Employment law update – The Constitutional Court brings finality on the interpretation of an amendment to the LRA

October 1st, 2018

Moksha Naidoo BA (Wits) LLB (UKZN) is a practicing advocate holding chambers at the Johannesburg Bar (Sandton), as well as the KwaZulu-Natal Bar (Durban).

Assign Services (Pty) Ltd v National Union of Metalworkers of SA and Others (Casual Workers Advice Office as Amicus Curiae) (2018) 39 ILJ 1911 (CC)

Section 198(2) of the Labour Relations Act 66 of 1995 (LRA) provides that a worker who is placed by a temporary employment service (TES) to render services at a client of the TES, is an employee of the TES.

Section 198A(3)(b) states that a worker who is placed at a client of the TES, but who is not performing a temporary service – as defined and earns below the minimal threshold – is deemed to be the employee of the client on an indefinite basis, if the person works at the client for more than three months.

Does the application of s 198A(3)(b) mean both the TES and the client become dual employers of the worker, or does the client become the sole employer, which consequentially brings an end to the employment relationship between the TES and worker?

This formed the central question before the Commission for Conciliation, Mediation and Arbitration (CCMA), the Labour Court (LC), the Labour Appeal Court (LAC) and more recently, the Constitutional Court (CC).

Assign Services, a registered TES, placed 22 workers at its client’s workforce on a full-time basis for more than three consecutive months. This sparked an interpretation dispute between National Union of Metalworkers of South Africa (NUMSA) and Assign where the former argued that the workers, in terms of s 198A(3)(b), became full-time employees of Assign’s client, whereas Assign argued that the section gave rise to a dual employer relationship, that being both the client and Assign became the workers employers.

Assign referred the dispute to the CCMA.

The commissioner preferred NUMSA’s argument and found that the application of s 198A(3)(b) meant that Assign’s client became the workers sole employer.

On review the LC favoured Assign’s interpretation and in setting aside the award, held that the section created a dual employment relationship. The court found that although the provisions of s 198A(3)(b) created a statutory employment relationship between employee and client, it did not bring to an end the common law employment contract between the TES and employee.

The LAC differed with the LC, finding that not only did the sole employer interpretation protect the rights of placed employees, but in addition, promoted the purpose and objectives of the LRA.

Before the CC among Assign’s arguments in support of the dual employer interpretation were:

  • Section 198(2) had not been amended after the introduction of s 198(3)(b), which supports the legal notion that the LRA foresaw two employers under these circumstances.
  • A worker’s rights are better protected by having two employers as opposed to a situation where the worker’s employment contract ends with the TES whereafter and without the worker’s consent; they enter into a new employment relationship with the client on new terms and conditions.

NUMSA on the other hand argued that:

  • Section 198 and s 198A should not be read in conjunction – each section contemplates different realities; s 198 applies to employees placed by a TES and who earn above the annual threshold while s 198A applies only to placed workers earning below the threshold. Thus, there is no need to reconcile s 198 with s 198A.
  • On the sole employer interpretation, once the employee becomes an employee of the client, their working conditions could only improve by virtue of s 198A(5).

The court went into an extensive analysis of how legislation and in particular s 198A(3)(b), should be interpreted and found that from a contextual and purposive interpretation, the sole employer approach gained support.

Having done so the court addressed the ‘triangular relationship’ between the TES, worker and client and found that the TES’s duties as employer, were generally limited to placing a worker at a client and paying the worker from proceeds received by the client. It is the client who exercises authority over the worker by determining their working conditions, duties, performance assessments and who has the authority to discontinue the worker’s services. Therefore, the TES merely delivers the worker to the client. On this basis the court rejected the argument that a sole employer interpretation forces the worker, without their consent, into a new employment contract with new terms and conditions. The change in employment from the TES to the client is not a transfer of a new employment relationship, but rather a statutory change in respect of the designation of employer within the same triangular relationship, which continues as long as the commercial contract between the client and TES remains in force. This change in employer does not adversely affect the worker who continues to perform the same work under the same or similar working conditions.

In dismissing the argument that a dual employer relationship offered better protection for a worker, the court held that the sole employer interpretation provided certainty and job security. In addition, and from a practical point, the dual employer interpretation created potential problems, such as the employee being subjected to two disciplinary codes, which may categorise misconduct and poor performance differently. If dismissed, which employer dismissed the employee, which employer must reinstate the employee should the dismissal be deemed unfair. Moreover, while employees might have a legitimate interest dispute against the TES, which would enable them to embark on protected strike action, the same dispute might not be a legitimate reason to strike against the client, which leaves the employees vulnerable to dismissal.

In conclusion the court held:

‘(a) Section 198 deals with the general position with regard to TESs, while section 198(2) is a deeming provision creating a statutory employment contract between the TES and a temporarily placed employee.

(b) Section 198A deals with the application of section 198 to a specific category of workers, being marginal employees employed below the BCEA [Basic Conditions of Employment Act 75 of 1997] threshold.

(c) Section 198A(3)(a) provides that, when vulnerable employees are performing a temporary service as defined, they are deemed to be employees of the TES as contemplated in section 198(2).

(d) Section 198A(3)(b)(i) provides that when vulnerable employees are not performing a temporary service as defined, they are deemed to be the employees of the client.

(e) The deeming provisions in sections 198(2) and 198A(3)(b)(i) cannot operate at the same time.

(f) When marginal employees are not performing a temporary service as defined, then section 198A(3)(b)(ii) replaces section 198(2) as the operative deeming clause for the purposes of determining the identity of the employer.’

The appeal was dismissed with costs.

In a dissenting judgment Cachalia AJ concurred with the dual employer interpretation.

This article was first published in De Rebus in 2018 (Oct) DR 52.