LABOUR BROKERS: IS THE CLIENT THE ONLY EMPLOYER? September 2017

By HUGO PIENAAR AND PRINOLEEN NAIDOO, Published in Employment Law - Feature

Temporary Employment Services (TES) commonly known as labour brokers, have been the focus of much scrutiny in recent years. The intention of the legislature in the January 2015 amendments to the Labour Relations Act (66 of 1995) (LRA) was to provide additional protection to TES employees who earn below the earnings threshold, currently R205 433,30 per annum, and who have been placed with the client for longer than three months. This was essentially done through the introduction of:

  1. extended joint and several liability of the client and the TES in terms of s198(4A) of the LRA. This provision, inter alia, means that the client was now specifically exposed to claims of unfair dismissal etc. by employees of the TES;
  2. equal treatment between the TES employees and the employees of the client, subject to s198D;
  3. permanent employment for employees employed in terms of fixed term contracts subject to s198B; and
  4. the introduction of a so-called deeming provision in s198A(3)(b)(i). The deeming provision provides that an employee of a TES not performing a temporary service (as defined) for the client is "deemed to be the employee of that client and the client is deemed to be the employer; ...".

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This section has been considerably debated. The debate centres on what the legislature intended by introducing the deeming provision. Two main schools of thought emerged from this debate. The first school of thought was that once the deeming provision kicks in, the TES client becomes the sole employer of the employees, meaning that the TES employees are effectively transferred to the client. The second was that a dual employment relationship arose with both the TES and client as employers.

In a ruling handed down by the Commission for Conciliation, Mediation and Arbitration (CCMA) on 29 June 2015 - in the matter between Assign Service (Pty) Ltd v Krost Services and Racking (Pty) Ltd and another (ECEL1652-15) - the commissioner ruled on the interpretation of the deeming provision.

Briefly, the facts were that the trade union, NUMSA, argued that the employees, who fell below the threshold, had come to be exclusively employed by the client, Krost Shelving and Racking (Pty) Ltd, after the three-month period. The TES, Assign Services, argued that the employees in question remained its employees but for the purposes of the LRA, there was a dual employment relationship.

The CCMA found that the deeming provision should be interpreted to mean that the client becomes the sole employer of the placed TES employees for purposes of the LRA. The CCMA was taken on review to the Labour Court.

In Assign Services (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and others [2015] 11 BLLR 1160 (LC), the Labour Court also considered the interpretation of the deeming provision.

Brassey AJ found that nothing in the LRA deprived employees of their rights and obligations under their contracts with the TES, therefore, the contractual relationship between the employees and the TES remained in force.

The Labour Court rejected the argument that s198A(3)(b)(i) creates a sole employment relationship between the client and the placed employees.

According to the Labour Court, the deeming provision augments the employment contract between the TES and its employees and added the client as the party against whom the employees could claim their rights in terms of the LRA. Accordingly, it was not a substitution of the old employer (the TES), with a new employer, the client.

The Labour Court arrived at this conclusion on the basis that the rights and obligations between the TES and the employees had vested in them by virtue of concluding the employment contracts. The client did not become vested with those rights and obligations. The TES remained the employer of the assigned employees and the joint and several liability provisions of the LRA confirmed this.

If the TES terminated the contract, the source of control was gone and the relationship with the client ended by operation of law. The client did not become the sole employer. Two employment relationships that operated in tandem were discernible.

NUMSA was dissatisfied with the Labour Court's judgment and took the matter on appeal to the Labour Appeal Court (LAC).

The LAC, in the judgment of NUMSA v Assign Services and Others (JA96/15) [2017] ZALAC 44 (10 July 2017), seized the opportunity to interpret the deeming provision and came to an entirely different conclusion from that of the Labour Court. Essentially it held that:

  • the purpose of the protection offered by the amendments is to ensure that the deemed employees are fully integrated into the enterprise as employees of the client;
  • the TES remains the employer of the placed employee until the employee is deemed to be the employee of the client;
  • the TES will be responsible for its statutory obligations regarding the placed workers for as long as the deeming provision has not kicked in;
  • once the deeming provision kicks in, the client becomes the statutory employer of the TES employee;
  • the TES employees are deemed to be permanent employees of the client;
  • The purpose of the deeming provision is not to transfer the contract of employment between the TES and the placed worker to the client but to create a statutory employment relationship between the client and the placed worker;
  • it is important to appreciate that the employment relationship between the placed worker and the client arises by operation of law, independent of the terms of any contract between the placed worker and the client;
  • the employment relationship is created by a statutory deeming clause.

According to the LAC, the sole employer interpretation was in line with the explanatory memorandum accompanying the LRA Amendment Bill, tabled in 2012 and supported by the plain language of s189A(3)(b) of the LRA, interpreted in context.

Accordingly, the LAC rejected the dual or parallel employer interpretation. It found that the protection against unfair dismissal and unfair discrimination in the context of s198A of the LRA did not support this interpretation but rather that this protection is a measure to ensure that the placed employees are not treated differently from those employees employed directly by the client.

Regarding joint and several liability, the LAC found that s198(4A) of the LRA protects the employee deemed to be an employee of the client against a termination by either the TES or the client to avoid the operation of ss(3)(b)(i) or, a termination because the employee exercised a right in terms of the LRA.

The joint and several liability provisions, according to the LAC, also have the potential to discourage the TES from being further involved in the administrative arrangements for employees placed with a client for a period in excess of three months.

The TES may continue, for example, to be the party paying the salary of the deemed employee for several reasons. Should the TES fail to pay the salary in compliance with the existing practice, the client's employee retains the right to institute proceedings against either the TES or the client, or both, in terms of s198(4A)(a). This, however, does not elevate the TES to being an employer.

