South Africa: Legitimate Business Objective Trumps Deemed Employment

Last Updated: 18 May 2017
Article by St Elmo Wilken

Most Read Contributor in South Africa, July 2017

A recent South African Commission for Conciliation, Mediation and Arbitration ("CCMA") ruling has provided clarity on issues of deemed employment in circumstances where multiple contractors are used.

The matter before the CCMA involved Shoprite, one of the largest food retailers in Africa. In order to provide its approximately 2 000 stores with stock in an efficient manner, Shoprite established seven distribution centres ("DCs") in South Africa. Initially, Shoprite operated the DCs itself, using its own employees, but later used a combination of temporary employment service provider employees and its own employees to operate the DCs. Shoprite then entered into a service level agreement ("SLA") with ADfusion Contract Management Services ("ADfusion"), a logistics company, to attend to the day-to-day logistical operation of its DCs and also seconded its employees involved in the day-to-day logistical operations to ADfusion. ADfusion contracted with various temporary employment services ("TESs") to provide it with employees to perform its obligations under the SLA with Shoprite.

The TESs' employees referred a dispute in terms of section 198D of the Labour Relations Act, 1995 (the "LRA") to the CCMA, seeking a determination that they were employees of Shoprite, in order for them to receive the same conditions of employment as the Shoprite employees . After conciliation failed to resolve the dispute, it was referred to arbitration.

The employees' case

The employees relied on section 198A of the LRA, which provides that employees of a TES who earn less than a specified threshold amount and who have been assigned to a client for more than three months will be deemed to be employees of the client.

The arbitration proceeded on the basis that the requirements of section 198A had been met and that the employees in this case were the employees of the client. However, the question was: who was the client – Shoprite or ADfusion?

The employee applicants argued that very little had changed since the introduction of the new arrangement. They continued to work in the same place and perform the same duties as they had previously. Although ADfusion had placed certain managers in the DCs, they still reported to Shoprite managers, who issued instructions and held meetings. They contended that everything ADfusion did was on behalf of Shoprite, and submitted that the arrangement was a sham to avoid giving them the same conditions of employment as those accorded to Shoprite employees. The employee applicants attempted to invoke the provisions of section 200B of the LRA, which provides as follows:

"For the purposes of this Act and any other employment law, 'employer' includes one or more persons who carry on associated or related activity or business by or through an employer if the intent or effect of their doing so is or has been to directly or indirectly defeat the purposes of this Act or any other employment law."

Shoprite's case

Shoprite argued that the management of DCs did not form part of Shoprite's core business. It outsourced the operation of the DCs to ADfusion because it was unable to obtain the efficiencies required in running the DCs and the valuable time of its various managers that could have been used for strategic planning was being wasted. Its management of the DCs fell far short of international performance indicators. Due to the enormous scale of Shoprite's DCs, ADfusion did not immediately assume total control. This took place in a phased approach. From 1 May 2016, ADfusion was in complete control of the logistical operation of Shoprite's DCs and was remunerated on a performance-outcome basis. Shoprite provided ADfusion with information with regard to stock replenishment and ADfusion then attended to the logistical execution of the information. Within the parameters of the SLA, ADfusion employed the services of TESs that it deemed necessary to provide the output required by Shoprite. ADfusion's running of the distribution centres led to an increase of 40% in efficiency.

Shoprite further argued that, in order for section 200B to be triggered, the employee applicants had to prove that the arrangement was a simulated transaction or a sham, however, they failed to advanced facts that it was a stimulated transaction.

The CCMA's ruling

The commissioner found that, by concluding the SLA with ADfusion, Shoprite sought to achieve a legitimate objective; ie, to improve the efficiency of its DCs, and that there was, accordingly, a rational commercial purpose for conclusion of the SLA. There had been no attempt to defeat the objects of the LRA and ADfusion – not Shoprite – was therefore the client. As a consequence, ADfusion was the deemed employer of the applicant employees.

A welcome finding – but more litigation likely

Recent amendments to the LRA limit the ability of employers to use TESs and fixed-term contracts of employment by defining what constitutes acceptable use of these mechanisms. Interestingly, the amendments do not seek to explicitly regulate the use of contractors. However, the possibility that unions would seek to rely on section 200B to limit the use of contractors was foreseen – especially given the vague formulation of the section. The precise ambit of the section will undoubtedly be the subject of future litigation, but, for now, the recognition by the commissioner that the use of a contractor in these circumstances is legitimate is to be welcomed.

ENSafrica represented Shoprite in this matter before the CCMA.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.