South Africa: Labour Broking

Last Updated: 20 August 2012
Article by Audrey Johnson

Most Read Contributor in South Africa, September 2016

The proposed changes to the Labour Relations Act (LRA) regarding labour brokers, or 'temporary employment services (TES)' to give them their official name, will make the option of using labour brokers a far less attractive one for employers (these changes are discussed at the end of this article). That's because they remove some of the perceived benefits of using labour brokers:  the ability to reduce labour costs, and the ability to avoid some of the onerous obligations of being an employer. But a recent decision of the Labour Court in Cape Town has shown that, irrespective of whether or not the changes become law, the courts are likely to examine the issue of labour broking  very closely in future.

The case involved packaging company Mondi, labour broker Adecco, and an employee by the name of Dyokwe. The facts were interesting. Dyokwe was employed by Mondi from 2000 - 2002, but in December 2002 he was told that his contract would be terminated. For reasons that aren't entirely clear, he stayed on at the company and there was proof that he received Mondi payslips in 2003. In July 2003, however, he was told that he would have to sign a new contract with labour broker, Adecco, after being assured by employees of Adecco that 'nothing would change'. Dyokwe, who didn't read English, signed the contract, which was headed 'Contract of employment defined by time' despite the fact that it had no termination date, and which specified that he would be 'employed at Mondipack'. Dyokwe continued doing the same job at Mondi, but things did change: his wages dropped by some 20% (it seems that Dyokwe did complain about this, but that he was advised by someone at the CCMA to simply accept it).  After 5 ˝ years Dyokwe's employment was summarily terminated by Adecco, who told him that they had no work for him because he was too old. So 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. So the question the court had to decide was this: who was Dyokwe's employer, Mondi or Adecco?

Judge Steenkamp naturally started off by looking at section 198 of the LRA, which is the section that deals with labour brokers. This defines a TES 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 say that the TES is the employer of such a person, and it provides for joint liability for the TES and the client in certain circumstances, although not for unfair dismissals.

The judge then went on to look at the fundamentals of labour legislation.  He noted that Section 1 of the LRA says that the purpose of the Act 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'. And he noted that, in the case of NEHAWU v UCT, the Constitutional Court recognised that one of the core purposes of the LRA is to safeguard workers' employment security, especially the right not to be unfairly dismissed. 

The judge then examined labour broking in more detail, looking far and wide for guidance. He noted that South African courts have recognised that workers are 'the weakest and most vulnerable party in the triangular relationship', and held that an employee of a TES cannot be dismissed in terms of a clause that says the contract terminates when the client no longer needs that employee. Looking to the world of academia, he noted that Prof Paul Benjamin has said that 'while section 198 was enacted to regulate the temporary employment sector, it has become a vehicle for permanent triangular 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, he noted that the Namibian Supreme Court said this on the issue: '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.'  And 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. First, there was no evidence that Mondi had ever terminated Dyokwe's employment contract - the judge noted that the company changed its tune during the proceedings, initially claiming that the contract had been terminated at the end of December 2002, and then claiming that it had happened in July 2003.  Second, the agreement between Adecco, Mondi and the worker was in fraud of the law – the judge stressed that one must look at the true nature of the relationship, and he pointed out that, in the case of Dyokwe, Adecco didn't comply with 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, where the judge described a situation where an employee was told that he would in future be an independent contractor as a 'sham', and a 'cruel hoax' on an employee who was 'blissfully ignorant of his newly acquired obligations and the loss of rights and privileges which Melmons has persuaded him to forego'. Third, 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.  And finally, it was against public policy to enforce the Adecco contract and hold that Adecco was the employer – the judge referred to a Constitutional Court decision of Barkhuizen v Napier, where Judge Cameron said 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 this case there was extreme inequality in bargaining power, something that was exacerbated by Dyokwe's illiteracy.

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

So what exactly are the changes that have been proposed to Section 198?  Well, although the provision that says that employees procured and provided by TES are deemed to be employees of the TES and not the client remains in place, this will in future only apply in cases of 'temporary services' . This term is defined, inter alia, to mean 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 TES 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),  that will be deemed to be a dismissal. And they provide that TES employees who are deemed to be employees of the client cannot be treated less favourably than other employees, unless there are justifiable reasons (like seniority perhaps).  There are other changes too, including ones extending the joint liability of the TES and the client.  The only comfort for employers that make extensive use of labour brokers is that these protections will only apply to individuals earning below the earnings threshold prescribed by the Minister of Labour which is currently R183 008,00 per annum.

What do these proposed changes mean for you as an employer?  Well, they mean that if you use the services of someone provided by a TES for more than six months, that person will be deemed to be your employee. They mean that you will need to treat that person the same way that you treat your other employees. And they mean you won't be able to avoid these consequences by simply terminating the person's services before the expiry of the six-month term.  Serious stuff!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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