Labour broking, always a contentious issue in the South African workplace, has been the subject of court action and the Labour Appeal Court has shed some light on the client-labour broker-employee relationship.

On 10 July 2017, the Labour Appeal Court delivered judgment in the case between NUMSA and Assign Services and Others.

The crisp question before the court was whether the client in a labour-broking relationship and the labour broker are both employers for purposes of the Labour Relations Act (LRA), or whether only the client is the employer.

This question is relevant to employees who earn below the prescribed earnings threshold, currently ZAR 205 433.30 per annum. In terms of section 198A(3)(b)(i) of the LRA, where such employees of a labour broker are assigned to a client and these employees do not perform a ‘temporary service’, they are deemed to be the employees of the client. They are also deemed to be employed indefinitely unless a genuine fixed-term contract exists.

Defining a temporary service

Employees perform a ‘temporary service’ where they are assigned to the client for less than three months or perform work for the client as a substitute for an employee of the client who is temporarily absent.

In this matter, Assign Services provided employees earning below the earnings threshold to Krost Shelving and Racking and, as at 1 April 2015, some 22 of these employees had been placed for longer than three months. The employees were asserting a right to being employed exclusively by the client, Krost.

The CCMA held that section 198A(3)(b) meant that only the client was the employer of these employees for purposes of the LRA.

On review, the Labour Court disagreed. It held that the deeming provision did not invalidate the contract of employment between the labour broker and the employees. All it meant was that, for purposes of the LRA, both the client and the labour broker were employers. As a result, both the employers had to comply with their obligations under the LRA and, in particular, the fair dismissal provisions contained in the LRA.

Labour Appeal Court rules that only the client is the employer

NUMSA appealed and the Labour Appeal Court held that the Labour Court was wrong – only the client is the employer. The court considered the purpose of section 198A, which 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’.

The court noted that section 198A sought 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. The purpose of these provisions is to ensure that deemed employees ‘are fully integrated into the enterprise as employees of the client’.

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.

Labour brokers’ role

The court observed 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 may (by virtue of s198(4A)(a)) institute proceedings against either the labour broker or the client. The court stated that this did not elevate the labour broker to ‘being an employer’. Should the labour broker cease to pay these employees’ salaries, the ‘joint liability burden will also cease’.

The court did not consider the provisions of the commercial contract between the labour broker and the client, which may very well assign responsibility to one of the parties for dealing with issues of discipline and the giving of notice of termination. Such agreements may also contain relevant indemnities. It remains to be seen how the terms of such agreements might impact on disputes with labour broker employees.

Next steps

We understand that this case might go on appeal to the Constitutional Court. However, in the interim, clients to whom labour broker employees are assigned would be well-advised to take legal advice upon the removal of such employees, or the transfer of businesses in which labour broker employees are assigned.

Please contact the Bowmans Employment and Benefits team for any assistance you may require in this regard.