Linda Erasmus Properties Enterprise (Pty) Limited v Mhlongo and Others (J1604/04) [2007] ZALC 6; [2007] 6 BLLR 530 (LC); (2007) 28 ILJ 1100 (LC) (13 February 2007)

IN THE LABOUR COURT OF SOUTH AFRICA

(HELD IN JOHANNESBURG)

Case Number: J 1604/04

In the matter between:

Linda Erasmus Properties Enterprise (Pty) Ltd Applicant

and

Lucky Mhlongo First Respondent

The commission for Conciliation

Mediation and Arbitration Second Respondent

Janine Beytell Third Respondent

JUDGMENT

Molahlehi AJ

Introduction

This is an application to review and set aside the ruling issued on the 26 June 2003, under case number GA17403-02 in terms of which the first respondent ruled that the third respondent (the “respondent”) was an employee of the applicant as defined in section 213 of the Labour Relations Act (the LRA). The ruling was the outcome of a point in limine raised by the applicant concerning the jurisdiction of the second respondent (the “CCMA”) in a mater relating to an alleged unfair dismissal. The applicant contended at the beginning of the conciliation process that the CCMA had no jurisdiction because the respondent was an independent contractor and not an employee.

In support of its argument the applicant relied on the terms and conditions of a contract concluded with the respondent on the 22 April 2002, in terms of which the respondent was an independent contractor, appointed in accordance with the Estate Agent Act No 112 and not as an employee. The applicant further submitted that the respondent’s responsibility as an independent contractor was to obtain houses for sale. She was initially, according to the applicant, assisted by being given two houses to sell. From then on it was up to her, how she secured the houses for sale.

In addition to her being paid on the basis of a commission, she could determine her own working hours according to the applicant. The only fixed and prescribed time was that of her having to attend a meeting every Monday. There is no evidence as to the length of the Monday meeting but the applicant argued that the purpose of the meeting was to encourage the respondent to sell as many houses as possible.

Unlike the full-time administrative staff members who were treated as employees, there was no Unemployment Insurance Fund (UIF) and Pay as You Earn (PAYE) deduction effected on the commission earned by the respondent. The respondent, like the other 50 (fifty) agents in the employment of the applicant, was according to the applicant, precluded from joining the Provident Fund and was not obliged to furnish medical certificates whenever she was off sick.

On the other hand whilst not disputing the existence of the written contract the respondent contended that the contract was written to avoid the principles of fairness imposed on the applicant by the labour legislation.

THE LEGAL PRINCIPLES

The word “Employee” is defined in terms of s 213 of the Labour Relations Act 66 of 1995 (the Act) to mean:

“(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.”

It is clear from this definition that an independent contractor is excluded from the scope of the Act. There is no argument about the fact that the CCMA has no jurisdiction to entertain independent contractor disputes.

The fact that the provisions of the contract categorises the relationship between the parties to be that of an independent contractor, is not conclusive of the true nature of the relationship. The courts and other dispute resolution bodies have gone beyond the written description of the nature of the relationship in the contract, to uncover the underlying and the true nature of the relationship.

The courts and other dispute resolution bodies have over the years applied a number of tests in determining the true nature of the relationship between the parties. In applying any one of the tests the courts have acknowledged and emphasised that the question of whether a person is an employee of another person depends largely on the facts of each case in the light of the features of the relationship between such two persons.

At an earlier stage in the development of jurisprudence in this area the South African courts favoured the use of the control test in determining the nature of the relationship between master and servant. Control and supervision was held to be one of the indicia to determine whether the relationship was that of a contract of service (employment contract) or a contract for service (independent contract).

In Mandla v Lad Brokers (PTY) LTD (2000) 21 ILJ 1807(LC) at para 8, Basson J in dealing with the control test had this to say:

“ The greater the degree of supervision and control to be exercised by the employer over the employee the stronger the probability will be that it is a contract of service.”

The dominant impression test has since Ongevallekommissaris v Onderlinge Verskerinsgenoodskap AVBOB 1976 (4) SA 446(A) and Medical Association of SA & others v Minister of Health & others (1997) 18 ILJ 528, gained more support from the courts and the various dispute resolution bodies. The dominant impression was embraced by the courts after acknowledging that the control test was an important factor in determining the nature of the relationship between an employment contract and an independent contractor. Thus in Stein Rising Tide Productions CC (2002) 23 ILJ 2017 (C) at 2024 Van Heerden J said:

“Problems experienced by the South African courts in the application of this control test for determining a master-servant relationship ultimately resulted in the courts acknowledging that, although the control test is an important factor in the enquiry, the crucial test, particularly in marginal cases, is whether or not the 'dominant impression' of the relationship is that of a contract of employment..”

