AN ANALYSIS OF THE LABOUR BROKERAGE INDUSTRY OF SOUTH AFRICAgsblibrary.uct.ac.za/researchreports/2000/KennelySchmitz.pdf · COPYRIGHT UCT An analysis of the labour brokerage industry

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AN ANALYSIS OF THE LABOUR BROKERAGE INDUSTRY OF SOUTH

AFRICA

A RESEARCH REPORT

PRESENTED TO

THE GRADUATE SCHOOL OF BUSINESS

UNIVERSITY OF CAPE TOWN

IN PARTIAL FULFILMENT

OF THE REQUIREMENTS FOR THE

MASTER OF BUSINESS ADMINISTRATION DEGREE

BY

VALLANCE KENNELLY

GRANT SCHMITZ

December 2000

Supervisor: Frank M. Horwitz

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An analysis of the labour brokerage industry of South Africa ________________________________________________________________________

i

An analysis of the LabourBrokerage Industry of South Africa

Abstract

This report conducts a study into the current trend by South African companies of

introducing flexible labour practices by making extensive use of contractual labour. This

report concentrates on one specific aspect of this trend: the use of brokered labour.

This report begins by identifying the key issues currently experienced by both business

and labour with respect to flexible labour practices. Thereafter, the relevant legal issues

are investigated and highlighted. The report is concluded with a description of our

empirical research and an interpretation of our findings.

The purpose of the report is to provide business and labour with practical insights into

the issues that have arisen, and to provide a forum for further discussion regarding this

prevalent and topical employment phenomena.

KEYWORDS: Flexibility, competitiveness, labour broker, legislation.

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Acknowledgements

This report is not confidential (although the identities of all interview respondents have

been protected whenever this was requested). It may be used freely by the Graduate

School of Business.

We would like to thank our supervisor Prof. Frank Horwitz for his guidance throughout

the process. We would also like to thank all the interviewees who took the time out of

their schedules to assist us with our research. Most importantly, we would like to thank

our families and loved ones for their sound advice and support throughout what has been

a challenging but inspirational year.

Finally, we hope that our research will be used for the benefit of the labour brokerage

industry as a whole and that the research may make some headway into providing insight

into the important issues that face the industry at present.

We certify that the report is our own work and that all references are accurately reported.

________________ ________________

Vallance Kennelly Grant Schmitz

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Glossary

Labour Flexibility: adaptable or variable labour practices.

Growth, Employment and Redistribution Programme (GEAR): The official

economic policy of the present South African Government.

Inward Industrialisation: Facing large scale sanctions due to the their ‘apartheid’

policy, the Government of South Africa concentrated on the development of a large scale

mechanised manufacturing industry which would provide for the countries needs.

Jointly and severally liable: Where two parties are sued in the alternative and an award

is actionable by the plaintiff against either or both of the defendants

National competitiveness: A countries ability to compete within world markets.

Vicarious Liability: Where someone is held to be liable for the actions of another. In this

case the employer can be liable for actions of his employee. It is a legal fiction created for

the purposes of public policy.

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Table of Contents

ABSTRACT........................................................................................................................ I

ACKNOWLEDGEMENTS .............................................................................................II

GLOSSARY..................................................................................................................... III

TABLE OF CONTENTS ............................................................................................... IV

SECTION 1........................................................................................................................ 1

INTRODUCTION............................................................................................................. 1

1.1. Background ........................................................................................................... 1

1.2. The problem to be studied.................................................................................... 3

1.3. Objectives of the study.......................................................................................... 3

1.4. Outline of the Report ............................................................................................ 3

1.5. Limitations and Scope of this Study.................................................................... 4

SECTION 2........................................................................................................................ 5

LITERATURE REVIEW ................................................................................................ 5

2.1. A Historical South African Labour Perspective ................................................ 5

2.2. Competitiveness..................................................................................................... 5

2.3. Labour flexibility .................................................................................................. 7

2.4. Conclusions regarding the current employment situation in South Africa..... 8

2.5. Possible labour options available to an employer in South Africa................. 11

2.6. The Labour Broker as one of the flexible options............................................ 13General forms and functions of Brokers....................................................................... 15

2.7. Size of the industry.............................................................................................. 17

2.8. What the employee is not (Independent Contractors)..................................... 18The Employee / Independent Contractor Tests............................................................. 19

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2.9. Legislation............................................................................................................ 21Labour Relations act (LRA).......................................................................................... 21 Basic Conditions Of Employment Act (BCOE) ........................................................... 24 Employment Equit Act (EEA) ...................................................................................... 24 Compensation for Occupational Injuries and Diseases Act.......................................... 25

2.10. Registration requirements.............................................................................. 25Industrial Councils ........................................................................................................ 25 Registration with The Department of Labour as a Broker............................................ 25 Balance of normally required registrations................................................................... 26

2.11. New Legislation (proposed)............................................................................ 26

2.12. Are Labour Brokers ostensibly restricted? .................................................. 27

2.13. Advantages to using flexible labour .............................................................. 29

2.14. Why are labour brokers utilized? ................................................................. 29

2.15. The tax situation (IRP 30) .............................................................................. 30

2.16. How the brokers protect themselves against labour legislation ................. 30Subletting ...................................................................................................................... 30 Legitimate expectation.................................................................................................. 31 Fixed contracts .............................................................................................................. 31

2.17. Protection against joint and several liability ................................................ 32Indemnity ...................................................................................................................... 32Insurance ....................................................................................................................... 32 Relative size .................................................................................................................. 32

2.18. Vicarious liability ............................................................................................ 33

2.19. Effects of brokering on the worker / workforce........................................... 34

SECTION 3...................................................................................................................... 34

RESEARCH METHODOLOGY AND DESIGN ........................................................ 35

3.1. Methodology Overview....................................................................................... 35

3.2. Legislative Research ........................................................................................... 35

3.3. Labour Broker Survey ....................................................................................... 36

3.4. Client Survey ....................................................................................................... 37

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SECTION 4...................................................................................................................... 38

RESEARCH FINDINGS AND DISCUSSION............................................................. 38

4.1. Labour Broker Survey ....................................................................................... 38

4.2. Client Survey ....................................................................................................... 43

4.3. Survey Discussion and Analysis......................................................................... 46Labour Broker Survey................................................................................................... 46 Client survey ................................................................................................................. 50

4.4. Ethics within the industry .................................................................................. 53

CONCLUSION ............................................................................................................... 55

APPENDICES ................................................................................................................. 57

Appendix 1 - Dominant impression test grid............................................................. 57

Appendix 2 - Exemption certificate in respect of employees tax (IRP 30) ............. 57

Appendix 3 - Introductory letter ............................................................................... 57

Appendix 4 - Labour broker interviewee list ............................................................ 57

Appendix 5 - Labour broker questionnaire .............................................................. 57

Appendix 6 - Client questionnaire ............................................................................. 57

Appendix 7 - Labourer “approved to work” release form ...................................... 57

Appendix 8 - Labourer personal record card ........................................................... 57

Appendix 9 - Confidentiality agreement ................................................................... 57

REFERENCES................................................................................................................ 58

Books ................................................................................................................................ 58

Articles: ............................................................................................................................ 58

Official State Publications.............................................................................................. 59

Organisational Publications........................................................................................... 59

Case Law.......................................................................................................................... 60

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SECTION 1

Introduction

1.1. Background

Employers generally believe in the utilitarian view that the only reason to be in business

is to make a profit. Furthermore they believe that in order to make a profit it is

necessary to hire and fire whenever necessary and that as there is no obligation for an

employee to continue working; there should therefore be no obligation for an employer

to provide work. In an ideal world the concept of worker exploitation would be a myth

and the fact that there may be more workers than jobs does not in anyway oblige an

employer to employ people when they do not need them. Employers generally believe

that our legislation is restrictive and imposes numerous paternal responsibilities on the

employer, all of which leads to a lack of relative economic competitiveness.

From the labour side, a countries’ businesses are not operating in a vacuum but rather

are part and parcel of a certain socio-political and economic reality. Commerce has to

acknowledge and function according to the realities of the location where it chooses to

place itself. If these realities should occasionally impact negatively on the company’s

bottom line, yet are of benefit to the majority of stakeholders then this should be

accepted as a natural by-product of the geographic and social situation.

As a result of high levels of unemployment in South Africa, there is a distinct power

imbalance in favour of employers, which, from the perspective of labour has lead to a

long history of exploitation in South Africa, which our labour legislation (like that of all

other countries) has attempted to curtail. Up until the advent of true democracy, the

labour legislation has always been viewed by unions and workers alike as being a tool

designed by the previous government to aid employers rather than protect employees.

Their aspirations for comprehensive protection has been to a large extent satisfied by

the new Labour Relations Act (hereafter referred to as the LRA) and Basic Conditions

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of Employment Act (hereafter referred to as the BCOE), which provide inter alia a

regulated work environment, a certain amount of job security, the right to a protected

strike and enforced retrenchment procedures.

Due to the perception of South Africa having numerous relative economic drawbacks,

(Eg. That we are a resource based economy, have 3rd world infrastructures and a certain

amount of perceived political instability and Sovereign Risk.) coupled with perceptions

of ours being one of the most stringent labour law regimes in the world, it is often

considered advantageous for employers to attempt to avoid labour legislation by

changing the status of their workers from employee to sub-contractor (independent

contractual labour) and to make use of brokered labour and independent contractors

(outsourcing).

This trend (the use of flexible labour services) is extensive and has resulted in a

burgeoning of new labour brokers and the creation of a new class of independent

worker. These brokerages provide temporary employees who work for the client yet

they remain responsible for the payment of the employees. Although physically

working for another, such employees are nevertheless regarded as employees of the

temporary employment service. The broker is thus held responsible for ensuring that all

the provisions of the Labour Relations Act (LRA) and other relevant statutory and

common laws are adhered to.

Another result of the trend is the creation of independent contractual relationships

between employers and previous employees. This situation has been subject to certain

abuses by employers who have used it solely to avoid some of the more onerous

provisions of the labour legislation. Some workers have also taken the opportunity to

reduce their tax burden by setting themselves up as companies and charging their

previous employers for services rendered as independent contractors.

