Author: South African Labour Guide
Estate Agents: Employee versus Independent Contractor
It seems that employers are still prone to employing people under a contract that states something like ” Your status is that of an Independent Contractor.”
The contract states further that “as an Independent contractor, you are not entitled to paid annual leave, or paid sick leave, paid responsibility leave, and you are not entitled to be paid for overtime worked and you’re not entitled to be paid for public holidays or Sundays worked.”
“You are also not entitled or eligible for membership of the company pension scheme or medical aid scheme.” And that, in a nutshell, is the reason why employers go the “Independent contractor” route, but unfortunately if an employee had to challenge the nature of the employment relationship at the CCMA, it would in nearly every case be found that the “Independent contractor” is in fact an employee.
The provisions of a section 200A of the Labour Relations Act and a section 83A do not apply to persons who earn in excess of the amount determined by the Minister, and it is usually in the case of persons who do earn in excess of the threshold that the so-called “Independent Contractor” agreement is entered into, rather than a Contract of Employment or a Contract of Service.
Before the provisions of the Labour Relations Act and the Basic Conditions of Employment Act can be applied, an employment relationship must exist between the employee and employer. This is another reason why employers go the “Independent contractor” route – because a true Independent Contractor has no protection under this legislation.
Although employees earning over the threshold amount are not subject to the presumptions made in a section 200A of the Labour Relations Act, if such an employee did challenge the status as an Independent contractor and allege that he is in fact an employee, the CCMA would still be required to rule on the matter. Furthermore, if the “Independent contractor” does challenge that status, and allege that he is an employee, the onus to prove that he is an Independent contractor then shifts to the employer.
The main difference between employee and Independent contractor is the nature of the contract itself. It must be determined what the intention was of the parties to the contract – was the intention that it actually be a contract of employment, or was the intention that it actually be an Independent contractor relationship ?
The one contract (employee/employer relationship) is a Contract of Service – the employee undertakes to render his services (as opposed to an agreement to undertake and complete specific tasks) to the employer, usually for an undetermined or understated period of time, in return for which the employer undertakes to pay the employee for those services.
The other contract (Independent contractor) is a Contract for Service, and is usually a contract where the contractor undertakes to perform a specific service or task, and upon completion of the agreed service or task, or upon production of the result agreed upon, the contractor will be paid.
In the Contract of Service (employee contract) the employee is subject to the control and direction of the employer, the employer stipulates what hours the employee shall work, the employer dictates how and when the various tasks shall be performed, the employer provides all the resources to enable those tasks or services to be performed.
The employee is obliged, in terms of the contract, to obey the employer’s instructions and direction is in regard of all the above. In the Contract for Service, the “employer” may dictate a certain date by which the agreed task must be completed, but he would not, for example, be able to instruct the contractor regarding what materials must be used and how the job is to be done.
For example, you would enter into a Contract for Service with a person to paint your house. You would instruct that person regarding what colours you required the house to be painted in, and you would probably stipulate a date by which the job should be completed. You would not, however, instruct the contractor regarding what size paint brushes he must use, or where he should use paint brushes or paint rollers, or what brand of paint to use, and so on. That would be for the contractor to decide.
The contract are would be free to decide who he seems to your house to carry out the painting, and the would be free to take on painting jobs for other people – even jobs for other people with whom you may have a problem. The Contractor would also decide for himself whether he is going to attend to painting your house every day of the week for the next three weeks, or whether he will attend to your job on only two days of the week or three days of the week, he would regulate how many workers he desires to put on the job, how much he will pay them, and when he will pay them.
In a Contract of Service, even if it states “Independent contractor”, the true nature of the intended relationship between the parties would become clear by various stipulations in the contract, such as office hours would be stipulated, the “contractor” would be required to attend work every day at the employers premises, and the employer would direct and instruct regarding what tasks are to be carried out and how they are to be carried out.
The “contractor” would not be free to engage in work for other companies, including companies in opposition to you, he would not be free to regulate his own working hours or days of work, he would not be free to send other people to your premises to carry out the tasks that he is contracted to carry out, and so on.
In all probability, PAYE monthly tax would also probably be deducted from the “contractors” salary, and also UIF. There might even be reference to certain bonuses in the contract, and in addition the contract might even contain a Restraint of Trade clause. The intention of the parties in such a contract would be glaringly obvious – the conditions stated in the contract point, with absolute certainty, that the intention was a relationship of employer/employee.
A Restraint of Trade clause can never be inserted in a true Independent Contractor agreement – it is quite simply unenforceable. You cannot restrain your plumber or painter or electrician from taking on other work, or from the painting the buildings of companies in opposition to you. Thus, if you wish the nature of the contract to be that of a true Independent contractor, you cannot put in a Restraint of Trade clause.
Employers then need to look very carefully at the nature of the so-called “Independent contractor” agreements, because in my view many of those agreements that are in force today are in fact not Independent contractor agreements at all, but rather employee agreements, and employees would have very little trouble in proving the true intention of the parties.
If as an employer, you have people in your employee as Independent Contractors, there are many other pitfalls to consider. One such would be that should the employee not show up for work for two or three days, or only start at 10 a.m. every morning, the employer would not be able to take action against that person – as an Independent contractor, he is fully entitled to regulate his own hours of work and his own days of work. As an Independent Contractor, things like disciplinary action don’t apply – because he is not subject to labour legislation.
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