COSATU, FAWU, NEHAWU, NUM, NUMSA, SACCAWU and SATAWU submission on labour broking

Prakashnee Govender, COSATU Parliamentary Officer, 26 August 2009
Presented to the Portfolio Committee on Labour on 26 August 2009


1. Introduction
1.1 The Need for Further Hearings at a Local Level
1.2 Other Forms of Atypical Employment
2. Decent Work and labour broking
3. Exposing the Myths, Lies and Deception
4. The Rights Affected
5. Conclusion


COSATU, and the affiliates present here today, FAWU, NEHAWU, NUM, NUMSA, SACCAWU and SATAWU, are grateful to the Portfolio Committee on Labour for the opportunity to participate in the oral hearings on “labour broking”. The overall submission reflects the principled position of the federation as a whole. However, owing to time constraints direct involvement in the drafting of this submission was limited to the above affiliates.

The structure of this submission entails firstly the main COSATU framework document, which is supported by various affiliate sectoral inputs that have been appended.

We acknowledge the Department of Labour’s (DOL) discussion paper[1] on this subject that has been tabled at National Economic, Development and Labour Council (NEDLAC), and which proposes to impose various additional regulations against labour brokers. We are currently studying the document and will be engaging with its detailed statutory proposals in the ongoing NEDLAC process, the outcome of which will nevertheless have to be considered and finalised by Parliament. Accordingly our participation in these hearings is focused on responding more broadly to the issue of regulation of labour brokers on a principled basis, as well as providing an insight into the extent of the abuses that workers are subjected to at the hands of labour brokers.

Since the handing down of the 2008 Namibian High Court decision confirming the validity of Namibian legislation banning/prohibiting the practice of labour broking, and the pronouncements by the South African Labour Minister supporting the ban, organised Business has mounted an intense campaign to discredit this approach. We note that with the DOL’s discussion paper proposing a more watered down approach that leans towards increased regulation (as opposed to the complete prohibition) of labour brokers, it would suggest that the balance has at least for the time being swung in favour of regulation. Notwithstanding this, COSATU is strongly maintaining our call for a complete ban on labour brokers, and intends pursuing this objective in the forthcoming engagement at NEDLAC and at a political level.

On this basis we note the following:
i. There is an urgent need to correct the erroneous notions that labour brokers create jobs, as advanced by the Confederation of Associations in the Private Employment Sector (CAPES) and organised Business more broadly. On the contrary they merely act as intermediaries to access jobs that already exist, and which in many cases would have existed previously as permanent full time jobs.
ii. The replacement of normal jobs through labour broking arrangements or other equally insecure forms of atypical employment effectively displaces and destroys decent jobs, especially taking into account the substitution of insecure contractual relations and downgrading of wage and employment terms.
iii. Labour broking is tantamount to slavery, as it amounts to the trading of human beings as commodities. Generally the main commercial contract is agreed to between the labour broker and the so-called “client” enterprise, and which sets out the various stipulated labour services to be supplied and the price at which these services are to be supplied. Whereas the true suppliers of the labour (namely the workers) are excluded from this process, thereby undermining their rights to negotiate the wage and employment terms.
iv. We note that historically labour broking was banned in many jurisdictions. The lifting of the ban in international and domestic laws of many countries is rather more a reflection of how rampant free-market capitalist principles now enjoy an illusory veil of legitimacy and have even gained ground over those principles relating to human dignity and decency in response to the pressures emanating from a globalised context.[2]
v. Apart from undermining collective bargaining rights, labour broker agencies are also often called upon to provide “scab labour” as substitute workers for those on strike, with aim of undermining the rights to embark on industrial action.
vi. Labour broking, combined with other forms of atypical work, reflects current trends of the intensification of the rate of exploitation of workers.
vii. Labour broking amounts to delegation or refusal of the true employer to comply with its obligations. This often results in workers unable to enforce their rights against any party that may be identified legally as the employer. In other cases where this may be imposed against the labour broker agency, its precarious financial standing, especially in cases of insolvency, renders workers’ rights of enforcement as merely notional.
viii. Significant emphasis is placed on the commercial rationale of using labour brokers to lower costs for clients, which is commonly achieved by reducing wages and excluding employment benefits. The question that then arises is who is really bearing the burden of this cost-cutting exercise. In the first instance workers are the ones who involuntarily bear this responsibility, and then who in turn as a result of their economic vulnerability are forced to turn to the public social system for housing, health care, social grants and other social benefits. Ultimately this amounts to commercial entities (namely both labour brokers and their clients) being subsidized by the public.
ix. There are a range of serious long-term and direct socio-economic implications as described above. In relation to the labour market specifically it is important to take note of the progressive de-skilling of workers, especially as a result of the short-term and irregular nature of the contracts associated with labour broking and other forms of atypical labour.
x. The DOL’s discussion paper proposes increased regulation, without setting out how it intends addressing its currently capacity deficiencies that have severely constrained its ability to enforce existing legislation. Whereas implementing a ban against labour brokers may be administratively simpler than detailed regulation, thereby simplifying enforcement.

