On 26 July 2018 at 10h00, the Constitutional Court handed down judgment in an application for leave to appeal against an order of the Labour Appeal Court (LAC). The case concerned the interpretation of Section 198A(3)(b) of the Labour Relations Act 66 of 1995 (LRA) and whether this deeming provision resulted in a “sole employment” relationship between a placed worker and a client or a “dual employment” relationship between a Temporary Employment Service (TES), a placed worker and a client.
What was under review? Background and context
In recent years the Labour Relations Act (LRA) was amended to introduce several protections for employees in precarious employment. These amendments include Section 198A, which came into operation on 1 January 2015. Section 198A regulates “temporary service” employment, which is limited to a period not exceeding 3 months. Section 198A(3)(b) provides that an employee who earns less than the stipulated threshold (R205,433) and is contracted through a temporary employment service (TES) to a client for more than 3 months, is deemed to be employed by that client. This section explicitly provides another “deeming provision” and states that an employee not performing a temporary service for a client is deemed to be an indefinitely employed employee of that client and the client is deemed to be the employer.
The Constitutional Court had to decide what happens to the employment relationship under the LRA between the placed employee and the TES once these deeming provisions kick in. In particular, does Section 198A(3)(b) give rise to a dual employment relationship where a placed employee is deemed to be employed by both the TES and the client? Or does it create a sole employment relationship between the employee and the client for the purposes of the LRA?
The case under review
In 2015, Assign Services, a TES, placed 22 workers with Krost Shelving and Racking (Pty) Limited (Krost), a number of whom were members of the National Union of Metalworkers of South Africa (NUMSA). The placed workers provided services to Krost for a period exceeding 3 months and on a full-time basis. Assign Services’ view was that Section 198A(3)(b) created a dual employer relationship, while NUMSA contended that a sole employer relationship resulted from the section.
At the CCMA
The Commission for Conciliation, Mediation and Arbitration (CCMA) supported NUMSA’s sole employer interpretation and issued an award to the effect that the triggering of Section 198A(3)(b) resulted in the client becoming the sole employer for the purposes of the LRA. In reaching his decision, the Commissioner attempted to interpret Section 198A(3)(b) to give effect to its primary objects.
At the Labour Court
The Labour Court had a different view and held that the CCMA Commissioner had committed a material error of law.
It considered the contract of employment between the TES and the employee to be the “source of control” in the employment relationship. The TES therefore retains control despite any new statutory relationship between the employee and the client. The client is only an employer for the purposes of the LRA, while the common law contract between the TES and the employee remains firmly in place.
The Labour Court held that the rights of employees are therefore best protected by the dual employer interpretation. It reviewed and set aside the Commissioner’s decision.
At the Labour Appeal Court
NUMSA applied for leave to appeal the judgment of the Labour Court to the Labour Appeal Court, whereby the Labour Appeal Court granted NUMSA’s leave to appeal directly to it. The Labour Appeal Court held that the sole employer interpretation best protected the rights of placed employees, and promoted the purpose and objects of the LRA and the 2014 Amendments. It considered the definition of “temporary service” in Section 198A(1) and held that only persons performing a truly temporary service should be employed by a TES. A placed employee who has worked for a period in excess of 3 months is no longer performing a temporary service and the client becomes the sole employer by virtue of Section 198A(3)(b).
The matter proceeded to the Constitutional Court for their final ruling.
At the Constitutional Court
The Constitutional Court held that the purpose of Section 198A must be contextualized within the right to fair labour practices in Section 23 of the Constitution and the purpose of the LRA as a whole.
The majority found that, on an interpretation of Sections 198(2) and 198A(3)(b), for the first 3 months the TES is the employer and then subsequent to that time lapse the client becomes the sole employer.
The majority found that the language used by the legislature in Section 198A(3)(b) of the LRA is plain and that when the language is interpreted in the context, it supports the sole employer interpretation.
What this change means for South African employers
Our labour legislation historically tended towards express allocations of employment law obligations to a single employer in both the 1956 and 1995 LRA, but this is no longer the case.
Occupational Health and Safety
Section 200B(2) explicitly recognises that there may be more than one employer for the purposes of liability. Currently, the client is expressly designated the employer for the purposes of the Occupational Health and Safety (OHS) Act. The TES is excluded from the definition of “employer” in Section 1 of the OHS Act. Meanwhile, the TES is expressly designated the employer for the purposes of the Basic Conditions of Employment Act (BCEA).
