Nicolene Erasmus

 

IIt is important that the status of an employee be established from the beginning of the employment relationship – permanent, fixed term, temporary, and so on.

The Basic Conditions of Employment Act, in section 29, provides for certain written particulars of employment to be provided as a minimum, and every employer is legally obliged to provide all employees with these minimum particulars in writing not later than the first day of employment.

 

This minimum requirement, however, is not sufficient. Employers are well advised to enter into a written contract of employment with every employee. But what is the contract of employment, and what type of contracts can be used?

Definition: contract of employment

“A contract of employment is a reciprocal contract in terms of which an employee places his services at the disposal of another person or organisation, as employer, at a determined or determinable remuneration in such a way that the employer is clothed with authority over the employee and exercises supervision regarding the rendering of the employee’s services^[1]”

Definition: letting and hiring of piece work

The independent contractor contract is another method used by that certain class of employers to escape their legal obligations and to defraud the employee of his/her legal entitlement. The true independent contractor’s contract is not a contract of employment at all – it is a contract of work. This contract can be defined as follows:

 

“The letting/hiring of piece work is a reciprocal contract between an employer and an independent contractor in terms of which the latter undertakes to build, manufacture, repair or alter a corporeal thing within a certain period and the employer undertakes to pay the contractor a reward in return therefore^[2].”

 

An example of a true independent contractor is the plumber you call in when your hot water geyser bursts – he comes in, quotes you for the job – you accept his quote (thus enter into a contract of work) he replaces your old geyser, you pay his invoice and the Contract is ended.

 

A true independent contractor:

• will be a registered provisional taxpayer
• will work his own hours
• runs his own business
• will be free to carry out work for more than one employer at the same time
• will invoice the employer each month for his/her services and be paid accordingly
• will not be subject to usual “employment” matters such as the deduction of PAYE or UIF from his invoice, will not receive a car allowance, annual leave, sick leave, 13^th Cheque and so on.
  

Employers who outsource their labour requirements to a Labour Broker are not in contravention of the Act, but they must realize that they are not hiring “Independent Contractors.” The benefits provided for in the BCEA must be provided to these workers by the Labour Broker. More and more employers are going the route of outsourcing labour requirements. It solves a lot of problems, and in many cases can prove to be far more economical than employing labour. For example, the employer does not have to provide pension or medical aid, can easily reduce staff requirements during “valley” periods, increase staff during peak periods and level out staff requirements for the plateau periods. The increasing or decreasing of staff can be done without the employer becoming involved in any expensive retrenchment exercises or subsequent visits to the CCMA.

 

What is the status of your employees? Are they employees, fixed term contractors, independent contractors, temporary employees, or indeed, even probationers in disguise?

 

The dilemma continues – what category do you place your employees under?  And what is more, is the status of your employees fair and legal? Or are you “bucking the system?”

 

The employer says the working relationship is that of an independent contractor, and such persons don’t qualify for annual leave or sick leave, no 13^th cheque and no pension or medical aid.

 

Or he says the relationship is that the employee is a ‘temp.’  The employer is the agency from whom the employee is hired and they must provide annual leave etc. Firstly, it must be understood that this dilemma applies only to those persons who earn below the threshold income of R172 000.00per annum (BCEA section 83A (2). There is as yet no definition of an employee or no presumption as to who is an employee in the Basic Conditions of Employment Act or the Labour Relations Act applicable to persons earning more than the threshold amount. There are, however, other tests such as the dominant impression test and other methods that can be applied to determine whether a person of that category is an employee or not.

 

Persons earning below the threshold amount may, if necessary, approach the CCMA for an advisory award as to whether that person is an employee or not. (see section 148 LRA) In other words, to establish whether the relationship is a contract of employment or a contract of work. (BCEA section 83A (3))

Definition: employee

Since only persons defined as “employees” are protected by legislation and have recourse to the dispute resolution provisions of the LRA, it is necessary to establish whether a person is an employee or not. The practice to describe an employee as an independent contractor was found by the courts to be not conclusive. The real “test” is whether the true relationship between the parties is that of an independent contractor or employee.

 

The LRA defines an employee as;

(a) any person, excluding an independent contractor, who works for another person or for the State and who receives, or is entitled to receive, any remuneration; and

(b) any other person who in any manner assists in carrying on or conducting the business of an employer.

Paragraph (b) of the definition was intended to prevent employers from evading the provisions of labour legislation by concluding contracts which would be considered as independent contractors contracts as opposed to employment contracts.

 

Employee or independent contractor?

