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Who is an Employee? The question addressed. (Part 4)

The Code addresses the question of: when does a person becomes an employee?


Disputes arise around this question when a person applies for a job, the application is successful, they sign a contract or letter of appointment, but before actually commencing work the new employer phones them to say that the post no longer exists, or the employment decision has been suspended, or some other reason, and they cancel the contract. This practice, which is fairly common, will only land the employer in hot water.


Section 26 of the Code states that "the definition of an' employee' includes a person who has concluded a contract of employment to commence work at a future date.  Accordingly it is not a requirement that a person has actually commenced work in order to be classified as an employee in terms of labour legislation." This means that, if a person has concluded a contract but has not actually started work yet, and the employer cancels or withdraws the contract,  then that person will be entitled to refer a dispute of unfair dismissal to the CCMA or bargaining council.


Distinguishing between an employee and an independent contractor


This process, in a nutshell, is really what employers want to know and should know - how do you distinguish?  Well, one thing is certain - the fact that the contract states that it is a contract of independent contractor, or states that the person is not an employee but an independent contractor, is nowhere near sufficient.  Section 27 of the code states that in making the decision, the court's follow the procedure commonly known as the "dominant impression" test.


This test requires that all aspects of the contract and the relationship must be evaluated, and then a decision is made based on the dominant impression formed in that evaluation. The fact that there is no single decisive criterion that determines whether an employment relationship exists or not,  does not mean that all the sectors should be given the same weight. In determining whether or not a person is an employee, the courts attempt to discover the true relationship between the parties.


The point here is that the wording in the contract, or the contractual relationship, may not always reflect the true relationship between the parties. Therefore, the court must have regard to the realities of the relationship, rather than only looking at the contractual nature of the relationship. It is unfortunate that disguised employment is alive and well and thriving in the South African labour market.


The Employment Relationship Recommendation, 2006, of the International Labour Organisation, defines disguised employment to be a circumstance where the employer treats an individual as other than an employee, in a manner that hides his true legal status as an employee." (section 30 of the code.)


In some cases, employers have claimed that a person who was formerly an employee, has been ' converted' into an independent contractor. If that person has previously performed the same or similar work as an employee, then this is a very strong indication that he or she remains an employee - despite the ' conversion.'


Similarly, the fact that other employees employed by the same employer, or by other employers in the same sector, to perform the same or similar work under similar conditions are classified as employees, may also be a factor strongly indicating that the ' converted' person is still an employee.


Another interesting observation in the code is that even where workers have agreed to a contract classifying them as independent contractors, it is consistent with the purpose of the LRA to classify them as employees. The point here is that, even if an employee has agreed to and signed a contract containing certain conditions, it does not necessarily mean that the contract is lawful. If it is not lawful, it cannot be enforced.


Further, the code states that the fact that a person provides services through the vehicle of a legal entity such as a company or a closed corporation, does not necessarily exclude that relationship as being an employment relationship covered by labour legislation.


It is necessary to look beyond the legal structuring to ascertain the reality of the employment relationship, and to determine whether the purpose of the arrangement was to avoid labour legislation or other regulatory obligations. The Appellate Division has listed six factors to distinguish a contract of employment (employee) from a contract for services (independent contractor). These factors are frequently cited in judgements, but they are not a definitive listing of the differences between the two types of contract.


(Employee in Bold, independent contractor Italic)


Object of the contract is to render personal services.
Object of contract is to perform specified work or produce a specified result.
Employee must perform services personally.
Independent contractor may usually perform through others
Employer may choose when to make use of services of employee
Independent contractor must perform work (or produce result) within period fixed by contract   
Employee obliged to perform lawful commands and instructions of employer
Independent contractor is subservient to the contract, not under supervision of control of employer    

Contract terminates on death of employee.
Contract does not necessarily terminate on death of employee.     
Contract also terminates on expiry of period of service in contract.      
Contract terminates on completion of work or production of specified result    

We will discuss these factors, and more on the dominant impression test next week.


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