Contracted out: Who is obligated to pay employee salaries?

Image source: Rancz Andrei – 123RF.com

This was demonstrated yet again in the recent case of Nieftagodien v Yikusasa Building Contractors (Pty) Ltd [2024] (LC).

Original employment contract

Mogamat Nieftagodien had been employed as a clerk of works (CoW) by Mtawelanga MCC, a company contracted to carry out a building project for the Eastern Cape’s Department of Public Works (the DPW). His contract was for the duration of the project and stated that it was “for payment purposes only”.

The effect of this term is unclear, since Nieftagodien was clearly appointed for the purpose of performing his contractual duties, and his contract must have triggered all the terms implied by common law that were not excluded, including the employer’s duty to pay remuneration.

However, the clause went on to state that Nieftagodien would “report to the principal agent” (ie. Matrix Urban Designers & Architecture [MUDA] appointed by the DPW to represent its interests). The reason for this was that a CoW must be completely independent in ensuring that a contract is carried out according to specifications.

In essence, therefore, Nieftagodien was performing quality control on behalf of PWD. His role could be compared to that of a compliance officer employed to ensure that the employer is meeting the applicable rules and norms. It is therefore his contractual duty to exercise his judgment independently.

Not a recognised employee

The problem started when Mtwalenga ceded its contract with the DPW to the respondent, YBC. However, YBC did not recognise Nieftagodien as its employee, although it did agree to serve as a “platform” for the payment of his salary out of funds received from the DPW.

Then, in April 2019, payments by the DPW – and, with it, Nieftagodien’s salary – came to an end. Nieftagodien’s claim in the present matter was for payment of his arrear salary for the final 10 months of the contract from YBC on the basis that YBC had taken over as his employer.

This claim was based purely on the breach of his employment contract. The issue, therefore, was simply whether there was an employment contract between him and YBC.

The Labour Court found that there was not. Firstly, it held that Mtwalenga’s cession of the DPW contract to YBC was not a business transfer in terms of section 197 of the LRA. Secondly, there was no agreement as to the transfer of Nieftagodien’s employment contract from Mtwalenga to YBC.

This was really the end of the matter. However, the Court went on to find that it must consider the “realities and substance” of the parties’ relationship in order to determine whether it was an employment relationship (as opposed to an employment contract) between them.

The Labour Appeal Court, it noted, has set out three key criteria for identifying an employment relationship in the broader sense:

• The employer’s right of supervision and control;
  

• The employee’s integration into the employer’s organisation; and
  

• The employee’s economic dependence on the employer.

But, even on this broader inquiry, the outcome was inconclusive.

First, Nieftagodien did not work under the control of YBC. He served as “the eyes and ears of the principal agent”, which required him to be independent of YBC in order to supervise its work. Secondly, Nieftagodien was not economically dependent on YBC, since the DPW was the source of his salary and YBC merely paid it over. Thirdly, he did not form part of the structure of YBC’s business.

The Court accordingly concluded that Nieftagodien was not an employee of YBC and, on this basis, dismissed his claim. The Court also noted that it was not required to decide whether Nieftagodien was an independent contractor or whether he was employed by any other person.

Employment uncertainty

The uncertainty in which Nieftagodien was left could not have been greater. On the one hand, he had performed his duties in terms of his contract of employment for a period of 10 months for which he had not been paid. On the other hand, there appeared to be no employer from which he could recover his unpaid salary.

The basic facts can be summed up as follows:

• Nieftagodien’s contract of employment was with Mtwalenga.
  

• It was not transferred to YBC.
  

• Mtwalenga transferred its contract with the DPW to YBC, which presumably included the duty to appoint a CoW.
  

• There is no evidence that YBC did so, since Nieftagodien (appointed by Mtawelanga) continued in that role.
  

• Mtawelanga’s transfer of its contract with PWD did not relieve it of its contractual relationship with Nieftagodien.

Nor did the fact that Nieftagodien was required to perform his duties independently of YBC’s control make him an independent contractor. No doubt, an independent contractor could serve as a CoW, but in the present case that did not happen. In essence, an independent contractor is a person conducting a business independently of the employer. There was no evidence that Nieftagodien did so.

Liable employer

This means that Nieftagodien remained an employee of Mtwalenga, which remained liable for payment of his salary. The enforcement of this obligation in the circumstances of the case is a different question, which could potentially raise new complications. However, the judgment does not address or disclose the legal and practical issues that would be relevant to determining whether such a claim could successfully be brought.