The Need for Further Hearings at a Local Level
Considering the urgency of establishing the seriousness of the abuses suffered as a result of the reliance on labour brokers, we believe that it would be important to enable a wider input of voices especially from those at provincial and local levels. The emphasis should also be placed on enabling access to first hand accounts from ordinary workers from a broader range of industrial and commercial sectors. Accordingly we are calling on the Portfolio Committee on Labour to convene further public hearings on labour broking in all provinces.

Other Forms of Atypical Employment
Notwithstanding our serious concerns in relation to the problems associated with the sector, we note that the DOL’s proposals focus almost exclusively on labour brokers. However, we believe that emphasis should also be placed on addressing OTHER forms of atypical labour such as casual and informal contracts, seasonal work or other work of short-term duration, part-time work, subcontracting, outsourcing; and fixed-term contracts. Generally atypical employment is characterised by the precarious nature of its terms, with little or no employment and income security as associated with poor enforcement of their labour rights.

It should be noted that many of these other forms of atypical work may be implemented as part of a labour broker arrangement or within the context of a normal direct employment relationship. Each form presents its own associated problems, which would need to be addressed through legislative intervention. Further any clamp on labour broking will likely have employers resorting to other forms of atypical work to evade compliance with labour law obligations.

Decent Work and labour broking
Within a context wrought with increased pressures from globalisation, companies and industries whose main aim is to win a competitive edge over their opposition, both locally and internationally are increasingly looking to the most vulnerable to cut costs in order to subsidise their single-minded pursuit of profit.

Accordingly we note here the relevance of the resolutions of the 2006 Ninth COSATU National Congress on the “Jobs and Poverty Campaign”, particularly the emphasis on the creation of “quality jobs … to ensure that the millions of unemployed are able to work in conditions of decent work” and labour law reform to ”promote quality jobs, decent work and rights for all workers, including those at small businesses and strengthening of bargaining councils”.

“Decent work” and “quality jobs” must be emphasised as a departure from those that would want the advancement of the principle of jobs “at any cost”. Apart from the overall deterioration in employment terms and conditions, we have seen how this has even contributed to the undermining of health and safety standards. For example, in the road freight industry driver’s contracts based on the so-called owner-driver scheme with remuneration based on loads and distance travelled, have compelled drivers to take unnecessary risks to ensure that they are paid.

Against this background the ANC 2009 election manifesto reflects a progressive shift towards balancing the rights of the most vulnerable, especially with regard to the inclusion of the “creation of decent work and sustainable livelihoods” as one of the five priorities areas for the next five years, and to this extent explicitly contemplates the need to “address the problem of labour broking”.

Various strategies aimed at increasing the informalisation and externalisation of work (often dubiously classified as “non-core”) and workers has seen to the massive deterioration of workers’ remuneration and benefits, rights at the workplace, employment and income security. Outsourcing and resorting to the use of labour brokers have been amongst the more popular forms of atypical employment contract arrangements that have replaced the more secure traditional employment contract.

