Labour brokers: Deeming provision of LRA s198A-D

7 Comments

1. 

   GilesFiles on September 11, 2015 at 3:27 pm

   Read Prof Darcy du Toit’s views in his latest Weekly Comment: Plus ça change, plus c’est la même chose* – or is it? published by LexisNexis on IR Network [subscription needed].
   Excerpts

   The central question in this dispute was what happens to the employment relationship between the labour broker (TES) and its employees once the latter are deemed to be employed by the labour broker’s client. The CCMA had decided that the client thereby became their “sole employer” – in other words, that the employment relationship with the labour broker had ended. It was this decision which the labour broker took on review, arguing that “the placed workers remain employees of Assign [the labour broker] for all purposes, and are deemed to also be employees of [the client], for the purposes of the Act” (whatever this may mean).

   . . . .

   Having created a new employment relationship by operation of law, in other words, section 198A(5) in effect defines the terms and conditions of such employment. That this may amount to a tacit contract of employment has no bearing on the manner in which the new relationship comes about.

   Then what about the (formal) ongoing existence of contracts between the labour and the client as well as between the labour broker and the affected employees?

   For practical purposes, it would seem, both may be regarded as terminated due to supervening impossibility of performance. The employees will certainly not be in a position to continue making themselves available to the labour broker for placement with different clients in terms of their contracts of employment. This being so, the basis for the labour broker’s commercial contract with the client will also fall away. The labour broker can no longer be regarded as “providing” those employees’ services to the client if they are the client’s employees. As ‘sole employer’, the client will now be liable for the employees’ remuneration in terms of section 198A(5) and would be liable for the fee specified in the original contract.

   This does not exclude contractual relations of a different nature between the former client and the former labour broker for any new arrangements between them arising from the changed circumstances. But it cannot trump the purpose of section 198A.

   Having said that, it must be accepted that the debate is still far from over. The TES industry is said to generate R40 billion per year and there may be powerful pressures for alternative interpretations of section 198A(3)(b) that would attenuate its impact and preserve the status quo as far as possible. And, indeed, for labour broker employees placed with clients for less than three months, or those earning more than the threshold applicable to the section, the status quo largely continues. As for the impact of the “deeming” provision, this is a question that the Labour Appeal Court will hopefully clarify before too long.

2. 

   GilesFiles on September 11, 2015 at 3:34 pm

   Section 198A of the LRA is discussed at pages 99-100 in Labour Relations Law: A Comprehensive Guide 6th ed (2015 LexisNexis).

3. 

   GilesFiles on October 3, 2015 at 3:13 pm

   Reported [2015] 11 BLLR 1161; (2015) 36 ILJ 2853 (LC) with BLLR headnote:
   Temporary employment services – Effect of “deeming provision” created by amendment to LRA – Client of TES not becoming sole employer of client after three months in terms of 198A(3), but contract between TES and employees continuing.
   See also [2015] JOL 33875 (LC).

4. 

   GilesFiles on November 11, 2015 at 3:26 pm

   Prof Darcy du Toit has added some comments in his latest editorial What is the purpose of “for the purposes of this Act” in sections 198 and 198A of the LRA? published by LexisNexis on IR Network [subscription required]

   The debate about the proper interpretation of section 198A(3)(b) of the LRA is ongoing. The section states that, “for the purposes of this Act”, a labour broker employee earning below the statutory minimum 1 who is placed with a client for longer than three months (i.e., not performing “temporary service”) is, in principle, “deemed to be the employee of that client and the client is deemed to be the employer” on an indefinite basis.
   . . . . .
   The meaning given to the phrase by Brassey AJ is reflected in his endorsement of what became common cause between the parties: that section 198A(3)(b) “makes the client the employer for the purposes of the [LRA] and for no other purpose;” and, secondly, “that the section does not serve to make the client the employer for any purpose other than the operation of the LRA” (para 11 of judgment).
   . . . .
   Even the fact that an employment contract will as a rule exist between the labour broker and its employees (or “employees”) is not conclusive. The courts have made it clear that it is necessary to look beyond the ostensible terms of a contract in order to establish the true nature of a relationship, especially where it is contended that the contract is a sham. Beyond the purposes of the LRA and the BCEA, in other words, the employment contracts of labour brokers’ employees should be open to interpretation.
   On top of this comes the fact that section 198A(3)(b) now challenges precisely that which section 198(2) has brought into existence: the employment status of the affected employee “for purposes of” the LRA. He or she is the employee of the labour broker “for purposes of the LRA” but is also “deemed” to be the client’s employee “for purposes of the LRA”.
   What this means in practice is a question for the courts to determine. But certain pointers can be noted. Conspicuous by its absence in the Assign judgment is any reference to the purposes of the 2014 amendments to the LRA and of section 198A(3)(b) in particular. Instead, the judgment is confined to the literal wording of the provision, and the concessions made by the parties, within a contractual paradigm.
   This alone renders the judgment problematic. No concessions made by parties can determine the meaning of legislation giving effect to a basic right; that is for the court to decide. And in dealing with an employment relationship brought about by operation of law (i.e., between the client and the employee), reliance on a contractual framework is misplaced; it is well known that common law must yield to legislation.
   . . . .
   One aspect of a restrictive interpretation of section 198A(3)(b), it may be concluded, is to give little or no weight to the purposive approach which courts are enjoined to follow and, rather, to give precedence to the commercial contract between the labour broker and the client as well as the employment contract between the labour broker and the employee. For reasons already alluded to, such an approach is unsustainable; private agreements cannot prevail over the statutory implementation of constitutional rights. Rather, it is the private agreements that would need to be “read down”.
   A second aspect is to limit the meaning of the term “deemed” to a point where (as in the example from the Assign judgment noted above) it is rendered practically meaningless. However, the overwhelming weight of case law makes it clear that the term must be given a meaning consistent with its purpose. If the purpose is to confine temporary employment services to work that is genuinely temporary, and thereafter treat the employee as being employed by the labour broker’s client, it would make little sense to give precedence to the “purposes of the LRA” as referred to in section 198(2) as opposed to section 198A(3)(b), which was enacted precisely to address the shortcoming of the earlier provision.
   And it is difficult to see how an award upholding the purpose of section 198A(3)(b), as explained in the Memorandum of Objects, beyond the limited question decided in the Assign judgment, could be regarded as one that a reasonable decision-maker could not reach.

