Temporary employment service provision, more popularly and colloquially known as "labour broking arrangements", is not a new phenomenon in South Africa. Its utilisation has been regulated (at least by some extent), by the Labour Relations Act, 1995 ("LRA") since its enactment. However, the rapid increase in the utilisation of labour brokers (referred to as "temporary employment service" in the LRA) has prompted organised labour to call for stricter and more detailed regulation of their activities. This resulted in the introduction of section 198(A) into the LRA.
Section 198A protects persons who are assigned to a client by a temporary employment service ("TES") for more than three months, and who earn less than the threshold amount of ZAR205 433.30 per annum. These employees are deemed to be permanent employees of the client for the purposes of the LRA unless they are substitutes for other employees who are temporarily absent from work. These "deemed employees" must also be treated on the whole not less favourably than employees doing the same or similar work, unless there is a justifiable reason for not doing so.
Section 198A was recently the subject of consideration by the Labour Appeal Court in David Victor and 200 Others v CHEP South Africa (Pty) Ltd. In this matter, the 201 appellants had been employed by C-Force to repair wooden pallets for CHEP in return for an agreed fee per pallet repaired paid to C-Force. Notably, C-Force had been providing this service to CHEP since 2009, but as a TES. In 2014, a service level agreement was entered into between CHEP and C-Force. Interestingly, this was just before section 198(A) and its wide-reaching deeming provisions were promulgated into law.
The main difference between the 2009 agreement and the 2014 agreement was that C-Force was now expressly referred to as an "independent contractor" and there was a provision in the agreement stating that neither C-Force nor "any of its personnel would be deemed to be an agent, employee or partner of CHEP".
The appellant employees referred a dispute to the Commission for Conciliation, Mediation and Arbitration ("CCMA") seeking a declaration deeming them to be employees of CHEP in terms of section 198A of the LRA, and requiring that they be treated on the whole not less favourably than other comparable permanent employees of CHEP.
In terms of the agreement with C-Force, CHEP determined production levels and was entitled to conduct daily quality audits to measure and penalise C-Force's performance against agreed targets. It also had the right to request that any C-Force employee be removed from the site in the event of non-compliance with the agreement.
The CCMA found that there was no arms-length relationship between CHEP and C-Force and that the repair of pallets is an integral part of CHEP's operation. In the commissioner's view, if C-Force was a contractor rather than a TES, the work it performed would not be integrated to the extent that it was literally an accessory to CHEP's business.
The commissioner concluded that CHEP exercised almost complete control over how the work was to be performed. This was inconsistent with a contract for an independent contractor where the service provider has significant scope and freedom to perform the services it has been contracted to perform. It did not help CHEP's case at all that the materials, essential plant and equipment were provided by CHEP and that the service was provided on CHEP's premises.
In the commissioner's concluding remarks he noted that "the fact that the SLA [agreement] states that C-Force will provide a service conditioning pallets and will receive an agreed activity fee in return does not mean that it is not a TES"
In review proceedings before the Labour Court, CHEP contended that the commissioner misdirected himself by having regard to the degree of control it exercised over C-Force. CHEP relied heavily on identifying what it referred to as the "definitional elements" of a TES set out in section 198(1) of the LRA.
The Labour Court agreed with CHEP's contention and noted that, essentially, C-Force provided a product and not individual labour to CHEP and that this fell outside the statutory definitional elements of a TES. It further held that the C-Force employees were not pursuing CHEP's business interests but rather that of pallet repair, which was the business of C-Force.
On appeal, the Labour Appeal Court noted that there is no reason why the payment to a TES, required in terms of section 198 of the LRA, cannot be calculated with reference to the task or product provided. The court went on further to mention that "all that section 198(1) requires is that workers be provided to a client for reward and that the worker be remunerated by the provider."
The court found that the factors relied upon by the commissioner, which included: examining the nature of the agreement with C-Force; the degree of control exercised by CHEP over C-Force and the workers; and, the degree to which the workforce had been integrated into CHEP's workplace, were all legitimate and relevant factors that related "directly to the preconditions set in section 198".
Accordingly, the LAC came to the conclusion that the Labour Court erred in its findings that this was not a labour broking contract.
In its closing comments, the Labour Appeal Court noted that where a client contractually controls the overall work process of persons at its premises, as well as their conduct and behaviour, such persons ordinarily can be deemed to be employed by the client in terms of section 198(A).
This decision makes it clear that substance over form is essential in distinguishing between independent contractors and TES arrangements. Critical indicators of a TES arrangement, the Labour Appeal Court found, are the extent to which the service provided to the client forms an integral part of the client's business, the control exercised by the client over the output and quality of the product, and the extent to which the client can regulate the composition of the workforce providing the service. It also seems that the contractual provision in terms of which CHEP provided the materials and equipment used to repair the pallets weighed heavily with the Labour Appeal Court and that it ignored the contractual proclamations of independence inserted into the service level agreement in 2014.
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