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[2011] ZALCJHB 39
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LSRC & Associates v Blom (J1907/2010) [2011] ZALCJHB 39; (2011) 32 ILJ 2685 (LC) (11 April 2011)
Reportable
IN THE LABOUR COURT OF SOUTH AFRICA
HELD AT JOHANNESBURG
CASE NO.: J1907/2010
In the matter between:
LSRC & ASSOCIATES
…..............................................................................
Applicant
and
ANNA CHRISTINA WILHELMINA BLOM
….............................................
Respondent
JUDGMENT
Rabkin-Naicker, AJ
[1] On the 23 September 2010, Bhoola J ordered that execution
proceedings against the applicant (the partnership) be stayed pending
the finalisation of this opposed application. The partnership seeks
an order:
“
Directing that the Respondent provides
the Applicant with the following documents within 10 days of date of
this order:
4.1 valid tax directive from the South African Revenue Service
(“SARS”) in respect of the settlement agreement of
R60 000.00
made an award of the Council for Conciliation
Mediation and Arbitration (“CCMA”) on 11 September 2010
(CCMA Award –
Annexure “H” of the Founding
Affidavit);
4.2 proof of disclosure of income tax to SARS for the period
February 2008 to August 2010;
4.3 proof of payment of income tax to SARS on the income disclosed
in 5.2 above;”
Background
[2] The respondent (Blom) worked as a bookkeeper for clients of the
partnership, and also performed administrative functions for
it,
including credit control.
[3] In or about July 2010, the partnership was awarded a licence in
terms of section 13(b) of the Pensions Fund Act by the Financial
Services Board enabling it to administer pension funds. According to
the applicant “
in keeping with good business practices”
it sought to formalise the oral contracts which they had in place
with certain of “
its service providers”,
including
Blom, and instructed its attorneys to draft written “
Independent
Contractor Agreements”
.
[4] Blom indicated she wished to obtain legal advice on the contract
before signing it, and pursuant to this informed the partnership
that
she had been told not to sign the draft contract
.
The
partnership was not sure how such failure to secure a written
contract would affect its Financial Services Board licence and
informed Blom that she was suspended until further notice, and that a
hearing would be convened.
[5] Blom referred a dispute to the CCMA. At the “conarb”
proceedings, the parties entered into a settlement agreement
which
was in the CCMA standard form, under the title ‘monetary
settlement’. In terms of the settlement agreement, the
partnership agreed to pay Blom the amount of R60 000.00, in two
instalments of R30 000.00 on the 7
th
and 25
th
of September 2010 respectively.
[6] The agreement included a no variation clause, as well as a clause
stating that the parties consent to the agreement being made
an
arbitration award in terms of section 142A(1) of the Labour Relations
Act. A further clause contained in the agreement, provides
that the
parties agree that in the event of non-compliance with this
agreement, “
the party defaulting will pay the full costs
incurred by the other party in enforcing this agreement
”.
[7] The partnership avers in its founding papers that it was not its
intention to confer jurisdiction upon the CCMA in concluding
the
agreement with Blom, and that it certainly did not recognise that
Blom was ever an employee of the applicant.
[8] Subsequent to the settlement agreement, and towards the end of
August 2010, the partnership met with its tax consultant who
informed
them that the partnership was required by law to deduct tax from the
settlement award. Blom was subsequently contacted
by telephone and
requested to obtain a tax directive in this regard.
[9] The advice given to the partnership was that in the event that
Blom had failed to disclose her income to SARS and failed to
pay tax
on her income, SARS could look to the partnership for payment and it
in turn would have to claim reimbursement from Blom.
[10] It was estimated that the partnership would have a contingent
liability to SARS of approximately R241 000.00 in the event
that
Blom had failed to disclose and pay tax from her income, as she had
earned some R698 915.00 in “
fees”
from the
applicant since February 2008.
[11] Given this liability, the partnership refused to pay the
settlement amount to Blom until she had obtained a tax directive
and
the monies were paid into the trust account of its’ attorneys
of record. On or about 3 September 2010, Blom applied to
certify the
CCMA award and then issued a writ of execution, which writ led to the
launching of this application, initially on an
urgent basis.
[12] The partnership avers in its’ papers that it had been
considering a review of the CCMA award but had subsequently resolved
not to proceed with the review application. It also does not
challenge the binding nature of the settlement agreement. I return
to
deal with the implication of its’ stance in this regard below.
