The dispute referred to the CCMA concerned a service level provider and services provided by labour brokers to a management company, Adfusion, and whether in fact and in law Shoprite was the actual client. The contractual arrangement between Shoprite and Adfusion related to distribution centres or warehouses and was ‘outcomes’ based. Adfusion was paid a management fee according to the volume of goods processed each day. Adfusion used the services of labour brokers and became their ‘client’. The CCMA found the arrangement was commercially legitimate and for an operational purpose. The arrangement was not a sham. So LRA s 200B did not apply. That section deals with simulated agreements aimed at undermining the LRA. But parties are not prevented from arranging their affairs to avoid, rather than evade, statutory obligations. In addition LRA s 198A(3)(b) did not apply and Adfusion and not Shoprite was the client of the labour brokers.
Comment:
The purpose of sec 27 of the Employment Equity Act (EEA) is to eliminate disproportionate pay differentials within enterprises. So when ‘clients’ use the services of labour brokers and those workers are not treated as employees of that client it is possible to avoid the consequences of EEA s 27. The recent amendments to the EEA and Labour Relations Act (LRA) were intended to cure that problem.
But as Wallis JA decided in Roshcon (Pty) Ltd v Anchor Auto Body Builders CC parties are permitted to “arrange their contractual or business affairs so as to obtain a benefit for themselves that a different arrangement may not permit or so as to avoid a prohibition that the law imposes”.
So large employers can conclude a service level agreement (SLA) with smaller entities, service level providers (SLP), that use the services of labour brokers. Provided the SLA is not a sham and even if the workers provided by the labour brokers are regarded as being employed by the SLP, it will not make any real difference because in effect all the workers will be treated the same with regard to their employment terms and pay. If the SLP does employ managers they will be graded at the higher levels and the SLP will be able to justify the proportional differential based on the extra value added by the managers who are then paid accordingly.
Thabiso v Shoprite (Adfusion) [2017] 10 BALR 1128 (CCMA) dated: 16 March 2017 per R Byrne, Commissioner
Extracts from the award (no footnotes)
Details of hearing and representation
[1] This matter was heard over 11 days, spanning 10 September 2015 to 6 March 2017.
Background to the dispute
[2] The first respondent, Shoprite, has a number of Distribution Centres (warehouses) around South Africa. There is a history to the manner in which they have managed these Distribution Centres (“DC’s”) over the last few years, but for purposes of this Arbitration it will suffice to state that the most recent model they have adopted is to obtain the services of a Management Company, Adfusion, in order to manage these warehouses from the point that stock arrives to the point that stock leaves in trucks for distribution to the various Shoprite Stores. Shoprite have entered into a written contract with Adfusion for the provision of these services, the first contract being in 2014, the second being in 2016.
[3] Adfusion in turn have entered into contractual agreements with various service providers, including nine Labour Brokers, or Temporary Employment Services, for the provision of most of their labour requirements.
[4] The employees of these Temporary Employment Services (“TES’s”) are the applicants in this matter. The bulk of the applicants are from the Centurion DC. A group from a DC in the Western Cape, represented by FAWU, were joined to this dispute. The outcome of this award affects all the employees of TES’s around the Country. The parties have dealt with this issue themselves, and I am informed that all the affected employees have been given the opportunity to be joined to this matter.
[5] The employees of the TES’s have been working at the DC’s for more than three months and they earn below the threshold of earnings as published by the Minister in terms of Basic Conditions of Employment Act. As such, they enjoy the protections in terms of section 198A of the Labour Relations Act.
[6] The dispute before me is in terms of section 198A(3)(b)(i) of the LRA, which reads:
“For the purposes of this Act, an employee not performing such temporary service for the client is deemed to be the employee of that client and the client is deemed to be the employer;”
[7] As indicated above, and it is common cause with the parties, the employees of the TES’s are not performing temporary services, as they have been working there for a lot longer than three months, or for any other reason as outlined in section 198A(1). The question before me is: Who is the client – Shoprite or Adfusion?
[8] The applicants argue that Shoprite is the client. The respondents, being Shoprite, Adfusion and the various TES’s all argue that Adfusion is the client.
Issue to be decided
[9] I must decide whether Adfusion or Shoprite is the client as contemplated in section 198A(3)(b)(i).
Survey of evidence and argument
The respondents’ case
[10] The respondents handed up bundles of documents and led the viva voce evidence of a number of witnesses. I will not go into detail of the evidence, as it is fairly voluminous, but will give the briefest of summaries of their evidence in order to make sense to the reader.
