On 26 July 2018, the Constitutional Court handed down a landmark judgment in the application against a judgment of the Labour Appeal Court, to determine the correct interpretation of section 198A(3)(b) of the Labour Relations Act.  This Concourt judgment has caused quite an uproar, and spawned a raft of written opinions on its implications, especially from, unsurprisingly, and predictably, the TES (temporary employment service) industry and its promoters.

The lack of flexibility in our labour law regime is, in our view, a significant deterrent to economic growth and unemployment.  Our firm overwhelmingly supports the overhauling, and reduced regulation, of labour legislation to enhance economic growth and to promote growth in employment, in tandem with other initiatives.  However, one must be realistic and accept that regardless of these world views, role players are obliged to do business in accordance with prevailing legislation.  Understanding the interpretation of Statutes, and authoritative case law, must be undertaken dispassionately, without blinkered, self-interest motivated, glasses.

The TES, colloquially known as labour broker, industry, has been given a severe bloody nose in this Concourt judgment.  That it has swiftly engineered a widespread avalanche of communication is unsurprising.  After all, TES profits are heavily bolstered by permanently, rather than temporarily placed, employees with clients.

So what are we to make of the judgment?

The judgment must be understood in the context of the introduction of section 198A of the Labour Relations Act, which came into operation on 1 January 2015, and regulates ‘temporary employment service’ employment to a period not exceeding three months.  It’s worth highlighting that this amendment to the LRA therefore, quite clearly, sought to reverse a growing trend of TES employee usage on a permanent basis.  Put differently, temporary employment service usage was intended to be temporary, not permanent.

In the Assign Concourt case, the Concourt was required to answer the question – does section 198A(3)(b) of the LRA give rise to the client becoming the sole employer for the purposes of the LRA after three months, in respect of employees earning below the BCEA threshold (R17 000.00 per month), or are the client and the TES dual employers thereafter?

The Concourt held that, to begin with, for the first three months of the placement of a TES employee with a client, it’s business as usual.  In terms of section 198(2) of the LRA, the TES is the designated employer of the placed employee, although the client is jointly and severally liable for, inter alia, BCEA and sectoral determination breaches.

However, the Concourt importantly held that after three months, the TES client becomes the sole employer of the placed employee, for the purposes of the LRA, and let’s not forget, the LRA is the dominant employment statute.  The judgment held, at paragraph 54, that “A plain reading of section 198(3)(b) [of the LRA] clearly distinguished between employees employed by the TES for temporary work and those deemed to be employed by the TES’s client where work is not temporary”.  This is important, and focuses on the growing reliance on the permanent usage of ‘temporary’ employment service employees for labour flexibility purposes.

In addition to becoming the sole employer of the placed employee after three months, for the purposes of the LRA, the TES client is required to furthermore ensure that the placed worker is also, per section 198A (5) of the LRA, “treated on the whole not less favourably than an employee of the client performing the same or similar work, unless there is justifiable reason for different treatment”.  This implies that the erstwhile TES employees must be remunerated at a level similar to that of their new permanent colleagues, after three months of having been placed with the client, and be granted any other permanent employment benefits, such as a provident fund and medical aid membership.

Fixed term contracts of employment are also transferred after three months, but only remain in force for the duration of the remainder of the fixed-term period.

Much has been made of paragraph seventy-five of the judgment by labour brokers and their promoters which provides, inter alia, that after three months “the triangular relationship then continues for as long as the commercial contract between the TES and the client remains in force and requires the TES to remunerate the workers”.

After three months, assuming an ongoing client/TES commercial relationship, the TES does have, for example, BCEA responsibility, but why would a client need, or even want, to maintain this relationship, especially when wages and conditions of service must now be placed on par, with the invariably huge contingent liabilities with which clients will be burdened?  The cost-savings and flexibility historically associated with TES usage vanished I any event, even before this Concourt judgment.

The judgment addresses this in holding that, at paragraph sixty-four “A TES’s liability only lasts as long as its relationship with the client and while it (rather than the client) continues to remunerate the worker.  Nothing in law prevents the client and the TES from terminating their contractual relationship upon the triggering of section 198A(3)(b), with the client opting to remunerate the placed employees directly …. if this happens … the TES will then fall out of the relationship entirely”.  This is precisely why the TES community is currently pressing their clients to sign new SLA’s.

The TES industry undoubtedly provides a valuable service, but this has all but been curtailed to include genuine ‘temporary’ employment services.  It’s a TES after all, not a PES (permanent employment service).

Many employers will, in our view, rightly conclude that this judgment renders TES usage beyond three months, uneconomical.  Going forward, in the main, the premium paid to a TES will be for the limited benefits of payroll administration and a finders fee for placed workers.

Finally, this judgment has effect from 1 January 2015, namely the implementation date of the LRA amendments the Concourt was called upon to interpret.

This judgment does unfortunately yet further curtail labour flexibility.  It cannot however be wished away; it is what it is.