Outsourcing – balancing efficiency and protection

Paul Benjamin

14 August 2010

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

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?

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

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

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

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

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

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?

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?

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

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).

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

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?

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).