Workers with labour brokers not only often receive a lower rate of pay with no benefits from labour brokers, but remuneration in many cases are based on completion of tasks and/or fixed-term contracts. The lack of access to a regular and consistent income contradicts any right that a worker may have to income security.

In addition to the cost cutting objective, this trend has sought to advance the escalation of the fragmentation of not only individual workplaces, but entire industries and sectors as well. Workers effectively are dislodged from the sectors within which they would normally bargain, acquiring notional rights to bargain with labour brokers as the new employer despite this not being their place of work. This in turn has had a direct impact on undermining trade union rights to collective bargaining as well as dramatically reducing the scope for implementation of a more centralised mode of collective bargaining. Considering the highly unequal bargaining power that exists between individual workers and their employers, bargaining as a part of a collective is the only truly effective mechanism that workers have to mitigate the consequences of this unequal relationship.

More broadly as the negotiation of labour broker agreements are treated as purely commercial contracts between the labour broker agency and the client, and different labour brokers compete against each other for the same contracts, there is constant pressure to “undercut” quotations of competitors. This in turn places a consistent downward pressure on the wages that workers are expected to accept with agencies, further constraining the already weakened bargaining position of the worker.

The legal substitution of the labour broker as employer, and the rights that workers gain as a result, are notional in many other respects as well. The client is often able to evade compliance with a worker’s rights against unfair dismissal, by merely terminating the so-called commercial contract with the labour broker or asking for the replacement of the worker. As the worker is still technically in the employ of the labour broker, despite not receiving remuneration in periods when not allocated to a client, there is no formal legal basis to challenge what is in reality a dismissal.

The above scenarios should be contrasted with conceptualisation of “decent work” by the International Labour Organisation (ILO) as “work which is productive, and carried out in conditions of freedom, equity, security and human dignity”. This it believes can be achieved by addressing the following four objectives:
• Achieving fundamental principles and rights at work;
• The creation of greater employment and income opportunities for women and men;
• Extending social protection; and
• Promoting social dialogue.[3]
Exposing the Myths, Lies and Deception
Earlier we noted our serious concerns with the claims made by the labour brokers that they “create jobs”. However, there are numerous other areas of misinformation being advanced around this exploitative sector, which need to be challenged and exposed. These include the following:
1. There has been a refusal by the sector to acknowledge that the abuses complained of is reflective of the industry as a whole, instead arguing they are generally law abiding with the exception of a few “rogue elements”. This is in direct contrast to the first hand experiences of our membership who indicate differently. Further little else can be expected from a sector that has flourished around aiding employer clients to evade compliance with labour law obligations.
2. Despite being regulated as “temporary employment services” (TES) under section 198 of the Labour Relations Act (LRA), labour brokers are used to supply labour services that are not temporary in nature. In many cases the work is of an ongoing or indefinite nature with the contractual terms being represented as temporary. Hence the phenomenon of the worker now colloquially referred to as a “permanent temp”. In such cases repeated consecutive renewals of the labour broker contract is adequate to retain an experienced worker for years on a long-term basis without having to worry about the duration increasing retrenchment pay or enabling the protection of other rights.
3. One of the key motivations advanced for the reliance on labour broking and other atypical forms of employment is ascribed to the need to respond to industry, workplace and technological changes. However, little explanation is advanced as to how exactly these changes justify an orientation towards atypical employment. In fact in certain sectors these changes would justify the exact opposite with an increase in the number of permanent and full time employees. For example, in the retail sector ordinary business operating hours have in recent years progressively extended to the extent that many businesses are open seven days a week and on most public holidays. However, the increase in operating hours has in fact been accompanied by a commensurate increase in atypical employment.
4. Labour brokers claim to contribute approximately R26 billion per annum to GDP.[4] This disregards the fact that this not a separate sector in a true sense and that client companies would likely contribute similar amounts if they employed workers directly.
5. Research conducted with the assistance of CAPES claims on the basis of statements of publicly listed labour brokers that their average net return on sales is between 3.8% and 4.5%.[5] We challenge the basis of these figures, which appear to be dubiously low and would call for these to be backed up concretely with the requisite evidence.
6. Relevant statistics reflect that the vast majority of all current labour broker agencies were established in the period after 1995, which coincides with the year in which the LRA was enacted.[6] It is difficult to ignore this as the likely causal relationship, with employers seeking alternative contractual arrangements to evade the new labour law obligations.
7. Considerable emphasis is placed on the benefits labour brokers are perceived to offer through outsourcing, whereby employers are then allowed to focus on their “core” business. On this basis there has been an ever-expanding definition in terms of which workers are now deceptively classified as “non-core”. The problem is often illustrated by the fact that many such workers are often indefinitely either located at the premises of the client business or work exclusively for it.
8. Labour brokers would have us believe that the industry is already adequately regulated, and would nevertheless support self-regulation as well as co-regulation with social partners. However, our experience has not been positive when we have opted for the co-regulation approach in relevant bargaining councils.
The Rights Affected
Significant debate has focused on the implications that banning of labour brokers will have for the constitutional right to freedom of trade, occupation and profession granted to each citizen under section 22 of the South African Constitution.

