Outsourcing – balancing efficiency and protection

1. Outsourcing – balancing efficiency and protection Paul Benjamin 14 August 2010

2. The political context • “In order to avoid exploitation of workers and ensure decent work for all workers as well as to protect the employment relationship, introduce laws to regulate contract work, subcontracting and out-sourcing, address the problem of labour broking and prohibit certain abusive practices.” • ANC 2009 Election Manifesto

3. Rise of “non-standard” work • Features of standard work: a single-employer, single-job site, with full-time, long-term jobs earning wage plus benefits (to what extent was that true of SA?) • “Fordist” enterprises: production and distribution processes under direct control and lined by employment nexus; • “post-Fordist” trend to decentralize and contract out “non-core” production: productive decentralization or vertical disintegration • Production (supply) and distribution linked by “non-employment “ networks and chains • Casualisation – replacing standard with non-standard workers resulting in greater insecurity • To what extent do non-standard jobs reflect new or displaced work?

4. Forms of non-standard employment • Work which may involve more than one “employing party” • Agency work (labour broking) • Outsourced work • Subcontracted work • These forms of work may be difficult to distinguish • Part-time work • Fixed-term contracts/ temporary workers • Sectoral variation in patterns of non-standard employment

5. Factors contributing to (in) security • labour market security (opportunities for employment); • employment security (protection against arbitrary loss of employment); • job security (protection against arbitrary loss of or alteration to the job); • work security (health and safety in the workplace)l • representation security (representation in the workplace); • income security • Insecurity may flow from lack of rights/ lack of enforcement

6. Debating issues Non-standard employment is not exclusively a new phenomenon but it has become increasingly common (no longer “atypical”) It is a result of firms restructuring in response to changes in local and international economy/ cost-saving strategies/ risk- shifting strategies. Labour law should permit non-standard work where it is economically efficient while ensuring it is not used as a device to deprive employees of basic labour protections What is impact on trade union organisation/ collective bargaining and how should organisations respond? Our labour legislation premised on standard employment model – to what extent does it need to be tailored Regulation must address the impact of non-standard work on employee security rather than the form of the relationship

7. Labour broker/ temporary employment service • In aftermath of LRA widespread use of fraudulent “independent” contracting for labour law avoidance • 2000-2 judicial and legislative response: courts begin to scrutinise employment relationship and presumption of employment for low-paid workers introduced • Consequence: massive increase in number of TESs and use of placements for indefinite (permanent) employment • DOL research (2004) identifies externalisation (in particular use of TESs) as major driver of informalisation (rather than casualisation) • Placed employees • Have no effective security of employment; • paid less than direct employees (excluded from discrimination/ collective bargaining) • LRA created the motive and the opportunity for avoidance

8. Employment hire in Namibia • 2004 Act – modify SA model • full joint and several liability (including dismissal) • agent and client can both be sued directly • 2007 Labour hire banned • 2009 Supreme Court rules unconstitutional • 2010 Cabinet resolution • Parity with direct employees • Must have written contracts • No use in strikes

9. Outsourcing • No precise definition; term is used inconsistently. • Contracting out of a business function to an external provider. (Based on a contractual agreement involving an exchange of services and payments). • Outsourcing to suppliers outside the nation is sometimes referred to as offshoring • Almost any conceivable business practice can be outsourced. • When does outsourcing have employment consequences/ disguise employment?

10. Sub-contracting • The delegation to a third party of some, or all, of the work that one has contracted to do. • Subcontracting usually occurs where the contracted work (for example, the construction of a building) requires a variety of skills. • Responsibility for the fulfilment of the original contract remains with the original contracting party. • The term subcontracting is sometimes used to describe outsourcing arrangements. • When does subcontracting give rise to abuse?

11. Outsourcing as a transfer • If “outsourcing” involves transfer of business, service (or part) as a going concern • employer can transfer employees without consent on existing t’s and c’s • employee who refuses transfer loses severance benefits • Labour Appeal Court has extended to “second generation” transfers • Test: is an identifiable entity being transferred • Prevents point of outsourcing being a mechanism to reduces of employment; prevents competition thru reducing wages etc. • Facilitates business restructuring by removing requirement for consent

12. Who is the employer? • Three “primary criteria” for identifying employee: • employer’s right of supervision and control; • whether employee integral part of employer’s organization with the employer; • extent of employee’s economically dependence on employer. • The presence of one of these factors sufficient • Employee may rely on other factors associated with the “dominant impression” test • Is this useful in “multi-employer” situations? • When should more than one party be held liable for employer duties? • State Information Technology Agency (Pty) Ltd v Commission for Conciliation Mediation & Arbitration & others (2008) 29 ILJ 2234 (LAC); Pam Golding Properties v Erasmus & others (2010) 31 ILJ 1460 (LC).

13. Preventing less favourable treatment • International trend for parity principles to apply to principle categories of non-standard employees (part-time, fixed-term contract, “temporary”, agency employees;) • Prevention of less favourable treatment not limited to wages – includes access to training, permanent positions (seeks to prevent “ghetto” effect) • Which incidents of employment should be covered? • Allows for flexibility/ savings associated with different form of non-standard employment but seeks to prevent use to drive down conditions of employment

14. Fixed term contracts • Can be used to avoid security of employment • Protection procedural rather than substantive • Regulatory approaches – • Objective justification (work must be time-bound, project work etc.) • Limitation: (e.g. one year contract not renewable) • Confined to special categories (young, unemployed, new businesses etc.) (e.g. section 18(2) learnerships) • Parity/ prevention of less favourable treatment – how to apply?

15. Conclusion • Double movement: the emergence of new forms of work and production (economic) gives rise to need for new forms of regulation and organisation (social).