Labour Brokers – The pitfalls and dangers of using them and using them for a period of longer than 3 months

9th March 2018

Labour Brokers – The pitfalls and dangers of using them and using them for a period of longer than 3 months

Many Employers have, over the years, used the services of Labour Brokers to supply them with workers. The Employer became the Client of the Labour Broker and could therefore instruct the Labour Broker to remove an unwanted worker from their business without facing any repercussions and/or incurring any liability themselves. The Labour Broker was the Employer and had to either find an alternative placement for the Employee or terminate the said Employee’s contract.

The Clients would have no obligations towards the Employees and would furthermore not be responsible for disciplining them or even remunerating them. It was thus very convenient for Clients to use Labour Brokers. The Labour Broker had to discipline the misbehaving Employee. It was also the responsibility of the Labour Broker to remunerate the Employee and register him/her for UIF and PAYE.

The Labour Broker signed contracts with the Clients to the effect that any Employee could be sent back to the Labour Broker when and how the Client wanted. This situation created many problems for Employees being moved by the Labour Broker from one different Client after another. They were, in essence, indefinitely temporarily employed.

Many Clients then would request that Employees leave their businesses for no reason at all. Should the Labour Broker not have an alternative Client to place the said Employees at, the Employees would be left unemployed. Employees were thus extremely vulnerable and did not have adequate protection by the Labour laws of South Africa.
In 2014, the Legislature introduced certain changes to the Labour Legislation by changing the nature of the Client-Labour Broker relationship but also affording more protection to these groups of vulnerable Employees.

What changes did the Legislature bring about?
The amendments to the Labour Relations Act (hereafter referred to as “LRA”), created a lot of confusion and panic. Many people stated that Labour Brokers were now banned and could not be used whilst others were of the opinion that a dual employment relationship were created by these amendments.

Labour Brokers were now referred to as Temporary Employment Services (hereafter referred to as “TES”) and would be deemed to be the Employer whose services would be hired to different Clients.

On face value, it seems that the status quo was just confirmed by the Legislature. However, Section 198A placed a caveat on the employment relationship between the Employee and the TES, by stating that with certain exceptions an Employee that have been placed at a Client for a period longer than three (3) months will be deemed to be the Employee of the Client. The Client would therefore have to treat the Employee in the same manner as the Client’s permanent Employees.

Where further confusion was created was that if the Employee is placed at the Client for a period not longer than three (3) months it does not indemnify the Client from any liability. Both the TES and its Client will be held jointly and severally liable should the TES contravene a binding Collective Agreement, Arbitration Award, Sectoral Determination made in accordance with the Basic Conditions of Employment Act (hereafter referred to as the “BCEA”) or any of the provisions of the BCEA.

The said changes came into operation on the 1st of April 2015.

What is the implications of these changes?
If the Employee is placed at the TES for a period less than three (3) months, the Client will not be absolved from any liability and/or responsibility that the TES has towards the Employee. This means that if the TES contravenes any of the provisions of the BCEA (or a Collective Agreement or an Arbitration Award or a Sectoral Determination in accordance with the BCEA) the Employee can choose who he/she wants to be held accountable. The Client can no longer raise the defence that they are not the Employer of the Employee and should therefore not be held accountable.

The real problem created by the amendments to the LRA is, that the Client is deemed to be the Employer of the Employee placed by the TES, after three (3) months.

Many suggested that a dual relationship has been created by the Legislature. The Employee would then have two (2) Employers.  Others suggested that the Client would step into the shoes of the TES and then replace the TES as Employer. Further confusion was created because the Client had no employment contract with the Employee. Would the situation then be similar than a Section 197 (transfer of the business as a going concern) in accordance with the provisions of the LRA?

Does it mean that the Employee would have two (2) employment contracts with different terms and conditions or must it be similar or exactly the same?

The Labour Appeal Court (hereafter referred to as the “LAC”) eradicated the confusion created by the amendments in NUMSA v Assign Services and Others.

NUMSA v Assign Services and Others
The LAC had to determine the status of the employment relationship when the Employees are deemed to be the Employees of the Client. They had to decide whether the TES remains the Employer of the Employee even though Section 198 A(3)(b)(i) has been triggered and thus creating a dual employment relationship.

Tlaletsi DJP (with Wagley JP and Phatshoane AJA concurring) that Section 198A (3)(b)(i) was introduced to protect vulnerable Employees. This should not be construed to create a dual employment relationship. He stated that: “The protection is a measure to ensure that these employees are not treated differently from the employees employed directly by the client. The purpose of these protections in the context of S198A is to ensure that the deemed employees are fully integrated into the enterprise as employees of the client.”

After 3 months, the Client becomes the Employer of the Employee by operation of law. The placed Employees will then become employed by the Client for an indefinite period. The terms and conditions of their employment would thus be same or similar of the other Employees performing the same or similar work for the Client. The Client then becomes the sole Employer of the Employee. The Employee is not transferred from the TES to the Client, but a statutory employment relationship is created.

This doesn’t mean that TES are now banned. Tlaletsi DJP stated that TES are now regulated by Section 198A(3)(b)(i) of the LRA and this restricts them to undisputable temporary employment services. The TES will continue to be the Employer of the placed Employee until the Employee is deemed to be the Employee of the Client.

The Client should therefore be very careful which TES they enter into contracts with. If the TES does not contravene the BCEA and any of the other provisions listed above, the Client will not be held jointly and severally liable.

The TES is now restricted to temporary employment. Indefinite temporary employment as it previously existed has been eradicated.

The Client must be made aware of the fact that after 3 months the placed Employee will become the Employee of the Client. The TES will no longer be the Employer. If the Client does not want to become the Employer of the placed Employee, then the placement should be restricted to less than 3 months to avoid the provisions of the LRA automatically becoming finding application.

Written by Helena Roodt, Senior Associate, Attorney, SchoemanLaw