Section 198 of the Labour Relations Act (“LRA”) (which is the TES or labour-broking provision) defines a ‘temporary employment service’ to mean any person who, for reward, procures for or provides to a client other persons (a) who perform work for the client; and (b) who are remunerated by the temporary employment service.
Among the 2015 amendments to the LRA were several additions to section 198. The effect, for example of the new section 198A(3)(b) – the so-called ‘deeming provision’ – is to deem a lower-income TES employee performing work for the TES’s client that is not truly temporary work to be the employee of the client, and employed on an indefinite basis. What’s more, in terms of section 198A(5), such a deemed employee must be treated on the whole not less favourably than an employee of the client performing the same or similar work, unless there is a justifiable reason for different treatment.
Considering the perceived adverse effects of the amendment on the business of both a TES and the client (who would now have to take on an enlarged permanent workforce) it is not altogether surprising that ways were sought to circumvent this. One way was to restructure the TES/client relationship to that of a ‘service provider’ and conclude a service level agreement or an “SLA”, where the former TES would be described as an independent contractor. This is the background to the case of David Victor and 200 others v Chep SA (Pty) Ltd and others, a matter recently decided by the Labour Appeal Court. David Victor and 200 co-workers had been employed by the TES C-Force since 2009 to perform work for its client Chep. The business of Chep consists of hiring out pallets used for storage and transportation in the logistics industry and the workers’ job was to repair and condition these pallets at Chep’s premises. During 2014 (prior to the amendments) C-Force and Chep concluded a service level agreement but the work being performed did not change after the conversion to the service level agreement.
During 2015, the workers referred a dispute to the CCMA claiming that C-Force was a TES and not a service provider, and that in accordance with the deeming provision they were now Chep’s employees. As such, they demanded no less favourable treatment than Chep’s permanently employed workers. The CCMA arbitrator noted that the first issue was to determine whether C-Force was in fact a TES. Should that turn out to be the case, a further arbitration would be set down to determine the content of the workers claim to be treated ‘no less favourably’. In coming to a decision the arbitrator took into account factors such as the overall control that Chep exercised over the workers (including that it could prescribe how the work was to be performed) and the extent to which they were integrated into the workplace, and further reasoned that if C-Force was actually in the business of providing a pallet repair service, it would have its own service facility for doing the repair work, using its own plant, raw materials and equipment, whereas Chep was providing the raw materials, plant and equipment. On this basis, the arbitrator found that C-Force provided its employees to Chep to perform work for Chep in the same way that a TES would. C-Force was accordingly found to be a TES and not a service provider.
Chep then applied to the Labour Court to review the arbitration award, arguing that the arbitrator had erred in taking the factors he did into account as they were not ‘definitional elements’ of a TES. Further, whereas a TES did nothing but place the labour and productive capacity of its employees at the behest of the client, the SLA with C-Force was for it to provide a ‘specific output, product or result’, while managing its own employees, and that this made it a service provider, not a TES. The Labour Court upheld Chep’s view that C-Force was being paid an agreed price for providing a specified product in pursuit of its own business purpose, rather than receiving a fee for every employee it provided to Chep. As such, it fell outside the statutory definition of a TES in section 198 of the LRA. The arbitration award was set aside and replaced with an order declaring that C-Force was not a TES, and that the deeming provision did not apply to David Victor and co.
The Labour Court judgment was then taken on appeal to the Labour Appeal Court, which found that on the contrary, the CCMA arbitrator had not erred. He had been correct in taking the factors he did into account, and would have erred had he not done so. In a nutshell, the arbitrator had correctly found that C-force provided workers to perform work for Chep for reward, making it a TES as defined in the LRA. The Labour Court’s findings were overturned and substituted with a judgment dismissing the review application, meaning that the applicant workers are indeed deemed to be Chep’s employees.
Nearly six years have passed since the referral to the CCMA, and the matter will now need to be arbitrated to determine what employment conditions ‘no less favourable’ will mean to the deemed employees. This raises some interesting questions, for example: if the Chep employees were earning higher wages, could the CCMA award the difference in remuneration backdated to 2015? And if the permanent employees had been enjoying benefits such as medical aid, provident fund and the like, how would this be compensated, if at all?
It is worth remembering that the description of a relationship in a contract is not conclusive. In this case, the TES described itself as a service provider, providing services to Chep as an independent contractor, but an analysis of the realities showed that in fact they were operating as a TES as defined in the LRA.