The first port of call in most, if not all, labour disputes is to determine whether the individual involved qualifies as an “employee” in terms South African labour laws, or whether he/she is categorized as an “independent contractor”. The distinction between the two is significant, as it will cement the course to be navigated by both parties during the particular relationship, as well as the rights and obligations of the respective parties if and when the relationship ceases.
The distinction between these two classifications is not always easy to ascertain, and it often happens that someone who is in fact and in law an “independent contractor” provides services under the misapprehension that he/she is actually an “employee”. The realization inevitably comes once the relationship between the parties has become contentious.
On this score, our courts have historically ruled (as is more fully discussed below) that it is not necessarily the conclusion of an employment contract or service agreement which is determinative of the relationship between the parties, but rather the overall effect and impression created by the particular relationship.
The correct classification of the nature of the relationship is significant, especially as wholly distinct, and singular sets of jurisprudence apply to each separate relationship. In this regard, it is uncontroversial that an employer/employee relationship attracts the application of labour law, whereas the service provider relationship is governed by the terms of the contract giving life to the relationship and/or the common law underpinning commercial transactions.
The Labour Relations Act, No. 66 of 1995 (“LRA”), the Basic Conditions of Employment Act, No. 75 of 1997 (“BCEA”), and the Employment Equity Act, No. 55 of 1998 (‘EEA”), apply exclusively to “employees” and Section 213 of the LRA defines an “employee” as:
“… any person excluding an independent contractor, who works for another person or for the State and who receives, or is entitled to receive remuneration, and any other person who in any manner assists in carrying on or conducting the business of an employer”. [emphasis added]
Given the breadth and scope of services delivered by those traditionally considered “independent contractors”, there is no statutory definition for the term, and our labour courts have held that, in determining whether a person is an employee or not, it is rather the nature of the relationship that must be scrutinized, and not the wording of the underlying contract. In short, a “substance over form” approach is preferred, and even in circumstances where an agreement clearly specifies the nature of a particular contractual relationship as one lying between an employee and employer, it is the overall effect of the contract that will hold sway.
This “substance over form” approach (which is now legislatively recognized in section 200A of the LRA – as more fully discussed below) was adopted in the case of Linda Erasmus Properties Enterprise (Pty) Ltd v Janine Breytell where the Labour Court dealt with the issue of whether the relationship between an estate agent and an estate agency constituted an employment relationship, or whether it was, as the contract purported it to be, an independent contractor relationship. The Labour Court considered the nature of the contract, the legislative framework and the actual facts surrounding the relationship in reaching its decision. The court ultimately held that the individual was in fact an “employee” in that she was found, amongst other factors, to be under the supervision and control of the principal, which is one of the more important factors considered in determining the nature of the relationship between such parties. The courts applied what is commonly referred to as the “dominant impression” test.
Relevantly, section 200A of the LRA records the following:
“(1) Until the contrary is proved, a person who works for, or renders services to, ant other person, is presumed, regardless of the form of contract, to be an employee is any one or more of the following factors are present:
- The manner in which the person works is subject to the control or direction of another person;
- The person’s hours of work are subject to the control or direction of another person;
- In the case of a person who works for an organisation, the person forms part of that organisation;
- The person has worked out for that person for an average of at least 40 hours per month over the last three months;
- The person is economically dependent on the other person for whom he or she works or renders services;
- The person is provided with tools of trade or work equipment by the other person; or
- The person only works for or renders services to one person.” [emphasis added]
If one or more of the above factors are present, employment is presumed, unless the contrary is proven by the employer. For example, an “employee” who is contractually entitled to render services to more than one “employer”, who renders such services using his/her own tools of the trade, and who is free to determine his/her own working hours, will likely be considered an “independent contractor” regardless of the fact that he/she may be subject to a written employment contract.
Additional guidance on this tricky issue is provided in The Code of Good Practice: Who is an Employee? (published under General Notice 1774 in Government Gazette No.29445 dated 1 December 2006) which provides guidelines on what constitutes an “employee”.
Employers are advised to seek professional legal advice in ensuring that their contracts of employment and/or service agreements are clear and distinguishable from one another and clearly defines an employer/employee relationship or an independent contractor relationship.
 Linda Erasmus Properties Enterprise (Pty) Ltd v Mhlongo and Others (2007) 28 ILJ 1100 (CC)