Many people are puzzled as to why a company would use a labour broker, says the writer. Picture: THE TIMES
Many people are puzzled as to why a company would use a labour broker, says the writer. Picture: THE TIMES

The Constitutional Court has ruled that where a labour broker places an employee on assignment with a company, the company must assume all legal obligations relating to that employee after a brief initial period.

Previously, the labour broker was solely, mainly, partly or not at all answerable for the employee, depending on the situation.

Judging by the jubilant reactions of the trade unions that were plaintiffs in the case, the ruling will be the end of labour broking in SA. The right-thinking observer, ever inclined to suspicion when unions are jubilant, wonders what it means in practice.

Many people are puzzled as to why a company would use a labour broker.

A bank, for example, might feel that its core business is providing financial services, as opposed to cleaning office windows, guarding branches, transporting cash, providing specialised computer training, managing queues or staffing during business peaks.

The court’s ruling makes it easier to unionise workers supplied by labour brokers. It does not make it free. Union membership is declining steadily in SA.

In such cases, the bank could elect to outsource those incidental services to specialised parties, which, through focus and attention, might do a better job at a lower overall cost.

In some cases, such as where a recruiter must comb through 75,000 CVs to fill one vacancy and runs the risk of missing the best candidate or hiring a poor one, the advantages of outsourcing may be enormous. Labour broking is a sign of deep changes occurring in organisations, where the fundamental questions of industrial organisation are rapidly evolving.

Whether the court’s ruling will put an end to labour broking depends on whether labour brokers add value for their clients. If there are no advantages to specialised management of recruitment, attendance, absenteeism, staff turnover, dismissal, payroll, benefits, transport, training, scheduling and especially, increasingly, regulatory compliance — in other words, if companies use labour brokers entirely to circumvent labour laws and regulations — the labour broking industry will disappear. As it is, labour broking is not a particularly profitable business. Beset by low barriers to entry, net margins range from 1.5% to 4.2%, depending on the economic cycle.

To see why unions support the court’s ruling, it is useful to distinguish between recruiters of permanent and temporary employees. Permanent recruiters typically place candidates directly with employers for a once-off fee (about 20% of a candidate’s annual remuneration).

Labour brokers typically charge employers an ongoing fee, not least for initially recruiting the candidate but also for administering and jointly managing the employee on an ongoing basis (around 12% of the employee’s hourly compensation).

A labour broker is distinguished from other recruiters by having a continuing presence in the employment relationship.

Prior to the ruling, the labour broker, not the company, signed the worker’s employment contract. The implication is that if an employee was unfairly treated or dismissed the labour broker, not the company, had to appear at the Commission for Conciliation, Mediation and Arbitration or the Labour Court. Since the ruling, the company alone must appear. Perhaps this was a wrinkle in the law that needed to be addressed.

The arcane question of who signs the employment contract has dramatic implications for unions.

If a union seeks to be recognised by an employer, the union must show that it represents a significant proportion of the employer’s workforce. If there are no labour brokers in the workforce, recognition is straightforward: the union canvasses support among employees, and if the employees generally support the union the employer recognises it, which entitles the union to bargain on the workers’ behalf and collect union dues, among other benefits. However, if the legal employer is a labour broker, the union must seek recognition from the labour broker by canvassing support among the labour broker’s entire workforce.

Since these workers are dispersed across tens of thousands of sites in every sector across the country, unionisation of labour brokers’ workforces was almost impossible. A communication workers’ union can canvass support among Telkom or Vodacom workers but it cannot easily do so when the company’s labour brokers also supply workers to hundreds of employers in mining, manufacturing, financial services, retail, hospitality, transport and other sectors.

The court’s ruling makes it easier to unionise workers supplied by labour brokers. It does not make it free. Union membership is declining steadily in SA. Outside the public sector, only one in eight workers is unionised. If unions think this is the end of the labour broking industry, they should think again.

• Sharp is economics director at Prophet Analytics.

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