IN THE LABOUR COURT OF SOUTH AFRICA
HELD AT CAPE TOWN
CASE NO C535/2001
In the matter between:
TANIA BEZER (ne é JAUCH)
Applicant
and
CRUISES INTERNATIONAL CC
Respondent
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JUDGMENT
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TIP AJ:
1. The applicant was employed by the respondent from 1 May 1998 to sell
international cruises. She was paid a basic salary plus commission on the
sales achieved by her. In August 2000 the parties signed an agreement
purporting to be an agency agreement. Its effective date was recorded as
1 December 1999. By then the applicant had formed a close corporation
styled Cruise Promotions CC (“the CC”), of which she was the sole
member. On the face of it, the agency agreement was entered into
between the CC and the respondent and it is common cause that the
applicant signed the agreement on behalf of the CC.
2. In the course of March 2001 the respondent implemented a restructuring
program, which resulted in the services of four people being terminated.
One of them was the applicant. Pursuant to this she has sought to claim
certain relief qua employee in a context of retrenchment. The respondent
denies any obligation to meet her claims. It does so on the basis that she
is not an employee and that the relationship between the parties as at the
date of the restructuring was one of agency.
3. This contention has accordingly given rise to a preliminary hearing in
relation to whether or not the agency agreement was a bona fide one and,
hence, whether or not the applicant is to be treated as an employee within
the meaning of that term in the Labour Relations Act of 1995. If she is, this
Court will have jurisdiction over the merits of the dispute and vice versa .
4. Two witnesses were called in support of the applicant's case. The first and
principal witness was the applicant herself, Ms Jauch. Ms Jauch began
employment with the respondent in March 1998. She had previously been
employed by a travel operator with an extensive business connection with
the respondent. Ms Jauch was in effect recruited to the respondent by Ms
Jann Porter, who was then the respondent's sales representative. Ms
Jauch worked as the latter's assistant, dealing with individual travel, while
Ms Porter dealt with group transactions.
5. Ms Jauch's terms and conditions of employment were initially concluded
by way of an oral agreement. Subsequently, a written employment
contract was signed. Although a copy of that agreement is no longer
available, a version of it incorporating some variations was signed on 12
July 1999. This agreement stipulated that it was to be effective as from 1
January 1999. That date coincided with the departure from the respondent
of Ms Porter. The applicant was then responsible for both individual and
group bookings. Included among the terms that were recorded in the
agreement are the following:
5.1. a basic salary of R3500 per month;
5.2. the applicant received R1000 per month as a contribution ‘towards office
expenses’;
5.3. a commission of 1% on all bookings made by the applicant was payable in
arrears in the month of travel;
5.4. all business telephone calls made by the applicant would be paid by the
respondent;
5.5. expenses related to the service, maintenance and petrol of the applicant's
vehicle would be paid by the respondent through its Nedfleet system;
5.6. the respondent undertook to contribute 50% of the applicant's vehicle
repayments up to a maximum of R600 per month;
5.7. leave pay of 15 days for each completed period of 12 consecutive months
of employment was provided for;
5.8. there was a provision for sick leave to be accrued at one day per month in
a threeyear cycle;
5.9. medical aid was provided for;
5.10. the respondent contributed R165 per month towards a pension fund.
6. According to Ms Jauch, the amount of R1000 for office expenses and the
facility of the Nedfleet card were added to her remuneration package
because she was after Ms Porter’s departure utilising her own home in
order to conduct the business of the respondent. This was the only
business site for the defendant in Cape Town. Previously, the work had
been carried out from the home of Ms Porter, where one of the bedrooms
had been used as an office.
7. As an employee, Ms Jauch was reimbursed for all business related
expenses. She would forward the vouchers to the respondent’s head
office in Johannesburg on a monthly basis and a composite transfer would
be made into her banking account comprising her salary, the office
expenses amount, the travel allowance and the reimbursement of
additional expenses.
8. The applicant had learned from Ms Porter that the latter had formed a
close corporation and that she put expenses through it. Once Ms Jauch
became the sole consultant for the respondent in Cape Town, she was
advised in a telephone call with Mr Argyropoulos, the managing member of
the respondent, similarly to set up a close corporation. Greater detail was
given to her about this step by Mr Jaco van Schalkwyk, the general
manager. So ran the evidence of Ms Jauch on this aspect of the case.
