Service Provider or Labour Broker? How to tell the difference.

In January 2019 the Labour Court decided a contractor,that was appointed in terms of a service level agreement, operated as an independent service provider not as a labour broker. The distinction is critical because the deeming provisions in section 198A of the Labour Relations Act, 1995 (LRA), applies to labour brokers but not to independent service providers. In circumstances where the service is rendered by a labour broker, the employees involved in rendering the service may be deemed to be in the client’s employ if the employees earn less than R205 433.30 a year and rendered services to the client outside of the definition of temporary service, which essentially means for a period exceeding three months.

The employees are only deemed to be in the client’s employ for purposes of the LRA. These employees 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 the different treatment. The client is not allowed to terminate their employment lawfully without a valid reason and without following a fair procedure

In Chep South Africa (Pty) Ltd v Shardlow NO & Others [2019] 5 BLLR 450 (LC), the Labour Court identified four factors relevant to an enquiry as to whether a service provider is really a labour broker in disguise. These factors are:

• Whether the contractor provides the client with other persons
  • The court found that the contractor was responsible to deliver a specified product, namely repaired wooden pallets. The Contractor was thus required to deliver a product, as opposed to providing employees.
• Whether the employees involved in rendering the services perform work for the client
  • In a labour broking arrangement, the placed employees become part of the client’s organisation and pursue the client’s purposes or business. The employees do not contribute to the business of the labour broker, except as a commodity. Furthermore, in a labour broking situation the client is responsible for the day to day management of the employees and also determines their working conditions. These elements must be present in order to find that the contractor is a labour broker.
  • On the facts of this matter the contractor’s employees did not pursue the client’s business purposes. The contractors business was the repair of wooden pallets, and this was the business interest the employees were pursuing.
• Whether or not the employees involved in rendering these services were remunerated by the contractor
  • The court did not consider this factor extensively because the contractor would remunerate the employees in both scenarios.
• Whether the persons involved in rendering the services were provided by the contractor to the client “for reward”
  • The court confirmed that the word reward meant a fee for placing workers. The court relied on the wording of the service level agreement which indicated that the contractor was tasked to deliver a specific product at an agreed price. The reward or fee was thus not based on the number of employees placed with a client, which is the manner in which a labour broker would normally be compensated.

The Court thus found that the contractor was an independent service provider and not a labour broker.

It is clear from the judgment that the court relied extensively on the provisions of the service level agreement entered into between the client and the contractor. The deeming provisions contained in section 198A of the LRA could have far reaching consequences for employers in circumstances where it is found that the service provider is in fact a labour broker. The importance of a written, detailed service level agreement can thus not be understated. It is also crucial to pay attention to the detail of the agreement, with specific reference to:

• A clear classification of the nature of the relationship;
• A detailed description of the nature of the services to be rendered;
• A description of both the client and the contractor’s core business;
• Confirmation that the Contractor will be responsible for the supervision of all employees involved in rendering the service
• The method of calculating the contract fee.

Unions are increasingly challenging service level agreements on the basis that it constitutes a labour broking arrangements. Ensuring that the service level agreements in place address the factors listed by the court, will go a long way in defending such disputes.