[13] In the application before court, the partnership as dominus
litis, initially submitted that the court should make a finding
that
the respondent was an ‘independent contractor’. This
argument was wisely abandoned given that its’ logical
conclusion, had the argument held sway, would have been a finding
that the labour court did not have jurisdiction to hand down
the
order sought.
[14] This partnership’s approach appears to have been directed
at assisting it in respect of its tax liability. In similar
vein, it
was Blom’s case on the papers, that she was at all relevant
times an employee of the applicant and the work that
she carried out
under the instructions of the applicant was of a continuous nature,
and not project or contract based. She avers
that she had never
submitted any invoices for work done for the applicant. She
maintained a coy silence as to whether she had paid
any tax to the
fiscus on monies received from the partnership.
[15] It is undisputed that on the date of the conarb proceedings, 17
August 2010, when the commissioner facilitated an agreement
between
the parties, it was agreed that the partnership would be given a
period of 14 days in which to apply for a tax directive.
[16] Blom further avers that she decided to approach SARS herself and
duly completed the required form for the application for
a tax
directive. She states: “
I was informed in response to my
said application by SARS that since the applicant failed to properly
register for tax, I could
not be issued with a tax directive. Instead
of issuing me with a tax directive the relevant SARS official
indicated that SARS would
agree to the said R60 000 being
declared in my 2011 return and then be taxed”.
[17] In reply, the partnership states that insofar as the applicant
has no employees, it was the partners’
bona fide
belief
that there was no requirement for it to register or to pay PAYE. It
further alleges that: “
the fact that the applicant and the
respondent entered into a settlement agreement at the CCMA does not
change the complexion of
the contract which existed between applicant
and respondent. Respondent remains an independent contractor”.
[18] Further to a statement issued by SARS, which is in respect of
the year of assessment 2010, and does not cover the whole period
within which Blom was working for the partnership, the partnership in
a supplementary affidavit, explains that it refused to pay
the
R60 000.00 to SARS as requested by Blom as this would not
“
expunge the liability of the respondent to SARS or the
liability which the applicant has, or any liability which the
applicant may
have to SARS if respondent were to be considered by
SARS to be an employee”
.
Evaluation
[19] This application follows in the wake of a referral to the CCMA
and a section 142A certification making the settlement agreement
an
award that may be enforced as if it were an order of the Labour Court
in terms of section143(1) of the LRA. Section 142A of
the LRA
provides as follows:
“
(1)
The Commission may, by agreement between the parties or on
application by a party, make any settlement agreement in respect
of
any dispute that has been referred to the Commission, an arbitration
award.
(2) For the purposes of
subsection (1), a settlement agreement is a written agreement in
settlement of a dispute that a party has
the right to refer to
arbitration or to the Labour Court, excluding a dispute that a party
is entitled to refer to arbitration
in terms of either section 74 (4)
or 75 (7).”
[20] In
Molaba and Others v Emfuleni Local Municipality (2009) 30
ILJ 2760 (LC)
van Niekerk J considered the meaning of ‘settlement
agreement’ contained in section 142A. The court found that it
is
only settlements of disputes about a matter of mutual interest
that are either arbitrable, or justiciable by this court that may
be
the subject of an arbitration award in terms of section 142A. (
at
paragraphs 5 and 6
)
[21] Despite the partnership’s belief that the dispute between
the parties is not one between an employer and an employee,
(i.e. a
matter of mutual interest), its’ failure to challenge the
Award’s validity on any basis permitted in law, means
that the
terms of the settlement agreement are enforceable as if the award
were an order of this court.
[22] It is evident from the content of the papers that there is an
expectation that this court can make findings which will assist
in
dealing with the question as to which party is liable to pay tax to
the Commissioner of SARS, in respect of the remuneration
earned by
the Blom. The expectation is misplaced.
[23] In
Motor Industry Staff Association and Another v Club
Motors, a division of Barlow Motor Investments (Pty) Ltd (2003) 24
ILJ 421 (LC)
, the court held that neither an express or an
implied term in a settlement agreement can override the statutory
obligation to deduct
tax from a gross settlement figure. The case
concerned an agreement (pursuant to a retrenchment) and the
entitlement of an employer
to deduct income tax before paying the
balance to an employee. Rogers AJ found that:
“
In my view, the critical question in cases
such as the present one is whether on a proper construction of the
agreement the amount
which the employer has undertaken to pay to the
employee is an amount net of tax. If not, the ITA compels the
deduction of tax.
