The Labour Relations Amendment Bill (LRAB) has been adopted by the National Assembly and it is now just a matter of time before the Bill is promulgated. In this regard, South African businesses should be thinking about the new labour broking provisions in the LRAB.
“Essentially,” says Hugo Pienaar, Director in the Employment Practice at Cliffe Dekker Hofmeyr, “the LRAB provides that employees employed by a labour broker, who earn less than the threshold, and who are employed for a period exceeding three months will be deemed to be employees of the client and the labour broker. Furthermore that such employees, must be treated on the whole not less favourably than other employees of the client performing similar work, after the three month period.”
Pienaar says that these clauses, as well as others, may create various limitations for labour brokers, unless they adopt an alternative business model of service providers, which model is commonly used in European countries.
“One of the reasons a client appoints labour brokers is to obtain manual and/or temporary labour without the administrative burden associated with employing 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. A further reason is that, 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 flowing from any termination of employment of a labour broker employee. However, in the event of an unfair dismissal leading to reinstatement of an employee, 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,” Pienaar explains.
“Furthermore,” he says, “the new provisions allow for an employee to choose to institute action against the labour broker, the client, or both. The provisions therefore reduce the benefits associated with labour broking and as such, the industry is at risk.”
Andrea Taylor, an Associate in the Employment practice notes that it is envisaged that in a true labour broker scenario, where services are only to be rendered for a short duration of time of less than three months, labour brokers will continue to operate and will be unaffected by the proposed amendments.
“However,” she says, “the labour brokers who render services for longer periods of time as a result of seasonal work or otherwise, the need for mass manual labour and/or other considerations will be most affected by these new provisions. One of the main implications will be that such employees who earn under the threshold, have to be treated on the whole not 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.
“It is suggested that a reasonable alternative to traditional labour broking would be to revise the whole concept and to move into the sphere of genuine subcontracting,” she explains.
“The answer lies in the wording of s198 (3) of the LRA, 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, which will render a sub contractual service to the client, or may render such service via a newly established independent service provider. This, in effect, would move a two tier level agreement between the client and labour broker into a three tier level agreement.
“The new service provider or subcontractor will then have to tender, or propose to take over, the whole of the contract or service previously provided. For example, where the labour broker provides 80% of the general workers of 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,” she explains.
Taylor says 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. It is interesting to note that such fixed term arrangements would be permissible in terms of the proposed amendment to the LRA, even where it goes beyond the three month period. This type of relationship will also result in the sub-contractor or service provider taking on the responsibility of the equal pay clause.
She notes that the above suggestion creates an opportunity for labour brokers or service providers to render an extended service, where they can also offer to take over payrolls and other relevant services to a client. In some cases, labour brokers have already taken over the provisions of, for example, protective clothing, client’s Employment Equity plans, Skills Development, and so on.
“Should the sub-contractor or service provider route be adopted, it is important that the sub contractual relationship must be a genuine one, and not constitute a scheme to circumvent the provisions of the LRA,” she explains. “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. A justifiable reason may include replacing an employee who is temporarily absent, employing an employee due to a temporary increase in work volume (not expected to endure beyond 12 months), trainee work, employing an employee for a specified project for a limited duration and seasonal work etc.
“Another alternative may be that the client absorbs all TES employees into its organisation. 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. 5this will have huge cost implications for clients. This would seriously impact the labour broking industry as a whole. Where companies take over an entire temporary workforce, labour brokers could become obsolete entirely,” she says.
Pienaar further notes that companies may also rely on the exemption that employees working less than 24 hours a month are excluded. In this regard, employees would work on a rotational basis. Such scenarios may be useful when skilled labour is not required.
“Companies may also avoid the limitations in terms of the proposed amendments by merely not having a ‘comparator’ in permanent employment.”
He says it is likely that the new amendments may be subject to constitutional challenge by the labour brokers as an industry.
“Once the proposed labour broking amendments are enacted, it is envisaged that trade unions will do their utmost to make sure that South African companies comply with these new obligations. However, if labour brokers and their clients are inventive and open to change, the amendments may not result in a loss of the industry as a whole,” Pienaar adds.
Ends
More Info link:: http://www.cliffedekkerhofmeyr.com/en/people/hugo-pienaar.html
Twitter: @DLACDH
Facebook: https://facebook.com/DLACDH
YouTube:
Author: Angela Graham from Cliffe Dekker Hofmeyr. Originally distributed by MyPR.co.za.
