Labour law fails to relate to reality
Concern over popular practice of second-generation outsourcing
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.
CONTRADICTORY LABOUR LAWS