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1.2. The problem to be studied The purpose of this research is to conduct an exploratory study into the current South

African trend by employers to use brokered labour. The definition and regulation of these

distinct entities, the effects of this trend on the labour market of the Republic, the

attempts by various parties to counter this trend and the possible effects of the most

recently proposed legislation are also examined.

The following propositions are used as a basis for establishing the hypothesis

Flexible employment is good for the economy.

Most employers want a flexible workforce.

Labour brokers can provide the flexibility that is required.

Current legislation restricts the ability of these institutions to provide this

flexibility.

Therefore the main proposition is:

The need for flexibility within the South African workplace, which can be

accommodated by the Labour Brokerage Industry is, due to over restrictive

legislation, not being catered for as efficiently as is required.

1.3. Objectives of the study

The objectives of this study are to combine various sources of information and opinions

regarding the industry into one homogenous document and to gather data from labour

brokers and their respective clients so as to ascertain the true nature of the industry taking

into account the effects of the current and future proposed legislation. In addition, this

study hopes to initiate further research into this topic while aiming to provide some

clarity for the brokers, their workers and clients who are faced with the often complex

issues presented by flexible labour practices.

1.4. Outline of the Report

Section 2 provides an overview of the literature pertaining to flexible labour practices and

more specifically literature relating to labour brokerage in particular. The majority of the

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literature is concerned with issues of labour flexibility and competitiveness and

legislation pertaining to labour brokerage.

Section 3 describes the methodology used in conducting the research for this dissertation.

It further expands on the findings, which emerged from the research. These findings are

presented under a number of headings, which relate to the literature reviewed.

Finally, in section 4 conclusions are drawn and recommendations are made pertaining to

further research in this field of study.

1.5. Limitations and Scope of this Study

This study is limited in that the research was restricted to the city of Cape Town.

Furthermore time restrictions as well as a distinct reluctance to be involved in the study

by the smaller brokerages lead to a perhaps smaller than necessary sample being

interviewed.

Although their input was considered essential by the authors, in order to present a report

as objective and unbiased as possible, all attempts to secure an interview with a union

spokesperson from either the Congress of South African Trade Unions (hereafter referred

to as COSATU) or the National Union of Metal Workers of South Africa were fruitless.

Consequently, although the findings may be reflective of the industry, this study cannot

be construed to be comprehensively indicative of the South African labour brokerage

industry as a whole.

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Section 2

Literature review

2.1. A Historical South African Labour Perspective

The previous government’s policy of Apartheid has led to structural inequalities within

the South African labour market. Racial and skills based distortions served the policy of

‘inward industrialisation’ favoured by the previous regime. This was not, however, a

recipe for economic success. Investment levels were low and there was a tendency to

import consumer goods and export capital. The old racial mould within which production

was cast is cracking in the face of mounting pressure on companies to improve

productivity and become more competitive.

Unskilled workers now face an uncertain future, as it is evident that it is necessary to

replace apartheid restrictions with free market forces. Since the 1970s, when production

was organized along strict racial lines, things have begun to change at a rapid pace. South

Africa’s manufacturing industry has grown and diversified. The old apartheid system was

unable to meet industry demands causing the structure of the labour market to be altered

with a more skilled, higher income layer of black workers emerging to meet new

production demands (Ray, 1997).

2.2. Competitiveness

South Africa will enter the year 2001 politically secure but economically insecure. Within

the battle for open markets, competition, job growth, and employment flexibility, lies

almost thirty years without the creation of net new employment opportunities (National

Competitiveness Balance Sheet. 2000). Tariff protection of local industries has been

reduced in accordance with international trade agreements, and new regulations appear to

be increasing labour market inflexibility.

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It is necessary to view the above points in the light of the findings published in the latest

World Competitiveness Yearbook, which gives an assessment of where South Africa

stands in the global market relative to 46 other countries, with particular reference to

labour and management issues. In the most recent World Competitiveness Yearbook

(2000 edition), South Africa features poorly in terms of its social welfare issues and

remains last in many of the more pertinent categories.

The following is a summary of the most important categories relating to this study.

Population Characteristics 47th

Employment 47th

Unemployment 47th

Attitudes and Values 47th

Labour force characteristics 43rd

Educational structures 45th

Quality of life 39th

Labour regulations 46th

Industrial relations 47th

Worker motivation 46th

Employment prospects 45th

*World Competitiveness Yearbook 2000

From the above figures, it is clearly evident that something drastic needs to be done to

strengthen South Africa’s position internationally and to make it more competitive with

other emerging markets, so as to ensure the long-term viability of the economy.

“The principal economic goal of a nation is to produce a high, rising standard of living for its citizens. The aim is to support high wages and command premium prices in international markets.”(Porter, 1990 Taken from Lewis, Morkel, Hubbard, Davenport, Stockport. 1999)

It is often argued that the South African government should take further steps to enhance

South African firms’ efficiency, to promote job creation, and to reduce government debt

by restructuring state assets. However, COSATU and the South African Communist Party

(both allied to the African National Congress government) favour continued state control

of the forces of production and services, government deficits, tariff barriers and

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protection for the relatively high-cost unionised labour (Barker, 1999: 1-). This resists

government’s efforts and arguably hampers the countries international competitiveness.

It is important to remember that the expression ‘national competitiveness’ is a fallacy. A

country cannot be a competitive, only individual suppliers of products and services

compete internationally. It is essential that domestic policies should be such that they do

not impair the ability or potential of domestic producers to compete internationally

(Visser, 1996). It is important that policy makers look at these factors to ensure that

individual organisations do not lose their competitive ability because of policy

constraints.

2.3. Labour flexibility

In the world of global competitiveness, companies have to be able to adjust quickly to the

constantly changing demands of the market. As a result of this the past decade has seen

an increase in the use of temporary and casual workers, while many permanent workers

have less security of tenure. Sectors like retail, agriculture, services, textiles and

construction have long used seasonal employment to cope with cyclical demand, more

recently companies traditionally less inclined to flexibility have turned to the use of

temporary and contract workers and subcontracting to smaller firms (Ray, 1997).

“At least half of the work force in the early 21st century will consist of non-employee

workers made up of consultants, contract workers and leased personnel in either part-

time, temporary or full-time positions. Add to these figures the self-employed and the

whole character of labour is about to change radically.” (Friedman, Hatch and Walker,

2000).

In early 1995 the government appointed the Comprehensive Labour Market Commission

to make recommendations on restructuring the labour market. The Commission was

given the task of developing policies to promote the Reconstruction and Development

Program and economic growth.

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The Commission concluded that:

Improved productivity is the key to growth and job creation.

Race and gender inequality hamper productivity

Deregulation is necessary to deracialise the workplace

Flexibility is the means to promote deregulation.

(SA Labour Bulletin, April 2000)

But what exactly is flexibility?

Appiah-Mfodwa et al identify a number of issues to which the term flexibility refers.

The flexibility of an organisation’s work process in the face of technological change, the

flexibility of workers in terms of multi-skilling or mobility from task to task, flexibility

of jobs in terms of the ease of hiring and firing or changing working hours, and the

upward or downward flexibility of wages. Trade Unions tend to view flexible labour

contracts as a threat to standard jobs, and as an instrument to weaken their constituents’

position, and hence their power base. Employers tend to associate flexibility with

increased responsiveness and lower labour costs. (Appiah-Mfodwa, Horwitz, Kieswetter,

King and Solai, 2000)

The majority of employers are making use of numerical flexibility. Numerical flexibility

is the type of flexibility relating to varying amounts of labour used in response to

changes in the level and pattern of demand. Strategies to effect this include; the use of

short term and temporary contracts, ‘hiring and firing’ policies, and externalising work

through the use of sub-contractors.

2.4. Conclusions regarding the current employment situation in South Africa

The South African economy is staggering under massive and widespread lay-offs.

According to Statistics South Africa (the official state demographic organisation) the

number of wage earners has fallen from 5.2 million in January of 1996 to 4.9 million in

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July of 1999. According to a Bureau for Economic Research survey (October 2000),

only one in 30 of the 250 000 – 300 000 who enter the job market each year will find

work in the formal sector. Between 1997 and 1999, the textile and clothing industry

eliminated 22 000 positions. Construction has also been hit hard, with the loss of 110 000

workers in the last two years. Parastatals have not been spared with Telkom cutting its

work force by 12 000 positions (Bureau of Economic Research, October 2000). The

recession, the opening up of the economy to global competition and the drive towards

privatisation has had a dire impact on the economy.

The Human Sciences Research Council (HSRC) forecasts that employment of semi-

skilled workers is likely to decline by 35% between 1998 and 2003. The youth, women,

and the unskilled will be hardest-hit. In some provinces where unemployment is high

with a severe lack of job opportunities, most people have never had a job and in the

September 1999 HSRC study, 90% of respondents reported that they would take any job

as long as they could work. (HSRC ,September 1999:1)

Arguably the challenge for the government is to loosen up the labour market. For

example, job security provisions, which sought to preserve jobs, have made it very

difficult for employers to hire new workers. These provisions have worked, instead, as an

incentive for employers to resort to part-time workers to meet their needs for greater

labour market flexibility. It is arguable that this flexibility and sustained wage

moderation are critical for labour intensive economic growth.

Employment: June 1996 – March 2000

* Statistics South Africa

5100000

5200000

5300000

4600000

4700000

4800000

4900000

5000000

Jun-96

Sep-96

Dec-96

Mar-97

Jun-97

Sep-97

Dec-97

Mar-98

Jun-98

Sep-98

Dec-98

Mar-99

Jun-99

Sep-99

Dec-99

Mar-00

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Compounding the government’s problems is massive discontent in the ranks of its trade

union allies who with a membership of 1.78 million are extremely powerful. (COSATU

1999). According to Finance Minister Trevor Manuel, the government will increase

spending from R1 to R1.5 billion over the next two years in an effort to rectify the high

unemployment figures (Joyce, 2000).

Currently unemployment is seen as one of the major problems in our society having

many direct and indirect negative effects. It contributes to the high crime rate and places

undue pressure on the family unit and often leads to deterioration of work ethics. The

approaches to job creation by business and labour are very different. Organised business

is of the view that the emphasis should fall on creating new jobs and that this will only

happen if there are some substantial changes to labour legislation.

