State Information Technology Agency (SITA) (Pty) Ltd v Commission For Conciliation, Mediation and Arbitration and Others (JA 16/2006) [2008] ZALAC 1; [2008] 7 BLLR 611 (LAC); (2008) 29 ILJ 2234 (LAC) (20 March 2008)

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[2008] ZALAC 1
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State Information Technology Agency (SITA) (Pty) Ltd v Commission For Conciliation, Mediation and Arbitration and Others (JA 16/2006) [2008] ZALAC 1; [2008] 7 BLLR 611 (LAC); (2008) 29 ILJ 2234 (LAC) (20 March 2008)

LOM Business Solutions t/a Set LK Transcribers
IN THE LABOUR APPEAL COURT OF SOUTH AFRICA
JOHANNESBURG
CASE NO
: JA16/2006
2008-03-20
In the
matter between
STATE INFORMATION TECHNOLOGY AGENCY
(SITA) (PTY) LIMITED Appellant
and
CCMA & OTHERS Respondent
_________________________________________________________
J U D G M E N T
_________________________________________________________
DAVIS JA
:
[1] This is an appeal against the judgment and an order with Cele AJ,
handed down in the court
a quo
on 7 March 2006, pursuant to an
application which was brought by appellant in terms of
Section 145
of
the
Labour Relations Act of 1995
, to review and set aside second
respondent’s award in the arbitration proceedings which were held
under the auspices of first respondent
pertaining to an allegation of
an unfair dismissal of the third respondent.
[2] The second respondent had issued an award that the appellant and
a third party Inventus Products CC, were jointly and severally
liable
to pay compensation to the third respondent, as both entities were
found to be employers of the third respondent. The court
a quo
reviewed that award and ordered that only the appellant was liable to
payment of the compensation which was awarded.
[3] In the notice of appeal by the appellant, the grounds which are
raised are that the court
a quo
erred in making a finding of
the fact that the third respondent was appellant’s employee and not
that of Inventus CC (referred
to sometimes as “Investus CC”).
There were further grounds that the court had erred in correcting
second respondent’s award
to reflect that the third respondent was
the appellant’s employee and not that of Inventus CC. Further, he
had erred in correcting
the award, such that Inventus CC was absolved
from joint in several liability of appellant to compensate the third
respondent. A
further ground was raised that the court had erred in
finding that the contract of employment between third respondent and
Inventus
CC was not a genuine contract but a façade, a stratagem,
employed by appellant to circumvent the legal probation against such
an
employment relationship of coming to be between the appellant and
third respondent. Further, the court had erred in effectively
finding that the second respondent’s award was wrong in finding
Inventus CC was a temporary employment service in terms of
Section
198
of the
Labour Relations Act.
[4
] Stripped to its essence, the dispute turned on the nature of the
contract and who was the employer in such a case. I shall return
to
this implication later in the judgment.
[5] In his
judgment, Cele AJ, set out the essential facts very usefully and
because I invited counsel for the appellant to point out
mistakes to
this court in relation to the summary which he conceded was accurate,
I shall therefore employ it for the purposes of
this judgment.
“
The third respondent worked for the South African National
Defence Force …. He was then retrenched and was given a severance
package
by the SANDF. In terms of the severance package and in terms
of the regulations and laws applicable, he could not therefore be
thereafter
lawfully employed by the South African National Defence
Force. The applicant then first approached the third respondent with
regard
to possible tendering of employment service. The third
respondent and the applicant appeared to have clearly understood
between
themselves, that any employment between the two of them would
not be lawful”.
[6] In short, the problem confronting appellant and third respondent
was this: appellant was desirous of using the services of third
respondent. Pursuant to third respondent’s retrenchment from the
South African National Defence Force as well
as
regulations and laws which were applicable thereto, it was not
possible for appellant to so employ the third respondent directly.

Accordingly, the arrangement was conceived whereby Inventus CC would
employ the third respondent and in terms of a contract between
the
former and the appellant, third respondent would provide all the
necessary services to the appellant. Indeed, in the contract
which
was entered into between the appellant and Inventus CC, it was clear
that the purpose and nature of the contract was for a
range of
services to be supplied exclusively by the third respondent to the
appellant.
[7] Further indications of the nature of the relationship between
Inventus CC and the third respondent, can be found in the
evidence of Mr Kritzinger, the sole member of the CC who
testified that in effect he was no more than a conduit facilitating
payment to the third respondent pursuant to the services that third
respondent had provided to the appellant. Furthermore, in a
letter
of 9 March 2002, generated on an Inventus Products CC letterhead:
“
I
regret to inform you that SITA has informed us of the termination of
the assignment pertaining to your services with effect 31 March
2002.
