Labour Brokers & Clients: Assigned roles of employers reconsidered by the Labour Appeal Court

12 Jul 2017

The leading case on the use of labour brokers has, until now, been the Labour Court’s decision in Assign Services (Pty) Ltd v Krost Shelving & racking (Pty) Ltd.  This judgment – which provided some comfort to clients on the continued use of labour brokers – was overturned by the Labour Appeal Court (“LAC”) on 10 July 2017.  The LAC’s decision essentially increases the exposure and risk of a client in a labour broker relationship.

To understand the impact of the LAC’s decision, one must consider section 198A of the Labour Relations Act (“LRA”) which came into force in January 2015.  This section provides that, in certain circumstances, the client of the labour broker may be deemed to be the permanent employer of the placed worker. The language used in this section left room for interpretation and raised a number of questions:  If the deeming provision is triggered, are both the client and the labour broker employers?  Or is the client the only employer?

The decision of the Labour Court (which has now been overturned) interpreted this section to mean that when the deeming provision is triggered, both the client and the labour broker are the deemed employer.  The Labour Court held that the employer role is shared between the labour broker and the deemed employer/client. According to the Labour Court, this principle necessitated joint and several liability in matters concerning employees of labour brokers. Therefore, according to the Labour Court, when the deeming provision is triggered, labour brokers remain the employer of the workers, albeit that the client also assumes certain employer rights and obligations. This dual employer arrangement was an unusual scenario whereby employment with the client was dependent upon the continued employment with the labour broker.

As such, the termination of the relationship between the labour broker and the client would bring to an end the employment relationship between the client and the labour broker staff.

In overturning this decision, the LAC held that the dual employer interpretation adopted by the Labour Court is not consonant with the context of section 198A and the purpose of the amendments to the LRA. The purpose of the amendments is to restrict the employment of vulnerable, lower-paid workers by a labour broker to situations of genuine “temporary work” and to introduce further measures to protect workers employed in this way.

The LAC has now reverted to the position previously adopted by two lower-tribunal decisions in determining that the impact of the deeming provision is that the client becomes the sole employer of the labour broker’s employee if the employee:

• Earns below the earnings threshold (which is currently set at R205 433.30 per annum); and
• Is not performing work which is genuinely of a temporary nature; and
• Performs the work for the client for a period exceeding 3 months.

According to the LAC, the sole employer interpretation does not ban the labour broker, but merely regulates it by restricting it to genuinely temporary employment arrangements which is in line with the purpose of the legislation. This way, the labour broker remains the employer of the placed employee and remains responsible for its statutory obligations pertaining to the employee for so long as the deeming provision has not taken effect (i.e until the employee is deemed to be the employee of the client).

The LAC has held that the effect of the deeming provision is that, by operation of law, it creates a statutory employment relationship between the client and the placed employer whereby the placed worker is upgraded to standard employment and freed from atypical employment by the labour broker. The placed worker becomes employed by the client for an indefinite period on the same terms and conditions to the employees of the client performing the same or similar work.

The LAC held that the joint and several liability provisions should not be interpreted to support the “duel employer” interpretation. Instead, these provisions ensure that the placed workers are not treated differently from the client’s employees and that the deemed employees are fully integrated into the client’s workplace as employees of the client by acknowledging that the employment relationship is created by a statutory deeming clause and not through the usual recruitment processes of the client.

In light of the above, employers who make use of labour brokers must be cognisant of the fact that they will now be considered to be the sole employer of the placed worker if and when the deeming provision kicks in. Accordingly, such employers would best advised to limit the procurement of labour through labour brokers to instances where the nature of the labour required is genuinely of a temporary nature.

(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.)