Employers beware of consultancy deals

In his classic play, Romeo and Juliet, English playwright William Shakespeare posed the intriguing question: “What's in a name?” His answer was equally ingenious: “That which we call a rose by any other name would smell as sweet.”

For a host of reasons, among them increasingly litigious Kenyan employees fueled by the highly complicated process of terminating jobs, many employers are opting for the model of independent contractors also known as consultants.

In one case, a group financial controller was hired as an independent contractor despite enjoying a hefty regular salary paid monthly plus benefits such as medical cover and holidays for self and family.

While the contracts of such workers provide that they are independent, workers are totally indistinguishable from the regular staff in terms of work hours, supervision, discipline and remuneration.

They are fully integrated into the workforce except for the small print in their contracts which describes them as independent.

Since according to their contracts such workers are not employees, they do not receive the usual employment benefits required by law such as annual leave, sick leave, housing allowance, medical cover, pension or severance pay upon redundancy.

Their pay is also not subjected to the usual taxes and statutory deductions such as PAYE, NSSF and NHIF.

The challenge arises when the contract is terminated without reasons or due process and the worker sues for unfair termination.

They also claim that despite what their contract states, they were, in fact, employees and the hirer should, therefore, be held liable for circumventing the requirements of the Employment Act by not offering them the statutory benefits enjoyed by other employees which is discriminatory.

Faced with this situation, Kenyan courts are of the view that a rose is a rose, whatever else we might want to call it.

If the manner in which a so-called consultancy/independent contractor relationship is implemented demonstrates substantial elements of employment, the court will find that such a relationship did exist despite any contrary wording in the contract.

The courts have established the principle that they look at the substance rather than the form of the contract.

In determining whether an employment relationship arises from a contractual arrangement described as a consultancy or an independent contractor engagement, the court considers a number of factors.

In an employment relationship, the worker is engaged under a contract of service which means that she is employed to render a range of agreed services based on her experience and capabilities.

On the other hand, an independent contractor is engaged under a contract for services, meaning that she is hired to perform a specific scope of work or project for an agreed fee.

The relationship ends automatically once the agreed scope of work has been performed. An independent contractor arrangement is therefore based on tasks rather than duration.

An employee would generally have a range of duties assigned to him based on the job description contained in the contract.

On the other hand, a consultant will typically be required to perform only the specific task or project stipulated in the contract. Any extra task outside the agreed scope is considered a variation and a separate payment agreed upon.

An employee works under the direct supervision and control of the employer while an independent contractor performs her assignment under limited or no supervision so long as she delivers the required result.

In an employment relationship, the employer dictates the employee’s hours of work whereas an independent contractor enjoys flexibility on the hours of work provided the job gets done.

An independent contractor is not obligated to perform any task outside the agreed scope whereas an employee must perform all assigned duties falling within her job description or risk disciplinary sanction for insubordination.

Generally, an employer would invest in the training of his employees while an independent contractor is presumed to possess the requisite training and skills to perform the agreed scope of work.

Based on the above parameters, the court may find that a purported consultancy/independent contractor arrangement was, in essence, an employment relationship.

Accordingly, where such a contract has been terminated unprocedurally, the hirer will be held liable for unfair termination and ordered to pay the worker damages as well as all the statutory employment benefits previously withheld.

William Maema ([email protected]) is a Senior Partner in the law firm of Iseme, Kamau & Maema Advocates.