9th May 2018
LABOUR BRIEF NO. 409

Who is in control?

When it comes to labour brokers, all has been said and done! Or has it? The proposed amendments are out since December 2010 and we are eagerly (depending on which side of the fence you are!) awaiting the implementation of these amendments or the negotiated version thereof. Since then the Namibian Supreme Court in the case of African Personnel Services (Pty) Ltd v Government of the Republic of Namibia & others also had its say and found that an absolute prohibition of labour broking is unjustified because of the right to free trade, employers’ needs for flexibility which brokers address in a dynamic employment market and the important principle of freedom of contract. In doing so the Namibian Court also recognised the need to strike some balance between the interests of employers to be flexible and the interests of employees not to be treated as mere commodities because of the contractual arrangements between the broker and its client.

n the case of Nape v INTCS Corporate Solutions (Pty) Ltd (2010) 19 LC 7.1.2 and also reported in [2010] 8 BLLR 852 (LC), this notion of threatening an employee as nothing but a commodity was probably the downfall of the client and the broker. The court mentioned that what happened here is what frequently happens between broker and client. The broker employee, a sales consultant, sent an offensive e-mail to a colleague. The client did not like this and insisted that he be removed from its premises. Due to the fact that the employment relationship was with the broker and the sales consultant, the client merely invoked a clause in the commercial agreement with the broker. As the employer, the broker convened a disciplinary hearing and issued the employee with a final written warning, which the employee agreed to accept. However, the client refused to permit the employee to return to its premises. The broker accordingly consulted the employee, and retrenched him due to the fact that it has not further employment for the employee due to the fact that the client refuses access to its premises.

The Court looked at the legislation and confirmed the sections of the LRA, specifically section 198, which basically determine that the broker is the employer and in some case has joint liability with the client. In some cases, mentioned in subsection 198(4), the Act makes the client and labour broker jointly and severally liable to the employee but not in cases of dismissal. Where the employee is dismissed, the employee’s cause of action is only against the labour broker (as the employer) and not against the client, unless the employee alleges the broker agreement is a sham and that the employee is in fact employed by the client. These provisions represent a compromise between labour and management and the legitimacy of such arrangements has accordingly been retained in the section and the Act. Also, in this case, the employee did not attack the labour broking arrangement on the basis that it was a sham and that the client was in fact the true employer.

The court then proceeded to look at the relationship between the broker and the employee and the broker and the client.

With regard to the client, Nissan, the court accepted that it was a large client of the respondent and that Nissan had superior bargaining power. This much is demonstrated by various factors including Nissan’s bargaining power as client and its refusal to accept the agreement between the applicant and respondent that a final written warning was appropriate.

The Broker’s argument:

Was in essence what many brokers argue when faced with the client not “wanting” the employee any more. The employer submitted that there was nothing more it could do in this case after the client, Nissan, took the stance that it did not want the employee on its premises. He submitted further that the labour broker in these circumstances was legitimately entitled to invoke section 189 (retrenchment) of the Act given the fact that it now had to pay the employee’s salary without being able to receive any value for it from the client as the client had acted within its contractual rights to terminate the payment. The employer highlighted the fact that the respondent had very little bargaining power to negotiate with Nissan, who was its biggest client. The premise of the argument really rests upon two pillars: firstly, that the client was acting lawfully under the terms of the contract when it no longer wished to tolerate the employee’s presence on its premises; secondly, that the respondent, the labour broker, was powerless and could do nothing in response.

The court then examines these two tiers. Firstly it looked at the contract between the client and the broker. In this argument the court looked at the Constitution, ILO conventions and public policy and its effect on the contractual relationship between parties. The court argued that public policy imports the notions of fairness, justice and reasonableness. Public policy would preclude the enforcement of a contractual term if its enforcement would be unjust or unfair. The Constitution provides labour protection to “persons”, not only employees and the ILO is against using labour as a mere commodity. In looking at Labour broking arrangements, the court mentioned that it affect three parties: the client, the broker and the employee. In this tripartite arrangement, employees are the weakest and most vulnerable. The Court accepted the way the Act is structured but found that this does not mean that the labour broker and the client are at liberty to structure their contractual relationships in a way that would effectively treat employees as commodities to be passed on and traded at the whims and fancies of the client. Nor does it mean that labour brokers and clients may structure their contractual relationship in a way that would undermine the employee’s constitutionally guaranteed right to fair labour practices. In looking at the Constitution, the Constitution provides that everyone, and not just employees, has a right to fair labour practices. Consequently, even though a person may not be regarded by the law as an employee of the client but of the labour broker, the client still has a legal duty to do nothing to undermine an employee’s right to fair labour practices, unless the limitation is justified by national legislation.