1. a.Dominant impression test:

 

In order to assist with the distinction between an employee and an independent contractor, the courts have formulated a number of tests, the dominant impression test which was accepted by the Labour Appeal Court in SABC v McKenzie:

 

Some of the important characteristics of the contract of employment and the contract of work, respectively, are:

 

1. i.The object of the contract of service is the rendering of personal services by the employee to the employer. The services are the object of the contract. The object of the contract of work is the performance of a certain specified work or the production of a certain specified result.
2. ii.According to a contract of service the employee will typically be at the beck and call of the employer to render his personal services at the behest of the employer. The independent contractor, by way of contrast, is not obliged to perform the work himself or to produce the result himself, unless otherwise agreed upon. He may avail himself of the labour of others as assistants or employees to perform the work or to assist him in the performance of the work.
3. iii.Services to be rendered in terms of a contract of service are at the disposal of the employer who may in his own discretion subject, of course, to questions of repudiation decide whether or not he wants to have them rendered. The independent contractor is bound to perform a certain specified work or produce a certain specified result within a time fixed by the contract of work or within a reasonable time where no time has been specified.
4. iv.The employee is subordinate to the will of the employer. He is obliged to obey the lawful commands, orders or instructions of the employer who has the right of supervising and controlling him by prescribing to him what work he has to do as well as the manner in which it has to be done. The independent contractor, however, is notionally on a footing of equality with the employer. He is bound to produce in terms of his contract of work, not by the orders of the employer. He is not under the supervision or control of the employer. Nor is he under any obligation to obey any orders of the employer in regard to the manner in which the work is to be performed. The independent contractor is his own master.
5. v.A contract of service is terminated by the death of the employee whereas the death of the parties to a contract of work does not necessarily terminate it.
   

1. vi.A contract of service terminates on expiration of the period of service entered into while a contract of work terminates on completion of the specified work or on production of the specified result.
   

1. b.Additional criteria to assist in determining the true relationship between the parties:
   

1. i.The contract itself:
   

Will usually state the intention of the two parties to the contract - meaning whether it is intended to be an employer/employee relationship or an independent contractor relationship? The courts will not simply accept a contract at face value. They will investigate the true nature and realities of the relationship, and will not bind themselves to what the parties have chosen to call the relationship.

 

Therefore, despite the fact that the contract may emphasise throughout that the relationship is that of an independent contractor, the courts will not simply accept that at face value. They will dig much deeper.

 

1. ii.The entrepreneurial nature of self-employment:
   

The courts will examine the aspects of where the person appears to be a truly independent contractor, performing services for clients. Usually, an independent contractor will have an established business, such as a close corporation. He will have one or more clients on his books, and he himself takes the risk of profit and loss in his business.

 

An employee, on the other hand, is entirely economically dependent on the person for whom he is performing his services.

 

1. iii.The risk of profits and losses:
   

A person who is an employee will not normally, or is unlikely to, invest money into the business of his employer, and be liable if the business crashes. However, many companies do have profit-sharing or profit-based bonuses for the employees. A person who is an independent contractor would certainly invest money in the equipment and resources of his own business.

 

1. iv.The personal nature of services:
   

The employee renders his services personally to the employer. An employee would not send other people to the employer to provide the services that the employee has agreed to personally provide. In addition, the employer would probably not allow this. Generally, an independent contractor does not have to carry out the delivery of the agreed end result himself - he can use his employees to do that.

 

1. v.Taxation:
2. An employer is obliged by law to deduct tax from the earnings of his employees. He does not have the same obligation with respect to independent contractors. The independent contractor is responsible for his own tax liability. Thus, deduction of PAYE or SITE tax is a strong indicator of an employee/employer relationship. There may be exceptions to the rule - where an employee can elect to be responsible for his own tax liability or an independent contractor may prefer the client to deduct tax from his invoice. Such arrangements do exist.

 

1. vi.The imposition of fixed working hours and controlling usage of annual leave:
   

Generally, an independent contractor would not have fixed working hours, and paid annual leave would not apply to him. He regulates his own usage of annual leave. The working of fixed hours is not in itself the only indicator of an employment relationship. Similarly, we controlled the usage of annual leave is also not in itself a sole indicator - it is another factor to be considered in the light of all the other factors surrounding the dispute. Next week we will look at the temporary employment services, and also consider what the Code states regarding the interpretation of labour legislation, and the interpretation of the definition of an employee in other labour legislation. The code addresses the all important issue of employees who are employed by temporary employment services. The LRA and the BCEA make specific provisions regulating agencies that employ persons who are in turn provided to a client.

