Breaking down the labour broking debate

Parliament seems to be leaning towards regulation of labour broking as opposed to banning it outright, but the matter is still being debated.

The Department of Labour is proposing amendments to several Acts, which all fall under the Labour Relations Act. The new amendments would either abolish labour broking, or increase regulation of all temporary employment services (TES).

“...the main intention here is to address the problem of labour-broking and making sure the abuse of workers is prohibited and contract work, subcontracting and outsourcing are regulated,” says Parliamentary Labour Committee chairperson Lumka Yengeni.

The Congress of South African Trade Unions (Cosatu) previously threatened mass strikes if labour broking wasn't banned and helped smaller protests to promote its call for a widespread ban last year.

While Cosatu and the labour committee speak of abuses emanating from labour broking, the Democratic Alliance (DA) and industry members highlight its values.

The DA says the impact a ban would have on the economy needs to be considered.

It adds that government stands to lose R10 billion in tax revenue should it decide to ban labour broking.

The National Treasury had revealed labour brokers generated R10 billion in tax revenue in the 2008/9 financial year, and R15 billion in 2007/8.

Pierre Rabie, DA shadow minister of economic development, says Cosatu needs to consider that its salaried members could pay more tax if the industry is banned. Rabie adds that calls to ban the practice would restrict government expenditure on job creation programmes.

The TES industry accounts for just 4% of the economically active population in SA, according to the Confederation of Associations in the Private Employment Sector (Capes). The confederation adds that it is a small, but important, contributor to various national strategic initiatives of both the government and the private sector.

Despite these economic advantages, Cosatu sees labour broking as a contributor to SA having the “worst income qualities in the world”.

“Different labour brokers compete against each other for the same contracts. So 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. No wonder wages of workers have stagnated and that labour's share of the national income continues to decline,” says Cosatu general secretary Zwelinzima Vavi, during an address to Capes.

“In rand terms, the industry is a R26 billion-plus industry, providing jobs for around 500 000 assignees on any day,” says Capes.

It adds that the TES then acts as a channel for the unemployed since approximately 15-32% of these assignees obtain permanent employment (depending on job type).

“The industry employs about a million people. One million people got up this morning and went to a recruitment agency and got a job. You can't just take an industry that big and shut it down. We're going to lose jobs if we shut down this industry,” says DA deputy shadow minister of labour Ian Ollis.

Vavi challenges this argument, saying the jobs exist with or without labour brokers. “...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 and would continue to exist if the labour brokers were banned.”

He adds that labour brokers claim to contribute approximately R26 billion a year to GDP, but this disregards the fact that this not a separate sector in a true sense. “Client companies would likely contribute similar amounts if they employed workers directly.”

He explains that one of Cosatu's main problems with labour broking is that it undermines the relationship between workers and their employers.

“The permanent middleman arrangement is what causes a problem of abuse and super exploitation.”

Industry bodies the Information Technology Association and Business Unity SA have indicated the IT industry would be negatively impacted by the proposed amendments. The bodies point out the amendments would result in the end of skills-based services and spell the end of the outsourcing industry.

“The industry contributes to the training of people in this country. With us staffers have to do quality training. That transfer of skills and knowledge is what makes a good job. In order to grow jobs and the economy we need people to have skills,” says Mthunzi Mdwaba, executive CEO of Kelly Group.

He adds that labour brokers help with CVs and give advice of what jobs to get and so it's a service that is important for all modern societies that want to grow since it provides basic skills as well.

Vavi disagrees and actually sees labour broking having the opposite effect.

“Another problem caused by labour broking is the progressive de-skilling of workers, as a result of the short-term and irregular nature of the contracts associated with labour broking and other forms of atypical labour.”

Cosatu's argument is that production has been shifted from the big workplaces, through subcontracting and outsourcing arrangements. It says millions are trapped in “super-exploitative” arrangements.

“Our view is that the replacement of normal jobs through labour broking arrangements, or other equally insecure forms of atypical employment, effectively displaces and destroys decent jobs. It promotes insecure contractual relations and worsens wage and employment terms. It intensifies the rate of exploitation of workers, and is tantamount to the trading of human beings as commodities,” adds Vavi.

Mdwaba says not all labour brokers fit this description. “We are all painted with the same brush as those that give the industry a bad name. We have aligned with the thinking of the ANC as it works for us to regulate. Now we can all compete fairly. Before we used to compete with those who don't have the same costs,” says Mdwaba.

Vavi challenges the argument that the abuses are restricted to only some recruitment companies. He says the exploitations are general throughout the industry as gained from first-hand experiences of Cosatu members who say the problem is widespread.

He says workers with labour brokers receive a lower rate of pay with no benefits and remuneration is usually based on completion of tasks and/or fixed-term contracts. He explains that this lack of access to a regular and consistent income contradicts any right that a worker may have to income security.

The DA does agree that there are some abuses in the industry, even though it is against the banning of the practice. “Some [labour brokers] abuse and some behave, so how do we fix that? We regulate. We can stamp out the abuses in labour broking, but we can accommodate both the industry and the unions,” says Ollis.

A further complaint by Cosatu is that labour broking helps employers get around the law.

“Despite being regulated as 'temporary employment services' under section 198 of the Labour Relations Act (LRA), labour brokers are used to supply labour services that are not temporary. In many cases the work is ongoing or indefinite, with the contractual terms being represented as temporary,” says Vavi.

He explains that in such cases repeated renewals of the labour broker contract enables a company to retain an experienced worker for years without having to worry about the length of service leading to retrenchment pay or other rights.

“Labour broking also makes it easier for the true employer not to have to comply with its obligations. Workers often cannot identify who is legally their employer, from whom they can enforce their rights,” adds Vavi.

Kay Vittee, CEO of Quest Staffing Solutions, says the range of services provided by labour brokers should not be disregarded. Payroll and administrative services are often outsourced to labour market intermediaries, and decrease the client's unit costs and relieve their administrative burdens.

In light of this emphasis on lowering clients' costs, Vavi says, “this reinforces our view that the whole rationale of companies using labour brokers is to cut their wage bill and enable them to evade the payment of benefits.”