Although it was disputed in crossexamination, no witness was called to
testify on behalf of the respondent and I must accordingly accept the
applicant’s version that the initiative for the formation of a CC came from
her employer and not from herself.
9. Ms Jauch sought the advice of an accountant, Mr Jeff Pulker, in relation to
the formation of a CC. She met with him on 18 February 1999 and, with
his assistance, the CC was registered and incorporated in due course, on
8 April 1999. I will deal later in this judgment with the question of what Ms
Jauch had in mind at the time that the CC was formed and thereafter. It
will be convenient first to complete the narration of the events.
10. Ms Jauch testified that, once the CC had been established, she was
thereafter paid by the respondent on presentation of invoices that were
prepared and submitted on a monthly basis in the name of the CC. It is
however clear from the documentation that this became the system only
from December 1999, when invoice number 001 was drawn up in the
name of the CC. This was the first such invoice. Until that month, Ms
Jauch continued to be paid in the usual way against salary advices
prepared by the respondent.
11. In the meantime, the employment agreement to which I have already
referred was signed, on 12 July 1999. It follows that the parties were
certainly ad idem at that stage that the relationship between them was one
of employment. By then, the CC had been in existence for some three
months. That fact per se had not altered the status of the applicant. She
was still an employee and, on the face of it, she continued to be paid as
one.
12. The change came with the introduction of the agency agreement. The
written version was signed on 20 August 2000. It had however been
discussed well before then. Its effective date was 1 December 1999 and
there is no suggestion that what was de facto put into place as from that
date was in any significant way at variance with the terms of the later
written agreement. This agreement is clearly based on the previous
employment contract, with textual amendments purporting to describe an
agency relationship in the place of one of employment.
13. With the advent of this agreement, monthly invoices in the name of the CC
were prepared and submitted to the respondent for payment. Until March
2001, these invoices were of the same form. Items included an amount for
R3,500 that was described as ‘earnings’ in the first month of December
1999 and in the months thereafter as ‘consultancy fee’. There was a
‘travel allowance’ of R600 and ‘office rental’ in the amount of R1,000.
Each invoice also included items that were apparently reimbursement
charges for a variety of expenses such as ‘cruise photographs’,
‘refreshments’, ‘parking’ and the like. Copies of the vouchers for such
charges accompanied the invoice. After March 2001 the invoices from the
CC comprised only one class of charge, being a fee at a fixed hourly rate
for training services rendered to the respondent.
14. With effect from 1 December 1999, the respondent no longer paid for Ms
Jauch’s medical aid. It also stopped paying its contribution to her pension
plan. Save for that, her daytoday working arrangement did not change at
all. She had no client other than the respondent and marketed tours solely
on its behalf. She was not entitled to do work for any other enterprise.
Her working hours did not change.
15. The close correspondence between the position before and after 1
December 1999 is reflected in the extent of the similarity between the two
December 1999 is reflected in the extent of the similarity between the two
written agreements. Illustrative of this are the following aspects of the
‘agency agreement’:
15.1. whereas the previous agreement provided for a basic salary of R3,500, an
office expenses allowance of R1,000 and vehicle expenses of R600, there
was now a single equivalent amount of R5,100 for agency expenses;
15.2. as before, Ms Jauch was required to devote the whole of her time and
attention to the respondent during its working hours and overtime,
described as ‘additional time’, when required;
15.3. previously, holiday leave was provided for at 15 days per 12 months; there
was now provision for 30 days per 2year cycle described as a contribution
“to your agency expenses while you are on leave”;
15.4. the respondent undertook to pay “its contribution to the running of your
agency” in the event of ill health, at a maximum of 36 days per 3year
cycle, which was effectively the same as had previously been the position;
15.5. the commission structure remained unchanged.
16. According to Ms Jauch, she did not understand anything to have been
changed with the new arrangement. All that had happened, in her view,
was that there were now invoices from her in the name of the CC.
