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On 26 July 2018 the Constitutional Court in Assign Services (Pty) Limited v National Union of Metalworkers of South Africa and Others (CCT194/17) [2018] ZACC 22 (26 July 2018) handed down judgment in favour of the so-called ‘sole employer’ approach. On this interpretation the employees of a temporary employment service (“TES”) who earn less R205 433.30 per annum and who are placed at a client of the TES for a period exceeding three months are deemed to be employees of the client for purposes of the Labour Relations Act 66 of 1995, as amended (“the LRA”).

Certain commentators have since sought to suggest that the judgment does not hold any significant implications for employers who make use of TES employees and that the status quo will to a large extent remain, subject to a slight adjustment to the service level agreements entered into between the client and the TES. In particular, the suggestion seems to be that a client of a TES could simply, by signing a power of attorney in favour of the TES, authorize the TES to act in its stead and to comply with its obligations under the LRA. This suggestion stands in stark contrast to earlier assertions by the TES industry that the Constitutional Court’s interpretation would amount to a ban on labour broking.

We have concerns about this interpretation of and the response to the Judgment.

The Judgment brings finality to a debate which has raged since the promulgation of section 198A of the LRA in 2015. While the wording of the deeming provision was unfortunate, the context in which it came into existence is particularly important and should not be forgotten. Both the Labour Appeal Court and the Constitutional Court made it plain that the purpose of the provisions was to protect vulnerable workers from exploitation by, inter alia, assigning statutory obligations under the LRA to the client where work is not truly temporary in nature (i.e. longer than three months). This, along with the obligation to treat employees on the whole not less favourably than other employees doing the same or similar work, represented the nudge to dissuade employers from using a TES. The insertion of section 200B specifically sought to guard against contractual or other arrangements which had as their purpose the circumvention of the LRA.

The proposed solution seems, despite its best intentions, to be incongruous with the intent of section 198A and the Constitutional Court’s finding that the client is deemed to be the employer for purposes of the LRA. The proposed solution effectively amounts to a wholesale surrender of the client’s obligations under the LRA by deferring them to a TES to act in the employer’s stead. It should be anticipated that NUMSA, or another Union, will refer disputes in regard to these arrangements and will attack them on the basis that they are a sham and are intended to circumvent the LRA (i.e. in terms of section 200B). The use of a power of attorney will invite an immediate challenge on whether such an arrangement complies with the spirit, meaning and objects of the LRA and the right to fair labour practices.

Modern Industrial Relations
In addition, the proposed solution seems to ignore a more serious problem in the industrial relations context. It is well-known that there is a ‘gulf’ between employers and employees in South Africa and this is reflected by the poor state of employer-employee relations and general lack of trust at the workplace. As specialist employment lawyers, we see this on a regular basis. Modern industrial relations and our Constitutional commitment to fair labour practices strongly suggest that employers should place emphasis on tackling issues of employee participation and achieving inclusiveness at the workplace. The proposed solution, unfortunately, ensures that employees remain at arm’s length and are managed by a third party who, when the commercial agreement between the TES and the employer is terminated, will disappear from the relationship entirely. This will leave the employer to deal with a workforce with which it is unfamiliar and employees who would feel alienated, neglected and unappreciated. This will do little to build trust and positive relationships between employers and employees and will inevitably lead to labour unrest and more disputes arising.

It appears to us that the proposed solution may be a short-term, technical legal solution which ignores the imperatives of sound industrial relations between employers and employees. The amendment in 2015 has already had an impact on the TES industry and this should not be ignored. By way of example, employers have already contracted in services which were previously performed by TES’, contracted out certain services to legitimate independent contractors providing a defined service or restructured their businesses where necessary.

Great Expectations
Employers should also not underestimate the expectations which have been created by the Constitutional Court’s judgment. Many employees of TES’ have already approached some clients of TES’ to demand ‘permanent employment’, asserting that they are now ‘employed’ by the client. Such expectations are often legally incorrect difficult to manage, particularly where Unions and other civic organisations are likely to be resistant to any proposals from employers which require the involvement of a TES, except where operationally necessary.

Employers should, therefore, adopt a cautious approach in order to avoid exposing themselves to potential risk and future litigation. The amendments to the LRA in 2015 indicate a clear intention to protect vulnerable employees, including those employed by TES’, on fixed-term contracts and those engaged in part-time employment. Employers should therefore critically assess their business needs and look at creative, lawful ways of engaging employees to meet their operational requirements. While employers should obviously strive for flexibility and efficiency in their business, this must not come with potential exposure to risk and any associated reputational damage.

The Constitutional Court’s judgment, for better or worse, is a product of poor legislative drafting and NEDLAC must take some responsibility for the confusion that has ensued. We believe that TES’ still have an important role to play in the South African economy, but the Court’s interpretation of section 198A will severely restrict that role and threaten their continued viability. The interpretation also has negative implications for employees who are ‘deemed’ and the full extent of this will only become clear in the coming months and years. Notwithstanding this, employers must take note of the judgment and the limits it has set in respect of the use of TES’. We, therefore, encourage employers to carefully consider the most appropriate solution that will offer them flexibility, while limiting or reducing their risk. It is therefore imperative that they take advice on the most appropriate course of action for their business from a future risk perspective, as it could have costly long-term implications. In particular, employers need to weigh up whether they wish to become test cases in future litigation dealing with the meaning and application of the Constitutional Court’s judgment.

*Published in Business Day on the 17 August 2018