Leaving aside the technical questions being raised as to whether an entity, namely a labour broker, can lay claim to a right that is limited to a “citizen”, we would prefer to focus on the clash between this right and those applicable to workers. Taking into account our history of inequality, the continued vulnerability of workers in the labour market as intensified in atypical employment, rising socio-economic inequalities as well as the gendered and racial nature of these inequalities, we would strongly contest that all rights be mechanically treated equally without referring to our context for interpretation.

In this context we also note that section 7(1) of the Constitution affirms the “democratic values of human dignity, equality and freedom”. The rights to equality and human dignity are afforded additional protection during states of emergency in terms of section 37(4). These inclusions were made based on our political history, and surely give technical weight to the argument that not all rights should be treated equally.

As indicated previously we view the practice of labour broking as constituting slavery, and noting the historical international bans on this practice for this reason, we therefore make reference to section 13 of the Constitution. Specifically in relation to labour relations, section 23 of the Constitution sets out various rights, including amongst others the rights to fair labour practices, workers’ rights to join and form trade unions, participate in strikes, and the right to engage in collective bargaining. This submission has already illustrated in various instances how these rights continue to be undermined by workers located in labour broker agencies.

Noting our arguments above that all rights cannot be treated equally, and references to provisions indicating that equality enjoys additional protection, we wish to draw the Committee’s attention to sections 9(1) and 9(2). These respectively provide that “Everyone is equal before the law and has the right to equal protection and benefit of the law.” and “Equality includes the full and equal enjoyment of all rights and freedoms.”

The reality is that workers subject to labour broker arrangements do not enjoy the same rights or legislative protection as compared with those in normal, regular contracted situations. This picture is rendered even more stark when you consider that workers supplied by labour brokers at the same workplace where workers are directly employed by the client generally earn less and do not enjoy the same benefits despite doing the same work.

Currently there are no provisions in legislation that enable protection against the discrimination described above, despite the Constitution requiring “equal protection and benefit of the law”. Further there clear contradictions between section 9(2) and the undermining of rights that workers are entitled to under section 23.

To further clarify this picture, it should be noted that section 23 provided for a set of rights that was not at the time intended to apply exclusively to certain categories of workers. Labour broker arrangements, as with other atypical employment, have sought to circumvent this intention by employing disguised commercial contracts that create a veneer of legitimacy to enable the evasion of compliance with section 23 and labour law protections. The arguments of Labour brokers reflect that they are actively seeking an endorsement from Parliament to undermine its original intentions and objectives in this respect, and are relying on the Constitution to support this.
Noting the time constraints within which we had to consult our membership, our comments should be treated as illustrative rather than comprehensive. However, we are available to provide further and more detailed insight on this issue, especially as the process unfolds further at NEDLAC and before Parliament.

COSATU maintains its stance that labour brokers must be banned. We believe that sufficient opportunity has been provided for alternative mechanisms to regulate this industry, which have proved inadequate. Further, the extent of the problems and abuses as well as the trends reflecting the intensification of this exploitation, call for the need for more stringent intervention.

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