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Labour broker deeming provisions interpreted to create a position of ’sole’ employment

17 July 2017
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Since the amendments to the Labour Relations Act 66 of 1995 (the LRA) came into effect on 1 January 2015, the deeming provisions contained in section 198A(3)(b) of the LRA have been the centre of much debate. In the recent matter between Numsa v Assign Services & Others, the Labour Appeal Court considered the interpretation of the controversial deeming provisions. The question before the Court was whether the labour broker and the client where labour-broking employees are placed are both employers for purposes of the LRA, or whether only the client is the employer.

Section 198A of the LRA provides protection to employees of a labour broker who earn below the prescribed earnings threshold, currently ZAR 205 433.30 per annum. The deeming provisions are two-fold. First, such employees are deemed to be employees of the client for purposes of the LRA if they do not perform “temporary services”; and second, unless there is a genuine fixed-term contract in place with the employee in question, the employee is deemed to be employed indefinitely. An employee performs a “temporary service” when s/he is placed at the client for less than three months, or when s/he substitutes for a client employee who is temporarily absent, or if s/he falls into a category of work which is determined to be a temporary service by, among others, a collective agreement concluded at a bargaining council or a sectoral determination. In addition, such employees must not be treated less favourably than employees of the client in similar roles.

The deeming provisions beg the question as to whether, in triangular relationships, the labour broker continues to have rights and obligations under the LRA vis-á-vis the employees, or whether these obligations are only the obligations of the client. The LRA regulates, among other things, fair dismissals. Accordingly, where a labour broker employee is removed from the client, should both the client and the labour broker, or only the client, act fairly in doing so?

From the CCMA to the Labour Court

Assign Services placed employees earning below the earnings threshold with Krost Shelving and Racking and, as at 1 April 2015, a number of the employees had been placed for longer than three months. The employees were asserting a right to being employed exclusively by the client, Krost.

The matter was referred to the CCMA, where Assign Services argued that the deemed employees remained employees of the labour broker for all purposes but were also deemed to be employees of the client for purposes of the LRA. This position was described as one of “dual employment”. On the other hand, the trade union, NUMSA, contended that the deemed employees were deemed to be employees of the client only, for purposes of the LRA. This position was described as one of “sole employment”.

The CCMA found in favour of the argument put forward by NUMSA and held that section 198A(3)(b) of the LRA meant that the client was the only employer of the deemed employees for purposes of the LRA. On review, however, the Labour Court disagreed. It held that the labour broker continues to be an employer of the deemed employees and, by virtue of this fact, is also required to comply with its obligations under the LRA, in particular, the fair dismissal provisions contained in the LRA. Accordingly, it held that both the client and the labour broker are employers of the deemed employees for purposes of the LRA.

Labour Appeal Court

On appeal, the Labour Appeal Court found that the Labour Court was wrong and held that, on a proper interpretation of section 198(3)(b), only the client is the employer of the deemed employees.

The Labour Appeal Court reasoned, among other things, that the “sole employer” interpretation was consistent with the purpose of the amendments to the LRA, which sought to provide additional protection to labour broker employees. The purpose of these sections is to restrict the employment of vulnerable, lower-paid workers by a labour broker to situations of genuine “temporary work”, and to grant additional protection to those who do not provide temporary services. Section 198A seeks to achieve this purpose by a) the deeming provisions and b) the requirement that such employees may not be treated less favourably than employees of the client performing the same or similar work. Ultimately, the purpose of these provisions is to ensure that deemed employees “are fully integrated into the enterprise as employees of the client”.

Deeming provisions create a statutory employment relationship

The Court held that the deeming provisions do not provide for the transfer of the contract of employment of the deemed employees to the client, but they do create a statutory employment relationship between the client and the deemed employee. Accordingly, it is the client that is responsible for compliance with pre-dismissal obligations imposed by the LRA, and relief may be sought against the client for failing to do so.

The Court noted that the labour broker may continue to be “the party paying the salary of the deemed employee”. However, should the labour broker fail to do so, the employee retains the right to institute proceedings against either the labour broker or the client or both in terms of section 198(4A) of the LRA. The Court found that this did not elevate the labour broker to “being an employer”. Should the labour broker cease to pay the salaries of the employees, the “joint liability burden will also cease”.

In conclusion, the Court held that the plain language of section 198A(3)(b) of the LRA supports the sole employer interpretation as it is in line with the purpose of the amendments of the LRA, aimed at protecting the rights of vulnerable workers.

Going forward

While the Labour Appeal Court’s ruling does provide guidance to clients and labour brokers, it is likely that the debate as to whether the deeming provisions create a position of “sole” or “dual” employment will continue. For the time being, clients in triangular relationships should take a cautious approach before taking action in respect of deemed employees and should seek legal advice. They should also be mindful of the following issues:

  • The Court did not consider the provisions of the commercial contract between the client and the labour broker insofar as the deemed employees are concerned. Such a contract would be a crucial factor in the determination of any dispute concerning the deemed employees and may well assign responsibility to one of the parties for dealing with issues of discipline and termination of employment. Such contracts may also contain relevant indemnities. It remains to be seen how the terms of such agreements may impact on disputes concerning deemed employees.
  • The express working of section 198A(3) is that the client is the employer of the deemed employees for purposes of the LRA. Arguably, the labour broker has the continued responsibility as an employer for purposes other than the LRA. This would include, for example, the obligation to pay the deemed employees their remuneration, which is an obligation that arises from the employees’ contracts of employment with the labour broker and the provisions of the Basic Conditions of Employment Act. Terms of the commercial contract between the client and the labour broker may make it clear that it is the labour broker that is responsible for compliance with this obligation and if the labour broker fails to pay the employees’ remuneration, there could conceivably be a breach of the commercial contract between the labour broker and the client.
  • Similarly, the labour broker would continue to be liable for the employees’ UIF, COIDA and skills development contributions, which are obligations that do not arise from the provisions of the LRA. All of these obligations are obligations of “an employer” and for these purposes, the labour broker may very well retain its status as an employer in the triangular relationship.

The point of caution is accordingly that the decision of the Labour Appeal Court does not necessarily absolve labour brokers from their responsibilities towards the deemed employees that arise out of legislation other than the LRA, the employment contract with the deemed employee or the commercial contract between the client and the labour broker.