Can I still use labour brokers in my business?

Can I still use labour brokers in my business?

Human Resources

Last week, the Constitutional Court clarified a section of the Labour Relations Act regulating labour brokers. There have been a number of rather confusing articles and advice circulating since and the intention of this article is to try simplify things and explain what is actually going on.

Brief History of Labour Broking
In 1996, when the Labour Relations Act (LRA) was created, labour brokers were re-named Temporary Employment Services and, as the name implies, their service was associated with the temporary placement of staff at clients. For a number of reasons, these staff often ended up working for long periods of time and/or indefinitely, resulting in complaints from unions that companies were using labour brokers to underpay staff or to get around the Labour Legislation, with respect to key issues such as terms and conditions, collective issues and dismissal law.

Government Intervention
The Government reacted by amending the LRA with198A. In substance, what the Government introduced was:

  • Companies who wished to use labour brokers in genuine, temporary work could continue to do so with the labour broker remaining the employer at all times;
  • In respect of people who earned over the threshold being R17 119.44 per month (R205,433.30 per annum), these employees would remain the employees of the labour broker (as the LRA would not apply);
  • However, in respect of employees who weren’t employed in temporary capacities, and were employed at the client beyond three months, they would be deemed the employee of the client and, more importantly, the client was obliged to treat the employee on the whole, no less favourably than their own staff, i.e. they needed to give them all the benefits and salaries their own staff received.

The labour broker industry challenged the legislation, which went through a number of Courts ending up at the Constitutional Court, who have now confirmed the following:

  • In respect of employees provided by labour brokers who will engage in temporary assignment i.e. to replace someone who is sick and the like, the labour broker will remain the employer and it will be business as usual;
  • However, where a labour broker places an employee at a client, after a period of three months the client becomes the sole employer of the employee.

What role then does the labour broker play?
The Constitutional Court says that the labour broker (whilst there is still a contract between the client and the labour broker) will remain as a party and they will continue to run the payroll and undertake whatever duties they are supposed to in terms of their contract with the client. This is known as the so called “triangular relationship”. They are, however, no longer the employer after the three-month period.

Once the contractual agreement comes to an end, the labour broker falls completely out of the equation and the client will proceed with the employment relationship in the normal course with that employee.

Future CCMA Matters
The labour broker employees, after three months, become the client’s employees and will refer matters to the CCMA against the client. If the client has an agreement with the labour broker, then the employee can also refer the matter against the broker, but this is probably an unlikely scenario as it is anticipated the client would have deeper pockets and, in many cases, be less able to protect themselves if they have abdicated responsibility for managing the employee to the labour broker.

Worrying Issues – Backdated Benefits
The big issue to be concerned about is the fact that should you have had labour broking staff on site for a period of more than 3 months, especially if they have been there at any time since 2015, you may face a claim for the difference between salary and benefits paid and what should have been paid compared to your other staff i.e. a backdated calculation.

As an employer, there is no practical restriction on your continuing to use a labour broker. However, you take on considerable risk if you continue to use the services of a broker for individuals paid under the LRA threshold, as you would be taking on the full risk of employment (and any risks associated with unequal pay) with the relationship being managed by a third party. In these circumstances, we would suggest it would be better to treat the relationship as it actually is i.e. the individuals are your employees and if you need a third party to manage them, manage payroll, or HR, then you should engage the third party on this basis to do these services, with appropriate service level agreements in place.