The court went further to say:

“.... Notwithstanding its importance the fact remains that the presence of such a right of supervision and control is not the sole indicium but merely one of the indicia, albeit an important one, and that there may also be other important indicia”

In SA Broadcasting Corporation v Mckenzie (1999) 20 ILJ 585 (LAC) at 590-591D, the court in distinguishing the features of the contract of employment and the contract of work, said:

“1 The object of the contract of service is the rendering of personal services by the employee to the employer. The services are the object of the contract.

The object of the contract of work is the performance of a certain specified work or the production of a certain specified result.

2 According to a contract of service the employee will typically be at the beck and call of the employer to render his personal services at the behest of the employer.

The independent contractor, by way of contrast, is not obliged to perform the work himself or to produce the result himself, unless otherwise agreed upon. He may avail himself of the labour of others as assistants or employees to perform the work or to assist him in the performance of the work.

3 Services to be rendered in terms of a contract of service are at the disposal of the employer who may in his own discretion subject, of course, to questions of repudiation decide whether or not he wants to have them rendered.

The independent contractor is bound to perform a certain specified work or produce a certain specified result within a time fixed by the contract of work or within a reasonable time where no time has been specified.

4 The employee is subordinate to the will of the employer. He is obliged to obey the lawful commands, orders or instructions of the employer who has the right of supervising and controlling him by prescribing to him what work he has to do as well as the manner in which it has to be done.

The independent contractor, however, is notionally on a footing of equality with the employer. He is bound to produce in terms of his contract of work, not by the orders of the employer. He is not under the supervision or control of the employer. Nor is he under any obligation to obey any orders of the employer in regard to the manner in which the work is to be performed. The independent contractor is his own master.

5 A contract of service is terminated by the death of the employee whereas the death of the parties to a contract of work does not necessarily terminate it.

6 A contract of service terminates on expiration of the period of service entered into while a contract of work terminates on completion of the specified work or on production of the specified result. See Smit v Workmen's Compensation Commissioner at 61A-H”.

[7] The court went further to say:

“[10] The legal relationship between the parties must be gathered primarily from a construction of the contract which they concluded (Smit v Workmen's Compensation Commissioner at 64B; Liberty Life Association of Africa Ltd v Niselow at 683D-E), 'although the parties' own perception of their relationship and the manner in which the contract is carried out in practice may, in areas not covered by the strict terms of the contract, assist in determining the relationship' (Borcherds v C W Pearce & J Sheward t/a Lubrite Distributors at 1277H-I). In seeking to discover the true relationship between the parties, the court must have regard to the realities of the relationship and not regard itself as bound by what they have chosen to call it (Goldberg v Durban City G Council 1970 (3) SA 325 (N) at 331B-C). As Brassey 'The Nature of Employment' at 921 points out, the label is of no assistance if it was chosen to disguise the real relationship between the parties, 'but when they are bona fide it surely sheds light on what they intended”.

In Niselow v Liberty Life Association of Africa Ltd (1998) 19 ILJ 752 (SCA) the court said:

“An independent contractor undertakes the performance of certain specified work or production of certain result. An employee at common law, on the other hand, undertakes to render personal services to an employer. In the former case it is the product of or the result of the labour which is the object of a contract and in the later the labour as such is the object (See Smith v Workman Compensation Commissioner 1979 (1) SA 51 (A) at 61B)”

It has been found that when a court or other dispute resolution bodies are called upon to decide whether a person is an employee or not, they are enjoined to determine the true and real position between the parties. In this regard, the issue is not exclusively decided on what the parties have decided to call their relationship. In other words the designation of the position is not conclusive of the nature of the relationship.

