Dyokhwe v De Kock NO (Mondi) (C 418/11) [2012] ZALCCT 25; [2012] 10 BLLR 1012 (LC); (2012) 33 ILJ 2401 (LC) (21 June 2012)

On the clear evidence of the circumstances in which the worker signed the purported contract with the labour broker it would be contrary to public policy to enforce it.

Businesses who simply accept employees from a company employing them and then assign their services back to that company do not act as labour brokers, as defined. A genuine labour broker ‘procures for or provides to a client other persons who render services to, or perform work for, the client.’

On 21 June 2012 justice Steenkamp in the Labour Court reviewed and set aside a ruling of the CCMA that Mr Dyokhwe’s new employer was Adecco Recruitment Services, the trading name of Stratostaff (Pty) Ltd.

The effect of Steenkamp J’s judgment is that Mondi remained the true employer (not Adecco the labour broker) and the claim of unfair dismissal had to continue in the CCMA against Mondi and not the labour broker.

Here are some extracts from the judgment which, thanks to Saflii, can be read in full by clicking on the link. Most of the footnotes have been omitted or inserted in the text for ease of reference.

Introduction

[1] This application for review concerns the true nature of the employer in the contentious labour broking environment.

[2] The applicant was initially employed by the third respondent, Mondi Packaging South Africa (Pty) Ltd (“Mondi”) for more than two years. He was then informed that he would have to sign a new contract of employment with the fourth respondent, Stratostaff (Pty) Ltd trading as Adecco Recruitment Services (“Adecco”). Adecco is a temporary employment service as defined in section 198 of the LRA or, in common parlance, a labour broker. The applicant did so but continued working in the same position at Mondi. He was dismissed 5 ½ years later, in January 2009. The question arises who his true employer was at the time of his dismissal.

[3] The first respondent (“the arbitrator”) ruled that Adecco was the employer. The applicant wishes to have that ruling reviewed and set aside in terms of s 145 of the LRA.

Background facts

[4] The applicant was initially employed by Mondi on a three-month contract in 2000. He continued to be employed and a series of fixed term contracts. (Footnote: These contracts appear to have been “rolled over” for a number of years. There is little doubt that the applicant would have formed a reasonable expectation of renewal as contemplated in s 186(1)(b) of the LRA. But that is not the dispute before this court.) On 9 December 2002 Mondi’s human resources manager sent the applicant a letter in these terms:

“Dear Mr Dyokhwe

RE: NOTICE OF TERMINATION OF CONTRACT

We regret to advise that due to a drop-off in our workload your contract of employment will only be extended to 20th December 2002 and will therefore terminate on that date. We will advise of the final arrangements with regard to your payment in due course.”

[5] Despite this notice, the applicant continued to be employed by Mondi into 2003 without signing a further contract of employment. It appears, therefore, that he continued to be employed on a permanent basis. For example, he received a payslip from Mondi on 23 February 2003, as before, clearly indicating Mondi as the employer. The arbitrator accepted on the evidence before him that the applicant “continued to work for [Mondi] until 30 June 2003”.

[6] On 7 July 2003 the applicant’s manager at Mondi, Len Williams, told him to go to Tyger Valley to “sign a form.” According to the applicant’s uncontested evidence, Williams told him:

“The reason why you must go to Tyger Valley, whenever we are recruiting, we want to recruit people who have experience, people who know what kind of job we are doing here.”

[7] Williams also told the applicant that, if he didn’t want to go to Tyger Valley, he should go home – and that is what the applicant did. The next morning, Williams phoned him and told him again to go to Tyger Valley. After that, a woman who was not known to him phoned him and told him to take the train to Bellville station. She would meet him there. He did so and telephoned her when he got there. She then gave him directions to what turned out to be the offices of Adecco.

[8] At Adecco, two women present showed the applicant two forms. The one was his employment contract with Mondi. The other turned out to be a new employment contract with Adecco; but the applicant explained that he cannot read English and he did not read or understand the document. He was able to sign his name. The woman present – apparently a representative of Adecco – asked him to sign the new (Adecco) contract and told him:

“We want you to be with us for the time being and nothing is going to change. Whenever they are looking for permanent staff they will know where to find you.”

[9] The Adecco contract is headed, “Contract of employment defined by time”. It purports to be a fixed term contract “defined by time”. It is no such thing. It contains no fixed term. The introduction reads as follows (handwritten portions indicated by italics):

“Adecco South Africa, herein after [sic] referred to as the Employer, hereby agrees to employ K Dyokhwe (Name), 530916546086 (ID No.) hereinafter referred to as the Assignee on a Fixed Term Contract Defined by Time as Asst (Job Title) with effect from 07.07.03 (Date) to – (Date), based on the following terms and conditions:
1.1 You will be employed primarily in the capacity of Asst Reporting to L WILLIAMS Employed at MONDIPAK.”

