the Labour Relations Act, 1995 (LRA) since it came into effect on 1 January 2015.

Section 198A(1) of the LRA defines a 'temporary service' as work for a client by an employee:
not exceeding three months.;
as a substitute for an absent employee; or
for the work and period determined by a collective agreement or a sectoral determination or notice published by the Minister.
We will regard this definition as 'genuine temporary work' for the purpose of the article.

Section 198A(3)(b)(i) states that if a placed employee does not perform genuine temporary work as envisaged in section 198A(1), the employee is "deemed to be the employee of that client and the client is deemed to be the employer; and … is employed on an indefinite basis by the client."

The question the LAC was tasked with deciding is who becomes the employer of the placed employee once the three month period lapses?

Assign argued that once the three month period lapses, workers remain employees of the TES and are also deemed to be employees of the client for purposes of the LRA, effectively supporting the so-called dual employment relationship.

NUMSA, on the other hand, argued that upon the lapse of three months, the employees are deemed to be employees of the client only for purposes of the LRA, supporting the so-called sole employment relationship.

The CCMA agreed with NUMSAs interpretation but its decision was reviewed and set aside by the Labour Court who adopted the approach put forward by Assign. NUMSA then appealed against the decision of the Labour Court.

On appeal the LAC held as follows:

A placed employee who does not render genuine temporary work is not an employee of the TES but is deemed to be an employee of the client on an indefinite basis;
The employee becomes employed by the client on the same terms and conditions as those employees of the client performing the same or similar work;
The employment relationship between the client and the placed employee arises by operation of law;
The contract of employment does not transfer from the TES to the client, but rather a statutory employment relationship between the client and the employee is created;
The TES remains the employer of the placed employee until the employee is deemed to be the employee of the client (i.e. after three months), but until then, the TES will be responsible for its statutory obligations towards the placed employee;
It would make no sense to retain the TES in an indefinite employment relationship if the client has assumed all the responsibilities which the TES had prior to the expiry of the three month period (the TES may still play a role in this relationship by, for example, paying the salary of the employee);
The dismissal of the employee by the TES has no bearing on the employment relationship created by operation of law between the placed employee and the client; and
The 'sole employer' interpretation does not ban TES' but restricts them to genuine temporary employment arrangements.

The LAC was of the view that the sole employment interpretation offers the greatest protection to vulnerable employees, which it views as the purpose of the amendments to the LRA.

While the parties were of the view that the 'deeming provision' is for purposes of the LRA only, it is unclear whether the LAC shares these sentiments. From the judgment it appears that, on the expiry of the three month period, the TES is not required to be party to any employment relationship. The only employment relationship that exists thereafter is the relationship between the client and the employee for all purposes of employment.

It is important to remember that the deeming provision does not apply to employees who earn in excess of the threshold determined by the Minister in terms of the Basic Conditions of Employment Act, 75 of 1997, which is currently set at ZAR 205,433.30.

This judgment will no doubt raise further questions in relation to the practicalities surrounding the relationships between the TES, the client and the employees.

Assign will be appealing this judgment to the Constitutional Court in due course. Once the appeal has been launched, the order of the LAC will be suspended and the decision of the Labour Court will stand until the Constitutional Court delivers its judgment.

Written by Deirdre Venter, Partner and Belinda Price, Associate at Webber Wentzel