Contracts of Employment

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What is the status of your employees ? Are they employees, fixed term contractors, independent contractors, temporary employees, or indeed, even probationers in disguise? The dilemma continues – what category do you place your employees under?  And what is more, is the status of your employees fair and legal? Or are you "bucking the system?"

 

The employer says the working relationship is that of an independent contractor, and  such persons don't qualify for annual leave or sick leave, no 13th Cheque and no pension or medical aid. Or he says the relationship is that the employee is a 'temp.'  The employer is the agency from whom the employee is hired. and they must provide annual leave etc.

 

Firstly, it must be understood that this dilemma applies only to those persons who earn below the threshold income of R115572-00 per annum (BCEA section 83A(2) . There is as yet no definition of an employee or no presumption as to who is an employee in the Basic Conditions of Employment Act or the Labour Relations Act, applicable to persons earning more than the threshold amount.

 

There are, however, other tests such as the dominant impression test and other methods that can be applied to determine whether a person of that category is an employee or not. Persons earning below the threshold amount may, if necessary, approach the CCMA for an advisory award as to whether that person is an employee or not. (see section 148 LRA) In other words, to establish whether the relationship is a Contract of Employment or a Contract of Work. (BCEA section 83A(3)

 

The 'temp' employee – what it should be: 


The 'temp' is normally a person who is employed by a labour broker or agency, but can be a person employed direct by the employer, bypassing the agency or labour broker. The basis of the employment relationship is that the agency hires out the services of the 'temp' to a third party for a fee. On a monthly basis, the agency invoices the third party for the services rendered by that temp, the third party pays the agency and the agency pays the 'temp' the previously agreed salary.

 

Obviously, the fee that the agency charges the third party is far higher than the salary that the agency pays to the 'temp'. On average it is double or more, or at least 75% higher.

 

The concept of the 'temp' is supposed to be applied in those instances where the third party requires an employee only on a temporary basis (to fill in for another employee who is on maternity leave, for example) or requires temporary staff to help out over a seasonal busy period such as the Christmas season, or perhaps for shorter periods such as stocktake.

 

The person who accepted 'temp' work is usually the sort of person who does not want permanent employment, but prefers to work on the basis of getting 'temp' assignments, and working for the third party for a month here, 2 months there, and so on with the advantage of being able to spend a month or two, or perhaps 6 weeks at home between assignments.

 

Thus the relationship between the agency and the temp is usually a Temporary  Contract of Employment, and the relationship between the agency and the third party is a Contract of Work. The termination of the assignment, or the completion of the assignment,  will automatically bring about the termination of the Temporary Contract of Employment, and with each new assignment a new Temporary Contract of Employment is entered into between the 'temp' employee and the agency.

 

Similarly, a new Contract of Work is entered into between the agency and the third party for each new assignment. Thus, there is  no employment relationship between the worker and the third party, except perhaps for an 'implied' contract of work – the third party will obviously instruct the 'temp' in what work is required, how it is to be done, standards of quality and quantity required, and so on.

 

That is the true concept or the genuine concept of the 'temp'. There are many very genuine agencies and labour brokers out there who provide much needed employment, fairly and squarely – the problem does not lie with the agencies or labour brokers. The problem also does not usually lie with those employers who make genuine and sincere use of the services offered by agencies and labour brokers.

 

The problem lies with a different breed of employer altogether.

 

The 'temp employee : what it should not be:


Sadly, there are some unscrupulous employers out there who do not use the services of an agency or labour broker, but who handle the employment of their own 'temp' workers themselves.

They have realized:

 

[a] that the Temporary Contract of Employment can be used as a means by which the employer (not an agency or labour broker) can illegally evade his statutory (legal) obligations to the worker and

[b] that a Temporary Contract of Employment allows him to employ people at a far less cost than if he employed them on a permanent basis.