[10] The contract further stipulates an hourly rate of R10. It also states, contrary to the terms of the contract itself:

“As this contract is for a fixed period, you will not be entitled to any discharge or severance benefits on termination of such contract. It is specifically recorded that there will be no expectation that your contract of employment will be renewed or prolonged beyond the date of completion as aforesaid. The termination of this contract as provided for in this agreement shall not be construed as being a retrenchment but shall be completion of the contract.”

[11] After signing the Adecco contract, the applicant returned to work at Mondi and continued working at the same place in the same position and reporting to the same supervisor and manager as before.

However, he now received a payslip from Adecco and his hourly rate was reduced from R12,56 to R10,00 per hour. When he complained, Williams told him to go to Adecco. He went to the CCMA instead, where an official told him that he should just “continue working”.

[12] The applicant continued to work at Mondi for another 5 ½ years until 5 January 2009, when Mondi summarily informed him that his employment had been terminated, without any notice or other procedure. His supervisor, Gert Manuel, showed him a list of employees – including his name – and said:

“If your name is on the list your contract of employment is terminated, the work is finished.”

[13] Manuel told the applicant to go to Adecco. He did so, and the woman to whom he spoke at Adecco told him they did not have work for him as he was too old. He then referred an unfair dismissal dispute to the CCMA.

The commissioner’s ruling

[16] The Commissioner found that Adecco was the applicant’s employer at the time of his dismissal; that Mondi “is excused from attending any further arbitration proceedings regarding this matter.”; and that the matter should be rescheduled for arbitration between the applicant and Adecco in order for a decision to be made as to the existence of the dismissal and, if so, the fairness thereof.

Grounds of review

[20] The applicant relies on four grounds of review, being conclusions that, in his view, are so unreasonable that no other commissioner could have come to the same conclusion:

  • 20.1 The Commissioner’s finding that the applicant was “no longer employed by [Mondi]” after signing the Adecco contract;
  • 20.2 the Commissioner’s finding that the applicant was not induced to sign the Adecco contract by misrepresentations;
  • 20.3 the Commissioner’s reliance on incorrect legal advice provided to him by a CCMA official in finding that the applicant had lost or abandoned rights that he would otherwise have had; and
  • 20.4 the Commissioner’s failure to consider the contention that it would be contrary to public policy to enforce the applicant contract against the applicant in the circumstances of this case.

The legal context: Labour brokers under the LRA, the Constitution and international law

[21] The overarching basis of this review application is the Commissioner’s approach to a temporary employment service (“TES”) in terms of section 198 of the LRA.

The relevant part of that section reads:

‘198. Temporary Employment Services.

(1) In this section, “temporary employment services” means any person who, for reward, procures for or provides to a client other persons—

(a) who render services to, or perform work for, the client; and
(b) who are remunerated by the temporary employment service.

(2) For the purposes of this Act, a person whose services have been procured for or provided to a client by a temporary employment service is the employee of that temporary employment service, and the temporary employment service is that person’s employer.’

[22] Section 3 of the LRA requires courts to adopt a construction of section 198 that complies with the Constitution and public international law, while at the same time giving effect to the LRA’s primary objects. This principle is reinforced by section 39(2) of the Constitution, which requires courts interpreting legislation to seek to promote the spirit, purport and objects of the Bill of Rights.

[23] The applicant argues that the Commissioner failed to adopt an approach to section 198 consistent with the requirements of the provision itself and the purposes of the LRA, interpreted in the light of the spirit, purport and objects of the Bill of Rights in terms of section 39 of the Constitution and having regard to relevant international law.

[23] In Africa Personnel Services (Pty) Ltd v Government of the Republic of Namibia & others [2011] 1 BLLR 15 (NmS) para [70] the court, while striking down that section as unconstitutional, nevertheless recognised a need to strike a balance between the interests of employers to be flexible and the interests of employees not to be treated as ‘mere commodities’ on the basis of the contractual arrangements between the TES and the client:

“[L]abour is not a tradable innate object but an activity of human beings. Unlike a commodity, it cannot be bought or sold on the market without regard to the inseparable connection it has to the individual who produces it: it is integral to the person of a human being and intimately related to the skills, experience, qualifications, personality and life of that person.

It is the means through which human beings provide for themselves, their dependants and their communities; a way through which they interact with others and assert themselves as contributing members of society; an activity through which to foster spiritual wellbeing, to enhance their abilities and to fulfil their potential.

All these elements must be brought into the equation of labour relationships if social justice and fairness are to be achieved at the workplace; if social security, stability and peace are to be maintained.

Employees may be subordinate to their employers in employment relationships but that does not mean that they are lesser beings or that they do not have equal rights and freedoms as such.”