The unions, on the other hand, emphasise the protection of existing jobs, even if

somewhat artificially, and want a reconsideration of the Growth Economic and

Redistribution (GEAR) macro-economic policy (Barker, 1999:1-). Employers pushing

their case for flexibility regularly confront unions with the ‘J-curve’ hypothesis that being

an acceptance of a certain level of job loss in the short term being weighed up against

accelerated job creation in the long term.

Job Creation

Job Loss Growth

*SA labour bulletin October 1999.

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The South African Chamber of Business (SACOB), feels that labour should neither stand

in the way of the process of economic restructuring that is currently taking place in the

country, nor should it stand in the way of improving productivity to make local products

and services more competitive internationally (Barker, 1999: 1-). The unions are

proposing much more stringent control of employers who want to restructure their

businesses and work force. COSATU does not approve of the government’s economic

policy, as it does not encourage job creation. Cosatu has further criticised the government

for encouraging foreign involvement in the economy of this country, as it did not hold

any material benefits for the local labour market (Cosatu ,1999: 1-).

The stage is now set; business calling for labour laws to be more accommodating of

rapidly changing circumstances and unions demanding more rigidity and control.

Government will therefore have to take a strong stand in ensuring that fairness prevails in

the context of what is economically possible.

2.5. Possible labour options available to an employer in South Africa

The following diagram sets out the flexible and normal employment alternatives. We

indicate that the set of potential workers can be divided into those that see themselves as

falling into the realm of either independent contractors having a contract of work or true

employees having a contract of service

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EXPLANATORY DIAGRAM

POTENTIAL WORKERS

INDEPENDENTCONTRACTOR

TRUEEMPLOYEE

TRUE FALSE

CLIENT / EMPLOYER

LABOUR BROKER

PERMTEMP

EMPLOYAGENT

OUTSOURCING

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On the left we see the independent contractor who might be an individual or a juristic

personality. This area is where we traditionally see the outsourcing of various functions

of a company or organization. (In an interview with a Labour Broker this outsourcing was

described as the next generation of labour brokerage being ‘brokered labour with

supervision’.) This Juristic independent contractor may also be true or ‘false’ in that it

might exist for the purposes of hiring out the services of other workers in the true and

traditional sense of the word or the contractor might be a sham that is designed

specifically to avoid labour legislation and taxation. We see that labour brokers can

introduce independent contractors or they can contract directly with the client. If they are

introduced, the broker might take an introduction fee or a percentage of the value of the

contract. If the contract were to be worded as a percentage of wages earned then most

likely the contractor would no longer be seen as independent and would then be seen as

an employee of the broker.

True employees (In the traditional sense of the word in that they are not brokered) are

either temporary or permanent. The permanent employees are either sourced directly by

the employer or are placed by employment agents who are paid a once off fee for the

placement and then step out of the picture completely. Temporary employees are where

the broker comes into his own. It is possible for the broker to provide a client with a

flexible workforce that can be mobilized almost immediately (as the broker has many

workers of differing skills on his books) and can be utilized for as long as they are

needed, thereafter the contract is terminated and the client can scale down operations

until needed again.

The basis for understanding the nature of the tripartite relationship is that the broker

places the temporary employee more than once.

2.6. The Labour Broker as one of the flexible options

The labour broker traditionally occupied the position of an agent within the employment

field. He would provide a labour force for whatever size, duration and skills the client

required. It is essentially a tripartite relationship that is created with the broker and the

client contracting with the intention that the broker be the agent of the client in

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finding flexible labour options. The broker then contracted with the labour to fulfill his

mandate. Of course in reality it does not work this way. Government has created various

restrictions to reduce the possibility of exploitation and generally the broker and labour

will have an ‘understanding’ (albeit not a contract) before the mandate is given by the

client.

Once the labour was on site the broker took his fee and then withdrew from the situation

leaving the client and worker to establish their own flexible agreement.

It was clearly evident that the relationship would be more beneficial to the broker if he

were able to maintain a constant presence in the relationship. This resulted in the brokers

providing the above services but thereafter taking the wages from the client and then,

after deducting an agreed upon commission, paying the worker.

STAKEHOLDERS IN THE LABOUR BROKERAGE

BROKER CLIENT

EMPLOYEE

GOVERNMENTUNIONS

EMPLOYERORGANISATIONS

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The situation worked rather well for the Broker who was entitled to a healthy cut of the

wages and the client who could obtain unlimited labour flexibility, an often cheaper

workforce and could effectively avoid numerous legislative requirements as the labour

force were not his employees in the true sense of the word. The labourer however was not

so lucky as he was giving a percentage of his wages to the broker and was often cast

outside the net of the labour legislation.

The legislature was, of course, aware of this situation and the possibility (and reality) of

exploitation and so the role of the Broker was stipulated within the relevant legislation.

This situation has now been formalized (often with the censorious persuasion of certain

legislative requirements) to the point where the broker deals with all logistical, legal and

administrative aspects of the client’s brokered labour, leaving the client free to

concentrate on his core competencies.

General forms and functions of Brokers

The role of the labour broker is varied yet can be divided into 3 specific functions:

1. Those who provide employees to clients from a pool of labour that they have

access to yet whom they don’t formally employ.

2. Those who provide temporary staff to clients from their own pool of workers.

3. Those who introduce independent contractors to clients and take a commission or

charge a flat rate.

The majority of the brokerage that occurs in South Africa happens within the context of

situation one. This is the ‘traditional’ labour broker who will provide workers to

employers whenever they are needed, whether this is for strike breaking or for provision

of temporary capacity. These workers are employees in the true sense of the word yet

they don’t have a formal contract with the client and only have a temporary employment

contract or set short-term contract (for the duration of the task) with the broker. The agent

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is paid by the client and then in turn pays the worker. It is this broker who over the years

has, for obvious reasons incurred the wrath of the labour movement.

In-group one we also see the inclusion of the employment agent who provides temporary

staff (e.g. Kelly Temp). This situation has become formalized in our society and has

minimal political repercussions due to very few incidences of ‘misuse’ of these facilities

by employers. Here an agent will have a database of generally more qualified candidates

for various positions and will contact them whenever a work opportunity presents itself.

The agent is paid and deducts a commission before paying over the balance to the

worker.

The second group has been used extensively in South Africa by the building and civil

engineering trade. Some labour forces have in effect become mobile with a pool of

labourers being employed by one contractor and being ‘leased’ out to others when not

needed. The regular employer in effect becomes the ‘broker’ of his own labour force. The

workers are paid by their regular employer yet work under the direction of the client.

This practice is laudable when it can prevent retrenchments during economic and

company specific down periods yet obviously does nothing to create further jobs.

The third group is more unusual yet exists particularly amongst specialized engineers and

other qualified artisans. These workers are generally independent agents who travel the

world in search of employment commensurate with their specific skills. They rely on

agents who are in regular contact with the general body of companies who may employ

them. The agent will obtain the specific requirements for the job from the client, contact

those workers who fit the description and often secure accommodation and organise

travel arrangements for the worker. Payment can be an ongoing percentage of wages or

an introduction fee. Upon termination of the period of employment or the completion of

the task the agent will attempt to secure a further contract for the worker. In this group

also falls the Juristic personality, which is set up to ‘find employment’ for

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people who coincidently happen to be members or beneficiaries and who more often than

not are subcontracting to their old companies.

2.7. Size of the industry

The industry is larger than one would imagine within the South African context. Braby’s

South African business directory (Internet version) currently lists some 235 businesses

within the heading “Artisan and labour hire services”. An interview with Mr. S Ives of

Taurus Personnel however reveals that this is merely the tip of the iceberg. Mr. Ives

estimates that there are approximately 1100 brokers in the greater Cape Metropolitan

Area alone. Nationally the industry is estimated at some 3000 agencies who supply some

100 000 workers (Grosset, 2000). This of course includes all the small time operators

who mostly function without any formal infrastructure or offices. The industry is growing

at a rapid rate both locally and internationally (The growth in the USA was from a base of

2000 agents in 1968 to 14000 in 1993), (Grosset, 2000) and there is also a trend

(following the end of isolation) to moving operations offshore in order to provide South

African skills to the rest of Africa. For example many of the brokers we spoke to were

involved in the oil industry of Angola.

The reasons for the recent proliferation of competition in the industry are obvious. Using

Porter’s 5 forces model of industry attractiveness (Porter,1998) we see that the suppliers

(labourers) are, to a large extent, given our current unemployment rate, disempowered.

THREAT OF SUBSTITUTES

THREAT OF NEW ENTRANTS

INDUSTRY RIVALRY (COMPETITORS)

BARGAINING POWER

OF BUYERS

BARGAINING POWER OF

SUPPLIERS

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The bargaining power of the buyers (clients) is marginal as there are certain industries

that rely on flexibility to survive. As a result of the legislative restrictions and

prescriptions there is no threat of substitutes, you either make use of brokered labour or

have a fairly static workforce. The only two negative factors are that the brokerage

industry is a fairly easy one to break into, with extremely low capital requirements and

there are already a vast number of competitors.

2.8. What the employee is not (Independent Contractors)

Employees are often confused with independent contractors. The differentiation is

essential when considering Labour Brokerage because if the brokered labourer is an

employee then the broker is responsible for the fulfilment of all legal obligations. It is

therefore useful to describe what independent contractors are and how they differ from

employees.

In an employment contract a worker agrees to place his labour at the disposal of an

employer. The employer tells the worker what to do and how to do it, and has to

implement the relevant legislation governing the treatment of the worker.

While there are different kinds of independent contractors, they all have one thing in

common: independent contracting replaces an employment contract with a commercial

contract (Kenny, 1999). In an independent contract situation the company does not

employ workers directly to perform a task. Instead the contractor is bound to perform a

certain specified work or produce a specified result according to his own methods within

the time specified in the contract. (Smit v Workman’s Compensation Commissioner:

1979 [A]) The assumption with these commercial contacts is that the two firms are

independent and on an equal footing.

