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employment | 08 Oct 2019
BY Siphamandla Dube
ENSight

employment


Section 200B of the Labour Relations Act: The Labour Appeal Court’s interpretation

One of the important amendments to the Labour Relations Act, 1995 (“LRA”) which came into effect on 1 January 2015 was the insertion of section 200B into the LRA. Section 200B of the LRA provides that:

"(1)       For the purposes of this Act and any other employment law, 'employer' includes one or more persons who carry on associated or related activity or business by or through an employer if the intent or effect of their doing so is or has been to directly or indirectly defeat the purposes of this Act or any other employment law.

(2)        If more than one person is held to be the employer of an employee in terms of subsection (1), those persons are jointly and severally liable for any failure to comply with the obligations of the employer in terms of this Act or any other employment law."

Recently, in Masoga and Another v Pick n Pay Retailers (Pty) Ltd and Others (JA14/2018) [2019] ZALAC 59 (12 September 2019), the Labour Appeal Court (“LAC”) had the opportunity to express its view as to the scope and effect of this section.

The brief facts of this case are as follows. The retail chain, Pick ‘n Pay Retailers (Pty) Ltd (“PNP”), operates in-store bakeries at some of its stores to produce baked goods for sale within the store. PNP decided to utilise these bakeries to introduce an empowerment initiative in terms of which previously disadvantaged persons could be trained to operate self-standing bakery businesses that would eventually operate independently of PNP. This arrangement was formalised in various contracts concluded by PNP and various entities controlled by previously disadvantaged persons. Assist Bakery 115 CC (“AB”) was one of these empowerment entities. However, its agreement with PNP did not involve the production of baked goods within a store. In terms of this agreement AB would acquire and mix baking ingredients that would then be supplied to the store. An entity such as AB was required to operate as an independent business, providing specific products to PNP for a period of five years. During this period, PNP was to empower such a business with all the skills required to run a self-standing bakery and this included management and technical skills.

The appellants (two employees) were employed by AB as bakery assistants on 12 month fixed-term contracts; their function was to pick ingredients from stores and to deliver them to AB’s workplace where AB’s other employees would mix the ingredients. The appellants’ contracts commenced on 1 March 2015 and were due to terminate on 1 March 2016.

On 17 November 2015, the appellants referred a dispute to the CCMA in which they cited PNP and AB as the “other party” with whom they were in dispute. In their referral form, the appellants characterised their dispute as one in terms of section 198A of the LRA. The basis for this referral was their view that AB was a temporary employment service (labour broker) and that they had been placed by AB to work in a PNP store. Further, in terms of section 198A, they had become permanent employees of PNP. The relief sought by the appellants was to be deemed permanent employees of PNP, and for PNP to pay them the same salary as its permanent employees.

The conciliation of the dispute did not result in its settlement and the resultant certificate of outcome made no mention of a section 198A dispute. Instead, it stated that the dispute related to sections 198B and 198D of the LRA. In their request for arbitration the appellants also indicated that the dispute related to sections 198B and 198D of the LRA. The CCMA notice of set down also argued that the dispute concerned section198B.  

Based on the various contracts that regulated the relationship between AB and PNP, and the evidence presented, the commissioner concluded that the facts established a close association between the businesses of PNP and AB. The commissioner went on to find that section 200B applied and that PnP and AB were joint or co-employers of the appellants.

Both PNP and AB sought to review the award. The Labour Court found that, during the CCMA process no mention was made of section 200B and no evidence was led to show that the empowerment scheme was simulated or a sham, or that the appellants’ employment contracts with AB were not genuine or bona fide. Section 200B was mentioned for the first time in the commissioner’s award. The Labour Court found that the Commissioner had erred in finding, without proof, that the intention or effect of the empowerment scheme was to defeat the purposes of the LRA. The invocation by the commissioner of section 200B was “misguided” and an irregularity. On this basis, the Labour Court reviewed and set aside the award.

On appeal, the LAC noted that when section 200B is read as a whole, it is clear that it cannot be utilised to determine whether a particular person or entity is the true employer of a particular employee. It deals with the question whether or not an employer can be held to be jointly liable with another employer. The LAC held that:

The effect of section 200B, while crucial, is merely to fix or extend the liability that would ordinarily be that of the employer, as per the traditional tests, to another or others, who carry on as an associated or related activity or business by or through an employer. They are regarded as employers for the purposes of liability. But it is only if they are in an associated or related business with the employer which is intended to defeat, or has the effect of defeating, the purposes of the LRA or any other employment law, either directly or indirectly, that they would be treated as the employer. The purpose for this is clear from section 200B(2). They are regarded or treated as such for the purposes of liability – they are held jointly and severally liable for a failure to comply with the obligations of an employer in terms of the LRA or any other employment law. In other words, section 200B(1) defines “employer” for a very specific purpose and that purpose is found in section 200B(1) read with section 200B(2). The section cannot be utilised generally for making persons or entities the employer(s) of others. (Our emphasis included)

The LAC found that section 200B effectively contains a deeming provision. While it contemplates that a single person may be the employer, it does not provide criteria for determining what makes that one person the employer. Its function is to provide for joint liability in a situation where that one person is a party to a simulated arrangement or sham, the true intent or effect of which is to defeat the purposes of the LRA, or any other employment law, and there is a failure by that person to comply with the obligations of an employer. If this is found to be the case, any other person or entity which is complicit in this scheme is treated as an employer for the purposes of liability. The other person or entity is jointly and severally liable in terms of section 200B together with anyone else held to be an employer and in respect of the employer’s obligations under the LRA or any other employment law.

Section 200B seeks to stop complex contractual and other schemes used by true employers to avoid their obligations under the labour legislation. Because of its breadth, section 200B could be used to scrutinise any conceivable relationship or arrangement for the purposes of liability, provided that a case for such scrutiny has been made out, and it is done fairly. 

On the facts of this case, the LAC concluded that there was no suggestion in the dispute before the commissioner that PNP and AB engaged in a subterfuge by utilising an empowerment scheme for deceitful purposes, or more particularly that PNP was using the scheme and AB as a sham to avoid its legal obligations toward its employees, or that the scheme had such an effect. On this basis, the LAC upheld the Labour Court’s judgment.

This case highlights the fact that section 200B cannot be used to determine who is an employer of an employee. However, it can be used to scrutinise the relationship or arrangement between two or more entities and to attribute liability to any person or entity found to be a co-employer for the purposes of liability in terms of the LRA or other employment laws. The far-reaching consequences of section 200B are particularly important for employers that engage in sub-contracting or outsourcing arrangements. It is important that such arrangements are carefully considered to ensure that they do not defeat the purposes of the LRA or any other employment law.

Reviewed by Peter le Roux, an executive consultant in ENSafrica’s employment department

Siphamandla Dube

senior associate | employment

sdube@ENSafrica.com

+27 64 890 2233