Ravi Naidoo reports on the consequences of the increasing incidence of labour brokers
LABOUR broking — described recently as a “den of unmitigated crooks” by the International Labour Organisation — is becoming a headache for trade unions and permanent workers. And, as it exists now, labour broking is potentially harmful to many stakeholders in the economy, including companies themselves.
Currently, it is estimated that there are more than 3 000 labour broking agencies in South Africa, supplying more than 100 000 temporary workers across industries at any one time; and the number of agencies is reported to be growing.
This growth is not peculiar to South Africa, but is part of an international trend. The number of temporary employment agencies in the United States, for example, has increased from 2 000 agencies in 1968 to more than 14 000 companies with more than 20 000 offices in 1993.
The turnover of these temporary work agencies has increased thirtyfold between 1970 and 1992 to $20-billion. In Switzerland and Britain, the number of private work agencies is growing by 10 percent a year. This trend is spreading to other countries too, and South Africa is particularly hard hit.
But what are labour brokers? Simply put, the labour broker merely supplies the client (for example, a building contractor) with workers. The client pays the broker, and the broker pays the workers. The broker is deemed by the Labour Relations Act to be the employer, and the client is not. So companies can have people do their work without having to take on the responsibility of being their employer.
Traditionally, the “letting out” of workers causes great confusion both for the authorities and for the workers. Labour brokers have deliberately exacerbated the situation by using third parties (ie, sub-letting), which renders the LRA definition useless.
Workers are also unsure what their rights are or to whom their grievances should be addressed, and the authorities do not have the capacity to cope with all the complications.
Labour brokers have been in existence in South Africa for many years, but were only included in the LRA in 1983 in an attempt to regulate them. That attempt at regulation has failed dismally for a number of reasons.
The most important reason is that brokers have tried their level best to make evading minimum standards almost an art form. Secondly, brokers are aided and abetted by a grossly inefficient regulation and enforcement system (for example, the LRA did not foresee the use of sub-letting).
Thirdly, there is often collusion with companies which want to obtain cheap labour that they can easily dispose of. This provides these companies with considerable savings on wage costs, and other “burdens” such as unemployment contributions and training requirements.
Fourthly, the high level of unemployment has pressed many workers to take whatever they are offered and not to report abusive labour practices and non-compliance with minimum standards.
The net effect of all this is that brokers can do what they want to do, at a sizeable profit. Industry sources estimate that some brokers are able to turn net profits of almost R1- million a month. On the other end of the scale, most temporary workers get a bad deal, receiving far less than the minimum wage with no benefits to boot, and permanent workers (and their dependents) who are made redundant through the use of labour brokers lose even bigger.
An example of wages is:
A B C D
Actual IC min Stamps A/(B+C)
R450 R488 R232 63%
Column D is the important one here. It represents what the broker actually pays as a proportion of what the industrial council (in this case the Transvaal Industrial Council for the Building Industry, March 1994) stipulates should be paid. In the above example, the broker was employing a craftsman at 63 percent of the industrial council minimum wage costs (minimum wage rate plus stamp contributions).
Labour broking has tended to follow areas of increasing union density where there are ad hoc work processes. In those sectors, permanent employment declines and labour brokers, and other providers of temporary labour, fill the gap.
In the construction industry, for example, where it is relatively easy to fragment the work process, most of the actual labour is done by temporary and broker-supplied workers. Companies have reduced their permanent workforce to a minimum.
With this reduction, the influence of organised labour also comes under pressure; this is at least a secondary motive for companies to use brokers.
Labour broking would not be a problem if it contributed to effective job creation; instead it erodes permanent jobs and minimum standards. Moreover, brokers pose a serious threat to organised labour: where minimum standards for permanent workers are good or increasing, brokers could be used to undermine them.
But labour broking is not only a problem for trade unions and workers. Firstly, consumers lose through poor product quality. This is especially where the workers are inadequately skilled, as is often the case as brokers try to use cheaper, underskilled workers for skilled jobs.
Secondly, competing through lower wages and not better product quality is a guaranteed loser. Companies which try to put wage savings ahead of product quality are likely to lose market share in the medium to long term — and increase the potential for industrial conflict.
Thirdly, the government loses on many fronts:
* Lost potential tax revenue from illegal labour brokers.
* Having to support aged/disabled workers who received no benefits while employed by brokers.
* Having minimum standards undermined.
Fourthly, temporary workers/the unemployed lose out because they are being exploited, and are totally at the mercy of the broker.
So what can be done? Briefly, one idea is to establish national registers. Brokers and the temporary workers they employ will be listed on separate national registers.
Compliance with existing regulations can be better monitored, and companies could be allowed to use only such registered brokers. Registered brokers will be virtually guaranteed contracts and workers will benefit by receiving training and so on when they are not employed.
Secondly, there is a need to amend the LRA. The nub of any attempt to better regulate the labour broking industry is to make the companies using brokers jointly liable for compliance with minimum standards.
Presently, these client companies are not legally required to ensure that the brokers comply with minimum standards. Often therefore, there is considerable complicity regarding evasion of these standards.
By making the client jointly liable for compliance, the problem of “fly-by-night” brokers is reduced, and the ability to effectively regulate becomes easier.
Deregulationists who may be horrified by all this regulation should remember that for all the big wage savings, companies should carry more risk. Moreover, some brokers who do not want to be included in the “den of unmitigated crooks” or undercut by illegal brokers may see the need for better regulation. And there is no better time to deal with the problem than now.
Ravi Naidoo is a researcher with the National Labour and Development Institute. The views expressed here do not necessarily reflect the views of Cosatu