 

A temporary employment service is defined as a person or business that procures or provides employees to perform work or in the services for a client, and those employees are remunerated by the person or business who supplies the employees to the client. Both elements must be present for the person providing or procuring the employees to fall within the definition of a temporary employment service – i.e. the person or business provides employees to a client and the person or business remunerates those employees - they are not remunerated by the client.

 

In determining the nature of the relationship between the employee and the temporary employment service, the above two factors will be taken into account, as well as other factors mentioned elsewhere in the Code. The actual working relationship between the employee and the client will also play a part. It is important to note that the client is jointly and severally liable for any contravention by a temporary employment service of terms and conditions of employment in any bargaining council collective agreement, arbitration award, sectoral determination, or provision of the BCEA or Employment Equity Act.

 

Code of Good Practice: who is an employee?

GN 1774 of 1 December 2006:  Code of Good Practice: Who is an Employee?

 

Disguised employment is a significant reality in the South African labour market and has been dealt with in a number of reported decisions. The Employment Relationship Recommendation, 2006 of the International Labour Organisation states that a “disguised employment” relationship occurs when the employer treats an individual as other than an employee in a manner that hides his or true legal status as an employee”.  It is an established principle of our law that the label attached to a contract is of no assistance where it is chosen to disguise the relationship.  A contract that designates an employee as an independent contractor, but in terms of which the employee is in a subordinate or dependent position, remains a contract of service.  In other cases, employers have claimed that a person who was formerly an employee has been “converted” into an independent contractor. If the person has previously performed the same or similar work as an employee, this is a very strong indication that he or she remains an employee. Likewise, the fact that other employees employed by the same employer, or by other employers in the same sector, to perform the same or similar work under similar conditions are classified as employees may be a factor indicating that the person is an employee.

 

It is consistent with the purposes of the LRA and other labour legislation to classify as employees, workers who have agreed to contracts purporting to classify them as independent contractors. The fact that a person provides services through the vehicle of a legal entity such as a company or a closed corporation does not prevent the relationship being an employment relationship covered by labour legislation. It is necessary to look beyond the legal structuring to ascertain the reality of the employment relationship and determine whether the purpose of the arrangement was to avoid labour legislation or other regulatory obligations.  However, where a person has made representations to an agency such as the SA Revenue Services that they are not an employee in order to gain tax benefits, it may be appropriate for a court or arbitrator to refuse to grant them relief on the basis that they have not instituted the proceedings with “clean hands”.

 

To assist with some of the answers, we published a series of newsletters based on the Code of Good Practice to assist employers in understanding this complex question. It is a fact that there are many employers - probably hundreds or even more - who hold to the notion that “he is a contractor - therefore he does not get annual leave for sick leave any other benefits.” It is a fact that they are many employers - and I repeat, probably hundreds or even more - who employ people on a contract headed “independent contractor contract of employment,” stating that “he is an independent contractor and therefore does not qualify for annual leave sick leave or any other benefits in the BCEA.”

 

I have said it before - and I say it again - that such employers are merely using this as an excuse to escape their obligations in terms of labour legislation, and in many cases to avoid having to provide that employee with other benefits such as pension and medical aid, which he does give to his “ permanent” employees.

Just as a matter of interest - an independent contractor cannot possibly be an employee. And an employee cannot possibly be an independent contractor. However - we now have some finality, we now have some answers, we now have legislated guidance, and I sincerely hope that what follows is going to put unscrupulous employers in their place, and will enable employees to be fairly treated.

 

The Code commences by setting out various guidelines, the main intention being to “promote clarity and certainty as to who is an employee for the purposes of the Labour Relations Act and other labour legislation.” Another purpose of the code is to ensure that a proper distinction is maintained between the employment relationship which is regulated by labour legislation, and independent contracting.” The preceding paragraph spells out quite clearly that an employment relationship and an independent contractor relationship are as far apart as the sun is from the earth. A further purpose is “to ensure that employees - who are in an unequal bargaining position in relation to the employer – are protected through labour law and are not deprived of those protections by contracting arrangements.” This indicates strongly that the legislature is aware that there are unscrupulous employers out there, who hide the true nature of the employment relationship in the disguise of a cleverly worded contract - thus depriving the employee of his legal right to fair treatment.

 

The Code further acknowledges that there does exist “a variety of employment relationships” in the labour market, including disguised employment, ambiguous employment relationships, non-standard employment, and triangular employment relationships.” Thus it is no secret, and those employers to whom such things apply will know who they are, and that they should know that their days are numbered. If the cap fits – wear it!

 

The code requires that any person who is interpreting or applying any of the following Acts, must take this code into account for the purpose of determining whether a particular person is an employee, in terms of the Labour Relations Act 66 of 1995 (LRA); the Basic Conditions Of Employment Act 75 of 1997 (BCEA); the Employment Equity Act 55 of 1998 (EEA); or the Skills Development Act 97 of 1998 (SDA).

