Labour Law

Labour Brokers Unfair Dismissal

By 29/08/2009 June 10th, 2012 No Comments

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 employees 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 approach Temps cc requesting a person to work in one of their branches on a two month contract. Mr. Worker is agreeable 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 council 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 this Act) 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 this 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.

A recent 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 (or otherwise) 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)

And 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

Ian Mc Laren

Ian Mc Laren

Ian McLaren BA LLB (WITS) General Educated St Johns College, Houghton. BA LLB University of the Witwatersrand 1984 Founded McLarens Attorneys September 1986. Right of Appearance High Court, October 1996.ExpertiseLitigation, Labour Law, Commercial Law, Family Law, Pension and Provident Funds, Customs and Excise, Wills, Deceased Estates, Trusts, Commercial Agreements, Reviewing and Drafting Government Legislation, Information Technology.Committees/ TrustsLaw Society of South Africa Information Technology Committee. Trustee Verney College Educational TrustOtherTransvaal Provincial colours for Practical Shooting. Third degree Black Belt JKS Karate. Photographer and motor cyclist Lectured for Continuing Legal Education on Information Technology issues.