The amount that must be deducted is the amount
determined by the commissioner in terms of para 9(3) of the fourth
schedule. In
terms of that paragraph the commissioner's determination
is final. If the determination is withdrawn or varied after the
employer
has already accounted to the commissioner for the tax, the
employee will be entitled to credit or a refund pursuant to the
provisions
of para 28(1) of the fourth schedule.” (
at
paragraph 14
)
[24] It is common cause in this application that the amount of
R60,000.00 was a gross amount, and that a tax directive had to be
applied for. The obligation to pay such tax, and on whom it falls,
must be determined in line with the provisions of the Income
Tax Act
58 of 1962 (ITA). Paragraph 2(1) of the 4th Schedule to the Income
Tax Act, requires that, if services are rendered by
an employee, the
person to whom the services are required must deduct employees’
tax. Paragraph 4 of the 4
th
Schedule states that an amount
required to be deducted or withheld in terms of paragraph 2, shall be
a debt due to the State and
the employer concerned shall be
absolutely liable for the due payment thereof to the Commissioner.
[25] The determining factor, as to whether a person rendering
services is an employee or independent contractor, is the definition
of “remuneration’ in paragraph 1 of the Fourth Schedule
of the ITA. This provision was amended by
section 54(1)(d)
,(e), (f)
and (g) of the
Taxation Laws Amendment Act 8 of 2007
, which came into
operation on 1 March 2007. The 4
th
Schedule now prescribes
that an independent contractor’s income will be deemed to be
remuneration and will therefore be subject
to employees’ tax,
if:
(a) The services are required to be performed mainly at the premises
of the person by whom the remuneration is paid/ payable or
of the
person to whom such services were or are to be rendered; and
(b) the person who renders or will render the service is subject to
the control and supervision of any other person as to the manner
in
which his/her duties are performed or as to his/her hours of work.
(section 12.3
of SARS Guide for Employers in respect of employees
tax (2011 tax year; effective date 2010.03.01)
[26] The lack of ‘fit’ between the criteria used to
distinguish between an employee and an independent contractor for
purposes of income tax and labour law has been derided. It has been
argued that these criteria should be the same, and that the
uncertainty created by the different criteria used is detrimental to
all parties concerned.
(C Louw: “An independent contractor
under labour law and the Income Tax Act- Is there a difference”.
2009 (72) THRHR461)
[27] While this may be a laudable objective, there are important
reasons why it is not attainable. Not least of these are the aims
and
objectives of the LRA and its’ provenance as a statute drafted
to give expression to the Constitution, and in in particular
the
constitutional right to fair labour practices. This provenance means
that the characterisation of an employment relationship
for the
purposes of the LRA will often be at variance with one geared to
ensure the necessary for the levy of taxes for the fiscus.
[28] This point is most clearly brought home if regard is has to the
decision in
Kylie v CCMA and Others
2010 (4) SA 383
(LAC)
. In
that case, on the basis that a constitutional right to fair labour
practices vests in everyone, the distinction was drawn between
a
‘contract of employment’ and an ‘employment
relationship’, and the LAC found that, despite the illegal
nature of their work, sex workers are recipients of certain employee
protections contained in the LRA. The court held that s 23
of the
Constitution is there to protect the dignity of all workers, and it
and the ancillary provisions of the LRA enjoin the courts
to be
particularly vigilant in safeguarding the dignity of the most
vulnerable classes of employees, such as sex workers. (
Paragraphs
40 and 41
)
[29] In essence, the jurisprudence of the labour courts cannot be
relied upon to decide on the tax obligations of parties. Exactly
which of the litigants before this court will be ultimately liable to
pay the tax on the settlement amount will be determined by
the SARS.
This court will not enter into the adjudication of tax disputes, an
arena properly regulated under the ITA and other
tax legislation, nor
make orders incidental to an investigation into the parties’
liability to pay income tax.
[30] In the result I make the following order:
The application is dismissed;
Costs of the application to be paid by the applicant.
_______________
Rabkin-Naicker A.J.
Date of Hearing: 18/3/2011
Date of Judgment: 11 April 2011
Appearances:
For the Applicant: Adv C Dreyer
Instructed by: Hutcheon Attorneys
For the Respondent: Adv N Basson
Instructed
by: Du Plessis and Associates Inc