 

It is stated further that the code should (must??) also be taken into account in determining whether persons are employees in terms of the Occupational Health and Safety Act 85 of 1993 (OHSA) ; the Compensation for Occupational Injuries and Diseases Act 130 of 1993 (COIDA) and the Unemployment Insurance Act 63 of 2001 (UIFA). It is pointed out that the definitions of an employee in the OHSA, COIDA and UIFA differ from the definitions contained in the LRA. However, the code points out that there are sufficient similarities for this code to be of considerable assistance in determining who is an employee in terms of the OHSA and COIDA.

 

The above is essentially what is covered in part 1 of the code. Any person applying or even interpreting those sections must take this code into account. We firstly define the term “rebuttable presumption.” A “rebuttable presumption” (Latin, praesumptio iuris tantum) in both common law and civil law (which is what we are dealing with here) is an assumption that is made that is taken to be true unless someone comes forward to contest it and prove otherwise. Most of what follows is quoted from the Code itself.

LRA: presumption as to who is an employee

The Labour Relations Act – section 200A and the BCEA – section 83A - were amended in 2002, and these amendments introduced a rebuttable presumption as to whether a person is an employee and therefore covered by the act. The section is only applicable to employees who earn less than the threshold amount determined from time to time by the Minister of Labour – presently R172 000.00per annum. On page 9 of the Code, paragraph 20, it is stated that in cases where the presumption is not applicable - because the person earns above the threshold amount - the factors listed in the presumption may be used as a guide for the purpose of determining whether a person is in reality in an employment relationship or is self-employed (independent contractor.) In this connection, the code refers to Denel (Pty) Ltd v Gerber 201 [2005] 9BLLR 849 (LAC).

 

A person is presumed to be an employee if any one of the 7 factors listed in the LRA – section 200A – or the BCEA section 83A - is present in the relationship between that person and the person for whom they work or to whom they render services. It must be emphasized that not all of these factors must be present – only one of them needs to be present. Subject to the earnings threshold, the presumption applies to any proceedings in terms of either the BCEA or the LRA in which a person alleges “I am an employee in terms of the LRA or BCEA”, and the other party disputes that allegation.

 

In order to be presumed to be an employee, any one of the following factors must be present:

1. i.the person works for or renders services to the person or entities cited in the proceedings as the employer ; and
2. ii.any one of the seven listed factors is present in their relationship with that person or entity.
   

A person who works for, or renders services to, any other person is presumed, until the contrary is proved, to be an employee, regardless of the form of contract, if any one or more of the following factors is present:

1. i.the manner in which the person works is subject to the control or direction of another person
2. ii.the persons hours of work are subject to the control or direction of another person.
3. iii.[in the case of a person who works for an organization, the person is a part of that organization
4. iv.the person has worked for that other person for an average of at least 40 hours per month over the last 3 months
5. v.the person is economically dependent on the other person for whom that person works or renders services
6. vi.the person is provided with tools of trade or work equipment by the other person; or
7. vii.the person only works for or renders services to one person.
   

As far as this “presumption” is concerned, the arbitrator in Ganga / Grassroots Entrepreneurial Development (Pty) Ltd t/a Grassroots Scape Facilities [2010] 6 BALR 644 (CCMA) had the following to say:

 

In legal terms, a presumption is the acceptance of a fact or state of affairs as being true and correct. There are two types of presumption, a rebuttable presumption and an irrebuttable presumption. A rebuttable presumption means that the fact or state of affairs is presumed to be true and correct until it can be proved otherwise, whereas an irrebuttable presumption is a fact or state of affairs that cannot be disproved.

 

The presumption assists the party that claims it. This means that if an applicant to a dispute claims to be an employee because one or more of the 7 factors mentioned in section 200A(1) of the LRA exist, the onus or burden to rebut the presumption (to disprove the presumption) rests with the other party to the dispute (the employer). The presumption will only come into effect if the person claiming to be an employee earns less than the statutory minimum prescribed in terms of the BCEA which is currently R172 00.00 per annum. On the evidence before me, the only significant remuneration that the applicant claimed to have received was the R9 000 per month paid to him between November 2008 and November 2009. The applicant alluded to his own business as “doing badly” which was why he made the decision to leave for Port Elizabeth where his family could survive on the R9 000 paid to him by the respondent.