Notwithstanding that she had signed a document headed ‘agency
agreement’, she did not consider that she had become an agent, but that
she remained and had always been an employee of the respondent. Had
it been explained to her that she would no longer be an employee, she
would not have gone along with the new arrangement.
17. Ms Jauch learned that her relationship with the respondent was to end on
12 March 2001. On that day she had a telephonic discussion with and
received a fax from Mr Argyropoulos announcing that the respondent
contemplated dismissals based on operational restructuring. It was
addressed to ‘all employees’. Ms Jauch telephoned Mr Argyropoulos, who
confirmed that the notice applied to her also.
18. On the following day, Ms Jauch received a payout proposal set out in a
notice headed ‘retrenchment package proposal’. This inter alia included
the breakdown of the respondent’s proposed ‘retrenchment package’.
19. On the same day, 13 March 2001, Mr Argyropoulos supplied a letter of
reference, which included the statement: “ This letter serves to confirm that
Tania Jauch has been an employee of Cruises International since March
1998 to date ”.
20. On 15 March 2001, Ms Jauch put in her own proposal “ regarding the
redundancy of my position ”. The response from Mr Argyropoulos was
inter alia that the discussion on 12 March had related only to the training
and motivation that Ms Jauch could in the future provide, but that her
redundancy proposal had in any event been referred to the respondent’s
labour lawyer.
21. About a week after the communication of 12 March 2001, Mr Argyropoulos
indicated to Ms Jauch that the respondent was treating her in the same
way as the others who were being retrenched, but ‘from a different angle’
as she wasn’t an employee.
22. On 28 March 2001 Mr Van Schalkwyk sent an email to Ms Jauch in which
he referred to the agency agreement and observed that it did not
contemplate pay out of a leave amount, but that the respondent would pay
an amount for this item ‘ for the sake of good order ’. On the same day, Mr
Argyropoulos sent a proposal ‘ in order to finalise your retrenchment
package’.
23. On 18 April 2000 the respondent, under the signature of Mr Van
Schalkwyk, provided a letter which was to be lodged by Ms Jauch with a
banking institution in support of an application for a housing bond. It
included the statement that: “ This letter serves to confirm that Tania Jauch
is employed by Cruises International as an agent in Cape Town…She has
been with Cruises International for over two years and presently earns a
basic salary of R10 970,17. This amount includes commission … “
Although it has some ambiguity, the terms of this letter were clearly
calculated to bring the bank under the impression that Ms Jauch was a
salaried employee. The letter was provided as a result of a specific
request from Ms Jauch in order to assist her . By that date, of course, she
was no longer an employee on either party’s version.
24. Whether or not Ms Jauch was indeed an employee until March 2001 must
be examined also in the light of her reasons for setting up the CC. Her
evidence on this aspect is unsatisfactory and, frequently, evasive. She
attempted, unsuccessfully, to portray herself in relation to this step as a
naïve employee who had simply carried out a suggestion made by her
employer. Ms Jauch did not appear to me to be a passive and hapless
person. To the contrary, she impressed me as an articulate and capable
manager of her affairs. I have no doubt that she acted visàvis the
formation of her CC in a witting and deliberate manner.
25. Ms Jauch was pertinently asked in her evidenceinchief what the purpose
was of forming the CC. Her answer was that she was to speak to a tax
consultant and get advice. Although she avoided, in that answer, directly
identifying the purpose, it is clear that the primary if not only reason for
setting up the CC was to obtain a tax advantage. As set out in the
applicant’s further particulars, the respondent had suggested the formation
of a CC because it would be ‘more tax efficient’. Ms Jauch had considered
this to be ‘a valid reason’.
26. Notwithstanding this, Ms Jauch’s evidence on the question was
persistently vague and, in my view, distinctly less than candid. For
instance, having described how she consulted her accountant about
forming the CC, she maintained that she had not been informed of the tax
implications of setting up a CC. Mr Pulker had merely told her what he
needed and she typed up the information every month, put everything in
an envelope, and handed it over to him at the end of the financial year.
27. Somehow, nevertheless, Ms Jauch had come to understand that the CC
had better tax implications for her and that she would “save a bit every
month”. She wouldn’t pay PAYE and she would put through a portion of
her office expenses every month. Inconsistently, she testified also that
there would in fact be no benefit to her from a tax point of view and that
her tax position would be exactly the same.
