Constitutional Court: The client becomes the sole employer of labour broker employees after three months for purposes of the LRA

The Constitutional Court ruled on July 26, 2018 that the client becomes the sole employer of labour broker employees earning below the earnings threshold that provide services to the client in excess of three months. In doing so the Court upheld the much criticised judgment of the Labour Appeal Court in NUMSA v Assign Services and Others and finally put to bed the interpretational dispute arising from the 2015 amendments to the Labour Relations Act, 1995 (LRA).

Section 198A(3)(b) of the LRA provides that where the employee of a labour broker is no longer providing temporary services (which is generally defined as a placement at a client in excess of three months), the employee is deemed to be the employee of the labour broker’s client. There were two main schools of thought on the interpretation of this clause: either the labour broker remains the employer and the client is also considered to be the employer for the purposes of the LRA, or the labour broker is no longer the employer and the client is the sole employer. This has become known as the dual employer and sole employer interpretations.

The Constitutional Court has now held once and for all in favour of the sole employer interpretation. The Court made the following findings:

1. The wording, context and purpose of the amendments to section 198A of the LRA support the sole employer interpretation.
2. The contract between the labour broker and its employees seldom contains the normal characteristics of an employment contract because the labour broker does not supervise the employees or control their working conditions. The contract is only considered to be a contract of employment because section 198(2) of the LRA expressly provides that the labour broker is the employer.
3. The triangular relationship (between the labour broker, the employee and the client) continues after the client is deemed to be the employer for as long as the commercial contract between the client and the labour broker remains in place.
4. There is no transfer of employees between the labour broker and the client. Instead there is “rather a change in the statutory attribution of responsibility as employer within the same triangular employment relationship” to the client.
5. The employees immediately become employed on the same terms and conditions of employment as similar employees at the client without any negotiation or agreement.
6. For as long as the labour broker remunerates the employees, the employees can refer disputes in terms of the LRA against both the labour broker and/or the client.
7. Given the uncertainty which rights and remedies arise to employees under the dual employer interpretation, the sole employer interpretation was also held to offer more protection to the employees.

Given that this judgment relates to the interpretation of legislation that came into effect during 2015, this interpretation can be applied retrospectively to disputes that arose since 2015 and prior to this judgment. It remains to be seen how labour brokers and their clients respond to the adoption of this interpretation.