 

This particular class of employer is the one who has not yet been informed that slavery was abolished about 200 years ago. What this class of employer does is this:

 

 He draws up a Temporary Contract of Employment – usually stating that the contract terminates on a certain date, and stating that since it is temporary employment, the 'employee' does not qualify for annual leave, sick leave, family responsibility leave, pension or medical aid benefits, 13th Cheque and so on.

 

 This of course is untrue – even a temp qualifies for paid annual leave, paid sick leave and so on. The BCEA states (section 20 (b)) that annual leave accrues at the rate of 1 day for every 17 days worked, and that during the first 6 months of employment, sick leave accrues (section 22 (3)) at the rate of 1 day for every 26 days worked.

 

Very often the contract also states that the employee will not be paid for public holidays, and the salary is based on an hourly rate, stating that payment is made only  "for hours worked." Therefore, on a public holiday the hapless employee does not work, because the employer is closed for business on that day – so this unfortunate employee does not get paid for that public holiday.

 

The truth is that Temp employees are entitled to be paid for public holidays that arise during the tenure of employment. Another common clause in the contract states that the employer will deduct from the agreed salary, a certain amount (monthly, weekly or whatever) and will 'hold' this amount for the employee's credit in a special account. When the employee goes on annual leave or sick leave or takes a day off, or does not work on a public holiday, they will be paid for that time off from this "special account."

 

The employee is graciously informed that, in that way, the employee does not lose any pay and can still enjoy paid annual leave and paid sick leave!!

 

This wonderful benefit is provided only through the boundless generosity of the employer, and his concern for the employee's benefit. What a marvelous benefit to have. This employer is to be commended for his generosity and high moral principles.


 As soon as this Temporary Contract expires:

  • The employee might be told that contract has self-destructed, and he/she must now join  the ranks of the unemployed, or:
  • the employer either says nothing at all and the employee simply carries on working or
  • the employer simply renews the Contract every time it expires, and usually combined with this:
  • the employee says nothing, (usually being too frightened to say anything) about the Contract having expired for fear of being told to "finish up," and so:
  • this unhappy and totally illegal relationship continues for years – the employer enjoying the benefit of an extremely "cheap" employee and the unfortunate employee being denied his/her legal entitlement in terms of leave, pension, medical aid etc.

The employee says nothing – not wanting to rock the boat – too frightened of being "kicked out." Lets be honest – the unemployment situation today is horrific –  indeed, the situation is frightening and it shows no signs of improvement in the foreseeable future. As is always the case, there are employers out there who are quite willing to take advantage of the unhappy situation  in which the unemployed find themselves, and to turn their misfortune to his own advantage and profit. 

 

Employees who are fortunate enough to be in employment will protect that employment at almost any cost – even to the extent of 'playing along' with unscrupulous and illegal practices - always to the advantage of the unscrupulous employer. Anything to protect the job. There are mouths to be fed. The employer is really in the pound seats.

 

Should it happen that he needs to reduce staff for any reason, the first to go are the 'temps' – he usually has a number of employees on the same basis – and he simply terminates all the 'temp' contracts and out they go with empty pockets, having again been defrauded ( there is no other word for it) of there legal entitlement..

 

The employer who uses 'temp' employees in the proper way and for the proper purpose is to be commended. The employer who uses 'temp' labour illegally as described above is doing nothing short of defrauding the temp worker. That employer is deliberately misrepresenting the facts to that employee, with the specific and deliberate intention of defrauding that employee of benefits to which he is legally entitled.

 

The genuine 'temp' contract is usually entered into in those circumstances where an employee is required to fill a certain vacancy, but where the termination date is not a definite – it may be today or next week or next month. The contract will therefore usually state that the contract will terminate upon the occurrence of a certain event – such as upon the return to work of the employee who is on maternity leave, or perhaps who is off after undergoing major surgery, or perhaps on completion of stocktake and so on.

