South Africa: South African Constitutional Court Ruling: What Does It Mean For Employees Of Temporary Employment Services?

Last Updated: 2 August 2018
Article by Peter Le Roux

Most Read Contributor in South Africa, September 2018

Section 198A of the Labour Relations Act, 1995 (the "LRA") provides that a person assigned to a client by a temporary employment service ("TES") for a period of more than three months, and who earns less than the threshold amount set in section 6(3) of the Basic Conditions of Employment Act, 1997, is deemed to be the employee of the client for the purposes of the LRA. There are two exceptions to this deeming provision. The first is if the assignee is placed with a client as a substitute for an employee employed by the client who is temporarily absent from work. The second is if the work done by the assignee for the client is permitted by a collective agreement concluded in a bargaining council, a sectoral determination, or a notice published by the Minister of Labour in accordance with the provisions of section 198A.

The recent decision of the Constitutional Court in Assign Services (Pty) Ltd v National Union of Metalworkers of South Africa and others deals with the question of whether a client who is deemed to be the employer of an assignee in terms of section 189A becomes the sole employer of the assignee or whether the TES also remains an employer of the assignee. This question has been debated by lawyers since section 198A came into force in January 2015 and credible arguments can be made for both approaches. The Constitutional Court has now provided certainty in this regard. A majority decision of nine judges came to the conclusion that, after the deeming provision takes effect, there is only one employer: the client.

But what does this mean in practice? One suspects that there will be some debate in this regard and the courts may still be required to consider some of the unanswered questions that arise from this decision. Below, we make initial assessment of the potential impact of the decision.

According to the court, the impact is the following:

"[69] Part of this protection entails that placed employees are fully integrated into the workplace as employees of the client after the three-month period. The contractual relationship between the client and the placed employee does not come into existence through negotiated agreement or through the normal recruitment processes used by the client. The employee automatically becomes employed on the same terms and conditions of similar employees, with the same employment benefits, the same prospects of internal growth and the same job security that follows."

This statement is far-reaching in its import. It creates the impression that, for all intents and purposes, the assignee becomes an employee of the client. But is this really the case?

It is important to note that section 198A(3) provides that the deemed employment only exists "for the purposes of this Act" (ie, the LRA) – not for other purposes. This means, for example, that the client can be held liable for any claims involving an allegation of an unfair labour practice or unfair dismissal, these being claims that arise from the provisions of the LRA. If the client dismisses an assignee, it will have to be able to justify the fairness of the dismissal. If the client no longer needs the services of the assignee and purports to terminate the assignment (rather than formally dismissing the assignee), this will, in all probability, also be seen to be a dismissal. If the dismissal is held to be unfair, the client could be ordered to reinstate the assignee.

However, the court seems to accept that, this section notwithstanding, it is possible that a relationship will still exist between the TES and the assignee. Any obligations that flow from this relationship can be enforced against the TES. The court, for example, envisages that the TES may still be liable to pay the assignee. In addition, whether the assignee is the employee of the client for the purposes of other statutes would have to be determined with reference to the provisions of that statute.
Also of interest is the statement that the assignee "automatically becomes employed on the same terms and conditions of similar employees, with the same employment benefits, the same prospects of internal growth and the same job security that follows." This contradicts section 198A which states that an assignee must be treated on "the whole not less favourably than similarly placed employees of the client unless there is a justifiable reason for the differentiation."

The fact that the client becomes the sole employer in these circumstances does not mean that the TES necessarily escapes liability. Section 198(4A) provides that an employee may institute proceedings against either the TES or the client or against both of them. This applies "for as long as there is still a contract between the TES and the employee".
Also of importance is the following statement:

"[64] A TES's liability only lasts as long as its relationship with the client and while it (rather than the client) continues to remunerate the worker. Nothing in law prevents the client and the TES from terminating their contractual relationship upon the triggering of section 198A(3)(b), with the client opting to remunerate the placed employees directly. If this happens, the TES that placed the worker will cease to be a TES in respect of that worker because it will no longer meet the requirement in section 198(1) of remunerating the worker. The TES will then fall out of the relationship entirely."

This seems to indicate that the client and the TES may agree to terminate the commercial relationship between them in terms of which the assignee was originally assigned to the client (it is also arguable that the relationship may be terminated unilaterally by either party). If this takes place, the TES will cease to be the employer of the assignee and will fall out of the picture. The court appears to accept that in this situation, the assignee ceases to be an assignee and becomes the employee of the client in the full sense of the word, however, this is simply giving effect to the statutory definition of a TES.

Whether this decision sounds the death knell for TESs, whose business involves the provision of assignees who earn less than the statutory threshold, remains to be seen. In the medium and longer term, it is possible that the focus of union litigation may shift to other perceived forms of exploitation such as the use of fixed term contracts to avoid dismissal claims, managed services arrangements and outsourcing in certain contexts. The provisions of section 200B of the LRA may become important. Section 200B(1) provides that, for the purposes of LRA and any other employment law, the term "employer" includes one or more persons who carry on an 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. Section 200B(2) provides for joint and several liability if more than one person is held to be the employer of an employee.

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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