Their reasons as I understand it, is that the SADNF has limited
funding for the older systems that has to be phased out and
certain
cuts need to be made on the part of SITA. This is in line with the
situation as discussed with them and in line with the
contractual
arrangements between SITA and Inventus that leads to this unfortunate
state of affairs. This termination does not mean
that you also
disappear from our books, you still remain as “an employee” of
Inventus even though it is without remuneration”.
[8] On a letter of 29 February 2002, generated on a SITA letterhead,
(that is appellant’s letterhead) the following appears”
“
Please
be informed that A Van Zyl’s contract end on 31 March
2002 and will not be renewed with SITA”.
The facts which gave rise to this dispute were evident from the
correspondence to which I have referred. As at 31 March 2002, third
respondent’s services were no longer required by appellant. Third
respondent therefore contended that indeed he had been unfairly
dismissed.
In terms
of
Section 186(1)(b)
of the Act, dismissal includes the following
ground – “an employee reasonably expected the employer to renew a
fixed term contract
of employment on the same or similar terms but
the employer offered to renew on less favourable terms, or did not
renew it.”
There was
a considerable debate about whether there was any legitimate
expectation or reasonable expectation as the phrase is employed
in
Section 186(1)(b)
, on behalf of third respondent which would sustain
the argument that his was not but a temporary contract for a short
period but
was a contract in which, given the nature of the
relationship, there was a reasonable expectation of continuous
renewal.
[9] Having set out this question, it is important to return to the
nature of the appeal. That issue was not before this court.
The
sole issue before this court in terms of the notice of appeal was:
what was the nature of the contract, that is, who was the
employer?
The issue as to whether in fact there was a reasonable expectation
was essential to the determination of second respondent,
which was
not really canvassed before the court
a quo
and was not a
subject to this appeal.
[10] I turn therefore to deal with the question, as to who the
employer was pursuant to the facts as set out in this case. The
major obstacle facing appellant concerned the judgment of this court
in
Denel (Pty) Limited v Gerber
, 2005 (26) ILJ 1256
(LAC), in which this court adopted a “reality test” to a
situation of where a company or a closed corporation
is interposed
between an employer and an employee. The court took the view that,
even where there was an agreement where one legal
entity such as a
company or close corporation and the alleged employer for the
provision of services, it was open to the court to
find that the
person who effectively was the owner of the company or a close
corporation was an employee of the other company, with
which his or
her company or close corporation had such an agreement. The mere
fact that use is made of a legal entity such as a
company or close
corporation to provide services, was no bar to the conclusion by the
court that a particular individual who was
contracted to a company or
close corporation, or who owned the company or close corporation in
terms of which he was obligated to
provide services to the alleged
employer, was an employee of the company, which was contractually
entitled to receive such services.
In short, the court in Denel
supra,
approached the vexed
question of the employment relationship on the basis of the substance
of the arrangements between the parties
as opposed to the legal form
so adopted. That particular judgment has been the subject of legal
analysis. See in particular André
van Niekerk, 2005 (26) ILJ 1094,
who in turn refers to a most comprehensive and thoughtful analysis by
Paul Benjamin in the 2004 (25)
ILJ 787. Benjamin’s contention
is that the Denel judgment is congruent with
Section 213
of the
Labour Relations Act which
inter alia
defines an employee as
any other person who in any manner assists in carrying on or
conducting the business of an employer. Benjamin,
(whose article was
written before the decision in Denel), notes that the issue of the
employment relationship has become crucial
to labour law partly
because of the concept of outsourcing and because, in many cases, a
traditional employer/employee relationship
no longer operates in the
labour market. He refers in this connection to international
standards developed by the ILO and, in particular,
to recent
conventions which “show a conscious policy to extend their
application to workers not employed in convention employment
relationships” at 801.
[11] Benjamin then makes a further useful point in relation to the
determination of this question:
“
A
starting point is the distinguished personal dependence from economic
dependence. A genuinely self employed person is not
economically dependent on their employer because he or her retains
the capacity to contract with others. Economic dependence therefore
relates to the entrepreneurial position of the person in the
marketplace. An important indicator that the person is not dependent
economically is that he or she is entitled to offer skills or
services to persons other than his or her employer. The fact that
a
person required by contract, who only provide services for a single
client, is a very strong indication of economic dependence.