The court found that any clause in a contract between a labour broker and a client which allows a client to undermine the right not to be unfairly dismissed, would be against public policy, therefore be unfair. Furthermore, an illegal demand, as in this case, can never found the basis to justify a dismissal based on operational requirements. Section 189 of the Act cannot be used to disguise the true reason for dismissal.

It should be noted that the court accepted that where the demand of the client for the removal of the employee is lawful and fair the employer labour broker may properly rely upon the provisions of section 189 of the Act.

Does the broker have recourse against the client?

It is clear from section 198 of the Act that an employee has no right of recourse against a client of a labour broker for unfair dismissal claims. The Act is also silent about the rights of the labour broker against the client. The Court however found that the labour broker is in fact not powerless to resist its client’s attempt to wield its bargaining power in a way which undermines the fundamental rights of employees. The court found that the labour broker is entitled to approach a court of law to compel the client not to insist upon the removal of an employee where no fair grounds exist for that employee to be removed. The labour broker is also entitled to resist any attempt by the client to enforce a contractual provision which is against public policy. Similarly, if a court were to reinstate an employee into the employ of the labour broker, the labour broker may enforce such an order against the client to give effect to the employee’s rights to fair labour practices. In such events, the labour broker could approach either the High Court or the Labour Court for appropriate relief. The fact that the dispute, in such an event, would be between two parties to a contractual relationship, which is not an employment relationship, would not mean that the Labour Court could not grant appropriate relief to a labour broker if the issue in dispute concerns the employee’s rights not to be unfairly dismissed. If the courts do not recognise the labour broker’s right of recourse, the consequences would be that an employee may find himself without a job for reasons which otherwise would be unfair. The court therefore found that the client’s insistence that the applicant be removed was unlawful and a breach of the applicant’s right to fair labour practices.

The next issue the court dealt with is an interesting one. Very often employees are excluded for a reason relating to the client’s rules or policies. In this regard the court found that the employee did not commit an offence for which dismissal was justified. The client had no right to insist upon the application of its own internal policies concerning offensive e-mails because if it wanted that to apply, it should have employed the employee. It seemed to the court that the client’s insistence that its policies apply contradicted the very structure of the relationship. The client had no right to impose its employment policies on the labour broker, where the application of those policies conflicted with the right not to be unfairly dismissed.

The contractual right to remove the employee from the client’s premises:

The court further looked at the term that the client can arbitrarily remove employees of the broker. In this regard the court found that, insofar as the contract between the respondent and its client allowed the client to arbitrarily require the removal of an employee from its premises, such provision was unlawful and against public policy as it took no account of the right of the employee not to be unfairly dismissed. The court found that the labour broker could have, accordingly, resisted the client’s attempts to invoke clauses in its contract with the client which undermined the applicant’s rights. It was unfair of it not to do so before invoking its right to terminate the contract of employment for operational requirements and also because the demand of the client was unlawful and unfair. In this case, the court said that the mere fact that a third party demands the dismissal of an employee would not render such dismissal fair. Such an approach would indeed open a veritable Pandora’s Box of injustices.Employers are not always aware of what an employee is entitled to upon termination of service. Especially, when the relationship ends with debt owed to the employer.

Can the employer for instance, deduct the debt from the employee’s salary, leave pay or pension benefits and if so, how much can be deducted. If the full amount cannot be deducted, then what can be deducted if any?

Another issue to consider is what to do with damages caused by the employee? Can the employer deduct damages caused by an employee from her salary?

Payment on termination of employment is regulated by the Basic Conditions of Employment Act, 1997 (No. 75 of 1997) Chapter Five: Termination of employment.

This section does not apply to employees who work less than 24 hours per month.

Section 37 deals with notice of termination of employment. In terms of this section, (subject to section 38), a contract of employment terminable at the instance of a party to the contract, may be terminated only on notice of not less than one week, if the employee has been employed for six months or less.

