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We need to consider alternatives to labour broking

Professor Hugo Pienaar

Labour broking HR Pulse article

The Labour Relations Amendment Bill (LRAB) has been adopted by the National Assembly and is now waiting to be promulgated. Because of this, South African businesses need to be thinking about the new labour broking provisions in the LRAB.

Essentially, the LRAB provides that employees working for a labour broker, who earn less than the threshold and are employed for a period exceeding three months:

  • Will be deemed to be the client’s and labour broker’s employees, and
  • Must be treated, after the three-month period, as favourably as the client’s other employees who perform similar work.

These clauses may create various limitations for labour brokers

This is unless they adopt an alternative business model.

One of the reasons a client appoints a labour broker is to obtain manual and/or temporary labour without the administrative burden associated with engaging permanent employees:

  • In particular, a client could obtain labour on an ad hoc basis - for individual projects or undertakings - without having to commit to employing workers on a full-time basis.
  • As the employer, the labour broker was burdened with unfair dismissal disputes and the like and not the client.

In the past, it was common practice for labour brokers to indemnify their clients against any litigation that ensued after a temporary employee was dismissed.

However, if an unfair dismissal leads to the employee being reinstated, it will now be virtually impossible for a labour broker to indemnify a client after the three-month period because it will be the client who will have to reinstate the employee together with the labour broker.

Another interesting development is that an employer of a labour broker can now choose who he wants to institute action against: the labour broker, the client or both.

This means that the new provisions reduce the benefits associated with labour broking.

All is not lost for labour brokers

In a true labour broker scenario, where services are only rendered for a period of time less than three months, labour brokers will continue to operate and will be unaffected by the proposed amendments.

“However,” says Andrea Taylor, an associate in the employment practice at Cliffe Dekker Hofmeyr, “the labour brokers who render services for longer periods of time because of - for example, seasonal work, the need for mass manual labour and/or other considerations - will be most affected by these new provisions.”

One of the main implications of these new provisions will be that:

  • Such employees who earn under the threshold must not be treated less favourably than a comparable permanent employee of the client, unless there is a justifiable reason for doing so. This is also known as an "equal pay" clause.

What is a reasonable alternative to traditional labour broking?

The answer lies in the wording of s198(3) of the Labour Relations Act, which states that a person who is an independent contractor is not an employee of the labour broker.

This alternative concept would mean that labour brokers may want to establish a new legal entity that will render a sub-contracting service to the client or may render such service via a newly established independent service provider. 

The new service provider or subcontractor will then have to tender, or propose to take over, the whole contract or service that was previously provided. For example:

  • Where the labour broker provides 80% of the general workers for a particular client, the labour broker or service provider will have to take over all the general workers of the client and then subcontract the work to the client via a service provider.

The pricing will not be linked to the number of employees performing the work but the true value of the subcontract.

The employees will then become permanent employees of the new legal entity and may be appointed on a fixed-term basis, depending on the entity's relationship with the client.

Labour brokers could now render an extended service

They could also offer to provide payroll and other relevant services to a client. In some cases, labour brokers have already taken over the provisions of, for example, protective clothing, employment equity plans, skills development, etc.

If the sub-contractor route is adopted, it is important that the sub-contractual relationship is a genuine one and not a scheme to circumvent the provisions of the LRA.

Although fixed-term employment has remained a possibility, it will also be subject to strict requirements that an employee may not be employed for a fixed-term period in excess of three months, unless it is for a justifiable reason.

The client could also absorb all temporary employees

The downside of this is for the client would be that it will be obliged to comply with clauses such as the equal pay clause and this will have huge cost implications for clients as it would seriously impact the labour broking industry as a whole.

Where companies take over an entire temporary workforce, labour brokers could become obsolete.

Companies may also rely on the exemption that employees working less than 24 hours a month are excluded where employees would work on a rotational basis. Such scenarios may be useful when skilled labour is not required.

Professor Hugo Pienaar is a director in the employment practice at Cliffe Dekker Hofmeyr. He has vast experience in employment law, litigation and dispute resolution matters. Hugo has acted as a judge in the Labour Court, lectures part time in employment law subject to post-graduates at various tertiary institutions and the Law Society of South Africa. He has contributed to textbooks and served on the government task team established to compile labour legislation for the state. Hugo has also advised on - and helped - to develop a labour law framework for major institutions in the United Arab Emirates.