Consultancy agreement vs employment contract

The use of a consultancy agreement vs employment contract can lead to labour disputes as employers often issue consultancy agreements to staff and take them on as independent contractors rather than employees. This is done to avoid the operation of the labour law regime which gives employees various rights and protections.

They are then not afforded the rights that employees are entitled to such as paid annual leave and sick leave. Upon the termination of their contracts, they are not given the rights afforded to employees.  For example, in a misconduct case, they are not given a hearing and in a restructuring case, they are not consulted or paid severance pay.

Section 200A of the Labour Relations Act protects lower-earning workers against exploitation through the use of consultancy agreements. The section  applies to workers earning below R205 433.30 per annum. It creates a presumption that a person is an employee if any of the following factors is present:

• The manner in which the person works is subject to the control or direction of another person

• The person’s hours of work are subject to the control or direction of another person.

• In the case of a person who works for an organization, the person is a part of that organization

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

• The person is economically dependent on the other person for whom that person works or renders services

• The person is provided with tools of trade or work equipment by the other person; or

• The person only works for or renders services to one person.

Higher earning workers who do not get the benefit of the presumption,  however, also enjoy the protection of the law. Although there is no automatic presumption that they are employees, if they can show that the above factors are present, these would be indicators that they are employees and not consultants.

Ultimately, in assessing a claim involving a consultancy agreement vs employment contract, the law places substance over form.