Labour law fails to re­late to re­al­ity

Con­cern over pop­u­lar prac­tice of sec­ond-gen­er­a­tion out­sourc­ing

Business Day - Business Law and Tax Review - - FRONT PAGE - EVAN PICK­WORTH

LABOUR law in SA is in a dra­matic state of flux, but this is noth­ing new for lawyers and em­ploy­ees who have been bat­tling with a long list of con­tra­dic­tory and con­fus­ing laws and rul­ings for more than a decade.

The vex­ing Labour Re­la­tions Amend­ment Bill had the mat pulled out from un­der its messy pro­vi­sions late last month just as it was brought to the National Assem­bly. It hit a brick wall as there were too few MPs to make up a quo­rum.

In an un­tidy com­pro­mise, amend­ments to the Labour Re­la­tions Amend­ment Bill were in­tro­duced in Par­lia­ment the week be­fore to a cho­rus of dis­con­tent from labour ex­perts, who said the changes — which will force em­ploy­ers to treat tem­po­rary, fixed­con­tract and part-time work­ers on an equal ba­sis af­ter three months — will be fa­tal to job cre­ation.

While Avi­a­tion Union of South Africa and An­other v South African Air­ways (Pty) Ltd and Oth­ers (CC) pro- vided some much-needed clar­ity on one of the more con­tentious ar­eas of the law in 2011, un­cer­tainty be­gan to rear its head within just two months of the judg­ment and that is the po­si­tion that cur­rently pre­vails. The var­i­ous lev­els of com­plex­ity in the act are not meet­ing the re­al­i­ties in the mar­ket­place with any­thing near har­mony.

The key ques­tion raised in the SAA case was whether, on the ter­mi­na­tion of an out­sourc­ing agree­ment be­tween South African Air­ways (Pty) Ltd (SAA) and LGM South Africa Fa­cil­ity Man­agers and Engi­neers (Pty) Ltd (LGM), the em­ploy­ees of LGM were trans­ferred to­gether with the busi­ness in which they were en­gaged, to a new em­ployer. This is im­por­tant as more cases emerge of out­sourc­ing con­tracts be­ing ter­mi­nated and new providers be­ing brought in. The ques­tion of who the pre­vi­ous em­ployer was be­comes im­por­tant.

SAA has been strug­gling to make money. In 2000 it took a de­ci­sion to out­source cer­tain of its non-core busi­ness in or­der to re­duce its main­te­nance costs, which were in ex­cess of R130m a year. The de­ci­sion was in line with the strat­egy of turn­ing SAA into a prof­itable en­tity and to put its fa­cil­i­ties man­age­ment op­er­a­tions out to ten­der. The ten­der was awarded to LGM.

The ma­te­rial terms of the agree­ment were that the par­ties agreed that LGM would pro­vide the ser­vices for a fee; the as­sets and in­ven­tory re­lat­ing to th­ese ser­vices were sold to LGM, but on ter­mi­na­tion of the agree­ment SAA would be en­ti­tled to re­pur­chase them; LGM would be af­forded the use of the of­fice space, work­shops, air­port aprons, com­put­ers and the SAA net­work at all des­ig­nated air­ports; upon ter­mi­na­tion of the agree­ment SAA would be en­ti­tled to have the ser­vices trans­ferred back to it or to a third party and ob­tain as­sign­ment of all third-party con­tracts from LGM.

SAA’s em­ploy­ees who were en­gaged in the per­for­mance of the ser­vices con­cerned were au­to­mat­i­cally trans­ferred with the ser­vices to LGM, as con­tem­plated in sec­tion 197 of the Labour Re­la­tions Act. LGM ren­dered th­ese ser­vices un­til ter­mi­na­tion of the agree­ment by SAA. But in June 2007 SAA ter­mi­nated the agree­ment with ef­fect from Septem­ber 30 2007 due to an al­leged breach com­mit­ted by LGM.

While the con­sul­ta­tion process be­tween LGM and the ap­pli­cants was un­der way, the unions were con­cerned their mem­bers would lose their jobs.

The court pre­ferred an in­ter­pre­ta­tion that would ad­vance the pur­pose of job pro­tec­tion, as op­posed to an in­ter­pre­ta­tion that de­nies pro­tec­tion to em­ploy­ees af­fected by a sec­ond out­sourc­ing agree­ment.

But SAA ap­pealed the judg­ment of the Labour Ap­peal Court to the Supreme Court of Ap­peal, sub­mit­ting that the for­mer erred in find­ing on the facts that there was a trans­fer of busi­ness as a go­ing con­cern.

The ma­jor­ity fur­ther held that the Labour Ap­peal Court had erred in find­ing that a trans­fer of ser­vices had oc­curred. The ap­peal was up­held and the or­der of the Labour Ap­peal Court was set aside.

The Con­sti­tu­tional Court pre­sented a de­tailed break­down as to how the rel­e­vant sec­tion needs to be in­ter­preted. It pro­ceeded to find that the can­cel­la­tion of the agree­ment be­tween SAA and LGM en­tered into in March

2000 obliges LGM to trans­fer a busi­ness as a go­ing con­cern within the mean­ing of sec­tion 197(1) and 197(2) of the Labour Re­la­tions Act 66 of 1995.

Prior to sec­tion 197, of course, the com­mer­cial land­scape looked more like the Wild West, with em­ploy­ers en­ter­ing into schemes of sale that left em­ploy­ees to­tally out in the cold — and a flurry of lit­i­ga­tion be­came com­mon­place. But the sec­tion brought SA into line with more whole­some prac­tices hap­pen­ing else­where, es­pe­cially in the US and UK, and re­mains im­por­tant as more for­eign busi­nesses set up shop and pro­vide ser­vices in SA.

