EMPLOYEE VS. INDEPENDENT CONTRACTOR

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EMPLOYEE VS. INDEPENDENT CONTRACTOR: WHAT ARE THE ELEMENTS OF AN EMPLOYMENT RELATIONSHIP IN TERMS OF THE LAW?

By Venolan Naidoo (Senior Associate at Themis Law Chambers)

A common issue raised in many labour disputes is whether a person is an employee or an independent contractor. The nature and consequences of either are fundamental. An employer/employee relationship is an entirely distinctive relationship governed and/or regulated by our labour legislation which is in contrast to an independent contractor relationship governed by our principles of common law.

Accordingly, a person who is construed to be an employee shall have such labour rights that are entrenched in terms of our labour laws and aimed inter alia against exploitation. In comparison, an independent contractor who has rights but in terms of our common law with significantly less protection, if any, than an employee.

This article will discuss the elements of what our law considers to be an employee or an employment relationship, and in some instances, what it deems to be an employee.

Our labour legislation defines an employee in a rather wide context. In terms of section 213 of the Labour Relations Act (LRA) (this definition is the same under the Basic Conditions of Employment Act, BCEA) defines an employee as follows:

“(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“.

As highlighted above, the definition is fairly wide and perhaps aimed at optimal coverage to individuals under arrangements analogous to an employment relationship but it explicitly excludes an independent contractor.

In the leading decision of SABC v McKenzie (1999) 20 ILJ 585 (LAC), the Labour Appeal Court identified the following distinguishing characteristics in respect of an employment relationship versus an independent contractor:

  • “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 for the production of a certain specified result.
  • 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 work.
  • 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.
  • 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.
  • A contract of service is terminated by death of the employee whereas the death of the parties to a contract of work does not necessarily terminate it.
  • 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 on production of the specified result“.

The Labour Appeal Court in McKenzie accordingly provided such crucial guidance in discerning the elements of an employment relationship (contract of service) in contrast to an independent contract (contract of work).

In addition, the Code of Good Practice: Who is an Employee? (Published under General Notice 1774 in Government Gazette No. 29445 dated 1 December 2006) provides material guidelines on what constitutes an employee.

Importantly, section 200A of the LRA and section 83A of the BCEA, applying mutatis mutandis, creates a statutory rebuttable presumption for those employees earning the equivalent or less than the prescribed threshold (presently prescribed at R 205 433.30) as determined by the Minister of Labour. Accordingly, if one or more of the following seven factors are present, such a person will be deemed an employee. Section 200A of the LRA and section 83A of the BCEA both read as follows:

“(1) Until the contrary is proved, a person who works for, or renders services to, any other person, is presumed, regardless of the form of the contract (emphasis added), to be an employee if 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“.

Following the above provisions, our labour legislation presumes that a person is an employee notwithstanding what a contract may be called or the form it takes. The law effectively looks at the substance of the relationship/agreement.

Section 200A(3) of the LRA and 83A(3) of the BCEA both make provision in the event that if a proposed or existing work arrangement involves persons who earn amounts equal to or below the prescribed threshold (as cited above), any of the contracting parties may approach the CCMA for an advisory award on whether the persons involved in the arrangement are employees.

In conclusion, whether a contract or arrangement is construed as one of employment or independent contractor would depend on each and individual case, including the surrounding circumstances of the relationship (taking into account the content as briefly discussed above). In addition, reviewing the terms of the agreement would also provide guidance in determining the nature of the agreement. If uncertainty persists, seeking an advisory award (determination) from the CCMA would provide clarity as well as perhaps a basis upon which a party could use to justify the nature of the agreement should it ever be disputed otherwise. Employers are directed to seek labour law advice for more information in this regard.

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