Labour Brokers: Healthy for the Job Market?

Published on 12th October 2010

Unionised workers on strike                 Photo courtesy
Some voices in the government alliance have called for the total abolition of labour brokers. Or lately, for a regime where the client of a labour broker is deemed to be the employer, burdened with all the labour-law obligations that that entails. These calls on the part of the trade unions, are not only self-serving, but will lead SA to greater unemployment.

Section 198 of the Labour Relations Act defines a labour broker or “temporary employment service” as a person who for reward provides another person to a client to work for that client for remuneration. The section further provides that the temporary employment service (“broker”) is regarded as the employer of the worker in question.

The client, therefore, is not the employer of the worker and this provision is a key ingredient in understanding the impact of labour brokers on labour relations. With some minor exceptions, the effect of this provision is to enable the client to outsource all his labour requirements and ensuing typical labour problems, including labour law problems, to the broker. The broker, for a fee, manages all of these matters on behalf of the client.

The unprecedented growth in the number of labour brokers over the past twelve or so years is because, to many employers, labour brokers provide an essential way of dealing with the inflexibility of South African labour relations. The problems they outsource to brokers include strike action, retrenchments due to operational requirements such as redundancy of workers, poor performance of workers and disciplinary problems.

In many cases brokers provide an essential service to those industries that require a flexible labour supply. It enables them cheaply and efficiently to appoint and dismiss workers as workload fluctuates. Another service a broker provides to an industry in which it works is that it maintains a pool of workers, from which any can be placed with an employer requiring labour. The ability to choose workers from a large pool virtually representing the whole industry, and the ability to return workers to that pool when no longer required, exponentially enhances the efficiency of the labour market of that industry. Such a system, too, improves the chances of a worker to find a job where he is more efficiently matched.

When this situation is compared to that called for by the unions, namely, that every employer has a fixed, permanent workforce whose members can only be dismissed with difficulty, the difference is clear. In the union’s scenario, employers will think twice before hiring new workers and the description of a “sclerotic” labour market will not be farfetched. Between 2001 and 2007, a period of sustained economic growth in SA, the number of employed persons increased by 2 million, from 11.6 million to 13.6 million. During that same period, the official unemployment rate of the country dropped from 26.2% to 21%.

During this period, two other significant movements also occurred: the number of workers employed by labour brokers increased in proportion to the total workforce, and trade union density expressed as a percentage of the economically active population declined. Industries, such as retail and construction, that often require a flexible workforce supply and thus lend themselves to temporary jobs, flourished between 2001 to 2006, when job growth in trade (including retail) was 41% and in construction a massive 57.3%. At the start of that period, Cosatu unions had a total membership of only 4.8% of workers in the construction sector and 7.4% in the trade sector. Huge employment growth took place in these sectors because of the massive participation of labour brokers, and the difficulty experienced by unions when trying to organise workers employed by labour brokers.

By way of illustration, many large construction firms use sub-contracting or outsourcing to gather the workforces required for large on-going projects. This means that if, for some reason, they are unhappy with the performance of a certain worker, the construction company can simply inform the broker, who then immediately replaces that worker with another.

The broker usually has entered into a contract with the worker which stipulates that he is employed on a fixed-term basis, namely until that particular supply of work comes to an end. The broker can attempt to place the worker with another firm, but if that fails, they will initiate retrenchment procedures.

In some instances, the CCMA has ruled that if there is a condition in the employment contract between the broker and the worker that the contract lapses as soon as the client no longer requires the services of the worker, it does not amount to a dismissal. Even if that is not so, nothing in the law prevents a broker from dismissing an employee on the grounds that the client no longer requires the worker’s services, and that it is an operational requirement of the broker’s business to enable the client simply to end the tenure of workers on such a flexible basis. The main reason why workers who are employed by labour brokers tend to be poorly unionised, is that they seldom work in the same workplace for any length of time. It is well nigh impossible to recruit members from among workers who are not bound to a particular workplace. Compared to an established mining house that typically has a permanent workforce staying on mine property, more of the mining house’s workers will be unionised.

In an industry where unionisation is low, fewer employees are likely to take their employers to court. In the thirteen years since the implementation of the Labour Relations Act, out of a total of almost one hundred thousand, only some forty cases involving the dismissal of workers by labour brokers have been reported because non-unionised workers seldom have the wherewithal to make use of dispute resolution procedures under the Act.

Statistically, high union density undermines employment growth. A comparison of union density and labour growth in different South African industries makes this clear:

Unionisation and the enforcement of over-reaching labour rights are the reason SA has such expensive, job-destroying, labour laws. Labour brokers, who by chance undermine unionisation, therefore have a significant – positive – impact on job creation.

The unions may not like it. And clearly it is not a politically correct thing for us to say. But that it is so, is a fact. We ignore it at our peril.

By Frans Rautenbach

The author is an advocate and member of the Cape Bar. He specialises in labour law.

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