Subcontracting and Bargaining Council Risk: What Employers Overlook

Subcontracting is widely used by businesses to increase flexibility, manage costs and scale operations.

In many cases, it is also used with a specific assumption in mind: that subcontracting reduces or avoids labour law and bargaining council obligations.

That assumption is often wrong.

In South Africa, subcontracting arrangements do not automatically remove bargaining council exposure. In fact, in many cases, they create additional risk, particularly where the structure does not reflect the reality of the working relationship.

The Misconception: “We’re Not the Employer”

Employers often assume that if work is outsourced or subcontracted:

• The subcontractor is responsible for employees

• The main business has no labour obligations

• Bargaining council rules do not apply

This is not always correct. Labour law looks beyond structure and focuses on substance. If the arrangement does not reflect genuine independence, the business may still carry legal risk.

Why Subcontracting Does Not Eliminate Risk

Even where a subcontractor is in place, key questions remain:

• Who controls the work?

• Who supervises the employees?

• Who benefits from the services?

• Is the subcontractor genuinely independent?

If the answers point back to the main business, the risk does not disappear.

Where Employers Commonly Get It Wrong

1. Using Subcontracting to Avoid Bargaining Council Obligations

Some employers restructure operations to:

• Move employees into a subcontractor

• Engage labour through third parties

• Avoid compliance with council wage rates or benefits

If the underlying business activity remains the same, the bargaining council may still regard the arrangement as falling within its scope.

2. “Paper” Subcontracting Arrangements

In some cases, subcontracting exists only on paper.

Indicators include:

• The subcontractor has no real operational independence

• Workers are managed by the main business

• The subcontractor is financially dependent on one client

These arrangements are particularly vulnerable to challenge.

3. Control and Supervision Remain With the Employer

Where the main business:

• Directs day-to-day work

• Sets hours and conditions

• Exercises disciplinary control

it may still be viewed as the true employer in substance.

4. Ignoring Bargaining Council Scope

Employers often assume that subcontracting changes their legal position.

If the business activity still falls within a bargaining council’s scope, the council may still assert jurisdiction.

5. Failing to Consider Joint Risk Exposure

Even where a subcontractor is involved, the main business may still face:

• Reputational risk

• Commercial disruption

• Indirect liability or enforcement pressure

Subcontracting does not isolate risk as cleanly as many employers expect.

The Real Risk: Structure vs Reality

The key issue is the gap between:

• The legal structure, and

• The operational reality

If the reality of the relationship reflects employment rather than independent contracting, the structure may not protect the business. This is where many employers are caught off guard.

Bargaining Council Perspective

From a bargaining council perspective, the focus is often on:

• The nature of the work being performed

• The industry or sector

• Whether the activity falls within the council’s scope

If those elements are present, the council may still:

• Assert jurisdiction

• Conduct audits

• Pursue compliance

regardless of the subcontracting arrangement.

A Practical Example

A business outsources part of its operations to a subcontractor.

In practice:

• The workers perform the same functions as before

• The business directs their work

• The subcontractor plays a limited administrative role

Outcome:
A bargaining council may assess the arrangement and determine that:

• The activity falls within its scope

• The structure does not change the underlying obligations

The business may still face compliance and enforcement issues.

Why Employers Only Discover This Too Late

Subcontracting arrangements are often implemented for commercial reasons, with limited legal scrutiny.

Employers focus on:

• Cost savings

• Operational flexibility

• Contractual arrangements

What is overlooked is whether the structure changes the legal position in substance.

Issues usually arise only when:

• A complaint is lodged

• An audit is conducted

• Enforcement action begins

Can Subcontracting Be Done Safely?

Yes, but only if:

• The subcontractor is genuinely independent

• The structure reflects operational reality

• The arrangement does not attempt to avoid binding obligations

• Compliance risks are properly assessed

Subcontracting must be structured carefully, not assumed to be a solution.

How Employers Can Reduce Risk

To manage subcontracting risk:

• Assess whether a bargaining council applies to the underlying activity

• Ensure subcontractors are genuinely independent

• Avoid structures designed primarily to avoid compliance

• Align operational reality with contractual arrangements

• Review arrangements regularly

The key is to ensure that the structure is defensible in substance, not just on paper.

Final Thoughts

Subcontracting can be a useful commercial tool, but it is not a shield against labour law obligations.

Employers who rely on structure alone often discover that the real risk lies in how the arrangement operates in practice.

Need Advice on Subcontracting Structures?

Barter McKellar advises employers on subcontracting arrangements, bargaining council compliance, labour structuring and enforcement risk.

If your business is using or considering subcontracting, early legal guidance can help ensure the structure is sound and reduce the risk of unintended exposure.

Contact our team for practical, commercially focused labour law advice.