 

In order to be presumed to be an employee, the applicant must demonstrate (or it must be common cause) that he renders services to the person or entity cited in the proceedings, he earns under the threshold and one or more of the seven factors listed in section 200A exist. The presumption is triggered when these three criteria are met. These factors are not however requirements for being an employee. They merely create a rebuttable presumption that a person is an employee. In other words once these three factors are met, the onus shifts to the respondent to prove on a balance of probability that the applicant is an independent contractor and not an employee in terms of the definition set out in section 213 of the LRA.

 

It is also worthy of mention that the presumption applies regardless of the form of the contract or the absence thereof. If the respondent fails to lead sufficient evidence, the applicant must be held to be an employee. The applicant earned R108 000 per annum which is well below the current statutory threshold which is R172 000.00 per annum. It is also clear that there was an economically dependent relationship between the respondent and the applicant. I am therefore satisfied that there is a rebuttable presumption that the applicant is an “employee”.

 

However, I am satisfied that while the applicant was not always under the control of the respondent but was subject to Mr Madikani’s direction in that he was, inter alia, tasked with furnishing the respondent with feedback reports. The hours that the applicant kept were subject to the control of the respondent but only to the extent that he was required to sign the register to confirm that the employees under his control reported for work. Flexible working time arrangements are however not incompatible with an employment relationship.

 

When the applicant required more materials/gardening supplies, the respondent would meet the costs directly. It was not mentioned in evidence that the applicant worked more than 40 hours per month over a period of at least three months, save to say that he did render his services to the respondent for a period of twelve months and there is no apparent evidence that he worked elsewhere as he was away from home and without his own transport. The applicant did not assume the financial risk attached to the work he performed for the respondent and the R9 000 per month that was paid to him was a primary source of income for him.

 

An important indication that a person is genuinely self-employed is that he/she retains the capacity to contract with others to work or provide services. It is common cause that the applicant did not dissolve his business interests and was not prohibited from doing so by the respondent. No evidence was led to suggest that he actually rendered his services to another while he was working for the respondent. In terms of whose tools were used for the grounds, it is common cause that the applicant made use of, both, his own as well as the respondent’s equipment to maintain the grounds. However, this provision applies regardless of whether the tools or equipment are supplied free of cost or their cost is deducted from the applicant’s earnings or the applicant is required to re-pay the cost. It is not disputed that the applicant quoted the respondent for bush cutters and mowers and the respondent approved the quote.

 

There is no evidence that any contract existed between the parties and the applicant was not, by implication, permitted to appoint a replacement to perform the services he was hired to perform. The applicant was singled out specifically because the respondent had had previous dealings with him and was content with the standard of his past performance. It was also evident that the contract was intended to terminate on expiry of a period of service rather than on completion of a specific result.

 

After considering the factors set out in section 200A as well as applying the “Dominant Impression Test”, I conclude that the applicant was, on the balance of probabilities, an employee and not an in dependent contractor.

 

Persons earning above the threshold of R172 000.00 per annum further do not enjoy the full protection offered by the Basic Conditions of Employment Act or the Labour Relations Act. Some sections of the BCEA do apply to these persons, others not.

Fortunately, in the case of a dispute at the CCMA, that eminent body seldom questions the status of the applicant’s relationship with the respondent, unless the respondent draws attention to the fact of the earnings threshold and it’s consequences for the applicant. A wide awake employer may submit that since the applicant is not an employee in terms of the Act, the CCMA does not have jurisdiction to conciliate or arbitrate the matter.

 

If an employment relationship does exist (but only needs to be proved) then such action would seem to hold little advantageous consequence for the employer, other than to buy some time.

 

However, if the nature of the relationship is in genuine doubt, then the nature of the relationship could be contested, perhaps to the advantage of the respondent.

There is a test that can (indeed is) applied in such cases, to determine the existence or otherwise of an employment relationship as opposed to that of the independent contractor. This is known as the “dominant impression test”, and in fact amounts to nothing more than requiring the arbitrator to arrive at a decision “on the balance of probability.” Very basically, the facts that indicate an employment relationship are listed in one column, and the facts that indicate an independent contractor (or the facts that do not indicate an employment relationship) relationship are listed in an adjacent column. The arbitrator must then weigh up the facts in both columns, and decide which list carries more weight. In other words, he must decide, on the balance of probability, which list constitutes the stronger indication of a relationship. Is the list of the employment indicators heavier than the list of independent contractor indicators?

 

If so, then an employment relationship exists and the dispute will fall under the jurisdiction of the CCMA (or Bargaining Council etc). If not, then the applicant is not an employee for the purposes of the Act, and the CCMA does not have jurisdiction to conciliate or arbitrate the matter. That being the case, the applicant could sue civilly for breach of contract, damages, and so on.

