Is labour broking in the South African Workplace at the tail end (in relation to employees who earn below the current threshold of ZAR205 433.30)?

This article summarises the current legal position and the likely road forward, following the Labour Appeal Court decision of 11 July 2007 in NUMSA v Assign Services and Others.

Labour broking being the triangular relationship created by a Temporary Employment Service (TES), an employee rendering services and the client of the TES. Hogan Lovells has written extensively and commented on this unique relationship on various media platforms since late 2014 into 2015. The concept of labour broking has been with us for many years. COSATU made its position clear in the run up to the negations to the 2014 amendments of the Labour Relations Act (the LRA) – its position being that labour broking is "akin to slavery" and it must be "banned". It was always a hot political potato with strong views advocated by both sides of the divide.

The legal controversy stirred up in early 2015 with the promulgation of TES amendments to the LRA centred around who becomes the employer of the placed worker after three months of employment. The amendment provides that after three months the client was "deemed" the employer. This is obviously not an academic issue and has serious practical business consequences.

The Appeal Court has concluded that the client after three months becomes the only employer of the placed worker. The employment is on an indefinite basis on the same terms and conditions to other employees who perform the same or similar work.

Two lines of thought developed – essentially being this:

  • After three months there is a "sole employer". The TES falls away and the only employer is the client.
  • After three months there are "dual employers". The TES is the contractual employer (being the employer who contractually secured the services of the placed worker in the first instance) and the client is the other, but only for the purpose of LRA protections.

The "dual employer" argument in 2015 found favour with Brassey AJ in the Labour Court. However, the full bench of the Appeal Court rejected this argument. Does this signal the end of labour broking and the demise of labour brokers as advocated by organised labour? The signal from the Appeal Court, in our view, is yes. But, because of the significance of this judgment, Assign Services is most likely to appeal to the Constitutional Court.

An appeal will have the effect of staying the LAC judgment. From the time of the lodging of the appeal until the finalisation of the appeal, the law would remain as articulated by Brassey AJ in the 2015 Labour Court judgment.

The Appeal Court placed significant emphasis on the definition in section 198A on the term "temporary service". The emphasis according to the Appeal Court is on the "nature of the (temporary) service" as opposed to the person who renders the service to the client. This is likely to become contested ground in the Constitutional Court as interestingly, the court does not interpret the words in section 198A that give rise to the controversy being: "deemed to be the employee of that client". The court simply deals with the consequences of being the "deemed" employer.

Significantly, the court finds that the joint and several liability provisions were inserted "to discourage the TESs from being further involved in the administrative arrangements regarding employees placed with a client for a period in excess of three months". This is telling – as this line of reasoning, is essentially in our view a ban on labour broking, if nothing else after a three month period (even though the court expressly indicates to the contrary). This line of reasoning begs the constitutional argument of whether such restriction in time is justifiable. This issue will need to be further examined by the Constitutional Court if not in the Assign matter (as this was not the basis of appeal) – perhaps in another case in time.

The Appeal Court in support of its conclusion that the TES falls out the picture after three months says: “The purpose of these protections in the context of s198A is to ensure that the deemed employees are fully integrated into the enterprise as employees of the client… 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.”

So, the employment relationship between the placed worker and the client arises by operation of law, independent of the terms of the contract between the placed worker and the TES. This is significant for businesses that have TES staff in excess of three months.

The "middle man" creates complications in the relationship and the judgment of the Labour Appeal Court now tightens the noose around the businesses of TES operators unless there is reprieve from the Constitutional Court.

The early winds, which were not blowing in favour of labour brokers just before the amendments of 2014, have just gained fresh momentum.

While many employers have long restructured their relationships with TES employers, for those employers who have not done so, it is important to review the implications of the LAC judgment going forward. This is a watershed moment for organised labour, no doubt.