This is certainly the case with last year's Constitutional Court judgement in Assign Services (Pty) Ltd versus the National Union of Metalworkers of South Africa (Numsa). While focused on the temporary employee who earns less than R205 433 a year, business should take note of the thinking around employment, employee rights and the responsibilities of firms making use of labour brokers and outsource firms.
To fully understand the context of this case it is necessary to rewind to July 2017. Then the Labour Appeal Court ruled, in the same matter, that certain types of temporary employment should be regarded as permanent. In short, that employees have two employers: the labour broker and the client company. On appeal, the Labour Appeal Court clarified that temporary employees should not be treated differently to those hired directly by the company.
Then, on 26 July 2018, the ConCourt confirmed the ‘sole employer’ status of the client company. In other words, if temporary workers (earning less than R205 433 annually) are placed with a client for more than three months they are deemed to be employees of the client company in terms of the Labour Relations Act of 1995.
It must be noted, explains Neil Coetzer, partner at Cowan-Harper-Madikizela Attorneys, that the Assign vs Numsa saga was concerned solely with the interpretation of section 198A(3)(b) of the Labour Relations Act. Therefore, he says, “the judgment is unlikely to have any effect on employees placed by labour brokers who earn in excess of the ministerial threshold”.
But when it comes to the broader implications for temporary workers of all salary levels – and for the global trend towards independent contracting and freelancing – it remains to be seen if this ruling might have implications beyond the obvious.
“It’s not clear at this stage whether the Labour Relations Act is suited, in its current form, to dealing with the changing world of work,” notes Coetzer. “Persons who are engaged in a freelance capacity would most likely be dealt with as ‘part-time employees’ under section 198C or as independent contractors. These are two very different concepts – a part-time employee has various rights under the Act, while an independent contractor has none.”
He notes that employers would, from a risk perspective, “prefer to appoint persons as independent contractors as this would free them from the employment relationship and its obligations”.
The evolving independent contractors sector is the domain of Ross Paton, MD of Nomad Now, a professional freelancer services platform. Paton believes many companies in South Africa haven’t grasped the implications of the ruling for how they do business, or around the risk inherent in using labour brokers. “There is a blurred line in South Africa when it comes to labour broking and outsourcing,” he explains.
“Labour broking should be geared towards temporary or casual employment, but we see this approach being used to fill longer-duration outsourcing posts and employers ‘hiding’ this (potential liability) behind labour brokers. This situation puts contractors in a veritable ‘no man’s land’ in terms of protection and benefits since they are employed by a labour broker but they could become entitled to the benefits of an employment contract.”
Yes, notes Paton, you can argue that the ruling affects a certain band of employee, but it also holds important ethical considerations. “Workers are not commodities, and they should be treated ethically,” he says. If freelance and independent contract workers formalised and professionalised their services, Paton believes it is possible – indeed preferable – for them to cut out the middle man.
Nomad Now, for example, connects clients and independent contractors, consultants and freelancers directly through its online portal and facilitates the buying and selling of professional services between these parties. After two years in development, the site went live in May 2018 and already has over 10 000 registered freelancers and more than 200 clients. Nomad Now enables the freelancer to agree their rate directly with the client, explains Paton, and assists in collections on invoices. Clients benefit by paying just 4% in fees, as opposed to the usual 12%-15%. “It’s a real disruptor,” says Paton.
The end of labour brokers?
Coetzer, however, questions whether South African employers “are ready to embrace policies or practices which permit greater flexibility, such as working from home or outsourcing certain functions to independent contractors. South African employers have shown a reluctance to adopt such policies.” Until they do, the labour broking sector will continue to play an important role in South Africa’s economy.
However, Coetzer points out that as early as 2015, many employers had begun evaluating “their needs and, based on that evaluation, insourced, outsourced or otherwise restructured their businesses to ensure that they do not fall foul of the law”. That was before Assign vs Numsa and, notes Coetzer, it signals a shift away from using labour brokers, “particularly in view of the risk attached and the fact that the financial benefit to using a labour broker appears to be negligible in light of the judgement”.
Paton believes it’s time for the skilled labour market in South Africa to take heed of the Assign-Numsa judgement and move in a new direction that works for both the company and the independent contractor. “The most logical move is to take the contracting of freelance workers in-house, make contact directly and hire on a per-project basis,” he says. “This simplifies reporting lines, cuts out the middle man, allows companies to source specialist skills and saves costs.”
The Assign-Numsa judgement was, most certainly, not intended to spark the sort of change which Paton envisages but, as a consequence of risk mitigation and corporate streamlining, this ruling may well have deeper implications for the skilled employment sector.
The fact that this shift would put South Africa more in step with the global knowledge economy is no bad thing, believes Paton. “If South Africa and South Africans are to compete globally we need to develop flexible structures and employment methods. If this ruling pushes companies to educate themselves, accept their responsibilities as employers and support a more modern and mobile workforce, then I believe this will be a positive – although unintended – outcome of the ConCourt ruling.”
· The Constitutional Court judgement in Assign Services vs Numsa relates to temporary workers who earn below a specific threshold.
· The ruling also speaks to the broader issue of employee rights and corporate responsibilities.
· The impact on the labour broking sector is yet to be realised, but the perceived risk associated with using these services has, in recent years, seen companies moving away from using labour brokers.
· With skills in hot demand, will this confluence of factors favour the growth of the independent contractor and freelance worker?
HOW SHOULD BUSINESS REACT TO THE RULING?
In the wake of the Constitutional Court’s Assign vs Numsa judgement, Neil Coetzer, Partner: Cowan-Harper-Madikizela Attorneys, believes companies must clearly focus on what is best for their business, especially during a time of recession and low growth. For labour brokers, the focus must be on ensuring their relevance.
“The judgment has made it clear that labour brokers are there to provide ‘temporary services’, as defined in the section 198A,” says Coetzer. “As a consequence, labour brokers who currently do not provide ‘temporary services’ will have to reconfigure their business models to incorporate a fully-fledged outsourced service, such as a recruitment or placement service.”
Allied to this, says Coetzer, is the question of whether an entire human resources function could be outsourced to a service provider. “In theory there is no reason why this could not take place,” he says. “For instance, many employers already outsource certain aspects of their HR, such as payroll and chairing of disciplinary enquiries.”