28. Ms Jauch’s evidence on this aspect of the case became no more
satisfactory during crossexamination. The following succession of
answers illustrates this:
28.1. when she initially spoke to Mr Pulker, she did not tell him why she wanted
to form a CC;
28.2. asked what, then, she did tell him, Ms Jauch testified that she thought that
she had told him that it was for submitting claims for tax;
28.3. she went on to confirm that she had indeed received advice, after which
she thought that it was a good idea to form a CC for the purpose of tax
benefits;
28.4. Ms Jauch nevertheless disputed the proposition that she wanted the tax
benefit of a CC, stating that she didn’t know initially that there would be a
tax benefit; indeed, she said, there was in fact no such benefit.
29. The evidence that there was in fact no tax advantage is, on the face of it,
somewhat startling. The CC was incorporated on 8 April 1999. In that
financial year, ending on 28 February 2000, all Ms Jauch’s remuneration
from the respondent was put through the accounts of the CC. The total
income was reflected as R121 175. Total expenditure amounted to R121
511. The CC therefore ran at a loss of R336. It accordingly attracted no
tax liability.
30. Likewise, Ms Jauch personally enjoyed a taxfree year. The total
expenses of the CC includes an item for ‘members remuneration’ in the
sum of R31 000. The precise basis for the determination of that amount is
unclear. Be that as it may, that figure was set out in Ms Jauch’s personal
return as her only income. After deductions and rebates, there was zero
tax payable. As an employee of the respondent, Ms Jauch would have
earned more. Prima facie she would have paid a significant amount of
income tax.
31. The lack of candour of Ms Jauch in relation to the issue of her tax was
underlined in her response to a summary proposition put to her by Mr
Landman, who appeared for the respondent, being that neither she nor the
CC had paid tax. Her answer was to the effect of: “ As discussed today, it
seems that way ”. She went on to state that she had been unaware of this
before. Ms Jauch’s financial and tax matters are far from elaborate and I
have no doubt that she was well aware – at the time that she was paying
no tax.
32. The 2001 tax year yielded the same picture. The total revenue of the CC
was R175 371. Apart from an insignificant item for interest, all of that
represented income from the respondent. Total expenditure was shown
as R177 944, with a net loss of R2 573. Members remuneration was set
out in the amount of R33 000. Carried forward to Ms Jauch’s personal
return, she once more had a zero tax assessment. When it was put to her
that this was the benefit of the CC, Ms Jauch again sought to suggest that
she had not been aware of it at the time. Her reply was in this vein: “ Yes,
now I see; I didn’t pay anything ”.
33. Ultimately, Ms Jauch conceded, as she had to, that she had used the CC
to save tax and that she had done so on the basis that the respondent
would have an agreement with the CC and not with her.
34. Although the CC is still in existence, it is dormant and nothing goes
through it. Ms Jauch did not open a separate banking account for the CC.
Prima facie its functioning was coextensive with the work performed by
the applicant for the respondent.
35. Mr Pulker was called as a witness in support of the applicant’s case. He
met with her on 18 February 1999 to discuss the formation of the CC. He
became familiar with her tax matters and had arranged for Ms Jauch to be
registered as a provisional taxpayer. As he understood the position, she
had not previously been a taxpayer. He referred to a salary statement for
March 1999, apparently prepared by the respondent, which reflects that
there was a tax directive that Ms Jauch should pay no PAYE. I should add
that Ms Jauch herself testified that she knew nothing about a tax directive.
36. Mr Pulker was shown an IRP5 form for the 1999 tax year, which indicates
that employee tax had in fact been deducted for that year in relation to Ms
Jauch. He had not previously seen that document and nor had Ms Jauch.
No evidence was presented by the respondent concerning it and the
document’s status remains uncertain. In view of the conclusion that I have
reached that this matter should be referred to the Receiver of Revenue for
investigation, I do not propose to venture any finding concerning it.
