CCMA ruling on the interpretation of the deeming provision in Section 198A of the Labour Relations Act

1 Jul 2015 4 min read Employment Alert Article

In a ruling handed down by the Commission for Conciliation, Mediation and Arbitration (CCMA) on 29 June 2015 - in the matter between Assign Service (Pty) Ltd v Krost Services and Racking (Pty) Ltd and another (ECEL1652-15) - the commissioner ruled on the interpretation of the deeming provision contained in s198A(3)(b) of the Labour Relations Act 66 of 1995 (LRA).

The various interpretations afforded to this provision have been hotly debated by employment law and human resources practitioners since the amendments to the LRA came into effect on 1 January 2015 and 1 April 2015. The debate centred on what the legislature intended when saying that a labour broker employee is deemed to be the employee of a client. Does the employee transfer from the labour broker to the client, with the client becoming the sole employer of the person, or does the provision create a dual employment relationship - with both the client and labour broker being the employers?

Section 198A(3)(b) of the LRA provides that an employee of a temporary employment service (TES) not performing a temporary service (as defined) for the client:

"(i) is deemed to be the employee of that client and the client is deemed to be the employer; and

(ii) subject to the provisions of s198B, employed on an indefinite basis by the client."

It was not in dispute that the above provision inter alia aims to protect lower income, vulnerable TES employees. The CCMA was tasked with determining which of the interpretations below provided the greatest protections to these employees:

  • the "dual employment position", in terms of which the TES employees remain the employees of the TES for all purposes and are deemed also to be the employees of the client for the purposes of the LRA; or
  • the "sole employer position", in terms of which, with effect from 1 April 2015, placed TES employees are deemed to be the employees of the client only, for the purposes of the LRA.

The CCMA found that the deeming provision contained in s198A(3)(b) of the LRA is interpreted to mean that the client becomes the sole employerof the placed TES employees for purposes of the LRA, provided that they earn below the earnings threshold determined pursuant to s6 of the Basic Conditions of Employment Act 75 of 1997 (currently R205 433.30 per annum) and they have been placed with the client for longer than 3 months.

The reasons for the interpretation advanced by the CCMA are, amongst others, the following:

  • Section 198A(3)(b) is to be interpreted in a manner akin to how the law deals with adoption. A legal fiction is created in that the adoptive parent becomes the parent of the adopted child. The biological parent and the adoptive parent are not dual parents.
  • A greater amount of confusion and uncertainty is created by the "dual employment position", for example, which employer is responsible for the discipline of the deemed employees? Which employer's disciplinary code applies? How does one deal with the issue of reinstatement?
  • Section 198A does not apply in circumstances where the work performed by the TES employees for the client is of a genuinely temporary nature.
  • The joint and several liability provision contained in s198(4A) does not refer to joint and several liability in terms of s198A(3)(b) but rather, only refers to joint and several liability in terms of s198(4). The mere fact that proceedings may be instituted, or awards enforced, against both the client and the TES does not axiomatically mean that the parties are dual employers. It is simply an issue relating to the parties' liability.
  • Section 198A(3)(b)(ii) provides that TES employees not performing temporary services are, "subject to the provisions of s198B,employed on an indefinite basis by the client".
  • The memorandum of objects to the LRA amendments provides that, if TES employees "are not employed to perform temporary services, they are deemed for the purposes of the LRA to be the employees of the client and not the TES".

The impact of the CCMA's interpretation is that, once a client of a TES is deemed to be the sole employer of TES employees, those deemed employees must, for example, be included in any retrenchment procedure that the client may embark upon, be provided with terms and conditions of employment, by the client, that are no less favourable to those enjoyed by comparable indefinite employees of the client, will remain the employees of the client after the termination of the commercial agreement between the TES and the client and can institute any employment-related disputes against the client without having to join the TES to those proceedings.

The award is likely to be taken on review to the Labour Court. Accordingly, this is probably not the end of the "sole" versus "dual" employer debate. However, employers should be cognisant of the preliminary stance taken by the CCMA in dealing with the interpretation of the deeming provision. Whilst CCMA awards do not create legal precedent that must be followed by other commissioners, the ruling provides a glimpse in what may be the view on this issue at the statutory body.

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