Despite the proliferation of false independent contractors, the true independent contractor

does exist and provides a valuable service to the average company in terms of the

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provision of skills and services of a temporary nature. The government’s agenda appears

to be differentiation between the two and discouraging the formation of and nullifying

any advantages accruing to the fake independent contractors. This has been partly

necessitated by strong demands of unions who have experienced great membership losses

as a result of this trend. COSATU claims that over 300-000 workers have had their

contracts changed in the last few years (1999a:3) and the Confederation of Employers of

South Africa (COFESA) readily acknowledges its attempts to convert as many

employment contracts to contracts of service as possible. The other reason for the

restrictions being placed are that tax advantages could accrue to the false entities.

The Employee / Independent Contractor Tests

The differentiation between employee and independent contractor has been traditionally

achieved by making use of certain common law tests for example the ‘Control Test’

where someone was held to be an employee if the work to be done and the method of

doing it was under the control of another (Colonial Mutual v McDonald: 1931 [AD]). The

other, at one time fashionable, test was the ‘Organisational Test’ where one looked at

whether the actions taken where essentially part of work done within the organisation.

This test was rejected by the Appellate Division in S v AMCA Services and Another:

(1962 [AD]) The most effective and most widely used of the tests is now the dominant

impression test (SA Broadcasting Corporation v McKenzie: 1990 [LAC]). Here the court

will look at the totality of factors before reaching a decision as to the basis of the

relationship. Some factors are more persuasive than others for example the right to decide

who will do the work, the obligation to work certain hours, remuneration for time or

result etc. (Brassey 1990) An example of a formal dominant impression test grid can be

viewed as appendix 1 hereto.

Once the test was performed and it was found that the worker was a true independent

contractor, he and the employer were ‘in the clear’ as the LRA specifically excludes

an independent contractor from the definition of employee.1

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The income tax act2 also, by definition, will only apply employee’s tax (PAYE, SITE

etc.) to actual employees. Despite this, recent tax regulations state that an independent

contractor will be liable for employees tax (despite having ‘passed’ the common law

tests) if:

The independent contractor is controlled and supervised as to the manner in which

his work is performed or as to the hours of his work. or

The worker would have been seen as an employee had the services not been

provided through the entity. or

More than 80% of his income comes from one source during the year. or

He is paid at regular daily, weekly, monthly or other intervals.3

Should any of these criteria be present then the client (employer) is obliged to deduct

‘employees tax’ at a rate of 35% from any fees payable to the independent contractor.4

This creates a rate of 42.22% and effectively ends any tax advantages. Should the ‘client’

fail to deduct these amounts he will be liable for the amount as well as any penalties and

interest due.5

The potential absurdities of this scenario are immediately obvious. An example would be

a true sub contractor being seen as an employee if he is involved in a long-term contract

with one client (which readily occurs). The only saving grace is that the provisions

exclude a company that employs a minimum of 3 full time employees for the duration of

the tax year.

Another potential problem is making an employer responsible for deciding the actual

status of a worker and then being penalized if he gets it wrong. Our courts have battled

for years to formalize the decision process and to expect laymen to get, what often boils

down to a subjective impression, right every time is absurd.

1 S 213 2 58 of 1962 (fourth schedule) 3 SARS Tax Directive for effect 1 March 2000

4 SARS Notice to employers 12 July 2000 with effect 1 August 2000 5 SARS Circular Minute No. 22/1999 Paragraph 3.2.3

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2.9. Legislation

Labour Relations act6 (LRA)

The labour broker is currently defined by the LRA. The definition makes use of the term

Temporary Employment Service. (Hereafter referred to as a TES.)

Due to the fundamental nature of this definition and associated regulations they are

quoted in their entirety.

S198. Temporary Employment Services

(1) In this section, "temporary employment service" means any person who, for reward, procures for or provides to a client other persons-

(a) who render services to, or perform work for, the client; and

(b) who are remunerated by the temporary employment service.

(2) For the purposes of this Act, a person whose services have been procured for or provided to a client by a temporary employment service is the employee of that temporary employment service, and the temporary employment service is that person's employer.

(3) Despite subsections (1) and (2), a person who is an independent contractor is not an employee of a temporary employment service, nor is the temporary employment service the employer of that person.

(4) The temporary employment service and the client are jointly and severally liable if the temporary employment service, in respect of any of its employees, contravenes-

(a) a collective agreement concluded in a bargaining council that regulates terms and conditions of employment; or

(b) a binding arbitration award that regulates terms and conditions of employment; or

(c) the Basic Conditions o Employment Act; or

(d) a determination made in terms of the Wage Act.

(5) Two or more bargaining councils may agree to bind the following persons, if they fall within the combined registered scope of those bargaining councils, to a collective agreement concluded in any one of them-

(a) temporary employment service;

(b) a person employed by a temporary employment service; and

(c) a temporary employment service client.

(6) An agreement concluded in terms of subsection (5) is binding only if the collective agreement has been extended to non-parties within the registered scope of the bargaining council.

6 No.66 of 1995

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(7) Two or more bargaining councils may agree to bind the following persons, who fall within their combined registered scope, to a collective agreement-

(a) temporary employment service;

(b) a person employed by a temporary employment service; and

(c) a temporary employment service's client.

(Our emphasis given to various sections)

The effects of the LRA:

Section 198 (1) is merely a definitive section and the only point of interest here is that it

places certain employment agencies that are involved in the provision of temporary staff

within the definition of labour broker. Some may argue that the typical office temporary

worker is not within the scope of what the legislature intended to encompass with the

definition but clearly when it is strictly interpreted this form of enterprise will be

included.

Section 198 (2) clearly and emphatically stipulates that the broker is the employer of the

worker. This has been confirmed by the courts on more than one occasion. (Pienaar V

Tony Cooper & Associates: 1994 [BLLR]) The broker will therefore be responsible for

disciplining the worker and cannot allow the client to do this and then disclaim

responsibility (Labuschagne v WP Construction: 1997 [CCMA]).

The single most striking aspect of this entire section of legislation is the creation of a

legal reality, which may not necessarily accord with the de facto situation. The common

law has evolved a number of tests over the years to ascertain whether someone is in fact

the employee of another (see page 19 above). As a result of this section however the

broker is deemed to be the employer no matter what the real situation is. With reference

to the dominant impression grid (appendix 1) we see that the average brokered labour

situation (where the client exercises effective control and orders the day to day work

situation) would certainly result in a common law finding that the client is the de facto

employer and that the Labour Broker would merely be seen as an agent of the worker

(Alternatively an agent who procures workers on behalf of the client). Presumably for the

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purposes of public policy and to prevent exploitation of the workers the agent has been

artificially cast in the role of employer.

This of course places the broker in the situation where he is responsible for compliance

with all relevant legislation with regard to the labourers. We submit that this was the

intention of the legislature in the first place and it has resulted in the extension of

legislative protection to a number of labourers who would otherwise have been out in the

cold. This laudable intention becomes less appealing when considering that this is not the

usual employment situation and that the broker has no day-to-day control over the

working environment. Any contraventions of labour legislation by the client will result in

the possibility of action against the broker. As a result of this fear, numerous brokers now

require agreements restricting the application of disciplinary or other procedures by the

client against the labourer.

S 198 (3) stipulates that the broker will not be considered to be the employer of an

independent contractor. This subsection gives effect to the traditional differentiation

between the true employee and the independent contractor. The reasoning for the

differentiation is clear, the true independent contractor will often be an employer in his

own right (with his own legislative responsibilities) and as such one cannot expect him to

be considered an employee of the client.

S198 (4) the client and the broker are jointly and severally liable for any contraventions

by the broker of a number of acts and regulations. This make the broker liable for acts

perpetrated by its clients. (NEHAWU v Nursing services of South Africa: 1997 [CCMA])

This creates an element of discord between the broker and client and results in the

complications of indemnity and malpractice insurance requirements by the client.

Mathew Grosset, writing in The Citizen points out that this provision is a significant

improvement for the protection of the employee. In terms of the old 1956 LRA the

worker obtained a modicum of protection from contraventions of labour legislation by the

client when these contraventions were imputed through vicarious liability to the Broker.

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Now the worker has a choice as to whom he wants to take action against and as all the

jointly actionable sections are for terms and conditions of employment all three parties

now have an interest in ensuring that the client does not contravene the law.

Basic Conditions Of Employment Act (BCOE)7

This act defines an employee in section 1 yet specifically excludes independent

contractors from this definition. It goes on (in section 82) to define a temporary

employment service in wider terms than the LRA as there is no requirement as to who

pays the employee and again states that the TES will be the employer of all brokered

workers except independent agents and that the client and TES will be jointly and

severally liable for contraventions of the act or any sectoral determinations.

Employment Equit Act8 (EEA)

This act varies the theme somewhat by considering a brokered employee to be the

employee of the client if the tenure is indefinite or for 3 months or longer (section 57(1)).

This provision is however only relevant to chapter 3 of the Act which deals with

affirmative action. It appears to have no negative implications for either the broker or the

client.

Section 57(2) is more contentious, indicating that any act of unfair discrimination

committed by a TES on the instructions of the client (for example only providing white

workers) will result in both parties being jointly and severally liable should the

allegations be proved. Matters of this nature will be heard in the CCMA and the burden

of proof, that the allegations are false, will be on the employer. (Sections 10 & 11

respectively)

7 No. 75 of 1997 8 No. 55 of 1998

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Compensation for Occupational Injuries and Diseases Act9

This act (in Section 1) also explicitly states that the brokered labourer is considered to be

an employee and that the broker is the employer.

2.10. Registration requirements

Industrial Councils

Clearly Sub-sections 5-7 create the possibility of including brokers, who operate within a

specific trade or industry, in the net of a relevant bargaining council who will often be

able to force the broker to join the council. This appears legitimate as they are seen as

employers yet many of the brokers interviewed operated in more than one industry. This

makes belonging to one council almost impossible and gives little leeway for the

notorious vagaries of the industry. A broker might work exclusively in the building trade

for a number of years and then shift his activities to the engineering (or numerous other)

fields. This element was found to be extremely frustrating by most of the interviewees

and especially as they felt that they weren’t benefiting at all from their membership of the

councils.

