Facts
Decision

Changes ahead?


The proposed changes to the Labour Relations Act will make the use of labour brokers - or 'temporary employment services', as they are officially known - a far less attractive option for employers. They remove some of the perceived benefits of using labour brokers: the ability to reduce labour costs and to avoid some of the onerous obligations of being an employer. However, a recent Labour Court decision has shown that, irrespective of whether the changes become law, the courts are likely to examine the issue of labour broking very closely in future.

Facts

The case involved packaging company Mondi, labour broker Adecco and an employee named Dyokwe. Dyokwe was employed by Mondi from 2000 to 2002, but in December 2002 he was told that his contract would be terminated. For reasons that are unclear, he stayed on at the company and there was proof that he received Mondi payslips in 2003. However, in July 2003 he was told that he would have to sign a new contract with Adecco, after being assured by employees of Adecco that nothing would change. Dyokwe, who did not read English, signed the contract. It was headed "Contract of employment defined by time", despite the fact that it had no termination date, and specified that Dyokwe would be "employed at Mondipack".

Dyokwe continued doing the same job at Mondi, but things did change: his wages dropped by 20%. It seems that Dyokwe complained about this fact, but was advised by someone at the Commission for Conciliation, Mediation and Arbitration (CCMA) simply to accept it. After five-and-a-half years Dyokwe's employment was summarily terminated by Adecco, which told him that they had no work for him because he was too old. Dyokwe referred an unfair dismissal dispute to the CCMA, citing Mondi as a party. The commissioner ruled that Adecco was Dyokwe's employer, which meant that Mondi should be excused from the proceedings, and that arbitration proceedings involving Adecco should be rescheduled. Dyokwe took this decision on review. The question for the court was whether Mondi or Adecco was Dyokwe's employer.

Decision

Judge Steenkamp began by looking at Section 198 of the act, which deals with labour brokers. It defines a 'temporary employment service' as "any person who, for reward, procures for or provides to a client other persons who render services to, or perform work for the client, and who are remunerated by the temporary employment service". It goes on to state that the temporary employment service is the employer of such a person, and that the temporary employment service and the client are jointly liable in certain circumstances, although not for unfair dismissals.

The judge went on to look at the fundamentals of labour legislation. He noted that the act states (in Section 1) that its purpose is to advance "economic development" and "social justice", and that its objects are to give effect to "the fundamental rights conferred by section 27 of the Constitution" and the "obligations incurred by the Republic as a member state of the International Labour Organisation". The judge also noted that in NEHAWU v UCT the Constitutional Court had recognised that one of the core purposes of the act is to safeguard workers' employment security, especially their right not to be dismissed unfairly.

The judge then examined labour broking in more detail. He noted that the South African courts have recognised that workers are "the weakest and most vulnerable party in the triangular relationship", and have held that an employee of a temporary employment service cannot be dismissed on the terms of a clause which states that the contract terminates when the client no longer needs the employee. Looking to the world of academia, he noted that Professor Paul Benjamin has stated that:

"while section 198 was enacted to regulate the temporary employment sector, it has become a vehicle for permanent triangular employment... it is an entirely superficial construction (and one that gives rise to immense scope for abuse) to make an agency the employer of an employee working on an on-going or indefinite basis for a 'client' merely because the employee's pay is routed through the agency."

Looking beyond South Africa's borders, the judge noted that the Namibian Supreme Court has stated that:

"Labour is not a tradable innate object but an activity of human beings. Unlike a commodity it cannot be sold on the market without regard to the inseparable connection it has to the individual who produces it... it is integral to the person of a human being... it is the means through which human beings provide for themselves, their dependants and their communities."

Moreover, he noted that the International Labour Organisation has recommended that member states should "combat disguised employment relationships".

The judge had little hesitation in finding that the commissioner's decision was wrong and held as follows:

  • There was no evidence that Mondi had ever terminated Dyokwe's employment contract. The judge noted that the company had changed its account during the proceedings, initially claiming that the contract had been terminated at the end of December 2002, but then claiming that this had happened in July 2003.
  • The agreement between Adecco, Mondi and the worker was in fraud of the law. The judge stressed the need to look at the true nature of the relationship, noting that in Dyokwe's case, Adecco did not meet the definition of a 'labour broker', having neither procured nor provided Dyokwe. The judge also referred to an earlier decision in a case involving a business called Melmons Cabinets CC, in which a situation where an employee was told that he would in future be an independent contractor was described as a "sham" and a "cruel hoax" on an employee who was "ignorant of his newly acquired obligations and the loss of rights and privileges which Melmons [had] persuaded him to forgo".
  • The agreement with Adecco had been void from the outset because of a misrepresentation. Dyokwe had been told that nothing would change and he clearly had not understood that he would be entering into a new employment relationship.
  • It was against public policy to enforce the Adecco contract and hold that Adecco was the employer. The judge referred to the Constitutional Court decision in Barkhuizen v Napier, in which Judge Cameron stated that courts should not enforce a contractual clause if "implementation would result in unfairness or would be unreasonable for being contrary to public policy", noting that in the present case there was extreme inequality in bargaining power, exacerbated by Dyokwe's illiteracy.

The decision that Mondi was excused from the proceedings was set aside and replaced with a ruling that Mondi was Dyokwe's employer. The CCMA was directed to set down the unfair dismissal dispute for hearing. The case represents a clear warning that the courts will look at substance, rather than form, to determine whether a company has sought to avoid its responsibilities under labour law by using a labour broker's services.

Changes ahead?

Under proposed changes to Section 198, employees procured and provided by temporary employment services would still be deemed to be employees of the temporary employment service, rather than the client, but this rule would apply only in cases of 'temporary services'. This term is defined to include services that do not exceed a period of six months. Employees who do not fall within the definition of 'temporary services' will be deemed to be employees of the client.

The proposed changes also provide that:

  • if the assignment of the temporary employment service employee is terminated because the client does not want to become the employer (which might be proved if it hires another person to do the job), this will be deemed to be a dismissal; and
  • temporary employment service employees who are deemed to be employees of the client cannot be treated less favourably than other employees unless there are justifiable reasons - seniority might be one such reason.

Further changes extend the joint liability of the temporary employment service and the client. The sole comfort for employers that make extensive use of labour brokers is that these protections will apply only to individuals earning below the earnings threshold prescribed by the minister of labour, which stands at R183,008 a year.

What does this package of proposed changes mean for employers? If they use the services of someone provided by a temporary employment service for more than six months, that person will be deemed to become an employee. The employer will need to treat that person in the same way as other employees and will be unable to avoid these consequences by terminating the person's services before the expiry of the six-month term.

For further information on this topic please contact Audrey Johnson at ENS - Edward Nathan Sonnenbergs by telephone (+27 11 269 7600), fax (+27 11 269 7899) or email (ajohnson@ens.co.za).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.