IN THE LABOUR COURT OF SOUTH AFRICA
CASE NO J2216/98
In the matter between:
LEWIS, M First Applicant
LEWIS, R Second Applicant
and
CONTRACT INTERIORS CC Respondent
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
JUDGMENT
ÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ
JAMMY AJ
1. The Applicants, Mrs Marilyn Lewis and Mr Richard Lewis, seek an order from
this Court declaring that they were employees of the Respondent from 1 July
1997 until what they contend were their respective dismissals on 3 September
1997 and 8 August 1997.
2. The Respondent's initial ground of opposition to those claims was that neither
of the Applicants was at any time employed by it and that, a fortiori, neither of
them was ever dismissed. That response was however augmented by a late
unopposed amendment to the Statement of Defence, the result of which was to
include two further alternative grounds. These are that if it is found that there
was a contract of employment between the Applicants and the Respondent,
that contract was conditional upon the conclusion of a written agreement for
the sale of the Respondent's business as a going concern to another company
(to which comprehensive reference will be made later in this judgment) or to
the Applicants themselves. If no such agreement was concluded, the contracts
of employment would either ipso facto terminate or be of no force or effect.
Alternatively, it is submitted, if it is found that the Applicants were dismissed
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by the Respondent, such dismissals were fair in the circumstances.
3. It will be apparent that the cardinal issue for determination by this Court is
whether the Applicants were employed by the Respondent. It is a trite
principle of employment law that the onus of proof of such a relationship lies
with them, as it does, in terms of s192(1) of the Labour Relations Act 1995
("the Act"), of establishing that they were dismissed.
The Material Facts
4. At all times material to this dispute, the members of the Respondent close
corporation were Mrs Lynne Watney ("Watney") and Mr Brian Klass ("Klass").
Both were socially friendly with the Applicants and in or about May 1997, and
at Watney's initiative, they commenced discussions with the Applicants
directed towards the eventual acquisition by the Applicants of the
Respondent's business as a going concern. In the context of developments in
her employment relationship with her then employers, Holiday Holdings
International (Pty) Ltd, of which she was the financial director, the timing of this
approach was opportune for Marilyn Lewis. Richard Lewis, at the time a sales
executive at Nashua Ltd, was equally receptive.
5. In a series of meetings between the early part of May and the end of June
1997, and with the peripheral involvement of their respective Attorneys, the
parties sought consensus regarding the broad framework and ultimate basis of
the proposed acquisition which, in that context, became to some extent of
changed structure. Inter alia, whereas it was initially contemplated that the
Applicants would become the sole shareholders in an available shelf company,
Manetrade (Pty) Ltd ("Manetrade"), into which the business would be sold, that
proposal, by mutual agreement, was amended on the basis that Watney and
Klass would retain the beneficial ownership of 50% of the enterprise. The
intention remained that the business would be purchased by Manetrade, in
intention remained that the business would be purchased by Manetrade, in
which the equity would be held by the Applicants on the one hand and Watney
and Klass on the other in those proportions and what, from the evidence,
emerges as the clear intention of the parties, was that each of them, once the
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deal was consummated and the business transferred, would be employees of
Manetrade in individually defined capacities. Of material significance was their
further agreement that, irrespective of the date upon which the transaction
was finally concluded, its effective date would be deemed to have been 1 July
1997.
6. It is common cause that on that date, Marilyn Lewis and Richard Lewis entered
the business of the Respondent. It is the basis upon which they did so which is
the kernel of this dispute and which was the issue regarding which the
testimony of the respective parties was intensively examined and cross-
examined during the four days of this trial. It is submitted on behalf of the
Applicants that, from that date and unless and until the contemplated
acquisition agreement was concluded and put into effect, they were required
to, and in fact did, render services to the Respondent for which they were
remunerated on a basis which unequivocally constituted them employees of
the Respondent, with all the legal ramifications of that relationship. The
Respondent, on the other hand, rejects that concept and contends
emphatically that the purpose of the Applicants' presence in the business from
1 July 1997 was, in effect, to acquaint themselves with its systems and
practices in anticipation of their acquisition of a beneficial interest therein.
Having regard to the tenor of their relationship and the substance and
objective of the negotiations, they argue, it could not have been intended or
even contemplated by any of the parties that the relationship between the
Applicants and the Respondent could in any respect have been one of
employment.