[11] Shoprite is not in the business of running Distribution Centres, but are rather in the retail business of selling household goods and foods through its Stores. Due to the expansion of the number of its Stores, there was a need to build and establish DC’s in order to service their Stores more efficiently in the various regions. These DC’s were initially run by Shoprite themselves, using their own Management, staff and the use of TES’s. However, their efficiency levels were very poor. This was due to a number of reasons, which included;
• Shoprite Management were finding that they were spending too much of their own time on issues relating to the TES’s instead of their own strategic planning of product lines, stock levels and distribution to their Stores.;
• they did not have the relevant skills to manage warehouses and TES’s.
They found that they were only achieving 30% of orders that were supposed to be delivered each day. This had severe consequences to the Stores in terms of the Stores’ own stock planning. This translated into losses in terms of sales. Shoprite then decided to bring in a Management Company who were experienced in warehouse management.
[12] Adfusion was brought in and they took over the running of the DC’s over a period of time. A number of Shoprite’s staff were transferred to Adfusion; a number of staff were seconded to Adfusion. As at the beginning of 2016 Adfusion took over control of the various DC’s of Shoprite. Shoprite would prepare documents on a daily basis, which would be given to Adfusion’s Management concerning stock that would be delivered to the DC’s each day, as well as what should be picked and packed for the delivery vehicles each day. Shoprite would monitor Adfusion’s performance. Shoprite also set out the standards that it expected of Adfusion as well as the list of accredited service providers that Adfusion were allowed to use.
[13] The contract between Shoprite and Adfusion is an outcome-based one. Shoprite pay Adfusion on the basis of the number of packages processed each day. Adfusion could take its own decisions on the number of staff it employed. To the extent that Shoprite’s operational requirements required Adfusion to operate within certain parameters, these were enforced. Shoprite ceased contracting with the TES’s. Adfusion then contracted with the TES’s. Shoprite paid Adfusion for the services it rendered to Shoprite. Adfusion, in turn paid the TES’s for their services.
[14] With Adfusion operating the DC’s as a business of their own, it has improved the efficiency level from 30% to 70%. The international standard is in the region of 80%. The improved efficiency levels has meant that the profit levels more than make up the cost of paying Adfusion to run the DC’s as separate businesses.
[15] The respondent has argued that for the applicants to succeed in this matter they would have to prove that the contract between Shoprite and Adfusion is a sham, or “simulated contract”, and that it is intended for an ulterior purpose, ie to evade the purposes of the LRA. The respondent argues that the applicants have failed to prove that the contract between Shoprite and Adfusion is a simulated one or that such contractual arrangement was designed to defeat the objectives of the LRA. Further, that the applicant did not put in dispute or lead any evidence to contradict the important aspects covered by it’s, the respondents’, witnesses. (The arguments of Shoprite and Adfusion are fully set out in their written heads of argument.)
The applicant’s case
[16] The applicant party handed up bundles of documents and led the viva voce evidence of a number of witnesses. Again, I will not go into great detail of the evidence and argument presented. However, I have considered all the evidence and argument presented to me.
[17] The applicant’s evidence is essentially along the lines of that very little, if anything, has changed since the advent of Adfusion into the workplace. They still work at the premises of Shoprite, their jobs have remained the same and the same management structure is in place as it was previously. In their view, although there are some Adfusion Managers present, they all ultimately report to Shoprite’s Managers. Shoprite’s Managers also issue instructions and hold meetings.
[18] The applicant party argued that everything Adfusion did was on behalf of Shoprite, and that even though Adfusion was introduced as a layer between itself and the TES’s, the sum of all its operations was for, and on behalf of, and as if it were Shoprite. The arrangement was a sham in order for Shoprite to avoid conditions of employment that were the same or similar to other Shoprite employees. (The applicant’s arguments are fully set out in its written heads.)
Analysis of evidence and argument
[19] The respondents’ witnesses were very clear in their evidence and were very clear in their setting out of the process in which Adfusion gradually assumed total control of the logistics of running the DC’s. As of 1 May 2016, the separate business function was fully in place and correctly reflected the current Service Level Agreement between Shoprite and Adfusion. The important elements of the respondent’s evidence was either not disputed or properly contradicted by the applicant party. A lot of the evidence introduced by the applicant’s witnesses was new evidence, and which had not been put to the respondent’s witnesses. Even so, most of it was unhelpful to the issue in dispute. Importantly too, the applicant party did not come close to discharging its onus of proof that the contractual arrangement between Shoprite and Adfusion was a sham.