37. Similarly, I refrain from any finding in relation to the view expressed by Mr
Pulker that the State had suffered no fiscal prejudice during the 2000 and
2001 years, notwithstanding the fact that it had received no tax revenue
whatsoever for those years from either the CC or Ms Jauch. Indeed, Mr
Pulker went on to testify that the treasury had actually ‘done better’ in
those years and, as a corollary, that Ms Jauch had enjoyed no tax benefit
as a result of setting up the CC. Whether or not these propositions can be
demonstrated I will leave to the Receiver to determine.
38. Mr Pulker testified also that Ms Jauch was not knowledgeable about tax
matters, although he tried to explain them. He had also explained in detail
to her what a CC was.
39. As had been Ms Jauch, Mr Pulker too was vague in his evidence
concerning the setting up of the CC. When asked in crossexamination
what Ms Jauch had told him in February 1999 about the reason for forming
a CC, he answered that she had come to him through a friend. Although
he had advised her that she would “ technically” be employed by the CC,
he said that he couldn’t now recall whether she had understood it.
40. Mr Pulker was asked crisply what the purpose was of the CC. Initially, he
replied somewhat blandly that it was “ to receive remuneration through the
CC”. He was nevertheless clear that the contractual relationship was
between the two Close Corporations, that this was a legitimate way of
contracting, that the applicant was employed by her CC and that she was
no longer an employee of the respondent. Although he then added that he
could no longer recall the details of his conversation with the applicant, I
have no hesitation in concluding that these were matters that had been
discussed with Ms Jauch and that they were by no means too complex for
her to fully appreciate.
41. Mr Pulker was asked about a particular item in the CC expenses for the
2001 year in an amount of R23 645, which had been described as
‘advertising, marketing and promotions ’. In fact, this claim related
exclusively to the wedding expenses of Ms Jauch. That sum represented
the full amount of the invoice from the hotel where the reception had been
held. Ms Jauch was aware that the full amount of the wedding had been
claimed as a tax deductible expense. She had been informed by him of
the implications of certain claims and that there might be queries from the
Receiver concerning them. However, the Receiver was not informed that
this claim related solely to a wedding. Again, I express no view on this
claim save that it is prima facie one of the items that should be considered
by the Receiver. I may add that this issue was not traversed with Ms
Jauch in the course of her evidence. I should add also that it is apparent
that the full amount of Ms Jauch’s income was put through the books of
the CC for the 2000 year and, likewise, that her deducted expenditure
the CC for the 2000 year and, likewise, that her deducted expenditure
aggregate spanned the full tax year. However, the CC came into the
picture only on 1 December 1999, once the agency arrangement became
operative. Before that, as outlined earlier in this judgment, Ms Jauch had
been an employee of the respondent. Prima facie , it would appear that the
CC accounts should have related to only 3 months and not the full year.
42. On behalf of the applicant, Mr Sarantos submitted that her duties were
precisely the same after the conclusion of the CC as they had been before.
Save in respect of medical aid and the pension fund, the duties of the
respondent qua employer had similarly remained unchanged. In these
circumstances, ran the argument, the true relationship between the parties
continued to be one of employer and employee. That was the reality and
the substance and, argued Mr Sarantos, it is to those that the greater
weight should be given and not to the nominal form. Mr Sarantos went on
to submit that the agency agreement was a sham and, as part of the
scheme required by the respondent, that the CC was similarly a sham.
43. Mr Landman contended the reverse, that neither the agency agreement
nor the establishment of the CC involved any sham or deception on the
part of the respondent. He pointed out that Ms Jauch had been given
ample opportunity to read and consider the agency agreement and that, on
her own version, the respondent had advised her to obtain the professional
assistance of her own tax consultant. It was common cause that the
applicant had been placed under no duress to enter into the agency
relationship and that she was aware that the purpose of the CC was to
improve her position in relation to tax. He argued further that the applicant
couldn’t on the one hand take the tax benefits arising out of the CC and,
on the other, reassert the rights of an employee in order to gain additional
advantage in the context of a retrenchment.