[24] This court, too, has recognised the vulnerability of workers in TES arrangements, as the weakest and most vulnerable party in the triangular relationship, and held that they may not be treated “in a way that would effectively treat employees as commodities to be passed on and traded at the whims and fancies of the client.” (Nape v INTCS Corporate Solutions (Pty) Ltd [2010] 8 BLLR 852 (LC) para [60].)

[31] Our courts have recognised that an employee employed by a TES cannot be dismissed at will in terms of a contractual clause that specifies that a contract is terminated ‘automatically’ simply because the client of the TES no longer requires the employee’s services.

Disguised employment relationships’ and international law

[32] The International Labour Organisation (ILO), of which South Africa is a member, has addressed ‘disguised employment relationships’ – mainly in the context of employment relationships being dressed up as independent contractor arrangements – but its concerns are equally apposite where the nature of the true employer is obfuscated by TES arrangements.

[33] The Private Employment Agencies Convention, 1997 (C181) seeks to ensure that workers placed by employment agencies receive adequate protection under labour law. For the purpose of this Convention the term private employment agency means any natural or legal person which provides one or more of the following labour market services: (C181 article 1)

“(a) services for matching offers of and applications for employment, without the private employment agency becoming a party to the employment relationships which may arise therefrom;

(b) services consisting of employing workers with a view to making them available to a third party, who may be a natural or legal person (referred to as a ‘user enterprise’) which assigns their tasks and supervises the execution of these tasks;

(c) other services relating to job seeking, determined by the competent authority after consulting the most representative employers and workers organizations, such as the provision of information, that do not set out to match specific offers of and applications for employment.”

[34] The Convention requires that ratifying countries have adequate machinery for lodging complaints concerning agencies. National legislation should stipulate the responsibilities of employees and ‘user enterprises’ for collective bargaining, wages and conditions of employment, social security benefits, and health and safety. However, the Convention does not deal specifically with the security of employment of workers engaged through private employment services.

[35] ILO Recommendation 198, albeit not of the binding force of a Convention, enjoins member states to:

“combat disguised employment relationships in the context of, for example, other relationships that may include the use of other forms of contractual arrangements that hide the true legal status, noting that a disguised employment relationship occurs when the employer treats an individual as other than an employee in a manner that hides his or her true legal status as an employee, and that situations can arise where contractual arrangements have the effect of depriving workers of the protection they are due.”

[36] ILO R198 recommends that an employment relationship should be determined –

“primarily by the facts relating to the performance of work and the remuneration of the worker, notwithstanding how the relationship is characterised in any contrary arrangement, contractual or otherwise, that may have been agreed between the parties.”

[37] In the instant case it is common cause that the employee was being paid by the TES, Adecco, from July 2003; yet I must approach the true nature of the relationship, in circumstances where the workplace and the nature of the employee’s remained the same for almost nine years, conscious of the obligation to combat disguised employment relationships and to examine the substance rather than the form of the relationship.

[38] Prof Paul Benjamin provides, as is his wont, a thought-provoking, insightful and thorough discussion of this topic in a recent publication. ‘To regulate or to ban? Controversies over temporary employment agencies in South Africa and Namibia’, in Malherbe and Sloth-Nielsen (eds), Labour Law into the Future: Essays in Honour of D’Arcy du Toit (Juta 2012) pp 189-209. He points out that, while s 198 was enacted to regulate the temporary employment sector, it has become a vehicle for permanent triangular employment: (p 196)

“Despite the use of the term ‘temporary employment service’ (TES), its application is not limited to agencies supplying temporary employees. This coupled with the fact that joint and several liability does not extend to unfair dismissal protection and the contract of employment has led to widespread permanent triangular employment of employees who generally earn less than those workers hired directly by the employer.”

[39] This is exactly the situation that prevails at Mondi. From one day to the next, the applicant found himself ostensibly employed by a new employer; but the only difference was that he was being paid more than 20% less.

[40] As Benjamin points out with regard to the TES being deemed the employer in terms of section 198: (p 197)

“The ‘deeming’ approach seeks to clarify the issue of who the employer is in triangular employment relationships. However, its rationale breaks down once the employee’s placement with a firm is no longer temporary and the employee has a closer relationship with the client than the agency. It is an entirely superficial construction (and one that gives rise to immense scope for abuse) to make an agency the employer of an employee working on an on-going or indefinite basis for a ‘client’ merely because the employee’s pay is routed through the agency.”

[41] Once again, the learned author could have been describing the relationship in the case before this court; except that, in this case, the TES did not even ‘place’ the applicant; on the contrary, Mondi simply purported to transfer him to the TES.

[42] Benjamin (p 199) expresses the opinion that s 198 in its current form offends the constitutional entrenchment of labour rights guaranteed in terms of section 23 of the Constitution. He goes on to say that is remarkable that no serious legal attack has been mounted on the section’s constitutionality. And so it is; but this is not that case either. At most, the applicant has asked this court to interpret the section purposively in terms of the Constitution and to assess the arbitration ruling accordingly.

