The Hidden Dangers of Misclassifying Employees and Using Foreign Jurisdiction Clauses

South Africa’s workplace landscape is changing quickly. Remote work, overseas parent companies, and flexible hiring are all becoming more common. In that environment, it can be tempting for an employer to do two things:

1. Call someone an “independent contractor” rather than an employee.

2. Insert a clause in the contract saying that disputes must be resolved in another country under foreign law.

On paper, these ideas might sound clever. In practice, they often collapse at the first sign of trouble. Our law looks beyond the label and focuses on what’s really happening. And when the CCMA or Labour Court looks under the hood, employers can find themselves in a much tougher position than expected.

Misclassifying Employees: More Than Just Semantics

Why does it matter if someone is called a contractor instead of an employee? Because employees enjoy protections under the Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA), including rights regarding dismissal, leave, and benefits. Contractors, generally, do not.

But the law doesn’t simply take an employer’s word for it. The “dominant impression” test asks questions like:

• Who really controls how and when the work is done?

• Does the person provide a personal service, or can they send a substitute?

• Is the worker woven into the fabric of the business?

• Do they rely financially on that income?

In SABC v McKenzie [1999] 1 BLLR 1 (LAC), the Labour Appeal Court put it clearly: the contract’s wording alone doesn’t decide the matter; the reality of the relationship does.

High Pay Doesn’t Mean Independence

A common argument raised by employers is: “But we pay them really well! Surely that proves they’re a contractor, not an employee?”

However, South African law doesn’t see it that way. Section 200A of the LRA creates a presumption of employment for those under a certain earnings threshold. But even above that threshold, the courts still apply the dominant impression test.

The Labour Court in Nape v INTCS Corporate Solutions (Pty) Ltd [2010] 31 ILJ 2120 (LC) stressed that a generous salary doesn’t cancel statutory rights. A person can earn a substantial income and still be treated as an employee if the hallmarks of employment are present.

So, paying someone “above market” is not a legal shield.

Foreign Jurisdiction Clauses: A Dead End

Some employers, especially those tied to foreign parent companies, include clauses stating that the agreement is subject to another country’s law and courts. The hope is to keep disputes away from the CCMA or Labour Court.

But when the work is performed here, and the worker lives here, South African labour law usually applies. Public policy, and the Constitution, steps in. Section 23 of the Constitution guarantees the right to fair labour practices, and our courts have been clear that these rights can’t be signed away in advance. As the saying goes: “one cannot contract outside of the law”.

In Chirwa v Transnet Ltd 2008 (4) SA 367 (CC), the Constitutional Court reinforced that employment disputes go to the heart of constitutional protections. Contract clauses that attempt to sidestep that are unlikely to survive scrutiny.

Can You Exclude the CCMA?

Short answer: no.

Even if a contract says disputes must go to arbitration overseas or that the CCMA is excluded, the CCMA will normally still accept jurisdiction. Its authority comes from statute, not from private agreement. Employees don’t need “permission” to bring a case.

Practical Guidance for Employers

If you’re employing people in South Africa, whether directly, through a branch, or remotely, it pays to get the fundamentals right:

• Don’t lift contracts wholesale from other jurisdictions.

• Assess carefully whether the worker is a contractor or an employee.

• Get local legal input before signing agreements.

• Make sure contracts reflect the true relationship, not a wishful one.

Final Thoughts

Misclassifying employees or leaning on foreign jurisdiction clauses may look like a clever way to cut red tape, but it often backfires. Employers who take shortcuts risk CCMA referrals, compliance penalties, and brand damage.

At Salitan Attorneys, we guide both employers and employees through the complexities of South African labour law. Whether you need contracts reviewed, advice on structuring a workforce, or representation in a CCMA dispute, we’re here to help.

Get in touch today to discuss your situation.