7. A number of undisputed factual aspects of the matter bear directly on this
issue. They are the following:
7.1 With effect from 1 July 1997 all the business activities engaged in by the
7.1 With effect from 1 July 1997 all the business activities engaged in by the
Respondent were deemed to be for the account of Manetrade which, once the
transfer of the Respondent's business had been effected, would change its
name to Contract Interiors (Pty) Ltd. For that purpose a special and
independent account was created against which all expenses of the business
were debited, including the payment to each of the Applicants, as well as to
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Klass and Watney, of the sum of R15 000,00 per month, as well as expenses
incurred by the Applicants.
7.2 With effect from 1 July 1997 Marilyn Lewis had a staff of five employees of the
Respondent reporting directly to her and had the use of a furnished and
equipped office, with access to all of the Respondent's facilities, at no cost to
herself. In the context of her work within the company, Marilyn Lewis was
answerable to both Watney and Klass in respect of the responsibilities assumed
by or conferred upon her within the ambit of the Respondent's business.
7.3 With effect from 1 July 1997 Marilyn Lewis represented the Respondent in her
dealings with clients of and suppliers to the Respondent.
7.4 Both Marilyn Lewis and Richard Lewis attended a two-week training
programme conducted by Klass with effect from 1 July 1997.
8. Each of these factors, the Applicants contend, was indicative of a relationship
of employer and employees as between the Respondent and themselves. Each
of them, the Respondent submits, was established or conducted in
contemplation of their acquisition, in the form of an equity share in the new
company, of a beneficial interest in the business of the Respondent to be
transferred to it as a going concern and with regard to which ultimate objective
negotiations were, at all material times during this period, being pursued.
9. It is common cause that those negotiations eventually failed and for reasons
which will become apparent in the context of the legal issues to be determined
in this matter, I do not consider it necessary to traverse in any detail the
perceptions of the respective parties as to the reasons for and circumstances
surrounding that collapse. The core issue for determination, I reiterate, is the
nature and character of the relationship between them to the point of final
breakdown.
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The Legal Issues
10. The nature and meaning of employment has, over time, been the subject of
exhaustive academic and juristic analysis. Section 213 of the Act defines the
term "employee" as follows:
"Employee" means -
(a) any person, excluding an independent contractor, who works for
another person or for the State and who receives, or is entitled to
receive, any remuneration; and
(b) any other person who in any manner assists in carrying on or
conducting the business of an employer."
11. The Appellate Division (as it then was), in a line of cases, has concluded that
the expression "working for" was applicable to a person working in terms of a
conventional contract of employment, necessarily bound to render personal
services to another.
See R v Amca Services (Pty) Ltd & another 1959 (4) SA207 (A) and S v
Amca Services (Pty) Ltd 1962 (4) SA537 (A).
12. In the Industrial Conciliation Act, to be known later as the Labour Relations Act
28 of 1956, an employee was defined as -
"Any person ................ employed by, or working for an employer and
receiving, or being entitled to receive any remuneration, and any
other person whatsoever ...............who in any manner assists in the
carrying on or conducting of the business of an employer."
This, it will be noted, is substantially the same definition as that in the current
Act, though differently structured.
13. Whilst the Courts have been at pains to differentiate the concept of an
employee from that of an independent contractor, the Labour Appeal Court has
emphasised the existence of relationships in which one person works for or
with another but which are not classified as employment relationships. See for
example Oosthuizen v C A N Mining and Engineering Supplies CC
(1999) 20 ILJ 910 (LAC) AT 914.
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14. The concept was critically and comprehensively examined by the Labour
Appeal Court in -
S A Broadcasting Corporation v McKenzie (1999) 20 ILJ 585 (LAC).
Pertinent to the present dispute is the following comment at page 591:E-H:
"The legal relationship between the parties must be gathered
primarily from a construction of the contract which they concluded
(Smit v Workmen's Compensation Commissioner at 64B; Liberty Life
Association of Africa Ltd v Niselow at 683D-E), 'although the parties'
own perception of their relationship and the manner in which the
contract is carried out in practice may, in areas not covered by the
strict terms of the contract, assist in determining the relationship'
(Borcherds v C W Pearce & J Sheward t/a Lubrite Distributors at 1277H-
I). In seeking to discover the true relationship between the parties, the court
must have regard to the realities of the relationship and not regard itself as
bound by what they have chosen to call it ( Goldberg v Durban City Council
1970 (3) SA 325 (N) at 331B-C. As Brassey 'The Nature of
Employment' at 921 points out, the label is of no assistance if it was
chosen to disguise the real relationship between the parties, 'but
when they are bona fide it surely sheds light on what they intended.'