The court found that the placed workers become employed by the client for an indefinite period and on the same terms and conditions as those employees of the client performing the same or similar work.

The LAC found that the sole employer interpretation did not ban the operations of a TES. It, however, regulated the TES by restricting it to genuine temporary employment arrangements in line with the purpose of the amendments to the LRA.

The TES was the employer only in theory and an unwarranted ''middle man'' adding no value to the employment relationship.

It is noted that the LAC did not deal with any constitutional principles in its judgment.

It has emerged that the Confederation of Associations in the Private Employment Sector (CAPE), which was admitted to the matter as amicus curiae, intends to appeal to the Constitutional Court.

In analysing this judgment, the following arguments will undoubtedly be raised before the Constitutional Court.

Firstly, the question arises with regard to the use of a deeming provision as opposed to an outright provision confirming the transfer or not of these vulnerable employees.

The legislature in s198A(3)(b)(i) of the LRA specifically uses the terminology "deemed". The employee is deemed to be the employee of the client.

In R v Verrette [1978] 2 SCR 838, the Canadian Supreme Court, per Beez J said the following about a deeming provision:

"A deeming provision is a statutory fiction; as a rule it implicitly admits that a thing is not what it is deemed to be but decrees that for some particular purpose it shall be taken as if it were that thing although it is not or there is doubt as to whether it is. A deeming provision artificially imports into a word or an expression an additional meaning which they would not otherwise convey beside the normal meaning which they retain where they are used; it plays a function of enlargement analogous to the word 'includes' in certain definitions; however 'includes' would be logically inappropriate and would sound unreal because of the fictional aspect of the provision."

It is clear that the deeming provision was intended to supplement and not supplant the obligations of the TES. In using the word "deemed" the legislature wished to enlarge the protection offered to TES employees by including the client as employer and thus, inter alia, adding a party against whom the TES employee could claim rights. This interpretation is in sync with the context.

This choice of wording by the legislature implies that there exists, after the provision kicks in, a rebuttable presumption that the TES employee is the employee of the client. A presumption by its very nature must be rebuttable and the LAC judgment does not provide for that and/or effectively leaves an irrebuttable presumption.

Secondly, if the intention of the legislature was that the employee automatically becomes the employee of the client, then this would be reflected in the wording. The legislature would arguably have used the same terminology as s197 of the LRA, which refers to the old employer being "automatically substituted" by the new employer.

The terminology of the LRA does not state that the employee has been transferred to the client, nor does it indicate that the triangular relationship automatically dissolves.

It also appears that the LAC embarked on a course of interpreting the "deeming provision" in isolation from the other provisions in s198 and s198A, thus resulting in a number of provisions in these sections being rendered redundant.

In this regard, the provisions dealing with equal treatment, permanent employment and joint and several liability must be considered:

If the employees of the TES "become" the statutory employees of the client, there would be no need for an equal treatment clause. These employees of the client will then have the protection of the equal pay provisions in terms of s6 of the Employment Equity Act (55 of 1998) (EEA). Hence, the equal treatment clause becomes redundant.

Similarly, there would be no need for a section providing for permanent employment after three months because these employees of the client will automatically have the protection under s198B of the LRA.

There would also be no need for an extended joint and several liability of the client because the client, as a direct employer, is directly exposed to such claims. Furthermore, the TES cannot be cited as a party to unfair dismissal proceedings because it is no longer a party to the employment contract. The joint and several liability clause, in terms of s198(4A) of the LRA therefore, becomes redundant.

It is also equally difficult to understand how a reinstatement order can now be enforced against the TES as envisaged in s198(4A), if the TES is no longer the employer.

The LAC did not consider similar provisions regarding TES employees in other legislation such as the Basic Conditions of Employment Act (75 of 1997) and the Employment Equity Act (55 of 1998) (EEA).

There are still concerns with regard to the sole employer interpretation being at odds with s82(1) of the BCEA, which continues to provide that the TES is the employer of the TES employees.

Section 57 of the EEA also uses the same terminology contained in s198A(3) of the LRA. In terms of s57, the employee is deemed to be the employee of the client where that person's employment with the client is of indefinite duration or for a period of three months or longer. As already set out, the EEA did not use terminology to the effect that the client would be "automatically substituted" as the employer of the client.

Apart from this, it may be argued that the LAC judgment effectively bans the TES after three months.

The LAC judgment may also have the effect of constituting an infringement of s22 of the Constitution (the freedom to engage in a trade, occupation or profession).

There are other unintended consequences that may flow from this judgment, such as:

  1. if a client, for instance, wants to retrench its employees, the deemed employees will be directly affected whilst the TES employees earning above the threshold, would not form part of such retrenchment;
  2. similarly, in the case of a transfer as envisaged in s197 of the LRA, the deemed employees will automatically be transferred to the new owner. Employees of the TES above the threshold remain out in the cold. Their status remains uncertain;
  3. in a strike situation, the deemed employees may participate in the strike, while the TES employees above the threshold may only embark on a sympathy strike; and
  4. the constitutionality of holding the TES jointly and severally liable for the conduct of a client.

It is uncertain what the court had in mind when it referred to the client as the "statutory employer", whilst at the same time accepting that the employment relationship exists between the client and the deemed employees. The problem with this rationale is, in essence, that no real employer seems to have emerged.

An appeal of the LAC judgment would have the effect of staying the judgment, meaning the law would remain as per the Assign Labour Court Judgment (per Brassey AJ).

Pienaar is a Director and Naidoo an Associate, Employment practice, Cliffe Dekker Hofmeyr.