[20] The undisputed evidence before me is that the agreement between Shoprite and Adfusion was to achieve a certain legitimate objective, which was to obtain a level of efficiency that made commercial sense. Adfusion had a skill-set to achieve this objective, and therefore the outcome was profitable to both Shoprite and Adfusion. As such, the contract with Adfusion had a legitimate purpose and there is no evidence before me as to any intention to defeat/avoid the intentions or effect of the Labour Relations Act.
[21] Interestingly, the parties referred to section 200B of the LRA, subsection (1) of which reads as follows:
“For the purposes of this Act and any other employment law, “employer” includes one or more persons who carry on associated or related activity or business by or through an employer if the intent or effect of their doing so is or has been to directly or indirectly defeat the purposes of this Act or any other employment law.”
[22] Section 200B deals with simulated, or sham agreements. I will refer to two cases on the matter. In Association of Mineworkers & Construction Union and others v Buffalo Coal Dundee (Pty) Ltd and another (2016) 37 ILJ 2035 (LAC) [also reported at [2016] 9 BLLR 855 (LAC) – Ed], Musi JA stated that
“Section 200B was enacted to prevent collusion by two or more persons involved in an associated or related business by or through an employer in order to undermine the provisions of the Act or any other employment law.”
He further indicated that the party who wishes to invoke section 200A, ie the applicant party in the present case, has the onus to prove that there was an intention to directly or indirectly defeat the purposes of this Act or any other employment law.
[23] In Roshcon (Pty) Ltd v Anchor Auto Body Builders CC and others 2014 (4) SA 319 (SCA) [also reported at [2014] 2 All SA 654 (SCA) – Ed], Wallis JA stated that
“the law permits people to arrange their contractual or business affairs so as to obtain a benefit for themselves that a different arrangement may not permit or so as to avoid a prohibition that the law imposes.”
[24] From the above it is clear that the simulated/sham/colluded arrangement is linked to an intention to defeat the intentions of employment laws, and that the applicant party bears the onus of proving such. Further, that parties are free to arrange their contractual arrangements in order to avoid (not evade) the provisions of any legislation.
[25] The law on simulated arrangements applies also to section 198A where one has to choose who the client is. This is so, because the same inquiry arises – is it a sham? There are clear differences between sections 200B and section 198A(3)(b)(i). Section 200B is a general provision and relates to all employment laws. Section 198A is very specific to TES’s and their clients and only affects the LRA and not other employment legislation. However, the test in section 200B applies where there is a dispute as to who the client is in terms of section 198A.
[26] In conclusion, the respondent parties have made out a sufficient case that the arrangement between Shoprite and Adfusion is a legitimate one, and that it is for a rational commercial purpose. The applicant has failed to prove that there was an illegitimate purpose behind such an arrangement/contract. As such, the client is Adfusion.
[27] As a remark on the “agent” argument, although the applicant’s argument has merit, it could very well be argued that even in some of those cases the arrangements are legitimate for purposes of section 198A.
[28] I would like to respond very briefly to an objection that was raised by one of the respondent’s representatives after I questioned some of the applicant’s witnesses. Reference was made to our law being adversarial in nature and that a Commissioner’s questioning of any witness should be confined to clarity-seeking only. Our law is a mixture of both the adversarial and inquisitorial models. Whilst it is true that in an adversarial model a chairman’s questioning is limited to that of seeking clarity only, an inquisitorial model allows for the complete examination of a witness to be done by the chairman.
It is a mistake to suggest that a Commissioner’s powers and responsibilities in an Arbitration process are limited, insofar as questioning of witnesses is concerned, to that of clarity-seeking. A Commissioner’s duties include getting to the heart of the matter, which may include questioning and probing witnesses. This matter was dealt with in the Constitutional Court in 2008. See Islamic Unity Convention v Minister of Telecommunications and others 2008 (3) SA 383 (CC) at 417 [also reported at 2008 (4) BCLR 384 (CC) – Ed]:
“There is nothing unusual, in an inquisitorial process, in the cross-examination of witnesses being done through the chairperson. Nor is it impermissible, I would suggest, for a chairperson to have the power to allow cross-examination only where she or he deems it to be necessary.”
Order
[29] The client of the various Temporary Employment Services is Adfusion Contract Management Services, and not Shoprite.
[30] There is no order as to costs.