By Gillian Barnes
Pretoria Branch Manager
One of the recent developments in the South
African workforce is the growing popularity of Labour
Brokers and temporary employment services. These are
agencies with whom job seekers can register and who
maintain a form of database of their members. The
broker will then attempt to procure temporary work
assignments for its members.
From the outset we should distinguish between
labour brokers and recruitment consultants. A labour
broker may place the same person in several positions
from time to time while a recruitment consultant is
usually paid a once off fee by a firm in order to
seek out possible candidates to be employed by that
firm directly. Once the applicant has been placed and
payment received the agent steps out of the picture
completely.
For the purposes of this paper I will deal only
with the issue of labour brokers, as recruitment
consultants do not present as many legal problems.
Essentially what happens in the labour broker
situation is that we have three parties to the
employment relationship: the "employee," the "broker"
and the "client". The employee concludes a contract
with the broker; the broker then in turn concludes a
contract with the client in which the broker makes
the employees services available to the client for a
fee.
The employee goes to work at the clients premises,
the client pays the broker (usually an hourly rate)
and the broker pays the employee after deducting an
agreed amount. The advantages of this relationship
are many, especially as each work assignment is often
temporary. The employee gets valuable exposure to the
working environment without becoming stuck in a
specific position, the clients have access to
temporary staff when they need it and the broker
makes money out of the deal.
However the problems which come with this type of
set up are also plentiful. First of all, we need to
establish the position of the employee in terms of
the Labour Relations Act 66 of 1995. The questions
around which many issues are going to revolve are
first of all, is the "employee" in fact an employee
or an independent contractor? and secondly, who is
the employee actually employed by?
Two issues which are bound to come up at some
stage are those of unfair labour practices and unfair
dismissals. From a practical point of view, the first
problem with which we are presented is that of
responsibility. As this paper seeks only to deal with
dismissal, I will not go into the unfair labour
practice at this stage, although the principles
involved should be substantially similar.
In a normal employment relationship, even in the
absence of a written contract, it is straightforward.
The employer dismisses the employee and should that
employee wish to take the matter further, it is
fairly obvious whom he should act against. However in
a labour broker situation it is not that easy as we
have the addition of a third party and a less
clear-cut work relationship.
In these cases there are in fact several legal
relationships: the first between the employee and the
broker in which the broker agrees to try and procure
temporary work assignments for the employee and the
employee agrees that the broker will be entitled to
deduct a certain amount or percentage from any wages
earned. The second relationship is between the broker
and the client. Here the broker agrees to place the
employee's services at the disposal of the client and
the client agrees to pay the broker (usually an
hourly rate). It is important to note that the client
does not pay the employee but pays the broker who
deducts his fee and then pays the employee. The third
relationship is between the employee and the client
in that the employee agrees to perform certain work
for the client.
Obviously a contract of employment exists between
the employee and the broker (this is supported by
Section 198(2) of the Labour Relations Act as well as
several cases). However the employee does not in fact
place his skills and abilities directly at the use of
the broker. On the other hand, the employee does
place his productive capacity at the disposal of the
client, which would seem to be evidence of an
employment relationship, but receives no remuneration
from the client. This seems to indicate two imperfect
employment relationships
The reason why this causes problems is that if the
employee needs to make use of certain remedies in
terms of the Labour Relations Act, he can only act if
he is an employee in terms of the law, and then only
against his employer.
Take for example the following (fictitious)
situation: Mr. Worker signs an agreement with Temps
cc, an employment agency who will place him in
temporary positions and will pay him R30.00 per hour.
ABC stores (Pty) Ltd then approaches Temps cc
requesting a person to work in one of their branches
on a two month contract. Mr. Worker is agreed to this
and begins work.
After three days Mr. Worker is accused by the
manager of drinking on the job and told to get out
and not come back. Mr. Worker is not happy about this
and refers a dispute to the relevant dispute
resolution forum for conciliation. The first problem
is who should he act against? He never entered into a
formal contract of employment with ABC and was not in
fact dismissed by Temps. Should he cite either as
respondents, each will have a possibly valid defence.
The obvious answer is to act against both and
leave the decision up to the arbitrator or Court. In
fact under certain circumstances the Court my find
that there is joint and several liability. In other
words both client and broker may be responsible for
unfair labour practices perpetrated by the client
In the above example Mr. Worker is, according to
Section 198(2) of the Labour Relations Act, in fact
the employee of Temps cc and therefore cannot be
dismissed by ABC at all. The relationship between
Temps and ABC is a contractual one and if the
employee provided (Mr. Worker) is unsuitable, Temps
will have to withdraw him and provide another
employee to their client (ABC)
The onus to dismiss or discipline Mr. Worker is
actually on Temps. They are ultimately responsible
for any unfair labour practices perpetrated by their
client and would therefore (in this example) have to
hold a disciplinary inquiry themselves. In other
words, should ABC dismiss Mr. Worker or commit any
unfair labour practice against him, Mr. Worker can in
fact hold Temps cc liable under the Labour Relations
Act. Temps cc may then have an action against ABC
under the law of contract.