Registration with The Department of Labour as a Broker

Grogan. (2000:23) points out that this is a requirement and that the Director General of

the Department of Labour is empowered to cancel the registration if the broker should

fail to comply with the prescribed criteria. Failure to register is an offence yet it does not

render the contract (and by implication the duties flowing from it) between the broker and

the employee illegal and therefore unenforceable. (Pienaar v Tony Cooper & Associates

1994 [IC])

It would appear that Grogan was referring to the old LRA10where registration was a

requirement. The current LRA is silent on the matter and an interview with Tony Rudman

9 No. 130 of 1993 10 Act 28 of 1956

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(Senior Administrative officer Department of Labour) confirmed that registration with

the Department of Labour is no longer a requirement.

Balance of normally required registrations

The balance of registrations being that of the Unemployment Insurance Fund11 (UIF),

VAT12 (If relevant) Pay As You Earn (PAYE) and Standard Income Tax on Employees

(SITE)13, Skills development,14Employment Equity15 and Compensation for Occupational

Injuries and Diseases Act16 are all normally associated with any business that has

employees and as such should present no specific hardship to the registering broker.

2.11. New Legislation (proposed)

Certain enactments are planned for the near future and one particular variation, which

will be identical in the LRA and the BCEA is of particular significance.

The new section 200A17 creates a rebuttable presumption in certain circumstances where

a person works for another that the person is in fact an employee. These circumstances

are as follows:

Manner of work is controlled.

Hours of work are controlled.

The worker forms part of the organization.

The worker has worked for that person for a period of 40 hours per month

averaged over 3 months.

The worker is economically dependant on the client.

The client provides the tools.

The worker only works for one client.

11 Act 30 of 1966 12 Act 89 of 1991 13 Act 58 of 1962 (as amended) 14 Act 56 of 1998 15 Act 55 of 1998 16 Act 85 of 1996

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The Department of Labour proposed these amendments for the purpose of protecting

vulnerable ‘atypical workers’ and making the labour legislation accessible to those who

had had their contracts changed to ‘contracts of service’. (Department of Labour 2000) It

therefore is not specifically aimed at brokers yet will of course effect them when they are

broking independent contractors. It will also create a presumption that the labourers are

employed by the client, however we submit that the furnishing of the contract between

the worker and the broker will effectively rebut this presumption.

Business South Africa has been particularly scathing regarding this particular proposed

amendment. They point out that it takes no heed of many workers fervent desire to be

held as independent contractors and that it creates completely absurd situations. (If you

prevented a building contractor from working on your house over weekends he would

become your employee according to point 2 above). We submit that the referral to the

worker forming part of the organisation is a recreation of the old (and long since rejected)

organizational test (see page 19 above). The worker being ‘economically dependant’ is so

unspecifically worded that it is almost guaranteed to lead to abuse. The reversal of onus is

also particularly worrying, as our law has long held dear the maxim that ‘he who alleges

must prove’.

2.12. Are Labour Brokers ostensibly restricted?

It is our submission that labour brokers are indeed restricted by the various relevant

enactments that are currently in force. There can be no doubt that the creation of an

employment relationship between two parties where the ostensible employer has no day

to day control is a legal fallacy that has no basis in our common law. The further creation

of joint and several liabilities between two parties when only one is in control is again not

founded in our common law.

Both of these provisions create the possibility of censure without technically being able to

avoid it. This is contrary to all traditional jurisprudence and is akin to being guilty of a

traffic offence when someone else is driving your car.

17 Which replaces S200 of act 66 of 1995

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The proposed onus shift of disproving employee status in certain circumstances is going

to increase the administrative burden on all employers and is a provision, which we

submit will almost certainly be routinely abused in the Commission for Conciliation,

Mediation and Arbitration (hereafter referred as the CCMA) and the various other labour

courts. It will still be seen whether the proposals to increase the commissioner’s

discretion regarding negative cost orders for frivolous and vexatious litigation in the

CCMA will in any way prevent the temptation to use this provision at will.

The reality though is that all laws are an invasion of someone’s freedom and one often

has to look deeper to establish the reasoning for the restrictions placed on these brokers.

All of the brokers and clients that we interviewed agreed or strongly agreed that labour

legislation is necessary to prevent the abuse of labour. If we take this as a starting point

and then progress to the reality that a number of the smaller ‘operators’ are essentially

allowing their clients to escape the protective legislation we see why it has been

necessary to regulate the industry. What we found though was that the regulations were

being followed by the larger operations and were being largely ignored by the ‘rats and

mice’ of the industry. This disparity is distressing to the legitimate operators and is

caused by inefficient labour control mechanisms that allow the small time operators to

continue plying their trade without fear of reprisal for contraventions.

Having argued that the regulations are necessary we turn to whether they are overly

stringent. We submit that the regulations in place at present are at face level an effective

method of bringing the worker back into the protective net of the legislation. The problem

appears to be more one of enforcement. If an effective policing program could be

implemented it would go a long way to removing the small operators, who incidentally

give the industry a bad name, and allowing the legitimate operators to continue doing

what they do best; providing flexible labour options while staying within the parameters

of the law. We argue that the government should accept that the current legislation is

more than adequate to protect brokered labour if it is uniformly enforced.

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2.13. Advantages to using flexible labour

The advantages of escaping labour legislation by the use of flexible labour are obvious.

The company gets a large proportion of its workers to resign and then ‘contracts’ with

them to supply their services. Alternatively, outsourced labour is used to provide certain

peripheral services or brokered labour is used. The result of these actions is an increase in

flexibility and a reduction of the fear of protected strikes or any other form of insurrection

that now can’t be solved with termination of the contract.

From the employees perspective (if he is now considered to be a contractor) deductions

no longer have to be taken from their salary for tax, medical aid, and union dues etc.

making the take home package more attractive. The tax situation is even more

encouraging for the more qualified personal who may seek to legitimize the situation

further by setting up Close Corporations or trusts who’s sole purpose is to broker their

labour back to their original employers. This again gave the employer flexibility and

further gave the employee a tax break, as company tax is 30%, which together with

secondary tax on companies of 12.5% gave an effective rate of 37.78% (Jones, 2000) as

opposed to the maximum marginal tax rate of 42%. The maximum use of deductions

could also be enjoyed.

2.14. Why are labour brokers utilized?

From the perspective of the worker, labour brokers lubricate access into the labour

market. A brokered employee has a better chance of obtaining a temporary or permanent

job than a person who waits hopefully at a factory gate (Ray. 1999).

The employer uses labour brokers, to enjoy numerical and skills flexibility – they are able

to bring in more workers when needed and have fewer workers when necessary. The

following is a list of all the costs and administrative duties that are normally alleviated by

the broker and converted into the simplicity of a monthly invoice.

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Financial U.I.F, RSC, Workman Compensation Levies & Taxes Etc.

Cash In Transit, Insurance, Paid Public Holidays, Sick

leave, Leave Pay, Family Leave, Bank Charges, Modem

Fees, Printing and Stationery, Cash Flow.

Human Resources Administration & Management of Personnel Files, Payroll

Administration and Record Storage, Additional

Administration Personnel.

Industrial Action Increased Activity, CCMA Rulings, Legal Costs,

Retrenchments, Loss of Flexibility

*Interview with Capital Contracting Services CC

2.15. The tax situation (IRP 30)

The IRP 30 tax certificate, which allows a broker to collect the tax from the monies paid

over to the worker and in turn hand it to the South African Revenue Service (SARS) is

seen as something of a ‘Gold Card’ in that it is a huge draw card with potential clients.

The client when dealing with an IRP 30 certified broker knows that he has removed all of

his employee tax administration headaches. He can pay the broker a set amount every

week and all tax implications will be dealt with.

It is however a difficult certificate to obtain requiring a full audit by the SARS of the

business and all the partners/ directors/ members personal finances too. An example of an

IRP 30 is annexed hereto as appendix 2.

2.16. How the brokers protect themselves against labour legislation

Subletting

Some brokers make use of other agents to find workers. This is called subletting and

further complicates the issue and makes it more difficult to establish between whom the

contractual relationship has been established

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Legitimate expectation

There is a legal concept that has developed where a worker is on a short-term contract

and this contract is renewed on a periodic basis. The worker is granted certain rights on

the basis of a legitimate expectation of being rehired (Food and General Workers Union

vs. Lanko Co-op Ltd 1994 [IC]) This is countered by the use of specific clauses in the

contract between the worker and the broker, which stipulate that although the contract

may be renewed the worker has no expectation that it will be and that this renewal will

not indicate that a state of permanent employment has been created. Janisch (1997) points

out that this protection is not failsafe as the courts will look at the circumstances

surrounding the decision to not renew a contract and if the termination of the relationship

is performed for any reason than the end of the need for the labour it may constitute an

unfair labour practice. (SA Clothing & and Textile Workers Union v Mediterranean

Woolen Mills Pty Ltd.1995 [LAC])

Fixed contracts

The broker will always protect himself from the possibility of being seen as a regular

employer who has to provide work for the employee on a regular basis.

The broker therefore enters into very specific and restrictive contracts with his workers

whereby the terms of the contract are drafted to exist for a specific period (normally 3

months) where after they may be renewed. The contract also specifically states that the

contract may be terminated before this time by the client shortening the period of the

agreement, the client indicating a dissatisfaction with the workers performance,

misconduct severe enough for summary dismissal, a refusal to work overtime, any non-

procedural strikes etc. The broker can, within the boundaries of contract law, place any

restrictions on the time period and requirements of continued employment that he

chooses.

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2.17. Protection against joint and several liability

Indemnity

Three Acts make the client and the broker jointly and severally liable for contraventions

of the provisions (S198 (4) LRA, S82 BCOE, S57 EEA).

Since the advent of these provisions it has become common practice (although some

brokers are not aware of the provisions and therefore do not cater for them) to indemnify

the client against any award made in terms of any relevant labour legislation.

This is a draw card for the client, as he knows that he will not be at risk of being

embroiled in any litigation and it is achieved by the simple inclusion of a clause in the

contract between the client and broker. Legally the chain of events would be that the

worker could take action against either or both parties and if successful could then claim

the money from either. As a result of the indemnity the broker would have to pay the full

value of the claim or else the client would have a contractual action against the broker for

the balance of any monies paid by the client in satisfaction of the workers successful suit.

Insurance

Of course there is always a possibility that the broker when faced with a large claim

might liquidate or renege leaving the client to pay the claim or face a similar end. In order

to prevent this possibility the client may insist that the broker carries liability insurance

for any claims or that the owners of the brokerage sign personal surety for any claims

such as these.

