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Legislative soap opera introduces a changing labour landscape

1 October 2014
– 6 Minute Read

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The Bill does not provide guidance as to how this three-month period is to be calculated. The only exceptions to this are employees who work as a substitute for an employee of the client who is temporarily absent, or if the category of work and the period of time for which the employees perform for the client has been determined to be a “temporary service” by a collective agreement concluded in a bargaining council, a sectoral determination or in a notice published by the Minister of Labour.

In brief, TES employees who earn below the threshold will only be regarded as being employed by the TES if they are performing temporary services, as defined. Furthermore, unless employed in terms of a genuine fixed term contract (as contemplated by the proposed new section 198B of the LRA), the employee will be regarded as being employed by the client on an indefinite basis and, unless there is a justifiable reason for different treatment, must be treated on the whole not less favourably than employees of the client who perform the same or similar work.

To prevent abuse of the deeming provision, the Bill provides that the termination of an employee’s services with a client by the TES, whether at the instance of the TES or the client, for the purpose of avoiding deemed employment by the client, or because the employee exercised a right in terms of the lra, constitutes a dismissal. In addition, the Bill seeks to introduce anti-avoidance provisions aimed at preventing simulated arrangements or corporate structures intended to defeat the purposes of the lra or any other employment law by attempting to disguise the identity of the true employer. The explanatory memorandum to the Bill makes clear that these provisions are drafted with subcontracting and outsourcing arrangements in mind.

The proposed new section 200B of the lra reads as follows:
“(1) For the purposes of this Act and any other employment law, “employer” includes one or more persons who carry on associated or related activity or business by or through an employer if the intent or effect of their doing so is or has been to directly or indirectly defeat the purposes of this Act or any other employment law.
(2) If more than one person is held to be the employer of an employee in terms of subsection (1), those persons are jointly and severally liable for any failure to comply with the obligations of an employer in terms of this Act or any other employment law.”

This said, the parties will in our view fall outside of the deeming provision if the TES’s services have genuinely evolved beyond the mere provision of labour, or) the individual rendering the service to the client does so in his or her capacity as an independent contractor.

Any attempt by the TES and client to “rebrand” their relationship is likely to be viewed with scepticism by the courts. To avoid falling within the definition of a TES, the service provider must provide the client with a holistic service (for example catering or a call-centre), which is sufficiently removed from, and developed beyond, the mere provision of labour so as to constitute a genuine independent contractor relationship. This is ultimately a fact based enquiry and the court will look beyond the contractual arrangements put in place by the parties (the “paper relationship”) and scrutinise the day-to-day working relationship to see whether this seeks to  undermine the protection to workers which the  legislature has attempted to introduce through the amendments to the lra. The dividing line between TES and independent contractors or service providers can be a grey area and each arrangement will be scrutinised and adjudicated on its own unique set of facts.

It is worth noting that the deeming provision only potentially impacts on the client where the individual performing the work does so in their capacity as an employee. In this regard, we believe that the Labour Appeal Court’s decision in LAD Brokers (Pty) Ltd v Mandla (2001) 22 ILJ 1813 (LC) is still instructive. In this case the Court dealt with the practical difficulties posed by a labour brokering arrangement and found that while the individual rendering the services was an independent contractor in relation to the TES he nevertheless rendered his services to the client as an employee. Therefore the TES was still liable in terms of section 198 of the lra. In reaching this conclusion the Court held : “The legislature clearly intended labour broker and the like who pay remuneration to be held liable as employers  ….To determine whether the service provider is an  independent contractor of the temporary employment service is therefore as an end in itself a futile exercise. Even if he is, should he not also act as an independent contractor vis a vis the client the exclusionary subsection (section 198(3)) does not apply”.

Whilst the legislature’s intention may have subsequently changed (in that it will be the client who in certain scenarios will now be deemed to be the employer), the point remains that what is of essence in determining whether or not the individual is an employee is not necessarily the contractual relationship between the TES and the client, but the nature of the services rendered by, and the relationship between, the individual performing the work and the client. Where the client exercises day-to-day control and supervision over the individual actually providing the services, it is likely that the individual will be regarded as rendering services to the client in his or her capacity as an employee and the deeming provisions may apply.

In conclusion, business will find ways of adapting to the changes introduced by the Bill. It always does. However, it will have to be cautious as to what contractual arrangements it puts in place to do so and it will not be able to escape the liability introduced by section 198A(4) and section 200B by merely tweaking the indemnities in the service level agreement concluded with the TES. However, albeit both the TES and client would be well advised to review their standard contractual terms post the amendments.