Introduction
The Labour Appeal Court (‘LAC’) in Sun International Management Limited (t/a Wild Coast Sun) v Powell and Others (DA12/2023) [2025] ZALAC 20; [2025] 6 BLLR 581 (LAC) (20 March 2025) dealt with a dispute between Sun International and one of its former managers on the issue of whether he had been an employee or an independent contractor when the working relationship between them was terminated. This decision has been punted as one that allows employers to use independent contractor relationships to avoid incurring obligations under the Labour Relations Act 66 of 1995 (‘LRA’) in the case of senior staff who earn more than the threshold set in terms of section 6(3) of the Basic Conditions of Employment Act 75 of 1997 (‘BCEA’) (‘the remuneration threshold’ – currently R261,748.45 annual).
As we shall see, however, it is not quite that simple to evade obligations under the LRA.
The facts
There was no dispute that Powell had previously been in an employment relationship with Sun International that lasted from 2008 until November 2015, when he resigned to join an independent contracting company that then provided his services as a manager to Sun International on a contractual basis until the end of either May or June 2018. From this point on, however, the facts of his relationship with Sun International are contested. Powell’s version was that Sun International had then taken him into employment again in terms of an arrangement verbally discussed with Myan Moodley, Sun’s General Manager. This arrangement was supposed to have been confirmed in writing, but never was, despite repeated requests allegedly made by Powell. Sun’s version was that it had not re-employed Powell, but had engaged him as an independent contractor in his personal capacity after he left the contracting company. In accordance with this arrangement, Sun had paid Powell monthly from 1 June 2018, without deducting income tax (as an independent contractor, he was expected to take of his own tax arrangements). As from October 2018 payments were made on the basis of invoices apparently produced by Sun’s accounting department on Powell’s behalf. Powell claimed that he was unaware that these invoices were being submitted on his behalf and only found this out after the financial manager was dismissed, whereafter he queried it with Moodley. Powell acknowledged, however, that no income tax was deducted from his monthly remuneration and that he had not received any payslips from Sun over the period that this arrangement continued. Powell said that on 18 December 2018 he was pressured by a threat of withholding payment into signing a ‘commercial terms contract’. Two weeks later, on 2 January 2019, Sun informed Powell that it would be terminating the ‘working arrangement’ between them with effect from 31 January 2019.
The CCMA commissioner gave no credence to the ‘commercial terms contract’ and concluded that Powell was an employee. The termination of his contract was therefore an unfair dismissal. The commissioner ordered Sun International to reinstate Powell with backpay. Sun applied for the award to be reviewed by the Labour Court, which confirmed the commissioner’s conclusions.
The Labour Appeal Court, however, found that the evidence before the CCMA, such as it was, was insufficient to support a conclusion that Powell was an employee of Sun at the time that the ‘working arrangement’ was terminated. Powell had therefore failed to meet the onus of proving that the CCMA had jurisdiction to determine the dispute and the court set aside the CCMA’s arbitration award.
Comment
Section 200A(1) of the LRA (promulgated in 2002 and mirrored in section 83A of the BCEA) creates a rebuttable presumption that, ‘regardless of the form of the contract’, it is an employment relationship if any one or more of the following factors is present (my underlining):
‘(a) The manner in which the person works is subject to the control or direction of another person;
(b) the person’s hours of work are subject to the control or direction of another person;
(c) in the case of a person who works for an organisation, the person is a part of that organisation;
(d) the person has worked for that other person for an average of at least 40 hours per month over the last three months;
(e) the person is economically dependent 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.’
Unfortunately for Powell, these presumptions did not assist his case, as section 200A(2) excludes from the application of section 200A(1) anyone earning more than the remuneration threshold under section 6(3) of the Basic Conditions of Employment Act (‘BCEA’). It is this exclusion that has prompted suggestions that section 200A offers an easy way for employers to avoid incurring obligations under the LRA in the case of senior staff who earn more than the remuneration threshold.
However, section 200A(2) does not end the enquiry as to whether persons in Powell’s situation are employees, regardless of the form of the contract, since section 200A(4) expressly required NEDLAC to issue a Code of Good Practice setting out guidelines for determining whether persons, ‘including those who earn in excess of the amount determined in subsection (2)’ are employees. The result was the Code of Good Practice: Who is an Employee? that was issued in 2006 (‘the Code’).
Part 3 deals with interpreting the definition of an employee in some detail and articles 27 to 31 address the distinctions between employees and independent contractors. Articles 27 and 28 highlight how our courts have followed the ‘dominant impression’ test in their approach to this problem. In terms of this approach, no one single factor is decisive of the issue – all aspects of the contractual arrangement are evaluated to determine what the true nature of the relationship is. The dominant impression test asks the question: is the overriding impression, after considering all the relevant factors, that the relationship is essentially one of employment, or is it genuinely an independent contractor relationship as described in the contractual documents? In this evaluation, the way that the contract describes the relationship will only be decisive if both parties agree that the characterisation is consistent with the realities of the relationship; or if neither chooses to lead evidence about the nature of the relationship.
Articles 29 and 30 specifically recognise that the contractual terms may not always reflect the true nature of the relationship. Adjudicators are therefore required to look beyond the form of the contract to ascertain whether there is an attempt by one or both parties to evade obligations under labour or tax law. Article 29 urges adjudicators to bear in mind that the inherent inequality of bargaining power as between employers and employees may induce employees to agree to arrangements that may not be in their best interests. Article 30 notes that ‘[d]isguised employment is a significant reality in the South African labour market…’ and that article 4(b) of the ILO’s Employment Relationship Recommendation 197 of 2006 defines a ‘disguised employment relationship’ as one where the employer treats an individual as other than an employee ‘in a manner that hides his or her true legal status as an employee’. Article 30 goes on to state:
‘A contract that designates an employee as an independent contractor, but in terms of which the employee is in a subordinate or dependent position, remains a contract of service. In other cases, employers have claimed that a person who was formerly an employee has been “converted” into an independent contractor. If the person has previously performed the same or similar work as an employee, this is a very strong indication that he or she remains an employee. Likewise, 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 be a factor indicating that the person is an employee’.
Article 3 of the Code makes it compulsory for any person interpreting or applying the LRA, among other laws, to take the Code into account for the purpose of determining whether a particular person is an employee. It is unfortunate, assuming that the LAC did indeed take the Code into account, that it did not spell this out in its analysis. It would have been interesting, for example, to learn what the court’s view was of the fact that, despite the contractual terms and the incidentals obviously necessary to support that arrangement (invoices, no income tax deductions, no payslips, etc), Powell was performing a job that one would think was integral to a hospitality chain’s normal organisational structure. One cannot help but think that the employer may perhaps have gotten off lightly in this instance. On the other side of that coin, it seems equally likely that the paucity of the evidence submitted by the employee in the original arbitration may have played a decisive role in the eventual outcome.
Be that as it may, there are obviously perfectly legitimate circumstances that may induce employers to consider operational changes that result in certain functions being contracted out. There is nothing inherently unfair in doing that, as long as (a) the purpose is legitimate (ie, the aim is a legitimate operational one rather than principally to evade obligations in terms of labour, tax or other laws); (b) the changes are consistently applied (ie, affecting everyone in the same function at the same level rather than differentiating among individuals); and (c) the process and the implementation are fair (ie, there is full consultation genuinely aimed at reaching consensus, with all that that requires and implies, and compliance with the laws relating to operational terminations where that may be applicable).
As always with any sensitive legal issue that has the potential to become a wrecking ball – take competent legal advice before engaging in a project of this nature.
© Kevin Mulligan 2025
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