The employment relationship
Section 198A tells us how Section 198 applies to marginal employees in precarious working relationships and restricts its application to truly temporary employment. It begins by defining a “temporary service” as “work for a client by an employee” as a substitute for a temporarily absent employee, through a collective agreement, or any employment “for a period not exceeding three months”.
It goes on to specify that the section applies only to employees earning below the threshold set by the Minister in terms of the BCEA. Section 198A(3)(b) becomes the operative clause determining the identity of the employer for employees earning below the threshold. Then, once an employee becomes employed by the client by operation of Section 198A(3)(b), the employee must, in terms of subsection (5), “be treated not less favourably than an employee of the client performing the same or similar work, unless there is a justifiable reason for different treatment”. This would obviously apply only in the event that the terms and conditions of the employment applicable to the placed worker are less favourable than those applicable to the employees of the client.
Last, to prevent the client from attempting to avoid the operation of Section 198A(3)(b), the legislature added Subsection (4). This states that if a TES or client terminates an employee’s assignment to avoid the operation of Section 198A(3)(b), that termination will be considered a dismissal and the usual remedies available through the LRA will apply.
Section 198(4) creates a substantive and statutory form of joint and several liabilities which does not equate to joint or dual employment but rather creates a statutory accessory liability for the client in the circumstances set out in the section where the TES carries principal liability as employer in terms of the LRA.
While the client is the deemed employer, the employee may still claim against the TES as long as there is still a contract between the TES and the employee. This is eminently sensible, considering that the TES may still be remunerating that employee. Before the 2014 Amendments, a claim had to be brought against the TES first. The client would be held liable by operation of law if the TES failed to comply with its obligations. Under Section 198(4A), the client is deemed the employer of the placed worker and can thus be sued directly in the CCMA or the Labour Court. In this way, Section 198(4A) offers placed workers more protection than Section 198(4)’s joint and several liability protection. It also allows an employee to sue a TES directly, despite it not being an employer.
A TES’s liability only lasts as long as its relationship with the client and while it (rather than the client) continues to remunerate the worker. Nothing in law prevents the client and the TES from terminating their contractual relationship upon the triggering of Section 198A(3)(b), with the client opting to remunerate the placed employees directly. If this happens, the TES that placed the worker will cease to be a TES in respect of that worker because it will no longer meet the requirement in Section 198(1) of remunerating the worker and will then fall out of the relationship entirely.
Protection for workers at the heart of it all
The 2014 Amendments were effected in the wake of persistent, widespread protests against labour broking. The amendment that materialized did not ban labour broking. Instead, it aimed to provide greater protection for workers placed in temporary employment services. There appear to be 2 offshoots of this purpose: the first is to protect marginal workers in temporary employment; and the second is for temporary services to be truly temporary. The restrictions are sufficiently circumscribed in the language of the LRA to give effect to this purpose. By adding Sections 198A and D, the legislature identified the parameters of temporary services and detailed the protection afforded to placed employees.
Part of this protection entails that placed employees are fully integrated into the workplace as employees of the client after the 3 month period. The contractual relationship between the client and the placed employee does not come into existence through negotiated agreement or through the normal recruitment processes used by the client. The employee automatically becomes employed on the same terms and conditions of similar employees, with the same employment benefits, the same prospects of internal growth and the same job security that follows.
Where does this ruling leave labour brokers?
In conclusion, the mentioned ruling does not mean there is no place for labour brokers in the South African labour market, but rather restricts the application of their services to the set parameters determined by the amended Labour Relations Act and by the guidelines given by the Constitutional Court. Temporary employment services will need to ensure that their services provided to clients are truly temporary and if the terms are fixed for longer than the prescribed 3 months, that they can demonstrate justifiable reasons as provided in Section 198B Subsection (4).
If you need assistance understanding the effect of this ruling or just need advice about the topic, contact SEESA Labour at any one of our 19 nationwide offices. Visit www.seesa.co.za for more information.
ABOUT THE AUTHOR
Hendrik van Niekerk obtained his LLB degree from the University of Pretoria in 2008 and was admitted as an attorney in 2010. Mr. van Niekerk joined SEESA Pretoria on 1 April 2010 as a legal advisor and was promoted to senior legal advisor in 2012. He is now a SEESA Labour Senior Legal Advisor at our Pretoria office.