The Constitutional Court gives the final word on Labour Brokers

06 Aug 2018

On 26 July 2018 the Constitutional Court handed down its long-awaited judgment in the Assign Services matter, providing the final say on the correct interpretation of section 198A(3)(b) of the Labour Relations Act (“the LRA”).

The section provides that an employee who earns less than the earnings threshold (which is currently R205 433 per annum) and who is contracted through a temporary employment service (“TES”) (colloquially referred to as labour brokers) to a client for more than three months is deemed to be employed by that client.

Essentially, the question the Constitutional Court had to answer was framed as follows:

• Once section 198A(3)(b) is triggered, does this give rise to a dual employment relationship wherein the employee is employed by both the TES and the client? (“dual employer interpretation”); or
• Does the trigger of section 198A(3)(b) create a sole employment relationship between the employee and the client insofar as the LRA is applicable? (“sole employer interpretation”).

Background

The applicant, Assign Services (Pty) Limited (“Assign”) is a labour broker, as defined in section 198 of the LRA (i.e. it provides temporary employment services to clients). Assign recruits, places, manages and pays employees who are placed with client companies.

In April 2015, Assign placed 22 workers with a client (Krost Shelving and Packaging (Pty) Limited) of which several workers were members of NUMSA. The workers rendered services for the client on a full time basis for a period exceeding three months. They earned below the earnings threshold. Consequently, the continued employment of the workers triggered section 198A(3)(b) of the LRA.

A dispute arose between Assign, the client and NUMSA regarding the consequences of section 198A(3)(b). Assign was of the view that the application of section 198A(3)(b) resulted in the dual employer interpretation, whereas NUMSA argued that it resulted in the sole employer interpretation.

Accordingly, the matter was referred to arbitration at the CCMA. The commissioner favoured the sole employer interpretation. On review at the Labour Court the presiding judge found in favour of the dual employer interpretation. The Labour Appeal Court disagreed with the Labour Court and held that the sole employer interpretation best protected the rights of the TES employees.

The decision before the Constitutional Court was evidently a controversial one, and the court granted leave to appeal on the basis that, inter alia, the decision would have “profound implications for the ability of TES’s to provide a service” after the three month period.

The decision of the Constitutional Court

The Constitutional Court’s decision rested primarily on a correct interpretation of section 198A of the LRA. As such, the court set out to interpret the provision textually, contextually and purposively.

The majority judges of the Constitutional Court found that section 198A(3)(b) of the LRA was written in plain language and that it clearly distinguishes between employees employed with the TES for genuine temporary work, and those who are deemed to be employed by the client after the lapse of the three month time period. Dlodlo AJ went further to say that, with this in mind, a dual employer interpretation “strains the language used”.

The majority considered the impact that section 198(4) of the LRA would have on the interpretation of section 198A(3)(b) and found that section 198(4) did not create equal or dual employment, but merely a statutory accessory liability for the client. On this basis, the majority could not be persuaded that section 198(4A) hampered the sole employer interpretation.

The Constitutional Court referred to the explanatory memorandum to the 2012 Bill wherein the main objective of section 198A(3)(b) was described as to restrict the employment of more vulnerable lower paid workers to situations of genuine temporary work.

Bearing the purpose in mind, Dlodlo AJ found that “the restriction of a TES employment to genuine temporary work affords clarity and precision needed by the LRA to realise constitutional rights to fair labour practices and meaningfully to participate in trade union activity”.

The majority therefore found that on an interpretation of section 198(2) and 198A(3)(b) a TES is the employer of an employee for the first three months and thereafter the client becomes the sole employer of the employee for the purposes of the LRA. Sections 198(2) and 198A(3)(b) cannot operate at the same time.

Practical considerations

In reaching the decision that the sole employer interpretation was correct, the Constitutional Court considered the absence of certainty that the dual employer interpretation creates and the impact this has on employees to exercise their LRA rights. Practical difficulties were cited to include two sets of terms and conditions of employment, two disciplinary codes, ascertaining which employer dismissed the employee and which LRA procedure applies to dismissal.

Additionally, Dlodlo AJ was persuaded by the argument that strike action, which is an important constitutional right, might be impacted by a dual interpretation. This follows due to matters of mutual interest differing between an employee and a TES on the one hand, and an employee and the client on another. As a result of this uncertainty, it is conceivable that a strike might be protected against one employer and not the other.

The majority found that the abovementioned practical considerations support the view that the sole employer interpretation best protects the rights of employees earning below the threshold and in temporary employment for longer than three months.

The role of a TES after three months?

The majority described the relationship between the TES, client and employee as a triangular one which exists to split the functions of the employer for a fee.

The Constitutional Court held that the sole employer interpretation does not result in a transfer of employment but rather a change in the statutory attribution of responsibility as an employer; within the same triangular relationship.

Practically this means that this triangular relationship will continue for as long as the commercial contract between the TES and the client remains in force and the TES continues to remunerate the employee.

The effect of the deeming provision on the triangular relationship

As recorded by the Constitutional Court, the TES’s primary responsibilities are (and shall remain for as long as there exists a contract or relationship between the client and the TES) to pay and manage the human resources component of employment, while the day-to-day managements, working conditions, work allocations and performance assessment are usually conducted by the client.

However, it is important to highlight that the sole employer interpretation operates for the purposes of the LRA only. This means that where an employee seeks relief from his employer in terms of the LRA (for example, relief for an alleged unfair dismissal), such relief must be sought against the client only, as the sole employer (notwithstanding section 198(4) and 198(4A) of the LRA).

Whereas, where the employee seeks relief in terms of (i) a collective agreement (ii) a binding arbitration award that regulates terms and conditions of employment (iii) the Basic Conditions of Employment Act (“BCEA”) or (iv) a sectoral determination made in terms of the BCEA, such relief may be sought against either each or both the client and the TES, jointly and severally, provided there still exists a contract and/or relationship between the TES and the client. Finally, any order or award made against a TES or a client in terms of section 198(4) and/or 198(4A) may be enforced against either party.

Conclusion

In the circumstances, while the judgment is not favourable to labour brokers, it does not render them redundant and labour brokers can and will continue to operate for so long as clients continue to transact with them for commercial reasons. This judgment does, however, pose complicated considerations for the continued use of labour brokers and placed workers. Therefore, expert advice and assistance should be sought where labour brokers and placed workers are being utilised.

Contact the Employment law department at Eversheds Sutherland for assistance in structuring or continuing with TES arrangements.

1 Assign Services (Pty) Limited v National Union of Metal Workers and Others (2018) ZACC 22

See also:

• Labour Brokers & Clients: Assigned roles of employers reconsidered by the Labour Appeal Court
• Amendments to employment legislation and what employers can expect

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)