More about the seven factors mentioned above:

 

• 1.The manner in which the person works:
  

The manner in which the person works is subject to the control or direction of another person. The factor of control or direction will be present if the person is required to obey the lawful and reasonable commands, orders or instructions of the employer or the employer's personnel, as to the manner in which they are to work. In other words, the person is required to obey the work performance instructions of the employer. This requirement is present in a relationship in which a person supplies only labour, and the other party directs the manner in which he or she works. Control and direction is not present if a person is hired to perform a particular task or produce a particular product and is entitled to determine the manner in which the task is to be performed or the product produced. For example, you call in a painting contractor to repaint your office block.

 

You do not tell him what scaffolding to use, or how to erect the scaffolding. You do not tell him how to scrape the old paint off the walls, nor do you tell him what undercoat to apply or how many coats of paint to apply. You will probably only have a say in the choice of colour, and perhaps the type of paint that you want - matte finish, glossy finish, eggshell enamel or whatever. But apart from that, the employer will have no say over how the job is done, or the materials used.

 

In an employment relationship, the "employer" has the right to choose which tools, staff, raw materials, work performance specifications, etc are to be used. Furthermore a strong indicator of an employment relationship is where the "employee" is subject to the employer's disciplinary code, company policies and procedures.

 

• 2.The person's hours of work are subject to the control or direction of another person:

 

If the person's hours of work are stipulated, usually in a contract or letter of appointment and the contract permits the employer to determine the hours of work, then this will be a strong indicator of an employment relationship. The absence of stipulated hours of work in a contract will not necessarily mean that it is not a contract of employment. Sufficient control or direction may be present if the employer is entitled to determine the number of hours that the person is required to work within a specified period - per day, per week or whatever. Flexible working time arrangements are also found to be present in an employment relationship.

 

• 3.In the case of a person who works for an organization, the person forms part of that organization:
  

This will probably apply in respect of any employer that is a corporate entity. It would not apply for example to a person employing a domestic worker - although in such instances, the domestic worker is obviously an employee. The factor will be present if the employee's services form an integral part of the employer's organisation or operations. A person who works for or supplies services to an employer as part of conducting his own business interests does not form part of the employer's organization. Therefore, a person who, for example, has a registered close corporation (cc) and who renders services to another organization, does not form part of that other person's organization. Indications that the person operates his own business are that they bear risks such as bad workmanship, poor performance, price increases and so on. In the case of an employment relationship, the employer will typically bear these risks, and not the employee.

 

• 4.The person has worked for the other person for an average of at least 40 hours per month over the last three months. This is self-explanatory.
  

• 5.The person is economically dependent on the other person for whom he or she works or renders services.
  

This means that the person for whom the employee is working, is generally the sole source for the supply of work, and will be the employee’s sole source or principal source of income. Economic dependence will not normally be present if the person is genuinely self-employed or is running his/her own business. An important indicator to self-employment is that the person is free to contract with other companies or persons to do work for them or to provide services to them.

 

The fact that a self-employed person might only have one “client” does not necessarily mean that they are an employee of that client. If other factors are present, such as some of those mentioned, it will not necessarily form an employee-employer relationship. Part time workers - the fact that a part-time worker is able to work for another employer during those periods in which he is not working, does not change his status as an employee. The same would apply to a full-time employee who has an after–hours, supplementary income-producing job. He remains an employee of the employer.

 

• 6.The person is provided with the tools of trade or work equipment by the other person:

 

It is of no consequence whether the tools or equipment is supplied to the employee free of charge, or whether the employee pays for them. This provision includes equipment such as the provision of telephones, computers etc.

 

• 7.The person only works for or renders services to one person.

 

Obviously, this condition will not be present in the case of a self-employed person, because such a person is free to do work for or supply services to any number of other persons or organizations. Very importantly, the Code states that it is not relevant whether that work is permitted in terms of the employment relationship, or whether it involves "moonlighting" contrary to the terms of the relationship.

 

It is important to note that if any one (and not necessarily all) of the above factors is present, then the person is presumed to be an employee until the employer or other person proves otherwise. The employer will be required to lead evidence concerning the nature of the working relationship. When looking deeper into the rebuttable presumption, one might conclude that it is sufficient for any one of the seven listed factors to be present in the employment relationship to conclude that the applicant is an employee.

 

Or one might conclude that provided the contract states that “this is not a contract of employment, but is a independent contractor contract,” would be sufficient to establish that the relationship is an independent contractor arrangement. Or perhaps the contract states words like “it is acknowledged by both parties that the person is not an employee, but remains an independent contractor, notwithstanding anything to the contrary in this contract.”

