On 26 July this year, the Constitutional Court clarified that organisations are deemed to be the employer of workers they accessed through labour brokers after those employees have been employed at their workplace for more than three months.
These are the key implications for business owners and for HR & payroll professionals.
The change does not necessarily impact your payroll
The Constitutional Court’s ruling is applicable only to matters that relate to the Labour Relations Act and does not affect other employment-related legislation, such as the Basic Conditions of Employment Act (BCEA), the Employment Tax Incentive Act, etc. As such, if your labour broker pays the employees, it will continue to be responsible for paying them and withholding PAYE, unless you specifically change that arrangement.
You might not need to change employees’ contracts
Under terms of the judgment, the worker employed through the broker becomes employed by the client by operation of law after three months. Each organisation will need to look closely at its circumstances to determine whether to sign direct employment contracts with the employees concerned.
Workers must be treated equally to full-time employees
Once the employee is deemed to be employed by the client following three months of service, he or she must be treated no less favourably than other employees who do the same or similar work. Unless there is a justifiable reason for it, the employee must be granted the same terms and conditions, growth prospects, job security and benefits as similar employees in the organisation.
Both the employer and the broker may be legally liable after three months pass
Once the employee has worked for the same client through a broker for more than three months, he or she can choose to institute legal proceedings against either the labour broker or the client, or both, in the event of a dispute. This makes sense because the labour broker may still be paying the employee. The client and broker must decide who will pay these employees to ensure clarity in terms of liability.
The ruling only applies to lower-paid workers
Only employees earning less than the BCEA threshold (currently R205 433 per annum) are deemed to be employed by the client after three months of service.
Clients and brokers cannot dismiss workers to avoid the three-month rule
If the client or the labour broker terminates an employee’s contract to avoid the ‘deeming employment provision’, the termination will be considered a dismissal. The affected employee will be able to pursue the appropriate remedies under South African labour law.
There are still uncertainties around the practical implementation of the Constitutional Court’s ruling. For example, it is not clear whether the rights and obligations an employee accrued with a labour broker will be transferred to the client after three months. It may take further litigation to clarify the grey areas.
What is clear is that the way labour brokers operate and how organisations use them will change dramatically as a result of this judgment. If you’re not sure how the changes will affect you as an employer, seek the help of a labour consultant or lawyer, so that you can minimise the legal and operational risks to your business.