Relative size

The size of the brokerage may also provide the necessary reassurance to the client. Some

of the brokerages that we interviewed were international corporations with many

branches worldwide and this would give the client the security of mind required.

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2.18. Vicarious liability

The concept of vicarious liability does exist in this situation. Traditionally this form of

liability occurs where a worker, in the course and scope of his duties becomes delictualy

liable to a third party. The employer is then jointly and severally liable for the damages.

This liability was introduced to comply with public policy requirements, as there is no de

facto legal reason why this liability should follow. The issue now goes a step further with

the broker being potentially liable (as the statutory employer) for actions of a worker

while under the direction of a client where the worker damages property belonging to a

3rd party. We also need to look at the potential liability of a broker for damage to the

property of a client by the worker.

For damage to a third party the starting point will be whether the worker was actually

doing the work he is contracted to do. Should he cause the damage while on a tea break

there will be no liability. In Midway two Engineering V Transnet Beperk (1998 [SCA])

Nienaber JA stated that the courts would look at control of the worker and all elements of

fairness and policy. One looks for which of the two “employers” is the closest connected

to the activity that caused the damage. It would therefore appear unlikely that a broker,

who is normally not even present on site, would be considered the employer in control.

Brokers would be well advised to also “remove” themselves from the activities by

stipulating in their contract with the client that the workers are to work under the control

and direction of the client at all times. If the worker should cause damage to the property

of the client the situation would be governed by the contract between the two parties.

Here the result would be decided by the relative bargaining strengths of the two parties. It

would be prudent of the broker, who has little day-to-day control to include a disclaimer

within the contract denying liability for any damage caused by the workers.

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2.19. Effects of brokering on the worker / workforce

Depending on the business practices of the specific labour brokerage, workers are often

effected negatively by:

Reduced wages and benefits,

Reduced health and safety standards,

Reduction in the effectiveness and protection afforded by unionisation.

The brokered labourer is in a rather unhealthy environment at times. Naidoo points out

that the brokerage industry has been compared to a den of unmitigated crooks and that the

industry is potentially harmful to many stakeholders in the economy. He indicates that

brokers have raised the evasion of minimum standards to an art form and that this has

been allowed by an inefficient enforcement system, desperation of workers who will take

any job without reporting abuse or non-compliance with minimum standards. (1995)

The net result of the extended use of brokers has been downward pressure on wages,

reduction of the amount of permanent workers, loss of union power, the dangerous use of

less skilled workers in highly skilled positions, reduction in work quality, loss of revenue

for the Government and a lowering of standards in general.

The unions have at times reacted to the brokerage industry with a certain amount of

militancy. In an interview with an ex user of brokered labour he indicated that his

attempts to introduce brokered labour had been met with intimidation and ultimately the

striking of his entire national labour force. He has been forced to make use of self

administered short term contracts to obtain the necessary flexibility.

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Section 3

Research Methodology and Design

3.1. Methodology Overview

Essentially the research methods used were qualitative in nature in that the report was

primarily an attempt to collate the disparate Legislative Acts that effect the industry and

to collect as many opinions regarding the industry itself into one cohesive and easily

readable document. It was felt that a strongly quantitative research methodology would

have been singularly inappropriate for this essentially legal synopsis. Be that as it may we

still made use of quantitative methods when this was called for. Examples of these would

be the Lickert Scales to be seen in section 4.

The methodology used in conducting the research for this dissertation has three distinct

components. Firstly, research was conducted into the legislative and academic writings

pertaining to the research topic. The focus of this research was to obtain a background of

information and knowledge of developments in this field. Next, a preliminary field

survey was conducted of practising Labour brokers, to determine certain demographic

and comparative data and the most prevalent difficulties faced in practice in relation to

the new and proposed changes to the Labour Relations Act. Finally, research was

conducted into the employers who make use of brokered labour. The focus of this survey

was to investigate and determine the issues facing these clients while having their need

for flexible labour catered to.

3.2. Legislative Research

As a preliminary step, in order to familiarise ourselves and ultimately the reader,

exploratory research was carried out by way of an in depth analysis of all relevant case

law, an investigation into all relevant sections of labour legislation and perusal off the

academic commentaries on both. This form of research enabled us to become familiar

with the subject matter at hand and was relatively straightforward in terms of the

availability of the input material. The reader will notice that this section of the report is

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relatively lengthy. The decision to make this a central focus of the study was simply that

the topic could not be examined without a complete grasp of various legal intricacies that

are set to become more complex with the expected future legislation. These results are

largely reported in section 2.

3.3. Labour Broker Survey

In order to establish the effects of Labour Legislation on the labour brokerage industry a

sample of established brokers operating within the Western Cape were selected with the

intention that we could interview them to establish their understanding and acceptance of

the current legislation and their opinions as to the need for any variations.

The method of selection proved to be fairly straightforward as a result of the paucity of

contact details for Brokerages in the chosen geographical area. We decided to contact all

the brokerages listed in the telephone directory (Yellow Pages) and Braby’s Online, and

we were also able to obtain a number of referrals from certain of the companies

approached. The simplicity was therefore that we contacted all Brokers immediately

available to us and therefore did not have to enter into an initial formal selection process.

Once we had a list of Brokerages in the area and had obtained cursory information about

them we chose to select companies for further investigation based on certain criteria. The

specific companies were selected in order to ensure representation from as wide a

spectrum as possible. It was required that companies have experience in dealing with

large corporations and small businesses in order to view the issues that arose from both

sides of the business spectrum.

Initially the companies had been contacted telephonically in order to establish a contact

name and basic selection details. We then ,after selection, faxed a covering letter

(appendix 3) which set out who we were and our requirements for the study as well as our

reassurances in terms of confidentiality. A few days later we contacted the respondent

telephonically and requested an interview. The obliging respondents were collated into a

spreadsheet for reference and follow up (appendix 4).

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Each of the Labour Brokers were then interviewed individually. The interview took a

semi-structured form, with Lickert Scale and open-ended questions being put to each

practitioner.

It unfortunately proved difficult to obtain the contact details of a number of smaller

Labour Brokers as many of them operate from cellular telephone and do not have fixed

premises. This was a source of disappointment for us as we intended to investigate the

smaller players in the industry as well and was to prove one of the limitations as to the

global applicability of the study.

The findings of the survey have been set out in Section 4.

3.4. Client Survey

It was always evident that the client companies’ perspective could add significant value

to our research and we therefore approached a number of leading companies, who had

been identified by the broker interviewees in a snowball sampling technique. Our final

sample was selected and approached in a similar manner to the brokers.

A copy of the particular questionnaire used to extract information from the clients is

appended as 5 and the results of the survey are to be found in section 4.

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Section 4

Research findings and discussion

4.1. Labour Broker Survey

The following are the results of the survey of ten established labour brokers operating

within the Western Cape.

Province operating in: Of the labour brokers interviewed, 50% operated in the

Western Cape only and 50% operated nationwide

(including the Western Cape).

Year established: The data ranged from 1967 (33 years of operation) to 1996

(4 years of operation) with a mean of 1985 (15 years of

operation).

No. of people directly employed: (I.e. not brokered labour) The data ranged from

4 to 134, with a mean of 36 employees.

Business Type:

Business Type %

Sole Proprietor 10%

Trust 0

Partnership 0

Company 40%

Close Corporation 50%

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Services provided:

Service % of brokers

providing the service

Primary

activity

Temporary Employee (office or other temps) 90% 50%

Mobile Labour force (Construction industry) 70% 10%

Strike breaking labour 70% 0

Contract labour forces (duration or outcome bound)

70% 30%

Introduction of independent contractors (providing outcome/piecework/services)

40% 10%

Services Provided

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50%

10%

30%

10%Temporary Employee

Mobile labour force

Contract labour

IndependentContractors

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Industry Operating in:

Respondents were requested to indicate the percentage of business generated by the

relevant commercial sectors. The percentage shown below is the aggregate of all the

respondents.

Industry:

Industry %

Construction 80%

Manufacturing 80%

Agriculture/ Fisheries 40%

Financial and Associated 40%

Domestic/ Cleaning 40%

Health 40%

Education 30%

Office 70%

Services 70%

Types of labour provided:

The respondents were requested to indicate what types of labour they provide for their

respective client companies. The percentage is the aggregate of all the respondents.

Type of labour:

Type %

Unskilled 100%

Artisans 100%

Drivers 90%

Office Staff 70%

Professionals (engineers, accountants etc).

50%

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General:

This section was used to enquire into the knowledge of the brokers regarding certain

relevant and topical legislative provisions.

General:

No. Question Yes No

1. Are you registered with the Department of Labour as a broker?

100% 0

2. Were you aware that the LRA makes you the employer of your labourers?

100% 0

3. Are you registered for Workman’s Compensation? 100% 0

4. Are you registered for UIF? 100% 0

5. Do you actively seek out joining a Bargaining Council? 70% 30%

6. Do you enter into agreements with your clients in which they are prevented from performing any disciplinary action against the brokered labour?

70% 30%

7. Do your clients insist on indemnity from you for any lawsuit where the labourer is the plaintiff and you are defendant?

70% 30%

8. Do you hold indemnity insurance in favour of your clients for the above situation?

70% 30%

9. Do you know that the labour relations act (in future) will require that in certain circumstances you prove that someone is not your employee?

90% 10%

10. Do you hold an exemption certificate, issued by the SARS, from collecting employees’ tax from your labourers?

60% 40%

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Flexibility:

This section was used to determine the opinions of the labour brokers towards adaptable

or variable labour practices.

Flexibility:

No. Question Strongly

agree

Agree Uncertain Disagree Strongly

disagree

1. South Africa needs

labour flexibility

100%

2. Labour legislation

restricts labour

flexibility

60% 40%

3. Labour brokerage

provides labour

flexibility

60% 10% 20% 10%

4. Government is directly

targeting labour brokers

with the intention of

restricting their practice

10% 70% 20%

5. Most employers wish to

avoid labour legislation

10% 40% 10% 40%

6. Labour brokers help

employers to avoid

labour legislation

10% 30% 50% 10%

7. Labour legislation is

necessary to prevent the

abuse of workers

20% 80%

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4.2. Client Survey

The following are the results of the survey of eight client companies operating within the

Western Cape.

