Assign Services (Pty) Limited v National Union of Metalworkers of South Africa and Others [2018] ZACC 22 (26 Aug 2018)
Section 198A(3)(b) of the LRA supports the sole employer interpretation, altering the statutory employment contract created by Section 198(2). This is not a transfer to a new employment relationship but rather a change in the statutory attribution of responsibility as employer within the same triangular employment relationship. The triangular relationship then continues for as long as the commercial contract between the TES and the client remains in force and requires the TES to remunerate the workers.
Facts:
Amendments to the LRA in 2014 limited the use of temporary employment services (TES) or labour brokers as they are commonly known, through a new s198A. In 2015 Assign Services, a TES, placed 22 workers with Krost Shelving and Racking (Pty) Limited, a number of whom were members of NUMSA. The placed workers provided services to Krost for a period exceeding three months and on a full time basis. Assign Services' view was that s198A(3)(b) created a dual employer relationship involving it and the client, while NUMSA contended that the employees' sole employer was Assign Services as a result of this section.
The CCMA supported NUMSA's sole employer interpretation, but the Labour Court held that s198A(3)(b) created a dual employment relationship, in which both the TES and the client have rights and obligations in respect of the workers. In an appeal by NUMSA to the LAC, it was found that the sole employer interpretation best protected the rights of placed workers and promoted the purpose of the LRA. The LAC set aside the LC order and held that a placed worker who has worked for a period in excess of three months is no longer performing a temporary service, and the client becomes the sole employer of that worker. The matter was then referred to the Constitutional Court.
The Constitutional Court in a majority judgment held that the purpose of section 198A must be contextualised 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 for the first three months the TES is the employer and then subsequent to that the client becomes the sole employer. The majority found that the language used in s198A(3)(b) supports the sole employer interpretation.
Whilst the majority judgment decides the matter, in a dissenting judgment Cachalia AJ found that the dual employer interpretation was correct, as the LRA does not expressly state that the TES would cease to be the employer after three months. Cachalia AJ concluded that the dual employer interpretation provided greater protection for lower paid workers in line with the purpose of section 198A(3)(b), and for these reasons would have upheld the appeal.
Irrespective of the merits of the different views, we now have legal certainty: S198A(3)(b) of the LRA supports the sole employer interpretation, altering the employment contract between a TES and worker created by s198(2). But whilst the Constitutional Court recognised Krost as the sole employer of those employees placed by the TES, it still recognised the possible existence of a triangular relationship between the parties for as long as the commercial contract between the TES and the client remains in force and requires the TES to remunerate the workers.
This seems to mean that whilst the labour broking client becomes the employer, there is nothing to prevent that employer from continuing to contract out aspects of its employment obligations to the labour broker. On this basis it would appear that labour brokers can still make their services available to employers for this purpose. Whether it is commercially viable for employers to go this route, given the 'equal pay for equal work' provisions that will apply to those employees plus the fact that they will still have to pay the labour brokers' fees, is a matter for consideration.
Extract from the judgment:
Dlodlo AJ:
[65] As I have already mentioned, the 2014 Amendments were effected in the wake of persistent, widespread protests against labour broking. In negotiations leading to the amendment, one trade union conglomerate famously insisted that the then six-month limit on temporary employment should be reduced to zero months. The amendment that materialised did not ban labour broking. Instead, it aimed "to provide greater protection for workers placed in temporary employment services". There appear to be two 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.
[66] We have some insight to the purpose of the legislation through the explanatory memorandum to the 2012 Bill. This does not speak to the Act in its final form and should be treated with caution, but it gives some credence to the two-fold purpose described above. It describes the "main thrust" of the new provisions introduced in sections 198 and 198A as aiming to "restrict the employment of more vulnerable, lower paid workers by a [TES] to situations of genuine and relevant 'temporary work'; and to introduce various further measures to protect workers employed in this way". (Emphasis added.)
[67] The restriction of TES employment to genuine temporary work affords the clarity and precision needed by the LRA to realise the constitutional rights to fair labour practices and meaningfully to participate in trade union activity.
[68] 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.
[69] Part of this protection entails that placed employees are fully integrated into the workplace as employees of the client after the three-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.
[70] The purpose of the section 198A amendments is clear. It exists to fill a gap in accountability between client companies and employees who are placed with them.
Triangular relationship
[71] One of the main difficulties raised by Assign is: what happens to the contract between the TES and the placed employee if they are no longer the employer? Assign points out that a TES may continue in an employment relationship with a placed employee after the three-month period by virtue of their common law and residual legislative functions, even if the TES is no longer deemed to be the employer through section 198A(3)(b). This, they say, may lead to an employee losing the protections of the LRA in ongoing relationships with a TES.
[72] Ancillary to this is a second argument, that an employee contracts with a TES on very favourable terms and that all these benefits may be lost on transfer to a client company. Counsel relied, in part, on section 198(4C) of the LRA in support of this. Section 198(4C) precludes employment by a TES "on terms and conditions of employment which are not permitted by this Act, any employment law, sectoral determination or collective agreement concluded in a bargaining council applicable to a client to whom the employee renders services".