 

Unfortunately, the Code has anticipated such happenings – and it states clearly in paragraph 16 that “a statement in a contract that the applicant is not an employee or is an independent contractor must not be taken as conclusive proof of the status of the applicant.” The Code states further that “The fact that an applicant satisfies the requirements of the presumption by establishing that one of the listed factors is present in the relationship does not establish that the applicant is an employee.” “However, the onus then falls on the “employer” to lead evidence to prove that the applicant is not an employee and that the relationship is in fact one of independent contracting.

 

If the respondent fails to lead satisfactory evidence, the applicant must be held to be an employee.” Thus, an employee can show that one of the seven factors applies - it is then up to the employer to lead evidence to prove that despite the existence of one of the factors, the applicant is in fact not an employee but an independent contractor. If the employer cannot prove that, then the applicant will be ruled to be an employee. From the above, it becomes obvious that there are no “grey areas” in this matter - there are definite lines that have been drawn.

Other factors to assist in distinguishing between an employee and an independent contractor

It is necessary to look beyond the legal structuring to ascertain the reality of the employment relationship, and to determine whether the purpose of the arrangement was to avoid labour legislation or other regulatory obligations. The Appellate Division has listed six factors to distinguish a contract of employment (employee) from a contract for services (independent contractor). These factors are frequently cited in judgments, but they are not a definitive listing of the differences between the two types of contract.

 

• 1.Rendering of personal services.
  

An employee renders personal services. An independent contractor produces a specified result. The object of a contract of employment is the provision of Labour. The object of a contract of service (Independent contractor) is to deliver a completed product. The Code informs us that the author Brassey described the difference as follows: “an employee is a person who makes over his or her capacity to produce to another; an independent contractor is a person whose commitment is the production of a given result by his or her Labour.” This definition has been approved by the Supreme Court of Appeal. The object of the contract remains one of the factors to be taken into account. To put it more simply, an employee says to the employer “I hereby offer you my labour’’ - tell me how you wish to use it. The independent contractor says “what task do you wish me to perform, and by when must it be completed?”

 

Therefore, a person who has been engaged to perform a specified task - to deliver a specified result - may still be classified as an employee if other aspects of the relationship indicate that the true nature of the contract is an employment relationship. This might be indicated where, for example, the ‘ independent contractor’ pays PAYE/SITE tax, and is given membership of the company medical aid and pension, a 13th cheque or performance bonus, and so on.

 

• 2.Employee must perform services personally
  

One of the key factors, states the code, is that in a contract of employment, the employee is required to perform the services himself in his personal capacity when required to do so by the employer. Therefore, the employee cannot send someone else to do the work, nor can he employ someone else to do the work. The employee remains at the “beck & call” of the employer.

 

On the other hand, an independent contractor does not necessarily need to perform the work himself - he can send his own staff to do the work, or he can employ somebody to do the work, unless the contract specifically states otherwise. Therefore, a contract that requires a contractor to perform personally does not necessarily mean that it is a contract of employment. By the same token, the fact that an employee may be permitted or required to arrange for somebody else to do the work during his absence, also does not necessarily mean that he is an independent contractor. The fact that a person is entitled to employ, or does employ, other people to assist him in performing the contractual tasks is not always inconsistent with an employment relationship, but it will be a strong indicator that the relationship is one of Independent contractor or a strong indication that the intention of the relationship was to be an independent contractor relationship.

 

The code states that in some sectors of the economy (it does not say which sectors) it is the practice for subcontractors to be engaged to work and is required to recruit other workers to assist them. The code states further that this requirement does not in itself exclude the subcontractors from the possibility of being classified as employees - in other words, all other factors must be considered - no single factor can be considered in isolation - it must be considered in the context of all other factors.

 

• 3.Employer may choose when to make use of services of employee
  

The courts hold that the employer has the right to determine whether or not

to require an employee to work. On the other hand, an independent contractor is bound to perform or produce a result specified by the contract. Put differently, an employee says to the employer “I am here to provide you with my labour - tell me how you wish to use that labour.”

 

The employer will then decide at what times he wants the employee to work, when he wants him to work, and what he wants him to do. For example, the employer would be entitled to say to the employee “I have no work for you at present - go and sit down somewhere and read a book.” Obviously in most instances the employer will still be liable to pay that employee, even if he does not require the employee to actually perform in the work.

 

• 4.Employee obliged to perform lawful commands and instructions of employer
  

The employer has the right of control and supervision over the employee. The employee is subject to the direction and control of the employer. The independent contractor is usually subject to his own direction and control, and not that of the employer, but obviously in terms of the specifications in the contract. Those specifications might include that the required work must have reach a certain stage of completion by the end of each day or each week. With an employee, the employer decides what work the employee would do and how he will perform that work.

