South Africa: Labour Brokers - Interventions With Commercial Arrangements

Last Updated: 10 January 2000

January 2000

INTRODUCTION

The Labour Relations Act ("the LRA") which attempts to discourage the use of labour brokers through creating additional potential liabilities, has a section specifically regulating the activities of labour brokers and their clients. While previous drafts of the LRA referred to labour brokers, the new LRA uses the phrase "temporary employment services" to describe the hire of labour and skills. This term is more accurate as it better describes the diversity of services furnished by the labour brokers.

Making use of labour, broking services involves a triangular relationship between the broker, an individual who enters into a contractual relationship with the broker and the client to whom the broker supplies the services of the individual. This relationship falls short of the common-law "control" test laid down by the South African Courts to determine whether a person is an employer or employee respectively.

While a labour broker may perform some of the same functions that an employer ordinarily performs, the labour broker does not control nor supervise the work performed as this is left to the client. A consequence of this is that in the absence of legislation regulating the relationship a labour broker is not subject to the same obligations as an employer.

THE LRA AND IMPLICATIONS FOR THE BROKERS AND THEIR CLIENTS

The LRA states that the temporary employment service ("TES") is deemed to be the employer of the person whose services have been provided or procured for a client of the TES. Any services rendered to the client or work performed for the client is deemed to have been rendered to or performed for the TES.

The effect of this is that there is no longer uncertainty whether labour broker employees fall within the common-law definition of employee. This means that all legal obligations vesting on an employer in terms of the LRA or applicable wage regulating measures, arbitration awards or collective agreements are applicable to the labour broker.

The LRA also distinguishes services performed by employees of the TES from those services performed by independent contractors. The practical effect is that independent contractors are not regarded as brokers. Nonetheless careful attention should be given when entering into contracts to ensure that the distinction between a labour broker and a sub-contractor is not blurred. Where labour is being placed at the disposal of a client, the relationship will generally classify the body broking the labour as a TES.

An independent contractor is a body which contracts to do a piece of work according to its own methods. In completing the work, which is the principal purpose of the contractual relationship between the independent contractor and the client, the independent contractor may hire its own labour.

CONTROVERSIAL PROVISIONS

The distinction is important because the LRA makes the TES and client jointly and severally liable for any contravention by the TES of the Basic Conditions of Employment Act, a determination made in terms of the Wage Act, a collective agreement and a binding arbitration award that regulate terms and conditions of employment.

A liability is joint and several when the creditor may sue one or more of the parties to such liability separately, or all of them together. This means that should a TES contravene any of the specified legislation or agreements, an employee seeking redress has a choice whether to sue the TES alone, the client alone or both of them. This option is granted to the employee by the LRA.

The client and the TES are jointly and severally liable only in respect of the agreements and legislation specifically enumerated. For example, if a TES contravenes the LRA, or any other law not specifically stated, the TES would be singularly liable to the employee for the contravention.

HOW SHOULD BROKERS’ CLIENTS DEAL WITH THE LRA?

Where contraventions of the legislated provisions occur in respect of which both the client and TES are liable it is most probable that the client will provide a larger, more stable and generally more accessible target for any claims which may arise. Aggrieved employees will be able to recover against the client in full. It is therefore incumbent on the client to satisfy itself that the TES is complying with the requisite legislation. Should a client not do so, the client will incur liability for contraventions over which it has no direct control. The obvious remedy is for the client to secure itself a right to ensure that the statutes or agreements are observed by the TES.

A practical way to achieve this is contractually to require the TES to enter into an indemnity agreement with the client, in respect of claims by the employees of the TES for non-compliance with the legislated provisions. This indemnity agreement will be effective as between the labour broker and the client.

An added aspect of protection could be achieved by contractually providing that the client or its auditors could have access to documentation and premises to monitor whether the TES is complying with its obligations as an employer. Consideration could also be given to requiring the TES to establish a fund to be controlled jointly by the client and the TES to satisfy claims by disgruntled employees of the TES.

Without these extra protective measures, the protection enjoyed by the client in terms of the indemnity may be more apparent than real.

As the LRA is not entirely clear in making a distinction between a TES and independent contractors, it may also be advisable to require independent contractors to enter into similar agreements.

CONCLUSION

The provisions of the LRA require potential clients of TES’s to closely scrutinise the benefits to be obtained from using a TES and to evaluate the good standing of the TES. Where a decision is made to utilise a TES, the terms of the relationship should be reduced to writing and every endeavour should be made to ensure that the client is not held liable for the shortfalls of the TES.

It is possible that the LRA will have the effect of reducing the number of TES bodies to those that are reputable. Employers who do not enact the steps set out here may have to compensate persons in substantial amounts although these persons are not their employees.

Do not assume that the broker will take the necessary steps to protect the client. All contracts with brokers must be revised as soon as possible.

For further information, please contact us.

WEBBER WENTZEL BOWENS

The material contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. We accept no responsibility for any loss or damage, which may arise from reliance on information contained in this article.

© Copyright Webber Wentzel Bowens 1999. All Rights reserved.

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