Labour-only Subcontracts or Labour Broking? - What to look out for!

The use of labour-only subcontracts is widespread throughout the construction industry. This is fueled by the nature of the industry being project driven and the overhead costs associated with keeping a large workforce permanently on a construction company’s books. Consequently, construction companies often choose to negotiate labour-only subcontracts with a service provider to supply labour as and when needed for specific projects.

The line between labour-only subcontracts and labour broking is however thin, especially where bespoke agreements are utilised for these services. A labour broking arrangement differs from a labour-only subcontractor. Understanding the difference will help avoid certain unintended responsibilities. 

Labour broking entails a set of obligations for contractors (clients of labour brokers). It is imperative to understand these obligations so that the correct measures are implemented, ensuring that a contractor or business using the services of a labour broker complies with the relevant legislation.

The legislation dealing with the subject of labour broking formally refers to it as “Temporary Employment Services”. This article adopts the more familiar industry term of “Labour Broking”. 

In this regard and in summary, the relevant sections of the Labour Relations Act, 1995 (“LRA”) are sections 198 and 198A. Subject to certain conditions, under temporary employment services, the labour broker and client are both jointly and severally liable for breaches by the labour broker of certain wage regulating measures, but not for unfair dismissals conducted by the labour broker. 

It must be noted that for a labour broker agreement to qualify as “temporary employment” it must meet the following requirements. 

When work for a client is performed by a worker, provided by a labour broker:

• For a period not exceeding three months.
• As a substitute for an employee of the client who is temporarily absent.
• In a category of work and for any period of time which is deemed by the Minister or by an applicable wage regulating measure to be a ‘temporary service’.

Section 198A of the LRA introduces provisions that deems the client (Business hiring wokers through a labour broker) as the employer. These deeming provisions have two consequences for the client hiring the labour:

• First, the client will become responsible for any unfair dismissals or unfair labour practices committed by the labour broker. 
• Second, the worker may not be treated less favourably overall than an employee of the client performing the same or similar work, unless there is a justifiable reason for different treatment.
  

The employment relationship arises where the following facts are present:

• The worker is earning less than the threshold prescribed by the Minister under the Basic Conditions of Employment Act, 1997, currently R205, 433.30.
• The worker will be working for the client for a period more than three months.
• The worker will not be working for the client as a substitute for an employee of the client who is temporarily absent.
• The worker will not be working for the client in a category of work and for any period of time which is deemed by the Minister or by an applicable wage regulating measure to be a ‘temporary service’.

In essence, once a labour broker employee is deemed to be an employee of the client, the repercussions are far reaching. This includes the consequences of section 198A Section 198A(3) which provides that an employee is deemed to be the employee of the client "(F) for the purposes of this Act". In terms of section 198(4), the labour broker and client are jointly and severally liable if the labour broker in respect of any of its employees, contravenes:

• A collective agreement concluded in a bargaining council that regulates terms and conditions of employment.
• A binding arbitration award that regulates terms and conditions of employment.
• The Basic Conditions of Employment Act (“BCEA”).
• A sectoral determination made in terms of the BCEA.
  

• The labour-only subcontract must be entered into with a labour-only subcontractor who will remain responsible for the workers.
• Have the labour-only subcontract deliver a specific outcome.
• Ensure that the labour-only subcontractor is the primary employer and uses its labour to deliver the agreed outcome. 
• The labour is subject to the control and disciplinary code of the labour-only Subcontractor.
• The labour-only subcontractor provides all the tools and equipment to execute the work.