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Independent contractor or employee?

Independent contractor or employee?

To ensure that actual employees are not deprived of labour law protections by signing independent contractor contracts, Section 200A of the Labour relations Act (LRA) and Section 83A of the Basic Conditions of Employment Act (BCEA) introduce a rebuttable presumption that everyone (earning under the earnings threshold) is an employee until the contrary is proven, regardless of the wording of the contract that they have concluded.

The courts reinforce this presumption by following an approach usually referred to as the ‘dominant impression’ test. In terms of this test, it is necessary to evaluate all aspects of not only the contractual terms, but also the actual relationship. A classification based on the dominant impression is then formed by the courts. Accordingly, there is no single factor that indicates decisively the presence or absence of an employment relationship.

To be presumed an employee, an applicant must demonstrate that:

  1. They work for or render services to the person or entity cited in the proceedings as their employer.
  2. Any one of the seven listed factors is present in their relationship with that person or entity.

These factors are listed and discussed in the Code of Good Practice: Who is an employee?

  1. The manner in which the person works is subject to the control or direction of another person.
  2. The person’s hours of work are subject to the control or direction of another person.
  3. In the case of a person who works for an organisation, the person forms part of that organisation.
  4. The person has worked for that other person for an average of at least 40 hours per month over the last three months.
  5. The person is economically dependent on the other person for whom he or she works or renders services.
  6. The person is provided with the tools of the trade or work equipment by the other person.
  7. The person only works for or renders services to one person.

If any one of these factors are established, the applicant is presumed to be an employee. An employer who disputes that an applicant is an employee must be given the opportunity to rebut the presumption by leading evidence concerning the nature of the working relationship.

In the case of SABC vs. McKenzie, the Labour Appeal Court was of the opinion that the legal relationship between the parties must be gathered primarily from a construction of the contract which they concluded and from the realities of the relationship between them, and not simply from the way they chose to describe it. So the court has to give effect to what the relationship really is and not what it purports to be.

Some of the ways an employer can rebut the presumption include the situation where the employee:

  1. Generally, provides services to more than one person or company at a time.
  2. Sets his or her own hours.
  3. Works out of his or her own office or home and uses own equipment.
  4. Is not entitled to any leave.
  5. Does not receive employment benefits from the employer.
  6. Works relatively independently.
  7. Is a provisional taxpayer and responsible for paying his or her own taxes.
  8. Issues an invoice for services delivered as agreed upon by both parties for the period they agreed on.

In conclusion, it is clear from the above that no matter what the parties to the contract sign or agree to, the courts maintain the authority to declare an independent contractor an employee. This could have serious ramifications for the employer as benefits would need to granted on the same scale as other staff including entitlements to leave (annual, sick and family responsibility) and UIF contributions. Therefore it is vitally important that employers understand how to define their relationship properly to ensure their independent contractors truly are independent contractors.

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ABOUT THE AUTHOR

Craig Otten is currently a SEESA Labour Legal Advisor. He completed his articles in Johannesburg for a law firm specialising in Employment and Corporate law.

 

2 Comments

  1. fred 2 years ago

    very insightful expose

    • Author
      Tersia Landsberg 2 years ago

      Thanks Fred!

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