Province operating in: Of the client companies interviewed, 62% operated in the

Western Cape only, and 38% operated nationwide.

Year established: The data ranged from 1933 (67 years of operation) to 2000

(11 months of operation) with a mean of 1980 (20 years of

operation).

Business type:

Type %

Sole Proprietor 0

Close Corporation 24%

Trust 13%

Partnership 0

Company 63%

Industry Operating in: (What % of y

sectors below.)

Industry:

Industry

Construction

Manufacturing

Domestic/ Clean

Education

Office

Services

Supply

Close

IG

our business is generated by one or more of the

%

50%

75%

ing 0

0

0

25%

100%

Corporation

Company

Trust

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Types of labour required: This section was used to evaluate the skills base requirements of the average client.

Type of Labour:

Type %

Unskilled 100%

Artisans 75%

Drivers 0

Office Staff 75%

Professionals 25%

General:

This section was used to highlight the client’s level of knowledge of certain legislative

sections that have a direct influence on their use of brokered labour.

General Legal Questions:

No. Question Yes No

1. Were you aware that the LRA makes you jointly liable, with the labour broker if the labour broker contravenes the basic conditions of employment act, wage act, a collective agreement or an arbitration award?

75% 25%

2. Do you enter into agreements with the labour broker in which you are prevented from performing any disciplinary action against the brokered labour?

50% 50%

3. Do you insist on indemnity from your broker for any lawsuit where the labourer is the plaintiff and you are defendant?

50% 50%

4. Do you know that the labour relations act (in the future) will require in certain circumstances, that you prove that someone is not your employee?

50% 50%

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Flexibility: This section was designed to evaluate the perceptions and needs of the client companies with regard to labour flexibility.

Flexibility:

No. Question Strongly

agree

Agree Uncertain Disagree Strongly

disagree

1. South Africa needs labour flexibility

50% 50%

2. Labour legislation restricts labour flexibility

75% 25%

3. Labour brokerage provides labour flexibility

50% 50%

4. Government is directly targeting labour brokers with the intention of restricting their practice

50% 50%

5. Most employers wish to avoid labour legislation

25% 50% 25%

6. Labour brokers help employers to avoid labour legislation

100%

7. Labour legislation is necessary to prevent the abuse of workers

75% 25%

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4.3. Survey Discussion and Analysis

Labour Broker Survey

Our interpretation of the results of the survey, which were extracted from semi-structured

interviews with ten established labour brokers, are as follows.

The sample was fairly representative of a large range of labour brokers from smaller

operations to international concerns. 50% operated nation-wide and 50% operated within

the Western Cape only, with the duration of operation ranging from 33 years to 4 years.

The interviewees generally were established businesses as the “small time operators”

proved extremely difficult to make contact with. Arguably this difficulty was as a result

of paucity in their registration and legislation compliance and the result was an inability

to obtain interviews with any of the organisations that operated ‘underground’.

Business Type

The majority (50%) of the labour brokers formed Close Corporations with Companies

constituting 40% of the businesses interviewed. Only 10% of the brokers operated as a

Sole Proprietor. This can be seen as an indication of awareness by the various brokers as

to the precariousness of their legal situation and as an attempt to shift any major awards

onto a judicial entity that can be liquidated if necessary and thereby allowing the actual

proprietor to escape financial responsibility.

Services Provided

The majority (90%) provided temporary employees (office or temp staff) to their clients

with 50% indicating that this constituted the majority of their business. This indicates that

labour brokers are also operating as temporary employment services in the traditional

sense of the word. Only 10% provided a mobile labour force and another 10%

independent contractors for their clients. 70% of the respondents provided strike breaking

and contract labour forces, this being the traditional bastion of the broker. It appears that

the majority of the respondents are involved in the recruitment agency industry and do

not rely exclusively on brokered labour for their livelihood.

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Industry Operating In

Construction and Manufacturing constituted 80%, followed by Office and Services at

70% each. This indicates that there is a strong demand for brokered labour in the

traditional hard labour industries (construction and manufacture) as well as for highly

skilled labour (office and services). A smaller number of respondents (40%) indicated

that they operated in the agriculture, financial, domestic and health industries and only

30% in education.

Types of labour provided

All the respondents (100%) provide unskilled labourers and artisans for their respective

clients. This correlates with the finding that the majority operate in the construction and

manufacturing industries. 70% provide Office Staff and 50% professionals. This indicates

that labour brokers (and certainly our particular class of respondent) also operate in the

more highly skilled areas and that the traditional image of brokers as being exploiters of

manual labour may be a thing of the past.

General

All of the respondents (100%) were registered with the Department of Labour,

Workman’s Compensation and the Unemployment Insurance Fund (UIF). This is an

indication that our particular respondents take the well being of their workers seriously

and that they are willing to operate within the confines of the law. Further evidence of

this is that 70% of the respondents actively sought out joining Bargaining Councils.

These general findings were contradicted by certain respondents who revealed some

unethical practices undertaken by some of the less scrupulous operators within the

industry. This is more fully dealt with on pg 52 of this report.

All the respondents (100%) were aware that the LRA makes them the de facto employer

of their labour and 90% knew that the LRA would require in the future that they prove

that someone is not their employee (the onus is set to shift). This is evidence that the

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labour brokers are conversant with some of the more relevant sections of the LRA and

some pertinent expected future shifts.

60% of the respondents were required to grant indemnity to their clients from any awards

made in favour of the worker when the broker was the defendant. This is a method used

to escape the joint and several liability contained in S198 (4) of the LRA. This indemnity

is seen by some brokers as a draw card and another example of how they can simplify the

administration of labour for the client.

30% of respondents do not hold indemnity insurance. This lack of indemnity insurance

indicates that the brokers are either not aware of the potentially large CCMA awards, are

battling to obtain same, are unconcerned about the potential of their clients becoming

involved or aren’t being placed under any pressure for indemnity from their clients. The

insurance is however generally only insisted on by clients who are extremely cautious

and who aren’t convinced of a broker’s ability to satisfy a judgment, which would make

the indemnity clause worthless.

30% of brokers do not enter into agreements with their clients in which the clients are

prevented from performing disciplinary action against the labour. This is somewhat

worrying as the broker will be held liable for any contraventions of legislation by the

client. This indicates a lack of in-depth knowledge of the legislation by the brokers as the

potential for abuse of workers by clients, when they are aware that the broker will be

liable and not themselves is immense.

What happens to your labourers when you have no work for them?

The majority of the respondents do everything possible to provide continuous

employment for their labour. They plan for the end of a contract and begin marketing the

workers before contract termination. Although this appears to be exceptionally

philanthropical it of course makes business sense. Most brokers allow their clients one

shifts notice before contract termination, ensuring ultimate flexibility. The contracts with

the workers are generally renewed every 3 months so as to prevent any possibility of the

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relationship being construed as permanent employment. The respondents generally

indicated that the workers were free to register with other labour brokers so as to initiate

continuity of work.

Flexibility

All the respondents (100%) agreed that South Africa needed labour flexibility (this being

explained to the respondents as being the ability to hire and fire as needed). They also

indicated a firm belief that labour legislation restricted labour flexibility (100% either

agreeing or strongly agreeing) and that labour brokerage could provide the necessary

flexibility required (60% strongly agree and 10% agree). The reasons given were the

following:

Labour issues are the broker’s field of expertise, they allow this function to be

outsourced and this permits the client to concentrate on their core competence.

Often, workers do not want permanent jobs and labour brokerage provides flexibility

on their behalf.

It irons out peaks and troughs in the economic cycle, thereby fitting into the

employer’s operational requirements.

It reduces risk for the employer, in that they no longer need to carry the financial risk

of unproductive labour.

The majority of the respondents believed that the Government was directly targeting

brokers with the intention of restricting their practice (10% strongly agreed and 70%

agreed). Some respondents believed that what the Government was attempting was

simply trying to control the industry and ‘get rid of the rats and mice.’

There were conflicting responses to the question of whether employers wished to avoid

labour legislation. The respondents generally commented that employers do not make a

conscious decision to avoid labour legislation but try to work around it. The respondents

mostly believed that employers did not understand the legislation, as it was often

confusing and drafted in legal jargon.

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The majority of the respondents (50% disagree and 10% strongly disagree) did not

believe that labour brokers helped employers to avoid labour legislation. What came out

strongly and we respectfully agree, was that legitimate and ethical brokers provide

employers with the opportunity to avoid the complication of labour while also assuring

that all legislative requirements were being catered for.

A positive sign was that all respondents believed that labour legislation was in fact

necessary to prevent the abuse of workers. Most respondents indicating that due to South

Africa’s history of labour abuse and exploitation fair labour practice has become a

necessity.

Client survey

The following is a discussion of the results of a survey of eight client companies currently

making use of brokered labour. Of the client businesses interviewed, 62% operated in the

Western Cape and 38% nation-wide. The businesses were in operation for a mean of 20

years with the majority of the businesses (63%) being Companies and 24% Close

Corporations.

Industry Operating In

Similarly to the labour broker survey the respondents were involved in Construction

(50%) and Manufacture (75%) with all respondents (100%) indicating that they were

involved in some form of supply.

Types of labour required

All the respondents made use of unskilled labour and 75% also made use of artisans.

Similarly to the broker survey, employers also required office staff and professional

people.

General

The majority of the respondents (75%) were aware that the LRA makes them jointly

liable with the labour broker if the labour broker contravenes the basic conditions of

employment act, wage act, a collective agreement or an arbitration award. Only half of

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the respondents knew that in the future the LRA would require that they prove that

someone is not their employee. This indicates a lower than expected knowledge of

current legislative realities which is perhaps explainable by the fact that they have all, to a

large extent, outsourced their labour issues.

50% of the respondents enter into agreements with the labour broker in which they are

prevented from performing disciplinary action against the brokered labour. Similarly 50%

of the respondents insisted on indemnity from the broker should the labourer be involved

in a lawsuit. This indicates a limited awareness of the dangers, which these two practices

are designed to prevent.

When questioned as to the reason why the client companies made use of brokered labour

the following reasons were highlighted.

It is cost effective in that they are often able to employ labour cheaper.