In CMS Support Services Ltd v Briggs (1998) 19 ILJ 271 (LAC) the court focused and emphasised upon the election made by the employee, in the contract. This approach was criticised in the Denel (PTY) LTD v Geber (2005) 26 ILJ 1256 (LAC) for disregarding the realities of the relationship between the parties. It was held, in Denel’s case that ignoring the realities of the relationship between the parties, makes it possible to avoid the scope of the protective legislation such as the LRA and the BCEA. The reality approach does not however mean that the contractual expression by the parties as contained in their agreement should be ignored. Thus the court in Lad Beukers (PTY) Ltd v Mandla (2001) 22 ILJ 1813 (LAC), held that in determining whether a relationship exists between the parties, the terms of the relevant contract should be scrutinised.

EVALUATION OF THE FACTS

Having regard to the above principles, I now turn to the facts of this case. The contract signed by the parties on the 22 April 2002, designated the respondent as an independent contractor. In considering this matter, the designation of the respondent is

weighed against other factors to determine the true nature of the relationship between the parties.

Clause 4 of the contract provides:

“The parties acknowledge that the agent is an independent contractor in terms of the Estate Agents act [sic] No 112 of 1976 and not an employee of the Company, provided however that the parties record that there are certain areas where the agency requires to maintain control and /or supervision over the agent’s activities”

Read on its own, clause 4 projects the relationship as that of an independent contractor who ordinarily would fall outside the scope of the LRA. However a closer scrutiny of the last part of clause 4, read with clause 6, brings into doubt whether indeed this

is an independent contract agreement. A different impression to the one projected by the applicant emerges from reading both clauses 4 and 6 together.

Clause 6 requires the applicant to contact her manager “to confirm the use of correct clauses and wording in preparing documentation for conveyancing.” The applicant is required to familiarise herself: “with the documentation, read through the documentation and ask advice from your manager should you not understand.” More importantly, clause 6 under the heading, “The Agent agrees to”- prohibits the respondent from competing with the applicant “or accepts compensation for the sale, lease or exchange of any property other than from the Company as provided herein.”

If indeed the respondent is an independent contractor, then why does clause 6 deprive her of the authority to arrange for division of commission with other estate agency firms or any other person, unless specifically authorised to do so by the applicant. And also if she is an independent contractor, why was she, in terms of clause 6 required to abide by all the office rules of the applicant.

In terms of Clause 9 the agreement could be terminated for various reasons, relating to amongst others, unethical behaviour on the part of the respondent. The question again is, if indeed the relationship is that of an independent contractor, then why would the applicant be entitled to terminate the contract if the respondent, has referred any property transaction to another agency.

Clause 11 requires the respondent to keep all correspondence received or written by the respondent in the office of the applicant. A restraint of trade is imposed on the respondent from working as an Estate Agent in the area she has been allocated to for a period of 180 days after termination of the contract. Clause 12 requires the respondent to subject herself to an exist interview, a practice common in an employment relationship. Clause 15 controls the sale or purchase of the respondent’s own property.

On the other hand the applicant emphasised the fact that UIF and P.A.Y.E were not deducted and that the applicant was not paid a salary but a commission for the houses she sold. Whilst these are factors that may point towards an independent employment relationship, they are however not conclusive of the true nature of the relationship.

In the light of the above factors, the mode of payment and the non deduction of the UIF, P.A.Y.E, does not in the circumstances of this case tilt the balance of probabilities towards a finding of an independent contractor relationship.

Another factor mentioned in the record in favour of the respondent’s case is the fact that she was given a timetable or roster which regulated all aspects of her activities. In this regard, I share the same view as that of the commissioner of dismissing the contention of the applicant that the roster was used purely to assist the respondent in selling the houses. The commissioner was, indeed correct in concluding that the roster cannot be treated lightly as it points to the control that the applicant had over the respondent. The record also indicates that the respondent had to run errands for one of the managers, a certain Ms Linda Erasmus and had to report any absence from work to her.

The above considerations give weight to the conclusion that the respondent was an employee of the applicant at the time she was dismissed. Therefore, the dominant impression test tips the scale in favour of the respondent’s case.

I see no reason, in fairness, why costs should not follow the result.

Conclusion

In the result the following order is made:

The point in limine is dismissed with costs

The respondent was an employee in terms of s 213 of the Labour Relations Act 66 of 1995.

The mater remitted to the CCMA for arbitration.

__________________

Molahlehi AJ

Date of Hearing : 12 December 2006

Date of Judgment : 13February 2007

Appearances

For the Applicant : Adv W Hutchinson

Instructed by : Fluxmans Incorporated

For the Respondent: Viljoen Incorporated

Instructed by : Adv G Heyns