44. The submission by Mr Sarantos that the agency/CC arrangement
amounted to a sham runs somewhat beyond the applicant’s case. It was
not the evidence of Ms Jauch. It was also not pleaded. In its request for
further particulars, the respondent unambiguously asked whether it was
alleged by the applicant that the agency agreement was a sham. It is clear
from the reply that Ms Jauch was making no such allegation. Her case
was identified in this manner: “ The agreement was entered into on the
suggestion of Van Schalkwyk and Argyropoulos of the respondent as it
would be a more tax efficient structure with regard to the applicant’s
remuneration. It reflected the terms and conditions of the applicant’s
employment at the time but allowed the applicant to attend to her own tax
obligations.”
45. In short, it appears to be the case of Ms Jauch that she could
simultaneously secure the labour rights of an employee and enjoy the tax
advantage of being an independent contractor. That is not a combination
that the law recognises. What arises is the particular and only question
that I must determine, namely whether the applicant was an employee of
the respondent at the time of its restructuring exercise.
46. A useful departure point for this enquiry lies within the parameters of the
agreement itself. Cf Niselow v Liberty Life Association of Africa Ltd 1998
(4) SA 163 (SCA) at 166AB. Niselow identifies a key criterion for
differentiating between an employee and an independent contractor or
agent, being whether or not the respondent acquired through the
agreement the fruits of the applicant’s labour rather than the labour itself
(at 166H and 168DE).
47. In Niselow that enquiry led to the conclusion that the appellant was an
independent contractor, despite his having undertaken to canvass
contracts of insurance on a fulltime basis and exclusively for the
respondent. The Supreme Court of Appeal had regard to inter alia the
following factors:
47.1. The appellant’s remuneration was in the form of commission on contracts
effected through him (at 166B) and he was accordingly entitled to
remuneration only for the result of his labour and not for the time spent by
him canvassing for contracts of insurance (at 167FG).
47.2. The appellant was not prohibited from employing other people to assist
him in achieving the desired result and he in fact employed a secretary
and from time to time paid commission to people who assisted him (at
167A).
47.3. The appellant was not subordinate to the respondent and he was not
obliged to comply with any instructions as to how the desired result was to
be achieved; he was free to choose his working hours and to adopt the
means that he thought appropriate to bring about new business, free of
control and supervision (at 167H).
48. The factual position in the present case is different:
48.1. The respondent undertook to pay a fixed basic amount of R5 100 per
month towards agency expenses, an amount that was in substance no
different from the salary that she had previously been earning.
48.2. Commission was payable over and above the basic sum. Such
commission was to be calculated as an agreed percentage of the value of
all bookings effected by Ms Jauch.
48.3. The agreement contemplated that, at least initially, the agency would
consist only of Ms Jauch. In fact, Ms Jauch employed no assistants and
there is nothing to indicate that any such arrangement was even remotely
in the offing.
48.4. Ms Jauch was not at large to determine her own working hours. The
agreement provided: “ The company’s normal hours of work are from
08h00 to 17h00 daily with an hour for lunch. Your business is expected to
operate the same hours .”
48.5. The provision for overtime was identical with that in the employment
agreement: “ You undertake to work overtime when both the exigencies of
the Company business require it and it is reasonably convenient for you to
do so .”
48.6. Ms Jauch was subject to control and supervision. She was not free to
decide when and how she would produce the fruits of her labour, for which
she would then be rewarded. Thus, the agreement stipulated that: “ You
will report to either George Argyropoulos and/or Jaco van Schalkwyk who
will determine your agency duties and responsibilities from time to time .” It
provided further: “ You undertake to: Carry out all such functions and
duties as are from time to time assigned to you and as are reasonable
and/or lawful; Obey and comply with all lawful and reasonable instructions
given to you by the company; ”. Again, despite some minor textual
modifications calculated to reflect an agency relationship, the substance of
these provisions was identical with the obligations that Ms Jauch had
previously undertaken as an employee.
49. What these considerations amount to is that the substantive terms of the
agency agreement might on balance be construed as pointing to an
employment relationship rather than one of independent service provision.
Had this agreement been entered into by Ms Jauch personally and if the
only issue in this case were one of interpretation, that may well have been
the finding. In this regard, it is pertinent that the analysis set out in
Niselow concerned a contract entered into by Niselow himself.