The judg­ment makes it very clear that com­mer­cial agree­ments need to be con­sid­ered care­fully, as sec­tion 197 can come back to haunt orig­i­nal em­ploy­ers. One con­cern is that the courts seem to be con­fus­ing out­sourc­ing and the grow­ing num­ber of ten­der agree­ments be­ing con­cluded. It is de­bat­able whether the two are in­ter­change­able, and a bet­ter def­i­ni­tion and de­lin­eation of the two is go­ing to be needed soon.

But the gen­eral de­bate of whether the sec­tion ap­plies or not con­tin­ues as judg­ments that fol­lowed the SAA case have at­tached cer­tain weight to cer­tain as­pects of the law — with a trans­fer of as­sets found to tilt the bal­ance in favour of the ap­pli­ca­tion of the sec­tion in Harsco Met­als South Africa (Pty) Ltd and An­other v Arcelormit­tal South Africa Ltd and Oth­ers (LC) ( De­cem­ber 29 2011); and then late last year in Fran­mann Ser­vices (Pty) Ltd v Simba (Pty) Ltd and An­other (LC) Au­gust 30 2012 the con­tentious labour-broking as­pect in the con­text of sec­tion 197 came up — but here there was no trans­fer of as­sets and the court found the em­ploy­ees had not trans­ferred to a new em­ployer.

There is no ques­tion that the bat­tle over labour broking, which the Congress of South African Trade Unions wants banned, is set to rage as un­cer­tainty plagues re­cent changes to the law. Labour broking is a form of out­sourc­ing, where com­pa­nies con­tract ca­sual labour from a bro­ker.

Namibia has al­ready banned labour broking and the ar­gu­ment adopted by unions is that it leads to un­der­paid ca­sual jobs that un­der­mine worker rights, yet al­ready ac­count for close to one-third of em­ploy­ment.

While no out­right ban is pro­posed, Jo­han Botes, di­rec­tor of em­ploy­ment law at Cliffe Dekker Hofmeyr, says labour broking “will never be same as it was” and will “suf­fer a blow” due to the amend­ments, which could cost jobs, as there is no guar­an­tee em­ploy­ees will get per­ma­nent jobs.

An­other prob­lem is that the un­der­ly­ing ben­e­fits of out­sourc­ing to bro­kers will di­min­ish if em­ploy­ers will ul­ti­mately have to take on all the obli­ga­tions they had pre­vi­ously out­sourced.

In terms of the changes, the labour bro­ker would be deemed to be the em­ployer for the first three months of em­ploy­ment, but there­after both the bro­ker and the com- pany would be deemed to be the em­ploy­ers in the event of a dis­pute.

The Fran­mann case re­flects how th­ese un­cer­tain­ties can af­fect how busi­nesses ap­proach the changes, as in this case a labour bro­ker want­ing to re­tire thought he would have been safe and his em­ploy­ees would sim­ply trans­fer across.

Other in­dus­tries, such as franchising, are fac­ing sim­i­lar chal­lenges be­fore the courts, with re­cent judg­ments mak­ing it dif­fi­cult for em­ploy­ers, bro­kers and fran­chisees to know with cer­tainty what will hap­pen to em­ploy­ees when a busi­ness is trans­ferred.

For ex­am­ple, City Power re­cently be­came the em­ployer of record of a num­ber of peo­ple af­ter one of its out­sourc­ing ar­range­ments to sup­ply and main­tain elec­tric­ity me­ters fell through.

“We are all over the show at the mo­ment and there is a lot of un­cer­tainty,” says Im­raan Ma­homed, a di­rec­tor at law firm Rout­ledge Modise.

He ex­pects unions to chal­lenge the in­ter­pre­ta­tion of pro­vi­sions of the labour act soon that have held that unions need not be con­sulted when a busi­ness is trans­ferred — yet in Europe, for ex­am­ple, union con­sent is re­quired.

“This hasn’t been chal­lenged so far in any re­ported judg­ment of the Labour Court, but I think this is­sue is go­ing to ar­rive,” he says.

The po­si­tion of fran­chises is even less clear, and Ma­homed said that a con­sti­tu­tional chal­lenge was likely to fol­low.

In a re­cent case, mo­bile op­er­a­tor Cell C can­celled a fran­chise agree­ment. On ap­peal the court held that the em­ploy­ment of the old fran­chise had not trans­ferred to the new fran­chise owner.

While the pro­vi­sions in sec­tion 197 of the labour act try to pro­tect em­ploy­ment when a trans­fer of a busi­ness takes place, ex­perts say the sec­tion has gen­er­ated more de­bate than cer­tainty over the years.

“It is not a one-shoe-fits-all ap­proach. Out­sourc­ing is not a static con­cept and its ap­pli­ca­tion varies. It needs to be an­a­lysed on the par­tic­u­lar facts,” says Ma­homed. “Nine out of 10 times the ques­tion of em­ploy­ees is dealt with at the end of com­mer­cial trans­ac­tions, which ul­ti­mately re­sults in prob­lems with ac­tive unions.”

Botes agrees that there is not a lot of le­gal cer­tainty.

His con­cern is that em­ploy­ers could frus­trate the process by en­ter­ing into de­vi­ous schemes that en­sure only cer­tain boxes are ticked ac­cord­ing to the weight be­ing as­cribed by the courts to cer­tain fac­tors.

If the in­tent of the leg­is­la­tor is to pro­tect em­ploy­ment, courts will be quick to flout th­ese ill-con­ceived at­tempts to mess work­ers around, but the lack of clar­ity means in most cases a lengthy trial process lies in wait.

Even more con­fu­sion seems to reign since the SAA judg­ment.

A good start may be for leg­is­la­tors to show up when a vote on con­tentious pieces of labour leg­is­la­tion is due.



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