South Africa has some of the most inflexible labour laws in the world. That said, the growing global trend of hiring contracting staff for specific skills is enabling companies to remain agile in their staffing by hiring differently.
Hiring independent contractors in a tough economy enable companies to quickly scale their resource capacity and reduce it again without having retrenchment or notice period restrictions. Also referred to as the gig-economy or a flexible workforce, this hiring agility is priceless to companies, particularly in high growth phases, which are marked by uncertainty and fluctuating workloads.
Independent contractors are typically sole-proprietors hiring out their skills for an hourly or project fee. Many will contract their services through an agency, like RecruitMyMom, which is quickly able to match the resource needs of companies to the resource provider in the form of an independent contractor.
The advantages of hiring independent contractors include:
- Cost savings – the hourly cost of a contractor may be higher, but the overall cost to the company is less as the company does not incur office or benefit costs such as pension fund contributions, UIF etc.
- Staffing agility and scaleability - companies can quickly meet resource requirements and cut back on them depending work fluctuation.
- Access to a diversity of skills - the ability to quickly access diverse skills required as a project progresses.
- Company headcount is fixed as independent contractors don’t go onto the company payroll.
- Security to test a skill - test the calibre of expertise and fit of a resource before offering them an extended contract.
- Access to a large diversity of skills, from Administrators, to Marketing Managers to Zoologists.
How to determine if an employee is an independent contractor
There can be some confusion as to whether someone is an independent contractor or an employee since changes made by SARS in March 2018.
As laid out in this article by The SAIT, it is the responsibility of the employer to determine whether the provisions of the definition of “remuneration” are applicable and whether payments are subject to employees’ tax.
An employer that has incorrectly determined that a worker is an independent contractor is liable for the employees’ tax that should have been deducted, as well as concomitant penalties and interest. The employer has the right to recover the tax paid from the employee. The tests laid out in the SAIT article are a helpful guide to any employer.
Labourwise has provided a helpful case study from Uber to explain how the CCMA might determine if an employee is an independent contractor or an employee.
Independent contractor or employee – the Uber case
When people have been contracted to provide a business with a service on an independent contracting basis, the business might feel confident that the contract may simply be terminated in terms of the contractual provisions. This can change in a moment, when the business learns that the ‘contractors’ are, in fact, all employees. Then the termination would be regarded a dismissal – with far-reaching consequences. This is what happened to Uber in South Africa when they were taken to the Commission for Conciliation, Mediation and Arbitration (CCMA) by certain drivers whose apps were de-activated.
The dividing line
The distinction between an independent contractor and an employee is critical in determining the right to protection in terms of labour legislation. The line between independent contractors and employees has always been blurry. Amendments to legislation have brought some clarity through the introduction of certain guiding criteria that assist arbitrators in deciding one way or the other. But advances in technology in the ever-changing world of work, have tended to blur the line again. This is well illustrated by the recent CCMA case involving Uber in South Africa.
Uber taken to the CCMA
Uber BV (based in the Netherlands) provides an app through which riders can request a driver to give them a lift to a destination of their choice. The management in South Africa is by and large done through Uber SA (a subsidiary of Uber BV), who have offices in Cape Town. In the CCMA case of Uber South Africa Technological Services (Pty) Ltd vs NUPSAW, SATAWU and others (2017), the Commissioner described the situation as follows: “[It] starts with a process of being on-boarded. This process involves registration on the app, approval of the vehicle the driver will use, documentation regarding the identity and status of the driver, obtaining a Public Drivers Permit (PDP) license, a standard business plan produced by Uber; a training or information session at Uber Cape Town offices where the driver is informed how to use the app and the standards required of Uber drivers. The partner (or partner-driver) clicks to indicate acceptance of the terms of the agreement. The agreement is detailed and dense, and it identifies partners (and partner drivers) as independent contractors.”
When Uber decided to de-active the apps of certain drivers, they challenged the termination of their services by referring the matter to the CCMA. The question arose whether they were independent contractors or employees, in which case the CCMA would have the jurisdiction to decide on the fairness of their dismissal.
Uber had been confident that the de-activation did not amount to a dismissal, as, according to Uber, the drivers were clearly independent contractors, not employees. The Commissioner applied the “reality of the relationship test”, which states that: “courts, tribunals and officials must determine whether a person is an employee or independent contractor based on the dominant impression gained from considering all relevant factors that emerge from an examination of the realities of the parties’ relationship.”
In applying this test, and after considering the various factors identified in the Code of Good Practice: Who is an Employee? The Commissioner found –
- that the drivers rendered personal services,
- that the relationship was indefinite as long as the drivers complied with requirements,
- that drivers were subject to the control of Uber (see further discussion below),
- that, as far as their ability to drive, the drivers were economically dependent on Uber; and
- that Uber drivers were the essential part of Uber’s service.
The issue of control appears to have been of particular significance in this case. The Commissioner acknowledged that the drivers chose their hours of work and they could accept, decline or ignore a lift request. However, Uber controlled the manner in which they worked by setting clear standards and performance requirements. Uber had control, in that it could suspend and deactivate access to the app, thereby depriving the drivers of the opportunity to work and earn an income. Even though there was no direct or physical supervision, control was exercised through technology.
The Commissioner concluded that the relationship was one of employment. Moreover, although Uber BV in the Netherlands provided the technology and generated the contracts, Uber SA was, for all intents and purposes, the real employer of the drivers in South Africa. The de-activation of the app essentially amounted to a dismissal. The Commissioner also rejected Uber’s argument that the owner of the vehicle was the driver’s employer, or that the rider contracts the driver directly as an independent service provider.
The parameters seem to be continuously shifting when it comes to the distinction between independent contracting and employment. Businesses that have any doubt about the nature of the relationship, should, at least when it comes to the termination of such relationship, treat it as one of employment. They would be well advised to conduct a hearing of sorts before deciding to terminate the relationship.
Article “Independent contractor or employee – the Uber case” provided by Jan Truter for http://www.labourwise.co.za is an on-line labour relations service aimed at assisting employers with the implementation of effective labour relations. They can be contacted via the website or firstname.lastname@example.org.