50. However – critically – the agency agreement in this case was not
subscribed to by Ms Jauch in her personal capacity. It was concluded by
her on behalf of Cruise Promotions CC, a distinct juristic entity. Although
she carried out the work, she was not the contracting party. Payment from
the respondent went into the accounts of the CC and her personal income
was treated as a derivative of the financial structure of the CC, not as a
direct receipt from the respondent. I have already outlined that the
applicant did not define or conduct her case on the basis that this
arrangement was a sham.
51. In Callanan v TeeKee Borehole Casings (Pty) Ltd (1992) 13 ILJ 1544 (IC),
Bulbulia DP had to draw a line in a comparable case, where an employee
had established a CC in order to secure a tax advantage and then sought
to prosecute a claim for unfair dismissal as an employee. The Court there
held that the applicant was not an employee but an independent
contractor, observing that an applicant ‘cannot have his proverbial cake
and eat it’, by saying that he is not an employee for purposes of taxation,
whilst simultaneously claiming that he should be regarded as an employee
for the purposes of the Labour Relations Act. That approach is
appropriate to this case also, notwithstanding that the CC in Callanan
appropriate to this case also, notwithstanding that the CC in Callanan
derived the greatest part of its revenue from sources other than the
respondent company in that case.
52. The Labour Appeal Court has considered a matter with a number of
parallels to the case before me. In CMS Support Services (Pty) Ltd v
Briggs (1998) 19 ILJ 271 (LAC) the respondent had set up a CC (‘MCS’)
with the express purpose of reducing her tax burden. A ‘consultancy
contract’ had been entered into between the appellant company (‘CMS’)
and MCS in terms of which the CC undertook to provide the services of the
respondent at an agreed hourly rate. Invoices were submitted on a
monthly basis in the name of the CC. The respondent held out to the
Receiver that she was a ‘freelancer’ and that her remuneration consisted
of ‘fees’. Had she informed the Receiver that she was an employee, her
tax liability would have been higher. When the company terminated the
consultancy contract, the respondent claimed that she had been unfairly
dismissed.
53. In the Industrial Court her claim was successful, it having been held that
the consultancy agreement was a ‘farce’ and a ‘sham’ and that the true
intention of the parties had been to conduct an employment relationship.
The Labour Appeal Court reversed that decision, holding that the
respondent had made an intelligent and deliberate election to enjoy the
advantages of a contractual arrangement through a CC and to forfeit the
advantages of an employee (at 277AH).
54. To some extent, the facts before the Labour Appeal Court were more stark
than those in the present case:
54.1. the respondent had previously been employed by CMS, until her
resignation in 1998;
54.2. she had by then established MCS with herself as the sole member;
54.3. in January 1991 a contract had been entered into between the
Johannesburg Stock Exchange and MCS for the rendering of services at
an hourly rate;
54.4. in early 1992 CMS offered the respondent a position ‘as an ordinary
employee’ but, at the insistence of the respondent, the consultancy
contract was entered into instead;
54.5. in addition to the pursuit of a tax advantage, the respondent did not wish to
be part of the company’s medical aid and pension schemes;
54.6. the agreement contemplated that there might be contracts between MCS
and other parties, but it was stipulated that the supply of services to CMS
was to have priority;
54.7. the respondent was to be available for consultation during the normal
office hours kept by CMS and to consult outside such hours by mutual
consent.
55. The position of Ms Jauch has some differentiating features. For instance:
she set up the CC at the suggestion of the respondent; this was done
whilst she was a fulltime employee and the working arrangements and
benefits remained largely unaltered; the agency agreement provided that
she would have no other clients; she was subject thereafter to controls
typical of an employment relationship; unlike Mrs Briggs, Ms Jauch has
squarely contended that she was at all times an employee.
56. The question that arises is whether such differentials are enough to bring
about a different result. In my view, they are not. None of them is of
sufficient weight to disturb the indicated answer to the central question: did
Ms Jauch deliberately enter into an arrangement in terms of which she
would establish a CC with herself as the sole member and, as the
necessary corollary, that she would conclude an agency agreement
between the respondent and the CC?
57. I am satisfied that the evidence as a whole yields a clear answer to that
question. Ms Jauch was fully aware of the tax benefits that she anticipated
would flow from the introduction of the CC. Those advantages were
attractive enough for her to conclude an agency agreement in substitution
of the existent employment agreement. She had ample opportunity to
consider and obtain advice on the relative advantages and disadvantages.