[43] In this regard, the two main hurdles the applicant has to overcome is the deeming provision in s 198; and the fact that this is a review, not an appeal. Was it unreasonable for the arbitrator to have found that, applying s 198, Adecco was the employer?

[44] This question must also be considered in the light of the fact that our labour laws provide for joint and several liability by the TES and the client in certain circumstances, but perhaps tellingly, this does not include protection against unfair dismissal. In terms of s 198(4), the TES and the client are jointly and severally liable if the TES contravenes a collective agreement concluded in a bargaining council; a binding arbitration award; the BCEA; or a determination in terms of the Wage Act.

And the Employment Equity Act holds a TES and a client jointly and severally liable for unfair discrimination. As Benjamin (p 200) points out, there are two exceptions to the ruling that the TES is the employer: For the purposes of affirmative action, a person supplied by a TES placed with the client for more than three months is considered to be the client’s employee; and the client is the employer for purposes of compliance with health and safety legislation, but not compensation for occupational injuries and diseases.

Fourth ground of review: public policy

[67] This review ground is based, not on public policy as a principle (as this a review, not an appeal), but on the contention that the commissioner failed to even consider the argument that was represented to him that it would be against public policy to enforce the Adecco contract and to hold that Adecco, and not Mondi, was the employer, given the particular circumstances of the case.

[68] The commissioner disregarded this argument altogether. This in itself is a reviewable irregularity. Had he considered it, he could not reasonably have rejected it, given post-constitutional legal precedent.

[69] In Barkhuizen v Napier 2007 (5) SA 323 (CC) the Constitutional Court held that courts must not enforce a contractual clause if “implementation would result in unfairness or would be unreasonable for being contrary to public policy”.

And in Nape v INTCS this court expressed the view that:

“…any clause in a contract between a labour broker and a client which allows a client to undermine the right not to be unfairly dismissed, would in my view be against public policy.”

[70] The applicant submitted that it would be contrary to public policy to enforce the agreement signed by Adecco and the applicant. There was extreme inequality of bargaining power between the applicant and Adecco. This was exacerbated by his illiteracy and inability to read and understand the document. Neither was it explained to him.

In Barkhuizen v Napier Cameron JA held that inequality of bargaining power may be a factor in declining to enforce a contract on the basis of public policy.

And in this case, Adecco and Mondi exploited the applicant’s illiteracy and vulnerability to induce him to sign the contract.

[71] As Craig Bosch “Contract as a barrier to ‘dismissal’: The plight of the labour broker’s employee’ (2008) 29 ILJ 813 at 819 has pointed out, whether contracts such as this one are contrary to public policy must be decided on a case-by-case basis in the light of the evidence presented in each case.

[72] On the clear evidence of the circumstances in which the contract in this case was signed, it would be contrary to public policy to enforce the Adecco contract. But is a contrary conclusion so unreasonable that no other reasonable decision-maker could have come to that conclusion?

[73] I am of the view that it is, given the specific circumstances of this case. I am reinforced in that view when I have regard to the wording of section 198 itself, and bearing in mind that I need to interpret it in the light of the constitutional right to fair labour practices and the public international law obligations of the Republic.

[74] Section 198 describes the TES as employer as the entity that –

“procures for or provides to a client other persons—
(a) who render services to, or perform work for, the client;”.

[75] The New Shorter Oxford English Dictionary (Oxford University Press, 1993) describes the verb “to procure” as:

“Obtain, esp. by care or with effort; gain, acquire, get.”

[76] In the case before the arbitrator and before this court, Adecco neither “procured” nor provided the applicant to perform work for Mondi. The applicant had been working for Mondi for more than two years before he signed a contract with Adecco. If anything, Mondi “provided” the applicant to Adecco; and then, in a swift sleight of hand, the applicant returned to Mondi to continue his work as before, yet Adecco and Mondi wish to perpetuate the fiction that he had now been “procured” or “provided” by Adecco.

Conclusion

[77] The applicant’s employment with Mondi was anything but temporary. Mondi never terminated his employment. Adecco neither procured nor provided his services. In these circumstances, it would do violence to both the language and the purpose of section 189 to hold that Adecco was his true employer.

[78] I am of the view that the arbitrator’s contrary conclusion was so unreasonable that no reasonable arbitrator could have come to the same conclusion. The ruling should therefore be reviewed and set aside. The arbitration on the merits of the applicant‘s dismissal should proceed with Mondi as the employer party.

[79] With regard to costs, I take into account that Mondi (the only respondent opposing this application) already had a ruling in its favour; and that the issues raised in this application may have wider public interest ramifications. It would not be appropriate in law or fairness to order Mondi to pay the applicant’s costs.