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Independent contractors vs employees

Due to the fact that South African employment legislation applies only to employees as defined in the relevant legislation, it often occurs that companies enter into independent contractor agreements with individuals in an attempt to “side-step” the strenuous requirements of South African Labour Legislation.

The Labour Relations Act (“LRA”) 66 of 1995 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 the carrying on or conducting the business of an employer.”

The same definition appears in the Basic Conditions of Employment Act 75 of 1997 and the Employment Equity Act 55 of 1998.

It is important to note that the conclusion of an independent contractor agreement will not automatically result in the individual being considered as such.  In the case of Building Bargaining Council (Southern & Eastern Cape) vs Melmons Cabinets CC & another, the employer required all his employees to sign contracts stating that they are independent contractors. Despite the existence of the Independent Contractor Agreements, the Labour Court elected to ignore the content of the contracts and rather to inspect the relationship between the parties. Upon a closer look it became clear that the contracts stating that the individuals were independent contractors, were a sham and that the relationship between the parties constituted an employment relationship. The Labour Court held that in establishing whether an individual is an employee, one must consider the nature of the relationship between the parties as opposed to the substance of the contract.

In response to the problematic conduct by which employers attempt to disguise employment relationships by entering into alternative agreements, as exposed by inter alia the Melmons case, Section 200A of the LRA was introduced by the legislature during the 2000 Amendments.

Section 200A states that:

“(1)        Until the contrary is proved, a person who works for or renders service to any other person, is presumed, regardless of the form of the contract, to be an employee, if any one or more of the following factors are present:

(a)          the manner in which the person works is subject to the control or direction of another person;

(b)          the person’s hours of work are subject to the control or direction of another person;

(c)          in the case of a person who works for an organisation, the person forms part of that organisation;

(d)          the person has worked for that other person for an average of at least 40 hours per month over the last three months;

(e)          the person is economically dependent on the other person for whom he or she works or renders services;

(f)           the person is provided with the tools of trade or work equipment by this other person; or

(g)          the person only works for or renders services to one person.”

It is clear from the above that employers cannot rely on the conclusion of an independent contractor agreement to argue that an individual is not an employee. If any of the factors listed in Section 200A are present in the relationship between the parties, a presumption will exist that the “independent contractor” is an employee and the onus will be on the employer to prove the contrary.

This will have far reaching consequences in cases where employers unilaterally cancel independent contractor agreements due to dissatisfaction with the contractor’s performance or any other reason. Should the independent contractor refer the matter to the CCMA and argue that he/she was in fact an employee, the CCMA will ignore the content of the agreement entered into between the parties and consider the relationship between the parties, to establish whether the independent contractor was an employee and the cancellation amounted to a dismissal.

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