 

Upon the occurrence of the event referred to in the Contract, the employment relationship is terminated and the employee joins the ranks of the unemployed. Should the employer wish to retain the services of that employee on a temporary basis, he could enter into a further Contract of Temporary Employment, but any further Contracts after that should be a Contract of Permanent Employment. It would be grossly unfair for the employer to continue renewing the temporary contract time after time.

 

It must be expressly noted that, in the case of persons employed as 'temps' by an employer (agency, labour broker or otherwise) are not excluded from the benefits of paid annual leave, paid sick leave, paid family responsibility leave, pay for public holidays, pay for overtime,  and so on as provided for in the BCEA.

 

Because they are not specifically excluded, they are therefore included and the agency or labour broker, as the employer, is legally bound to provide those benefits.


The Independent Contractor


This type of contract is another method used by that certain class of employers to escape their legal obligations, and to defraud the employee of his/her legal entitlement. The true independent contractor is not a Contract of Employment at all – it is a Contract of Work.

 

An example of a true independent contractor is the plumber you call in when your hot water geyser bursts – he comes in, quotes you for the job – you accept his quote (thus enter into a Contract of Work) he replaces your old geyser, you pay his invoice and the Contract is ended.

 

 A true independent contractor :

  • will be a registered provisional taxpayer
  • will work his own hours
  • runs his own business
  • will be free to carry out work for more than one employer at the same time
  • will invoice the employer each month for his/her services and be paid accordingly
  • will not be subject to usual "employment" matters such as the deduction of PAYE or UIF from his invoice, will not receive a car allowance, annual leave, sick leave, 13th Cheque and so on.

 

Employers who outsource their labour requirements to a Labour Broker are not in contravention of the Act, but they must realize that they are not hiring "Independent Contractors." The benefits provided for in the BCEA must be provided to these workers by the Labour Broker.

 

More and more employers are going the route of outsourcing labour requirements. It solves a lot of problems, and in many cases can prove to be far more economical than employing labour. For example, the employer does not have to provide pension or medical aid, can easily reduce staff requirements during "valley" periods, increase staff during peak periods and level out staff requirements for the plateau periods.

 

The increasing or decreasing of staff can be done without the employer becoming involved in any expensive retrenchment exercises or subsequent visits to the CCMA.

 

The Fixed Term Contract.


The Fixed Term Contract is in fact very similar to the Contract of Temporary Employment referred to above. The difference is that a Contract of Temporary Employment usually terminates upon the occurrence of a particular event which is named in the contract. It may also terminate with the effluxionof time if a particular date of termination is specified in the Contract.

 

The fixed term Contract of Employment nearly always terminates upon the occurrence of a particular date. The very title of the contract "Fixed Term" implies that the contract is valid for a "defined period of time" and the word "Fixed" indicates that the termination date is "fixed" and therefore is not further negotiable.

 

When the termination date arrives, the contract is terminated and the employee joins the ranks of the unemployed. Again, should the services of the employer be required for a further period of time, a new contract can be entered into but to renew the contract again for a third period would be unacceptable. If that requirement should present itself, then a Contract of Permanent Employment should be entered into.

 

There is no limit really on the period of validity of a Fixed Term Contract. It is quite conceivable that, in the I.T. industry for example, a new project for the installation of I.T. systems in a new building for a large corporate employer could take up to 5 years. Therefore, the supplier of such equipment would therefore quite conceivably employ technicians and so on for a fixed terms of 5 years.

 

However, it must be made quite clears to such employees that the employment offered is for 5 years only and no longer. It has been found that some employers make use of a fixed term contract, entered into for a period of 3 months or 6 months, is in fact a period of probation in the disguise of a fixed term contract.

 

It is far easier to dismiss at the end of  Fixed Term Contract that it is to dismiss after a period of probation. This practice is despicable, and if caught out, the employer could be in trouble.