Notice of two weeks must be given if the employee has been employed between six months and one year and notice of four weeks must be given if the employee has been employed for one year or more or is a farm worker or domestic worker who has been employed for more than six months.

A collective agreement may permit a notice period shorter than required as set out in the above paragraph, however the four weeks’ notice period may not be reduced to less than 2 weeks.

No agreement may require or permit an employee to give notice for a period that is longer than that required of the employer. Notice of termination of a contract of employment must be given in writing, except when it is given by an illiterate employee.

If an employee who receives notice of termination is not able to understand it, the notice must be explained orally by, or on behalf of, the employer to the employee in an official language the employee reasonably understands.

Notice of termination of a contract of employment given by an employer must not be given during any period of leave to which the employee is entitled in terms of Chapter Three. Notice may not run concurrently with any period of leave to which the employee is entitled in terms of Chapter Three, except sick leave.

Therefore, an employer may not give notice during any leave period, including sick leave, normal leave, family responsibility leave or maternity leave.

A notice period may also not run during normal, family responsibility or maternity leave, regardless whether the employee resigned or the employer gave notice. However, notice may run concurrently with sick leave, if the employee gave notice (resignation). If the employee therefore becomes sick during the notice period, after he resigned, the notice period will continue running.

Nothing in this section affects the right of a dismissed employee to dispute the lawfulness or fairness of the dismissal in terms of Chapter VIII of the Labour Relations act 1995, or any other law; and of an employer or an employee to terminate a contract of employment without notice for any cause recognised by law. Currently our law recognises termination without notice for misconduct cases alone.

Section 38 deals with payment instead of notice (or in lieu of notice). Instead of giving an employee notice in terms of section 37, an employer may pay the employee the remuneration the employee would have received, calculated in accordance with section 35, as if the employee had worked during the notice period.

If an employee gives notice of termination of employment, and the employer waives any part of the notice, the employer must pay the remuneration referred to in subsection (1), unless the employer and employee agree otherwise.

Section 39 deals with termination of service of employees in accommodation provided by employers.

If the employer of an employee who resides in accommodation that is situated on the premises of the employer or that is supplied by the employer, terminates the contract of employment of that employee before the date on which the employer was entitled to do so in terms of section 37 or in terms of section 38, the employer is required to provide the employee with accommodation for a period of one month, or if it is a longer period, until the contract of employment could lawfully have been terminated.

If an employee elects to remain in accommodation in terms of subsection (1) after the employer has terminated the employee’s contract of employment in terms of section 38, the remuneration that the employer is required to pay in terms of section 38 is reduced by that portion of the remuneration that represents the agreed value of the accommodation for the period that the employee remains in the accommodation.

Section 40 determines the payments on termination of service. On termination of employment, an employer must pay an employee —

a) For any paid time off that the employee is entitled to in terms of section 10(3) or 16(3) that the employee has not taken;
b) Remuneration calculated in accordance with section 21(1) for any period of annual leave due in terms of section 20(2) that the employee has not taken; and
c) If the employee has been in employment longer than four months, in respect of the employee’s
d) Annual leave entitlement during an incomplete annual leave cycle as defined in section 20(1) —
i) one day’s remuneration in respect of every 17 days on which the employee worked or was entitled to be paid; or
ii) remuneration calculated on any basis that is at least as favourable to the employee as that
Calculated in terms of subparagraph (i).

In terms of section 41, an employer must pay an employee who is dismissed for reasons based on the employer’s operational requirements (retrenchment) or whose contract of employment terminates or is terminated in terms of section 38 of the Insolvency Act, 1936 (Act No. 24 of 1936), severance pay equal to at least one week’s remuneration for each completed year of continuous service with that employer, calculated in accordance with section 35.

An employee, who unreasonably refuses to accept the employer’s offer of alternative employment with that employer or any other employer, is not entitled to severance pay in terms of subsection.

The payment of severance pay in compliance with this section does not affect an employee’s right to any other amount payable according to law. If there is a dispute about the entitlement to severance pay in terms of this section only, then the employee may refer the dispute in writing to the CCMA or bargaining council.
In terms of section 42, on termination of employment an employee is entitled to a certificate of service.

K. Cowley
(Chairperson – (CEA – LBD)