It provides for flexibility, brokered labour does not need to be employed on a fixed

term basis.

It was seen as a form of financing – the labour broker provides a service that the

client normally would have to pay for immediately yet now only has to pay a month

later.

Convenience due to a reduction of paperwork, administrative staff and other

legislative hassles.

What happens to the brokered labour when the contract is terminated?

The respondents indicated that this was the major reason why they made use of labour

brokers, as termination becomes the broker’s problem. The broker simply removes the

labour off site and the client could later enter into a new agreement depending on work

demand. Generally the client gives a notice period of 1 shift although most indicated a

desire to extend this notice period whenever possible.

The workers contract is terminated at the whim of the client and should the broker not

have alternative employment available the worker is left to his own devices until needed

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again. A small number of brokers have skills development programs in place for these

periods and the worker has the option of making use of UIF.

Flexibility

With regard to the issue of flexibility an almost identical set of results appeared as those

found with the Broker survey. 50% of the respondents strongly agreed and 50% agreed

that South Africa needed labour flexibility. They also similarly believed that labour

legislation restricted labour flexibility (75% strongly agree) and that labour brokerage

provides labour flexibility (100% either strongly agree or agree). The following are some

reasons (and it will be noticed that the reasons are similar to the broker’s) given for their

choice:

Companies are able to reduce their administration staff who normally would have to

deal with the paperwork and administration.

Companies are able to reduce their labour levels with minimal cost.

Brokers allow for quick change over of labour.

Companies are able to expand and contract the size of their labour force with

economic cycles.

Companies can make use of labour on a short-term basis.

The client companies did not believe that Government was directly targeting labour

brokers with the intention of restricting their practice (50% disagree). It was interesting to

note that the majority of the respondents believed that the client companies wished to

avoid labour legislation (25% strongly agree and 75% agree) while also believing that

labour legislation was necessary to prevent the abuse of workers (75% strongly agree and

25% agree). Some of the comments were that Government was restrictive and more

attention should be given to freeing up business to operate competitively. One respondent

believed that it made business sense to avoid legislation wherever possible and that it was

purely a financial decision.

All the respondents believed that labour brokers helped employers to avoid labour

legislation, the reasoning behind which was that Labour Brokers follow and apply the

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relevant legislation and the client companies can safely avoid being involved, secure in

the knowledge that their obligations are being vicariously catered for.

4.4. Ethics within the industry

During our research we occasionally received or read of comments regarding the bad

reputation of the South African and international Labour Brokerage Industry. This was

mainly due to underhanded dealings, which occasionally take place between broker and

client and general abuse of powerless workers. The most common allegation was that the

labour broker would do what ever it took to secure a contract.

We encouraged all individuals interviewed to express their experiences regarding this

phenomenon and from their comments it became evident that bribery and other

corruption was in fact a common occurrence within this industry. One respondent

revealed that he had been approached by a high-ranking Government official and

informed that as long as he was prepared to offer a bribe he would continue to receive

government work. Overseas trips and kickbacks to production managers and other

management are regarded as normal practice. Another practice is that of production

managers who hire ‘ghost workers’ from brokers, pay the brokers and receive kickbacks.

Between the brokers themselves competition is intense and this occasionally results in

intimidation, threatening phone calls, intimidation of each other’s workers and the like.

Another scheme used is where the labour broker collects the payment from the client

company, pays the worker in cash and does not pay over the relevant amounts to the

government as laid down by legislation. This ultimately results in the worker not

receiving the protection of UIF, workmen’s compensation etc. We also found evidence of

workers being paid X amount per hour but then being registered for UIF etc at a much

lower rate, with the difference between the two contributions being pocketed by the

broker. Upon injury or unemployment the worker is then compensated at the lower rate.

In 1995, one respondent attempted to establish a code of conduct and ethics for the

industry by forming the South African Labour Brokerage Association (SALBA). He

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approached approximately 20 of the major players and received little enthusiasm for his

idea. It became evident that they were not interested and the project was discarded.

From our research, it seems that the negative reputation that the industry has at present is,

with regard to the small time operators and some unethical large corporations and with

apologies to those who apply the regulations, deserved. Bargaining councils and the

Department of labour need to effectively police the entire process. Our recommendation

is the continuation of the registration requirement with stiff penalties for a failure to do so

being enforced on the broker and the clients who make use of them.

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Conclusion

In concluding this report we need to revisit our propositions.

There can be no doubt that the availability and use of flexible labour practices is of great

benefit to the economy and that the majority of employers would make use of flexible

workforces wherever possible.

In terms of numerical and skills flexibility the labour broker (who can generally provide

an almost instant workforce of whatever skills and strength are required at a moments

notice) is the most appealing option at present.

This leaves the final proposition: that the current legislation restricts the ability of the

broker to provide the flexibility required. With respect we argue that this is not entirely

the case. Although at first sight it appears that a morass of legislation surrounds the

broker, the fundamental basis of it all is that the broker is seen as the employer. We have

indicated the poignant reasoning behind this legal reality and although it has no clear

basis in traditional jurisprudence, issues of public policy have won the day.

It is only in the mind of the broker who wishes to avoid the reality and responsibilities

commensurate with the position of employer that there is an appearance of unfairness. If

this position is accepted the broker will see that he is generally placed in a position no

more onerous than that of any other employer.

Instead of bewailing the fate that has placed him in a country with strict labour legislation

he should rejoice in the restrictions that do his marketing for him. In an open labour

market his position would be redundant. Yes, he has the complication of being jointly and

severally liable with his client but this is easily countered with the steps mentioned above.

If his client should act outside the scope of the law when dealing with the workers this is

another complication that can be dealt with contractually. Finally if he is included against

his will within the jurisdictional net of a bargaining council he will have lots of company

from other employers in the same boat.

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We argue that the correct attitude for the broker to adopt is an acceptance of the role that

he has been given: He is the alternative employer, an outsourcer of labour if you like. He

exists to give his clients peace of mind by allowing them to escape the headaches of

operating a labour force knowing that the person now responsible is complying with all

legislation that society has deemed necessary to protect its workers.

We have found that the well-established and ethical brokers have embraced this role and

are indeed flourishing as the larger companies seek them out for labour provision over

and above the ‘rats and mice’ operators. Unfortunately the vast majority of small time

operators who still embrace the old ideologies will give the entire industry a bad name

and will continue to do so until the advent of effective regulation.

We argue that the proposed sections pertinent to the industry are being drafted as an

attempt to regulate the informal operators. These attempts, like those before them, will

fail due to an inability to enforce them against their intended target and instead the

brokers who are currently complying with all legislation will be further suppressed.

Clearly the solution for the so-called labour broker problem is not the creation of further

legislation but the effective enforcement of those laws currently in existence.

_______________________________

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Appendices

Appendix 1 - Dominant impression test grid

Appendix 2 - Exemption certificate in respect of employees tax (IRP 30)

Appendix 3 - Introductory letter

Appendix 4 - Labour broker interviewee list

Appendix 5 - Labour broker questionnaire

Appendix 6 - Client questionnaire

Appendix 7 - Labourer “approved to work” release form

Appendix 8 - Labourer personal record card

Appendix 9 - Confidentiality agreement

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Lamsdorff, O. 1999. “SA needs labour flexibility” Reporter, 3 May.

Naaidoo, R. 1995. “Labour Broking the Smoke and Mirrors Industry.” SA Labour

Bulletin Vol. 19 No.1, 42-47

Ray, Malcolm. “Flexible Production.” SA Labour Bulletin, 5 October.

Solomon, R. 1997, Sunday Times Business Times, 24 August.

Theledi, J. 2000, “Labouring under illusions and false prophecies.” Sunday Times, 2

June.

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Employment Agency prepared for Attorneys Shepstone and Wyllie. Chambers Durban

Official State Publications

Department of Labour: Labour Law Review 21 August 2000

SA Labour Bulletin April 2000

SARS Tax Directive for effect 1 March 2000

SARS Notice to employers 12 July 2000 with effect 1 August 2000

SARS Circular Minute No. 22/1999, 5-11

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Organisational Publications African Institute of Race Relations, South African Survey 1999/2000.

Bureau for Economic Research Retail Survey, Third Quarter 2000.

COSATU(a) submission on the Ministerial Determination on Small Business 16

November 1999

COSATU(b) Special Congress: Declaration on Labour Flexibility, 19 August 1999

Human Sciences Research Council: Monthly report September 1999

Institute for Management Development – The World Competitiveness YearBook 2000.

Statistics South Africa, 1996 Demographic Survey,

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Case Law

Colonial Mutual v McDonald 1931 AD 412

Cremark v SA Chemical Workers Union and Others (1994) ISILJ 289 (LAC)

Food and General Workers Union vs. Lanko Co-op Ltd (1994) 15 26J 876 (IC)

Housecalls Projects CC v Minister of Finance and Others 1995 (3) SA 589 (T)

Labuschagne v WP Construction [1997] 9 BLLR 1251 (CCMA)

Midway Two Engineering& Construction Services V Transnet Beperk 1998 (3) SA17

(SCA)

Motor Industry Bargaining Council v Wolseley & Others Case No. WCS 07/1999

Nieselow v Liberty Life Association of Africa Ltd. (1998) 19 ILJ 752 (SCA)

NEHAWU v Nursing services of South Africa[1997] 10 BLLR 1387 (CCMA)

S v AMCA Services and Another 1962 (4) SA537 (A)

SA Broadcasting Corporation v McKenzie (1999) 20 ILJ 585 (LAC)

SA Clothing & and Textile Workers Union v Mediterranean Woolen Mills Pty Ltd.

(1995) 16 ILJ 366 (LAC)

Stadsraad van Pretoria V Pretoria Pools 1990 (1) SA 1005 (T)

Smit V Workmens Compensation Commissioner 1979(1) SA 51(A)

Pienaar V Tony Cooper & Associates[1994] 9 BLLR 86 (IC)

Zank V Natal Fire Protection Association (1995) 16 ILJ 708 (I)

Documents

AN ANALYSIS OF THE LABOUR BROKERAGE INDUSTRY OF SOUTH AFRICAgsblibrary.uct.ac.za/researchreports/2000/KennelySchmitz.pdf · COPYRIGHT UCT An analysis of the labour brokerage industry