Trade union opposition to the use of temporary employment services (“TESs”) – commonly referred to as labour brokers – and concerns that TES employees were not being accorded rights granted to them in terms of South African labour legislation, led to the introduction of amendments to the Labour Relations Act, 1995 (“LRA”) that came into force in January 2015. Instead of heeding calls from the Congress of South African Trade Unions to ban TESs, the legislature introduced a regulatory regime, albeit a fairly strict one. 

This was primarily provided for in the new section 198A of the LRA. It is important to note that the intention was to protect the interests of lower paid, more vulnerable, employees only. The section only applies if the employee concerned earns less than the threshold prescribed by the Minister of Labour in terms of section 6(3) of the Basic Conditions of Employment Act, 1997. The current threshold is R205 433.30. 

Where employees earn less than the threshold amount, section 198A applies. It sets out the circumstances where the services of a TES may be utilised (ie, “acceptable use”) and those where they may not be utilised (ie, “unacceptable use”). Use of a TES will be acceptable if it falls within the definition of a “temporary service”. This is defined to encompass the following:  

  • if a TES employee is assigned to a client for a period of less than three months; 
  • if a TES employee is assigned to a client as a substitute for an employee who is temporarily absent from work; or
  • if a TES employee is assigned to a client to perform a category of work that is determined to be a temporary service by a collective agreement concluded in a bargaining council, a sectoral determination or a notice published in the Government Gazette by the Minister of Labour.

The aim of section 198A is to prevent a client using TES employees on a long-term or “permanent” basis in order to avoid the costs of employing its own permanent employees. 

Section 198A imposes two important consequences for the unacceptable use of a TES: 

  • the employee assigned to the client is deemed to be the employee of the client, for the purposes of the LRA and is employed on an indefinite basis by the client; and
  • the client must treat the deemed employee “on the whole not less favourably” than its own employees who perform the same or similar work, unless there is a justifiable reason for not doing so. 

A controversy has arisen as to whether the operation of the deemed employment provision results in the client being regarded as the sole employer of the assigned employee, or whether the TES also remains the employer. If the latter scenario applies, the employee assigned to the client will, in effect, have two employers, at least for the purposes of the LRA. 

In Assign Services (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration & Others, the Labour Court held that a Commission for Conciliation, Mediation and Arbitration commissioner had erred in finding that the client became the sole employer and came to the conclusion that the employment relationship between the TES and the assigned employee continued to exist for the purposes of the LRA. As such, there was “dual” or “parallel” employment. This decision was taken on appeal to the Labour Appeal Court (“LAC”), which handed down its decision on 10 July 2017. The LAC overturned the decision of the Labour Court and found that the client was the sole employer of the assigned employee, at least for the purposes of the LRA. According to the LAC, the “sole employer” interpretation is consonant with the main thrust of section 198A. It also stated the following:

“The purpose of the deeming provision is not to transfer the contract of employment between the TES and the placed worker to the client, but to create a statutory employment relationship between the client and the placed worker. Bearing in mind that the purpose of the amendment was to have the temporary employment service restricted to one of ‘true temporary service’ as defined in s198A of the LRA, the intention must have been to upgrade the temporary service to the standard employment and free the vulnerable worker from atypical employment by the TES. 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.”

It appears that many TESs would want to be seen as remaining the employer of the assigned employee, and being regarded as an “unwarranted middle-man” would be seen as a setback. It is likely that there will be an appeal to the Constitutional Court. From the perspective of clients of TESs, it seems that the option of instituting claims in terms of the LRA against the TES disappears and that these claims will now have to be brought against the client only.  

The LAC decision may clarify one point of controversy, but others remain. It is not clear from the decision whether it regards the contractual relationship that exists prior to the deeming provision coming into effect as continuing in some form or manner. Given the fact that the LRA provides that the client is deemed to be the employee “for the purposes of” the LRA, it would seem that for other purposes, the TES may remain the employer. Clearly, questions arise in this regard. Can contractual obligations be enforced against the TES? What will happen in regard to employer obligations that arise from other labour statutes? Who is the employer for tax purposes? These are issues that will have to be considered with some care.