In those circumstances, the election made by her was one of
consequence. She cannot now seek returns on both sides of the cut. As
in Briggs, the current agreement is between the respondent and a distinct
entity, the CC. That agreement explicitly brought to an end all previous
contracts, including the employment agreement that had previously been
in place between the applicant personally and the respondent.
58. One of the considerations that was given considerable weight by the
Labour Appeal Court in Briggs was the consistent representation on the
part of Mrs Briggs to the Receiver of Revenue that she was not an
employee. Mr Sarantos submitted that policy perspectives of that sort do
not arise in this case, because Ms Jauch did not go into the arrangement
in order to circumvent tax legislation. Prima facie I am unpersuaded by
this argument. For the reasons already set out in this judgment, I do not
accept that Ms Jauch was as na ïve and uninformed as she sought to
portray. However, in view of my intention to refer this case to the Receiver
for investigation, I make no direct finding on this aspect of the case.
59. In the course of argument, I was referred to the decision by Landman J in
Hunt v ICC Car Importers Services Co (Pty) Ltd (1999) 20 ILJ 364 (LC). I
need not recite the facts of that case. They clearly demonstrate a collusive
and patently false scheme for the presentation of invoices for ‘financial
consulting services’, coupled with the compilation of entirely fictitious
expenses. The learned Judge concluded on those facts that there was
indeed a scam and that the case of Briggs was therefore distinguishable.
That result does not lend itself to the facts before me.
60. I was referred also to the case of Building Bargaining Council (Southern &
Eastern Cape) v Melmons Cabinets CC & another [2001] 3 BLLR 329
(LC). In that case the Court held that ‘humble’ employees had been
induced by their employer to enter into contracts that purported to
transform them into ‘independent contractors’. On the facts, it was
concluded that the employer had perpetrated a cruel hoax on its
employees by persuading them to sign such contracts. The facts in the
present case are not comparable with those. Ms Jauch can in no sense
be described as the victim of a hoax. To the contrary, she is a willing co
author of an arrangement that has taken her out of the realm of employee.
61. In reaching that conclusion, I have not lost sight of the fact that the dayto
day interaction between the applicant and the respondent changed not at
all after the conversion to the agency/CC arrangement. I have taken into
account also that Ms Jauch was treated as though she were an employee
during the initial phase of the respondent’s restructuring program.
62. By the same token, I have regard to the fact that two employment benefits
came to an end when the agency agreement came into operation, namely
came to an end when the agency agreement came into operation, namely
the medical aid and pension payments that the respondent had until then
made. Ms Jauch testified that she had been quite willing to give those up,
as an employee, because that loss was offset by an increase in her salary
and the allocation to her of a petrol card. That explanation is
unimpressive. Apart from the perspective that it would be very unusual
conduct on the part of an employee, the facts do not support it. Ms Jauch
did not receive an increase with effect from 1 December 1999, but from 1
January 1999. The use of a fleet card also came into the picture on 1
January 1999. Both of those terms are recorded in the employment
agreement signed on 12 July 1999. I think it far more probable that Ms
Jauch was willing to relinquish the medical aid and pension benefits
because of the prospect of substantially greater advantage through the
new agency and CC arrangement.
63. Ultimately, as is common cause, the applicant bears the onus of proving
that she was an employee as at March 2001. She shoulders that burden
in the face of a written agreement that says she was an independent agent
and in the face of the fundamental restructuring of her remuneration and
related matters through a close corporation. I am satisfied that it is a
burden that the applicant has failed to discharge.
64. I make the following order:
1 The point in limine is upheld with costs.
2 The Registrar of this Court is directed to refer this judgment to the
Receiver of Revenue at Cape Town for further investigation.
____________________________
K S TIP
ACTING JUDGE OF THE LABOUR COURT
DATES OF HEARING: 4, 5 NOVEMBER 2002
DATE OF JUDGMENT:
FOR APPLICANT: ADV A M SARANTOS
Instructed by IRISH ASHMAN ATTORNEYS
FOR RESPONDENT: ADV A LANDMAN
Instructed by THOMPSONS ATTORNEYS