5. 

   GilesFiles on February 3, 2016 at 11:24 am

   Excerpt from Employment Law (2015) December published by LexisNexis [subscription reqired]
   What becomes of labour broking arrangements after three months? This was the question before arbitrators and the Labour Court in two cases decided since the implementation of the new section 198A. John Grogan examines the awards and the judgment: Let the “deemed” be damned: Section 198A(3)(b) deconstructed

   Triangular

   Even if obiter, the framework created by the Assign judgment can fairly be described as follows. In terms of the amended section 198, labour broking involves a complex relationship consisting of the contract between the TES and its client, a contract of employment between the TES and the placed worker, and an assignment by the TES of the placed worker to the client. This relationship may be described as “triangular”, because it involves three parties. Without legislative intervention, the employee would be employed by the TES, and the client’s power over its employees would be assigned to it by the TES. While the TES employees acquire rights and incur duties, they are owed to and may be exercised only against the TES. According to the judgment, the only effect of the amended section 198 is that it imposes joint and several liability on the TES and its client for specified wrongs.

   Again, according to Judge Brassey, nothing changes after section 198A(3)(b) is triggered, except that the employee is deemed by law to be employed by the client on an indefinite basis and must be employed “on the whole not less favourably” than employees of the client who perform the same or similar work (section 198A(5)). But the labour broking arrangement continues. This means that two identifiable relationships are formed: one between the TES and the placed employees; the other between the client and the TES for the purposes of the LRA alone. These two employment relationships operate in parallel but separate lines, with each employer having its own relationship with the placed worker. If the client terminates its relationship with the employee, the relationship between the placed worker and the TES endures. But if the TES terminates its relationship with the employee, both relationships end.

   The practical implications of the Assign judgment appear to be as follows. In the first three months, the TES is the sole employer, but the employee may sue the TES and its client, or both, for infringements of the BCEA, applicable collective agreements or arbitration awards dealing with terms and conditions of employment or sectoral determinations (section 198(4)). However, the TES is solely liable for infringements of other labour legislation, including the LRA. The same applies with deemed employees (section 198(4A)). The placed employees are deemed employees of the client only “for purposes of “this Act” – ie the LRA, its schedules (except Schedule 4 and 8 and regulations made in terms of section 208 (section 213)). This may mean that the placed employees are not deemed employed by the client for purposes of other Acts and regulations promulgated under them. Dismissals, unfair labour practices, the interpretation of collective agreements, organisational rights, strikes and lockouts are all regulated by the LRA. All the rights under those provisions must therefore be enforced against the client alone. Rights under the BCEA, collective agreements, sectoral determinations and arbitration awards can be enforced against either the TES or the client, or both. It is in that source that the TES remains in the picture after the deeming provision is triggered.

6. 

   GilesFiles on February 4, 2016 at 12:21 pm

   Lawrence Diamond, spokesperson for the Worforce Holdings: Clarity on ‘deeming provision’ in respect of temporary workers posted on BizCommunity.com on 13 October 2015

   It is also true that there are many workers, who do not want to be tied to one employer, and prefer the flexibility of short to medium term contracts, or want to take on assignments as and when their schedules allow. This could include workers who want to earn additional income to that brought in by their permanent jobs, such as nursing staff, or mothers returning to the workplace and need to work around their childcare commitments, as examples.

   At Workforce Holdings, our various companies offer employment solutions for people wanting to get into the formal labour sector, and for people whose professions are more conducive to contract employment rather than permanent placement. Our view is that we hold the contracts and relationships with the workers we place with our clients, and as such, we invest in training them to improve their skills. We also provide access to lifestyle and healthcare benefits, and we support them with financial and psychological counselling. We make it possible for more people to earn a living by working with companies to meet their flexible staffing needs.

   While there may well be unscrupulous labour brokers and their equally unscrupulous clients out there in the marketplace, there is no doubt that there is a place, and demand, for temporary employment services that provide employment for South Africans who want to work. The Labour Court’s ruling means that we can continue to make that possible by doing what we do best.