 

With an independent contractor, the contract stipulates what work is required - and the independent contractor decides how he will perform that work, or he will perform as specified in the contract. We are informed that the right of control is a very significant indicator of an employment relationship - the greater the degree of supervision and control to be exercised, the greater the probability that the relationship is one of employment.

 

We are informed further that the right of control may be present even where it is not exercised. In other words, the fact that an employer does not exercise control over an employee, but allows him to work largely or entirely unsupervised, does not necessarily mean that it is an independent contractor relationship.

• 5.Contract terminates on death of employee
  

Usually, when an employee passes away, any contract of employment will obviously terminate. The death of an independent contractor will not necessarily terminate the contract - the employees of the independent contractor can continue to perform the work in terms of the contract. The death of the owner of a business does not necessarily mean that the business also dies. If the independent contractor is a person who has no employees, and performs all the work himself, then of course with his death the contract will also terminate because there is no one else to carry on the work in terms of that specific contract.

 

• 6.Contract also terminates on expiry of period of service in contract
  

A contract of service - employee - terminates on the expiration of the period of service. The employee or the employer can also terminate the contract for various other reasons, such as resignation or dismissal. A fixed term contract would normally state a termination date, or a temporary contract of employment would state details of a specific event that would bring about termination of the contract, or a project contract of employment would say to that upon completion of the project, termination would occur.

 

A contract of work - independent contractor - terminates on completion of the relevant work or task as specified in the contract, or upon delivery of the specified and required result. This is regarded as a minor point of consideration. These six factors listed by the appellate division is not an exhaustive list, and must not be solely relied upon as the only factors to be considered in determining the nature of the relationship.

 

Remuneration would be another factor to be considered in determining employee status. Generally, an employee would receive a fixed salary or fixed amount, paid on the same day each month or each week, irrespective of the employees output or level of competency. The remuneration need not necessarily be a fixed amount - it could fluctuate according to commission earned, or payment for overtime worked. It may also fluctuate because of the payment of bonuses which depend on output, productivity, attendance bonuses and so on Fixed or fluctuating remuneration would not normally apply to persons who are genuinely self-employed. Membership of the employer’s pension or Provident fund, or other retirement funding facility, or medical aid is usually a strong indicator of an employee/employer relationship.

 

Other indicators that may be included in the contract of employment is the provision of payment in kind - such as food allowance, accommodation allowance, or even the provision of transport between the employee's place of residence and place of work. Such things will not usually be provided to an independent contractor.

 

Among such indicators would be the provision of daily or weekly rest periods, paid annual leave, paid sick leave, and other benefits provided for in the Basic Conditions of Employment Act, which would not normally be provided to a genuine independent contractor or self-employed person. The provision of a benefit designed to reward the employee for years of service with the employer is another strong indicator of the employer/employee relationship. The fact that that person does not receive a conventional fixed salary or wage package, or does not have the same benefits such as medical aid or pension as other employees have, cannot however, be used as the sole indicator that an employer/employee relationship does not exist.

 

• 7.Other applicable factors:
  

There are times when employers do structure remuneration package in such a way that it creates the appearance or an impression that the relationship is that of an independent contractor. In such arrangements, there will always be loopholes that, combined with other factors, will prove otherwise.

1. i.The provision of training:

 

If an employer provides training to a person, in connection with the employer’s methods or systems, that is usually a strong indicator of an employment relationship. An employer will not normally provide training to an independent contractor. A self-employed person is responsible for ensuring his own training and for ensuring that he is competent to perform the services that he offers. As with all the other factors, the provision of training to a person does not necessarily exclude an independent contractor relationship. The provision of training cannot be used as a deciding factor in itself.

 

1. ii.The place of work:

 

This is another factor that may sometimes be taken into consideration. The fact that the person works at only one place may be an indication of an employment relationship - the fact that a person does not work only at the employers premises does not indicate the absence of an employment relationship. It is becoming more frequent these days in certain industries that employees work from home - the employer provides all the necessary computer equipment, and any other office equipment.

 

But the fact that the employees working from home - and very often regulating their own working hours - does not exclude the employment relationship. Factors that would point to an employment relationship in such circumstances would be that the employee is still subject to the direction and control of the employer. The determination by a court as to whether a person is an employee or an independent contractor is an important decision, and could have a dramatic effect on the person concerned. For example, if declared an independent contractor, then that person has no protection under labour legislation. The Code states that “determinations by the courts must be made based on the dominant impression gained from considering all relevant factors that emerge from an examination of the realities of the parties’ relationship.”