[73] In evaluating these arguments, it is necessary first to consider the "triangular" nature of the TES/client/placed employee relationship. The triangular relationship exists to split the functions of the employer between the TES and the client for a fee. However, the functions for which the TES is responsible seldom relate to the actual work of the employee.Their primary responsibilities are to pay and manage the human resources component of employment, while the day-to-day management, work allocations and performance assessment in most circumstances are conducted by the client only. The client is also responsible for the employees' working conditions because employees are placed on the client's premises. Importantly, the client also has the power to discontinue the employee's services. In a sense, the TES is merely the third party that delivers the employee to the client. The employee does not contribute to the business of the TES except as a commodity. And, on a practical level, the contract between a TES and a placed worker seldom constitutes an employment contract.
[74] In Lad Brokers, the Labour Appeal Court held that the common law does not necessarily regard the TES as the employer of the placed workers. In truth, a TES can operate without concluding contracts of employment with the workers it places. All that is required for the TES to constitute a statutory employer in terms of section 198 of the LRA is that it places workers with clients for a fee and remunerates those workers. Of course, this is less onerous than the test for establishing conventional employment either at common law or in terms of the relevant definitions. It is therefore incorrect to contend that a TES is usually in an employment relationship with workers it places with clients.
[75] This also makes it difficult to accept Assign's argument that the sole employer interpretation forces employees into a new employment relationship, without their consent, on terms of employment to which they have not agreed. Section 198(2) gives rise to a statutory employment contract between the TES and the placed worker,which is altered in the event that section 198A(3)(b) is triggered. This is not a transfer to a new employment relationship but rather a change in the statutory attribution of responsibility as employer within the same triangular employment relationship. The triangular relationship then continues for as long as the commercial contract between the TES and the client remains in force and requires the TES to remunerate the workers.
[76] In this scenario, there is no question of an infringement of the placed employee's right to choose their trade or profession. The point is that the employee continues to perform work in the position into which they were placed. This does not prejudice the worker or infringe their right in any manner.
[77] Assign's strongest argument is not that TESs offer equal or better terms of employment than client companies, but rather that the placed employees' constitutional and LRA rights are better protected by a dual employer interpretation. I now turn to deal with this argument.
Does a dual employer interpretation offer greater protection?
[78] Assign argues that having two employers against whom an employee can equally claim provides greater protection to the vulnerable workers in these circumstances. This poses the question: what is so wrong with having two employers? I accept that not every dual employer relationship will prejudice employees, but I do not accept this to be the case for the TES/client/placed employee triangular relationship.
[79] The first reason for this is that, before the 2014 Amendments, the TES existed to obfuscate. Its purpose was to protect the client from consequences of employment relationships and to relieve them from having to concern themselves with the human resources needs of people working for them. The TES is incentivised to offer lower prices in order to be awarded the client's contract, necessarily translating to lower wages for placed employees. This is now circumscribed by the LRA but, while triangular relationships exist, companies may and do contract out of their employment obligations in respect of placed employees. Retaining the TES as employer may have the effect of frustrating the purpose of these amendments.
[80] Second, the placed employee retains the right to claim against a TES through section 198(4A) to the extent that they are still remunerated by the TES. The employee is largely protected against the TES regardless of whether the claim is made against an employer. But this liability relates only to claims brought by the employee. The protections afforded by the sole employer interpretation go beyond this. They give employees certainty and security of employment.
[81] The promotion of certainty in employment is not, as contended by counsel for Assign, to patronise placed employees. The absence of certainty threatens employees' ability to exercise their LRA rights. CWAO set out a number of practical difficulties arising from this uncertainty. They include: complying with two sets of terms and conditions and two disciplinary codes which may characterise misconduct and poor performance differently; ascertaining which employer dismissed the employee, which should reinstate them, whether reinstatement applies to both or only one employer; and which LRA procedure applies to a dismissal.
[82] Another difficulty raised by CWAO is the practicality of embarking on strike action, which is afforded constitutional protection in section 23(2)(c) of the Constitution. They contend that a matter of mutual interest between the employee and TES may be different from a matter of mutual interest between the employee and the client company. As a result, a strike may be protected as against one employer but not the other, rendering the employee vulnerable to dismissal. I am persuaded by these arguments that the sole employer interpretation best protects the rights of placed workers.
Conclusion
[83] Regard being had to the language employed in section 198A(3)(b) read with sections 198 and 198A, the following is discernible:
- Section 198 deals with the general position with regard to TESs, while section 198(2) is a deeming provision creating a statutory employment contract between the TES and a temporarily placed employee.
- Section 198A deals with the application of section 198 to a specific category of workers, being marginal employees employed below the BCEA threshold.
- Section 198A(3)(a) provides that, when vulnerable employees are performing a temporary service as defined, they are deemed to be employees of the TES as contemplated in section 198(2).
- Section 198A(3)(b)(i) provides that when vulnerable employees are not performing a temporary service as defined, they are deemed to be the employees of the client.
- The deeming provisions in sections 198(2) and 198A(3)(b)(i) cannot operate at the same time.
- When marginal employees are not performing a temporary service as defined, then section 198A(3)(b)(ii) replaces section 198(2) as the operative deeming clause for the purposes of determining the identity of the employer.
Order
[85] In the result, the following order is made:
- Leave to appeal is granted.
- The appeal is dismissed with costs.