Likewise, depending upon an employer for the supply of work is a
significant indicator of economic dependence” at 803.
[12] For this reason, when a court determines the question of an
employment relationship, it must work with three primary criteria:
An employer’s right to supervision and control;
Whether the employee forms an integral part of the organisation with
the employer; and
The extent to which the employee was economically dependent upon the
employer.
[13] These three tests are congruent with the principles in the Denel
judgment. Mr Langane on behalf of the appellant very bravely
urged
this court in fact to ignore lay aspects of the Denel case. I must
refuse the invitation; not only is it a recent judgment,
a considered
and carefully analysed judgment by Zondo JP, but its jurisprudence
has been embraced, in its essence by distinguished
South African
legal commentators.
[14] Applying
the three tests to the facts of this case, it is clear that the third
respondent offered his services alone to appellant
via the conduit of
Inventus. Agreed, Inventus might have made some money out of the
transaction. Third respondent was not always
clear in his evidence
as to who indeed his employer might have been. But Inventus
exercised no control. Applying the ‘reality’
test, there can be
no doubt that the substance of the relationship was one between third
respondent and appellant. Third respondent
was officially part of
appellant’s organisation. Inventus Products CC was merely a
deus
ex machina
to facilitate the desire of appellant to utilise the
services of third respondent which, absent Inventus, it would not
have been
able to achieve because of the legal problems to which I
have made reference earlier. The economic dependence was placed upon
appellant.
[15] A
further piece of evidence which supports this contention is to be
found in the correspondence to which I have made reference
which
manifested, the clear view of Inventus Products CC, that it was
not the employer, that the employer was appellant and
that Inventus
merely facilitated the transaction.
[16] Mr Langane suggested that there was no difference between the so
called ‘Kelly Girl’ who is employed by Kelly Girls and
sent to
various clients to provide typing and other secretarial services and
this case. But, employing the Benjamin concept of economic
dependence, both from the perusal of the contract between Inventus
Products CC and appellant, and the correspondence which generated
and
the evidence of Mr Kritzinger, it is clear that the economic
dependent relationship was between the appellant and third
respondent.
In the light of these conclusions, it is clear that
Section 198
of
the Act which applies to temporary employees is inapplicable, given
the finding that the real employer was appellant.
[17] One final point: Mr Langane referred (arguably) correctly, to
the situation that third respondent had not come to court with
clean
hands, in that he was party, to what Mr Langane correctly called an
avoidance scheme, the avoidance being of the applicable
regulations
in order that third respondent should continue to be employed by the
appellant. But in the Denel case to which I have
already made
reference, the court was faced with, arguably, a more egregious form
of lack of clean hands, in that it was clear that
the employee in
that case had deliberately interposed her own close corporation
between the employer and herself to circumvent the
Income Tax Act 58
of 1962. Accordingly, in that case, Zondo JP ordered that, although
the court was of the view that the employment
relationship was
between the individual employee and Denel, before any relief could be
claimed, the individual employee had to ensure
that her tax affairs
had been put in order.
[18] The important point, is that the absence of clean hands did not
prevent the court from coming to the conclusion that the employment
relationship was between Denel and the respondent.
That is the only issue upon which this court was called to decide.
Cele AJ concluded that:
“
The
Denel decision was directly applicable to present case, clearly a
form of the relationship that was between the applicant and
third
respondent, was that of an employer/employee relationship and in the
substance of the relationship in the form that they decide
to be on,
was merely to facilitate that substantive relationship had existed
between them and therefore I do not find that the second
respondent
was correct in arriving at a decision that the applicant was an
employee of the third respondent.”
[19] In this he was correct. In short, he adopted the approach that
the only employer was the appellant not Inventus, that the second
respondent had misdirected himself to that extent and accordingly
found that the only employer was appellant and directed that the
compensation R123 246,64 should be paid by the appellant.
[20] There was some debate about costs. There was no representation
by third respondent in the proceedings before the court
a quo
,
and accordingly no costs order was made. It appeared to me that in
fact the issue of costs should be based on the fact that insofar
as
the order Cele AJ is concerned, nothing should change. However,
because the third respondent has been successful, we would require
that the third respondent be entitled to its costs in relation to the
appeal. For this reason therefore,
the appeal is dismissed with
costs
.
TLALETSI & LEEUW JJA
: Concurs.
---oOo---
Date of Judgment: 20 March 2008
APPEARANCES:
For the Appellant: Advocate K Lengane
For the
Respondents: Mr M Scheepers