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The Labour Appeal Court Ruling that turned employer-employee relationships on its head

The Labour Appeal Court Ruling that turned employer-employee relationships on its head

In a recent Labour Appeal Court ruling, which has been described as ‘a game changer’, the employer-employee relationship in so far as it relates to outsourced staff has literally been turned on its head.

The position as it was

When it came to legislative requirements, South African law did not specifically regulate outsourcing transactions – save for certain specific requirements depending on the sector of the businesses involved. Regardless of the industry, the underlying rationale was that the ‘client company’ would simply contract with a labour broker who would then supply staff on demand. It functioned almost as a ‘pay as you go’ system of providing suitably qualified staff to perform the functions of the client company without the human resource hassles that come with them.

The hired employees are employed by the contracted company and should there be any problems such as misconduct, the contracted company will need to sort it out themselves. The client companies may demand a replacement worker as they are no longer satisfied with the employee in question. The contracted company (labour broker) will then, if disciplinary action does not lead to a dismissal, need to place the employee at a different client company or possibly have to retrench if no other ‘sites’ are available. This all happens without the client company having to lift a finger, so to speak.

The position changed somewhat when, on 1 January 2015, the amendments to Section 198 of the Labour Relations Act (LRA) became effective. The most controversial of these amendments is the deeming provision: in terms of in Section 198A(3)(b)(i) “an employee engaged by a Temporary Employment Service (more commonly known as a labour broker) to render services at a client, who does not perform a temporary service for the client, is deemed to be an employee of that client and the client is deemed to be the employer”. A temporary position is simply defined as any position not exceeding 3 months or relating to the replacement of an employee who is temporarily absent.

This caused profound confusion and concern amongst labour brokers and it would not be long before this very point of controversy would land at the door of the CCMA. The matter was none other than the now infamous NUMSA v Assign Services (Pty) Ltd and Krost Shelving and Racking (Pty) Ltd.

NUMSA, representing some of the workers employed by Assign Services (a labour broker), contended that on 1 April 2015, the placed workers had for the purposes of the LRA, become exclusively employed by Krost Shelving and Racking in terms of Section 198A(3)(b)(i).

Assign Services argued that the legislative changes simply meant that for all purposes the affected employees remain employees of Assign Services but for the purposes of the LRA, are then also deemed to be employees of Krost Shelving and Racking (the client company).

The CCMA agreed with NUMSA’s interpretation (correctly so, as it would turn out). However, Assign Services successfully took the Commissioner’s award on review and the Labour Court (incorrectly) found that a dual relationship is created as nothing in the legislative changes invalidated the Contractual Agreement in place between the labour broker and the employee – it simply added a further relationship directly between the client company and the employee.

As was expected, NUMSA appealed the ruling.

The current position

The Labour Appeal Court handed down its judgment on 10 July 2017 and clearly favoured the single employer position. Judge Pule Tlatsetsi ruled that essentially an outsourced employee would be deemed to be employed by the client company after a period of 3 months. This, he said, “is a measure to ensure that these employees are not treated differently to the workers employed directly by the client”.

The Honourable Judge went further to state “the purpose of these protections is to ensure that the deemed employees are fully integrated as employees of the client”.

According to the Labour Appeal Court the employment relationship between a client and the placed employee is created by a statutory deeming clause. Hence, the court found, the placed workers become employed by the client for an indefinite period and on the same terms and conditions to the employees of the client performing the same or similar work after a period of 3 months

This in itself does not necessarily mean the end of labour brokers, but it does severely limit their scope of application, which again (according to the Labour Appeal Court) is in fact in line with what the amendments attempted to achieve, i.e. keeping such employment arrangements limited to genuine temporary staffing solutions and not an open ended loop-hole for ‘employers’. Furthermore, in terms of this judgment the employment relationship arises by operation of law, independent of the terms of any agreement and therefore cannot be ‘contracted out of’ by agreement.

Assign Services may appeal this ruling to the Constitutional Court, which will have the effect of staying the Appeal Court Judgment and will revert the applicable legal position to that of the Labour Court’s ruling. Whether this indeed follows remain to be seen.

Until then, employers beware that the ‘protection’ offered by the use of outsourced staff may not be as protective as they had hoped for.

 

ABOUT THE AUTHOR

Charl Vollgraaff obtained his LLB degree from the Nelson Mandela Metropolitan University in Port Elizabeth in 2008. He then commenced practical training through Legal Education & Development at NMMU. During this time he received a Lexis Nexis Award for Best Performance Nationally and after completing his articles he was admitted as an Attorney in 2010. He practised as a Civil Litigation and Commercial Attorney for 6 years before joining SEESA Labour in March 2016.

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