15. The fact that there was no contract between the parties in this matter is not in
dispute. The nature of the conflict between them is also indicative of the fact
that, on one side or the other, and as vigorously contested by their respective
Counsel, there was an evident lack of bona fides. The "label" to be attached to
their relationship between 1 July and the breakdown of the negotiations is
ostensibly differently classified, but one factor, to my mind, is of overriding
relevance and that is, that whatever their respective perceptions of that
interim relationship might have been, neither the Applicants on the one hand,
interim relationship might have been, neither the Applicants on the one hand,
nor Watney and Klass on the other, perceived it as one of employment.
16. Clearly, Watney and Klass did not do so. Microscopically examined under
cross-examination, their evidence on that issue remained consistent. As
regards the Applicants, the following exchanges between Mr Kennedy, Counsel
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for the Respondent and Marilyn Lewis are illustrative:
Mr Kennedy: You were not coming there as an employee to be employed by Contract
Interiors, you were coming to be employed as managing director of a business of which you
would be the owner, not so? --- That I would become the owner or part-owner, yes.
Mr Kennedy: And that course (the training course) was considered to be appropriate in the
case of yourself and Richard not only because it was necessary that you should become
acquainted with the business but also that you were to become the owners of the business,
not so? --- Correct.
Mr Kennedy: You would be employed by the new business.......... and so too would Lynne
and Brian be employed with effect from 1 July 1997. It would be backdated to that, not so?
--- Yes.
Mr Kennedy: Right. Your employment too would be as managing director and sales
director, you and your husband, but as the managing director and sales director of the new
company with effect from 1 July 1997, not so? --- Correct.
Mr Kennedy: What I put to you is that the agreement was not that you would be employed
by the CC. It was never the agreement. In fact the draft agreement, all three of the draft
agreements, make it quite clear that everybody was going to be employed by the new
owner of the business, not so?
Mrs Lewis: Being the (Pty) Ltd?
Mr Kennedy: Yes
Mrs Lewis: That was the intention.
17. None of the averments and concessions made by Watney in the course of
cross-examination which, in essence, was directed to the substance of the
negotiations between the parties, reflected in any respect, in my view, an
intention on the part either of herself or of Klass that, whatever the Applicants'
activities and functions in the close corporation in the intervening period might
have been, they were perceived as being, or were intended to be, performed in
their capacity as employees. It was never open to question that the costs
their capacity as employees. It was never open to question that the costs
attendant upon their presence and activities there were costs which, in the end
result, would be for the account of Manetrade or its successor in title, as the
owner of the ongoing business which was to be transferred. Their contribution
to the welfare and fortunes of the business to be acquired for their partial
benefit was, to all intents and purposes, in the nature of a business investment
with attendant commercial risk. That much was conceded by Richard Lewis
who, acknowledging that he was "a man of the business world", agreed that he
had gone into the business with his "eyes open". The fact that a written
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agreement might not be concluded, was, he said, "something that was always
a possibility, but in terms of Brians' reassurances, we went ahead."
18. A mutual intention to conclude a contract of employment may not be
necessary to create one. A proved intention by one of the two parties to that
effect may well be sufficient if the factual trappings and legal ingredients of an
employment relationship are sufficiently in evidence. A contractual
employment relationship can never however, in my opinion, be established
where neither party intended that that should be the case.
19. I am left in no doubt, on the conspectus of the evidence presented in this
matter, that no such intention, whether mutual or one-sided, existed on the
part of any of the protagonists in this dispute and that being the case, no
actual dispute of fact exists which needs to be determined either on a balance
of probabilities or otherwise. The Applicants, in my view, have failed to
discharge the primary onus upon them to prove that they were employed.
Accordingly, no question of their dismissal, whether fair or otherwise, arises.
20. In the result, the order that I make is the following:
20.1 The application is dismissed.
The Applicants are ordered jointly and severally to pay the Respondent's
costs.
ÄÄÄÄÄÄÄÄÄÄÄÄ
B M JAMMY
Acting Judge of the Labour Court
Date of Judgment: 2 November 2000
Representation:
For the Applicants: Adv C E Watt-Pringle, instructed by Perrott, Van Niekerk and
Woodhouse Inc
For the Respondent: Adv P Kennedy, instructed by McLaren & Associates
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