Is it the end for labour brokers as we know them? Understanding the implications of a recent Constitutional Court matter


​​

The Constitutional Court recently handed down a long anticipated judgment (Assign Services (Pty) Limited v National Union of Metalworkers of South Africa and Others (CCT194/17) [2018] ZACC 22 (26 July 2018)) which is likely to be of crucial importance to the labour broking fraternity.

The Court held that vulnerable workers (i.e. those earning on or below the current threshold of ZAR 205,433.30) are deemed to be employed by the client after a period of three months, creating a sole employment relationship between the employee and the client for purposes of section 198A(3)(b)(ii) of the Labour Relations Act.

Temporary employment services, or labour brokers as we shall refer to them, have been the target of organised labour for many years, on account of labour's view (whether real or speculative) that the most vulnerable workers in the land are subject to exploitation at the hands of the labour broking industry. As a consequence, the significant 2015 amendments to the Labour Relations Act (the LRA) contained provisions aimed at further protection for vulnerable workers, including labour brokerage employees. Very shortly after the amendments took effect, a significant matter was referred to the CCMA, as a stated case for arbitration, by a labour broker, Assign Services, regarding the nature of the relationship between the labour broker, its employees and its client in light of the amendments. The long anticipated judgment of the Constitutional Court in the matter of Assign Services versus Numsa and others has recently been handed down.

By a majority of nine to one, the Constitutional Court has finally consigned to history the notion that vulnerable workers (i.e. those earning on or below the current threshold of ZAR 205 433.30) are employed jointly by the labour broker and its client after a period of three months (the so-called 'dual' employment relationship). In upholding the Labour Appeal Court's judgment, which overturned the Labour Court's judgment (which in turn overturned the original CCMA award), the Constitutional Court has held that the section in question in the LRA creates a sole employment relationship between the employee and the client for the purposes of the LRA.

The matter is of crucial importance to the labour broking fraternity, since, according to the Confederation of Associations in the Private Employment Sector, its members place in excess of 700 000 workers on a daily basis, many of those earn below the threshold, and hence the future direction of the industry is a matter of some considerable concern.

The section in question is section 198A of the LRA, which came into effect on 1 January 2015. The essence of the section (for purposes of the issue at hand) is the following:

  • it does not apply to employees earning above the threshold;
  • it defines a temporary service as work for a client by an employee for a period not exceeding three months (or as a substitute for an absent employee, or in certain specified categories of work and periods, neither of which are relevant to the issue at hand);
  • it provides that for the purposes of the LRA a vulnerable employee performing a temporary service for a client is the employee of the labour broker;
  • it provides that for the purposes of the LRA a vulnerable employee not performing a temporary service for the client is deemed to be the employee of that client and the client is deemed to be the employer (section 198A(3)(b)(i)); and the employee is employed on an indefinite basis by the client (section 198A(3)(b)(ii)); and
  • it provides further that an employee deemed to be an employee of the client must be treated on the whole not less favourably than an employee of the client performing the same or similar work, unless there is justifiable reason for different treatment.

The question which has entertained the minds of the various adjudicators has been whether the deeming section leaves the employment relationship between the labour broker and the employee intact, thereby giving rise to dual employment by the labour broker and the client, or whether it creates a sole employment relationship between the client and the employee, thereby breaking the employment bonds between the labour broker and the employee.

Section 198(2) of the LRA, which provides that a person whose services have been procured for or provided to a client by a labour broker is the employee of that labour broker, and the labour broker is that person's employer, is a deeming provision, holds the judgment, creating a statutory employment contract between the labour broker and a temporarily placed employee. The judgment holds further that the deeming provisions in sections 198(2) and 198A(3)(b)(i) (highlighted above) cannot operate at the same time, and hence when "marginal employees" (by which is meant those vulnerable employees earning below the threshold) are not performing temporary services as defined, then section 198A(3)(b)(ii) (also highlighted above) replaces section 198(2) as the operative deeming clause for the purpose of determining the identity of the employer. In plain English, in such circumstances, after three months the labour brokerage employees are employed on an indefinite basis by the client, and are no longer employed by the labour broker.

That is not the end of the matter, however. Section 198A(3) provides that an employee is deemed to be the employee of the client "(F)or the purposes of this Act". The majority judgment accepts that the labour broker and the client may continue their contractual relationship, which could, for example, encompass the labour broker continuing to be liable to pay the employee. In terms of section 198(4), the labour broker and client are jointly and severally liable if the labour broker, in respect of any of its employees, contravenes:

  • a collective agreement concluded in a bargaining council that regulates terms and conditions of employment;
  • a binding arbitration award that regulates terms and conditions of employment;
  • the Basic Conditions of Employment Act (the BCEA); or
  • a sectoral determination made in terms of the BCEA.

In the instance at hand, the employees are no longer employees of the labour broker for purposes of the LRA, and hence the joint and several liability provisions would on the face of it have no further application to the labour broker.

Confusingly, however, section 198(4A) provides that if a client is deemed to be the employer in terms of section 198A(3)(b), then the employee may institute proceedings against the client, the labour broker, or both; a labour inspector may secure a compliance order against either or both; and an order or award made against either may be enforced against either. Naturally, if the client and the labour broker terminate their commercial contract once deemed employment by the client has occurred, then the joint and several liability provisions (and apparent contradictions) would fall away.

The majority judgment deals with the "contractual relationship" which comes into existence once the employees are deemed to be the employees of the client. It points out that this does not come into existence "through negotiated agreement or through the normal recruitment processes used by the client. The employee automatically becomes employed on the same terms and conditions of similar employees, with the same employment benefits, the same prospects of internal growth and the same job security that follows."

This raises a number of questions, possibly more than it answers: from when do these "automatic" conditions apply, from the date of judgment or from 1 July 2015 (three months after the three month transitional period post 1 January 2015 when the amendments became effective); what if there are no similar employees; what happens to employment benefits, if any, provided by the labour broker but not by the client (this is not likely a common scenario); is the client liable for back pay; what happens to accrued leave; are the employees entitled to bonuses they may notionally have been paid in the interim by the client; must the client make up employer contributions to its retirement funds; how does the client deal with the fact that its deemed employees have not been on its medical scheme; and what are the years of accrued service with the client to which the deemed employees become entitled? There are many other questions that may arise. The consequences outlined in the judgment, summarised above, may also be in contradiction with section 198A(5) which provides that the deemed employee must be treated on the whole not less favourably than an employee of the client performing the same or similar work, unless there is justifiable reason for different treatment.

In his dissenting judgment, Cachalia AJ raises an interesting conundrum. The BCEA has an identical provision, section 82(1), to section 198(2) of the LRA. Once the deeming provision in section 198A(3)(b) is triggered, the client is the only employer for purposes of the LRA while the labour broker remains the employer for purposes of the BCEA. The LRA and the BCEA cover similar terrain, as he points out, yet this inconsistency is certainly, currently, irreconcilable.

Despite the judgment, labour brokers will still be able to provide vulnerable employees to clients on a temporary basis as defined, and in respect of other employees who earn above the threshold, it will be business as usual. We can expect, however, that union attention may now shift to the issues raised above, as well as the manner in which fixed term contracts are used by labour brokers and their clients. Labour brokers may also now turn to outsourcing as independent contractors.​