In order to safeguard themselves, it would be
advisable for a labour broker to include in its
contract with the client, a clause to the effect that
the client undertakes not to commit any unfair labour
practices and that the client will not take any form
of action against the employee without consulting the
broker.
An interesting approach has been taken in the
Employment Equity Act 55 of 1998 which states in
Section 57(1) "For the purposes of Chapter III of
this Act, a person whose services have been procured
for, or provided to a client by a temporary
employment service is deemed to be the employee of
that client, where that persons employment with the
client is of indefinite duration or for a period of
three months or longer."
What this means is that (for the purposes of
Employment Equity) if an employee is placed in
employment with a client for more than three months,
that employee becomes the employee of the client.
This does not necessarily indicate that the
employment contract with the broker is terminated but
means that responsibility under the Employment
Equity Act falls on the client.
As this relates only to the Employment Equity Act,
it does not have any direct bearing on unfair labour
practices or dismissals but it should not be ignored
by the Courts when deciding on relevant issues under
the Labour Relations (or other) Acts
Section 198(4) of the Labour Relations Act states
that "the temporary employment service and the client
are jointly and severally liable if the temporary
employment service in respect of any of its
employees, contravenes:"
- a collective agreement concluded in a bargaining
council that regulates terms and conditions of
employment;
- a binding arbitration award that regulates terms
and conditions of employment;
- the Basic Conditions of Employment Act;
- a determination made in terms of the Wage Act."
While this does not state anything specific about
unfair dismissal, the issue may well be covered under
collective agreements in many industries, especially
as relates to the procedural aspect.
An arbitration case, which dealt with this issue,
was Labuschagne and WP Construction in which the
respondent was, by its own admission a labour broker
who would take on various employees as independent
contractors and then hire them out to clients. The
important issues which needed to be determined were:
- Whether or not the employee was in fact an
employee in terms of the Labour Relations Act; and
- The fairness of the dismissal.
The Arbitrator, Mr. Preller, took into account the
cases of Liberty Life v Niselow (1996) 7 BLLR 825
(LAC) as well as Medical Association of SA & others v
Minister of Health & another (1997) 18 ILJ 528 (LC)
and found that the employee (Labuschagne) was in fact
an employee. The reasons for this are that a
relationship of master and servant was present and
the employee had placed his productive capacity at
the disposal of the employer.
The Arbitrator then had to decide who the actual
employer was. In order to decide this, he had to look
no further than Section 198 of the Labour Relations
Act which was discussed above. In terms of this
Section, the temporary employment service (WP
Construction) was held to be the employer.
On a separate issue, the Arbitrator ruled that
joint and several liability existed in regard of
leave pay which was outstanding.
To conclude it should be pointed out that
employers are not going to be able to circumvent
Labour Law by claiming that their staff are
independent contractors. After the decision of the
Labour Appeal Court in Niselow which was confirmed in
the Supreme Court of Appeal (Niselow v Liberty Life
Association of Africa LTD (1998 19 ILJ 752 (SCA)) it
is clear that the courts will investigate the nature
of the employment relationship before making any
ruling on the issue, if the actual employment
relationship is inconsistent with that of an employee
(as was the case in Niselow)
Further to this, labour brokers are going to have
to be careful as they can be held responsible for
unfair labour practices committed against their
employees by clients. The temporary employment
service should therefore take an active role in any
disciplinary action taken regarding their employees.
Therefore, in light of the above it is obvious
that there are many factors to consider if a company
is considering outsourcing their labour. Although it
might on the surface appear to be hassle free and
extremely flexible, the three-party relationship
poses many legal debates in the labour law arena.
Thus if you are considering using the services of
a labour broker or are a labour broker yourself,
contact your LabourNet consultant for a thorough
analysis of the best possible solution for your
business.
Please contact the Labournet Helpdesk on 0861
522638 should you require any assistance or have
any questions.
Disclaimer
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newsletter is of general nature and should not be
used without obtaining specific advice as to its
application in your business or under your specific
circumstances. LabourNet will accept no liability if
the information is used without first obtaining
specific advice from one of our consultants