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  • Labour brokers ruling will encourage industry renewal

Labour brokers ruling will encourage industry renewal

07 August 2018

Dr Jaco Nel, Head of People and Business Solutions |

A recent ruling by the Constitutional Court clarified sections of the Labour Relations Act, confirming that in the case of an employee assigned to a client company by a Temporary Employment Service (TES), or labour broker, for the first three months the TES is the employer, after which the client becomes the sole employer.

This is a broadly positive development, in that it will encourage businesses to take a more critical look at their employment practices and to appreciate the strategic importance of the human resources function in directing flexible employment practices.

It will also help to curtail some of the abusive labour practices that have arisen on the part of client businesses and labour brokers themselves.

Since its appearance in South Africa following the passing of the Labour Relations Act of 1995, labour broking has allowed client businesses to introduce a degree of flexibility into their employment practices.

This is vital in industries with large seasonal fluctuations in labour requirements, or in manufacturing, where a company’s labour needs change as it gains and loses contracts.

The TES sector has become an integral part of the economy. A study by Bhorat, Cassim and Yu1 estimated that the TES subsector created 6.4% of South African employment in 2013, more than agriculture (5.1%), utilities (0.9%) and mining (3.1%).

In the mid-nineties, the Labour Relations Act was promulgated to resolve issues around what was previously termed “casual labour”. This period coincided with the rise of globalisation. South Africa faced pressure to compete globally against lean manufacturing with its lower employment costs and greater labour flexibility.

Labour broking arose to fulfil this need. It did bring a degree of adaptability into business, but there was abuse and the subsector needed to be better regulated.

In 2015, new amendments to the Labour Relations Act stated that the client and the labour broker were jointly and severally liable for employees. But this still didn’t define exactly who the employer was. The Constitutional Court ruling now clarifies this issue.

TES has come to be a source of entry-level jobs for many workers without skills or qualifications – a crucial opportunity for people to enter the job market. This is a key outcome in view of South Africa’s immorally high unemployment rate.

The best available tool for resolving our unemployment challenge remains inclusive GDP growth. To drive it, South Africa must attract investment that creates jobs.

However, South African labour productivity rates below average on the OECD Global Productivity Index, making the country only marginally attractive to potential investors. Our strong labour legislation is a great protector of workers’ rights, but there still needs to be labour flexibility if we are to compete globally and attract future investment.

A problem many businesses grapple with is how to adapt their human-resourcing model to changes in the economy and to business requirements. Labour legislation, and rulings like the recent one, may make employers more cautious when it comes to employing people.

But what they really need to do is carefully rethink their manpower plans and their employment practices. The balance between permanent staff, fixed-term staff, staff sourced from temporary employment services and independent contractors will be a key determinant of the firm’s efficiency.

Companies need to be more forward-thinking in managing their human resources – one of their most vital assets. How they manage their people while protecting their rights and maintaining some adaptability will have a massive bearing on the success of the business.

This will mean the HR function will assume greater importance within organisations to drive staff optimisation. Where there are HR capacity limitations, specialist consultants with in-depth knowledge of staff optimisation practices will be needed in an advisory capacity.

It’s time for a more critical look at human resources. We need a different kind of HR practitioner, one with skills beyond the transactional admin role, with the ability to support a business’s strategic vision, who can reconcile worker rights with company productivity.

Temporary employment services will still have a role within this context, given their significant contribution to the GDP, to employment, and as a gateway into the world of work for new entrants to the labour market.  

  1. Temporary Employment Services in South Africa: Assessing the industry’s economic contribution; Haroon Bhorat, Aalia Cassim & Derek Yu.

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