By Deirdre Venter, Partner and Belinda Price, Associate at Webber Wentzel

A recent judgment by the Labour Appeal Court (LAC) considered the treacherous relationship between a temporary employment service (TES), a client and the placed employees of a TES in relation to the so-called 'deemed relationship'.

The matter between the National Union of Metalworkers of South Africa (NUMSA) and Assign Services (Pty) Limited amongst others, was the first dispute referred to the CCMA, and then reviewed by the Labour Court, on the proper interpretation of section 198A(3)(b)(i) of the Labour Relations Act, 1995 (LRA) since it came into effect on 1 January 2015.

Section 198A(1) of the LRA defines a 'temporary service' as work for a client by an employee:

• not exceeding three months.;
• as a substitute for an absent employee; or
• for the work and period determined by a collective agreement or a sectoral determination or notice published by the Minister.

We will regard this definition as 'genuine temporary work' for the purpose of the article.

Section 198A(3)(b)(i) states that if a placed employee does not perform genuine temporary work as envisaged in section 198A(1), the employee is "deemed to be the employee of that client and the client is deemed to be the employer; and … is employed on an indefinite basis by the client."

The question the LAC was tasked with deciding is who becomes the employer of the placed employee once the three month period lapses?

Assign argued that once the three month period lapses, workers remain employees of the TES and are also deemed to be employees of the client for purposes of the LRA, effectively supporting the so-called dual employment relationship.

NUMSA, on the other hand, argued that upon the lapse of three months, the employees are deemed to be employees of the client  only  for purposes of the LRA, supporting the so-called sole employment relationship.

The CCMA agreed with NUMSAs interpretation but its decision was reviewed and set aside by the Labour Court who adopted the approach put forward by Assign. NUMSA then appealed against the decision of the Labour Court.

On appeal the LAC held as follows:

• A placed employee who does not render genuine temporary work is not an employee of the TES but is deemed to be an employee of the client on an indefinite basis;
• The employee becomes employed by the client on the same terms and conditions as those employees of the client performing the same or similar work;
• The employment relationship between the client and the placed employee arises by operation of law;
• The contract of employment does not transfer from the TES to the client, but rather a statutory employment relationship between the client and the employee is created;
• The TES remains the employer of the placed employee until the employee is deemed to be the employee of the client (i.e. after three months), but until then, the TES will be responsible for its statutory obligations towards the placed employee;
• It would make no sense to retain the TES in an indefinite employment relationship if the client has assumed all the responsibilities which the TES had prior to the expiry of the three month period (the TES may still play a role in this relationship by, for example, paying the salary of the employee);
• The dismissal of the employee by the TES has no bearing on the employment relationship created by operation of law between the placed employee and the client; and
• The 'sole employer' interpretation does not ban TES' but restricts them to genuine temporary employment arrangements.

The LAC was of the view that the sole employment interpretation offers the greatest protection to vulnerable employees, which it views as the purpose of the amendments to the LRA.

While the parties were of the view that the 'deeming provision' is for purposes of the LRA only, it is unclear whether the LAC shares these sentiments. From the judgment it appears that, on the expiry of the three month period, the TES is not required to be party to any employment relationship. The only employment relationship that exists thereafter is the relationship between the client and the employee for all purposes of employment.

It is important to remember that the deeming provision does not apply to employees who earn in excess of the threshold determined by the Minister in terms of the Basic Conditions of Employment Act, 75 of 1997, which is currently set at ZAR 205,433.30.

This judgment will no doubt raise further questions in relation to the practicalities surrounding the relationships between the TES, the client and the employees.

Assign will be appealing this judgment to the Constitutional Court in due course.  Once the appeal has been launched, the order of the LAC will be suspended and the decision of the Labour Court will stand until the Constitutional Court delivers its judgment.