 

The Employee:

 

The Basic Conditions of Employment Act section 83A and the Labour Relations Act section 200A both provide the following "Presumption as to who is an employee"

 

[1] A person who works for, or renders services to, any other person is presumed, until the contrary is proved, to be an employee, regardless of the form of contract, if any one or more of the following factors is present:

 

[a] the manner in which the person works is subject to the control or direction of another person

[b] the persons hours of work are subject to the control or direction of another person.

[c]  in the case of a person who works for an organization, the person is a part of that organization

[d]  the person has worked for that other person for an average of at least 40 hours per month over the last 3 months

[e]  the person is economically dependant on the other person for whom that person works or renders services

[f] the person is provided with tools of trade or work equipment by the other person; or

[g] the person only works for or renders services to one person.

 

In section 1 of the BCEA "Definitions", the Act gives the definition of an employee as follows:

 "employee" means –

 

[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. and 'employed' and 'employment' have a corresponding meaning.

 

From the above, it is blatantly clear just what an 'employee' is, and just who is classed as an 'employee' for the purposes of the Basic Conditions of Employment Act and the Labour Relations Act. This extends to matters such as PAYE, U.I.F. and so on. The definition contained in the two Acts will blow nearly all of the unscrupulous class of employer right out of the water, and land him high and dry where he deserves to be.

 

Temps and independent contractors who recognize their own unenviable situation above must never be frightened to "take on" the employer. After all, it is not the 'temp' or independent contractor who is guilty. It is the employer who has perpetrated the fraud – thus it is the employer who must pay up and smile.

 

Considering the above definition in the Act, it is almost certain that by far the greater percentage of  'temps' and 'independent contractors' will find that they are in fact employees for the purposes of labour legislation, and are fully entitled to all the benefits and protection offered by the BCEA and the LRA.

 

Presently, those who earn more that R115572-00 per annum do have a problem of sorts – they are not employees in terms of the Act, therefore the first hurdle to overcome at the CCMA is to establish that the relationship between employer and 'temp' or 'independent contractor' is in fact a relationship of employment and not a relationship of work.

 

Is there an Employment Relationship ?


The earnings threshold – R115572-00 per annum – is not a lot of money. Only R9631 monthly. How this threshold was arrived at is not clear. What is clear is that persons earning above the threshold do not enjoy the full protection offered by the Basic Conditions of Employment Act or the Labour Relations Act. Some sections of the BCEA do apply to these persons, others not.

 

Fortunately, in the case of a dispute at the CCMA, that eminent body seldom questions the status of the applicant's relationship with the respondent, unless the respondent draws attention to the fact of the earnings threshold and it's consequences for the applicant. A wide awake employer may submit that since the applicant is not an employee in terms of the Act, the CCMA does not have jurisdiction to conciliate or arbitrate the matter.

 

If indeed an employment relationship does exist (but only needs to be proved) then such action would seem to hold little advantageous consequence for the employer, other than to buy some time. However, if the nature of the relationship is in genuine doubt, then the nature of the relationship  could be contested, perhaps to the advantage of the respondent.

 

There is a test that can (indeed is ) applied in such cases, to determine the existence or otherwise of an employment relationship as opposed to that of the independent contractor. This is known as the "dominant impression test", and in fact amounts to nothing more than requiring the arbitrator to arrive at a decision "on the balance of probability."

 

Very basically, the facts that indicate an employment relationship are listed in one column, and the facts that indicate an independent contractor (or the facts that do not indicate an employment relationship) relationship are listed in an adjacent column. The arbitrator must then weigh up the facts in both columns, and decide which list carries more weight.

 

In other words, he must decide, on the balance of probability, which list constitutes the stronger indication of a relationship. Is the list of the employment indicators heavier than the list of independent contractor indicators ? If so, then an employment relationship exists and the dispute will fall under the jurisdiction of the CCMA (or Bargaining Council etc)

 

If not, then the applicant is not an employee for the purposes of the Act, and the CCMA does not have jurisdiction to conciliate or arbitrate the matter. That being the case, the applicant could sue civilly for breach of contract, damages, and so on.

 

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