Consider the not-so-uncommon scenario: A developer appoints Company A as a contractor on its construction project. Company A then proceeds to sub-contract Company B to undertake all of the work it, Company A, was appointed to do. An employee of Company B is subsequently injured in the course of his employment on the construction site.
In the above scenario, what are the obligations imposed on Company A and B respectively and in what circumstances would either of Company A or B be liable for the injuries to the employee?
COMPENSATION FOR EMPLOYEES INJURED ON-SITE
The Compensation for Occupational Injuries and Diseases Act (COIDA) was essentially introduced to provide a legislative protection for employees, or their dependents, against losses incurred through injuries or death which occur during and in the course of employment.
EMPLOYER’S OBLIGATIONS
In general, COIDA requires that an employer do the following:
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Register with the Compensation Commissioner (the Commissioner);
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Maintain an updated record of its employees;
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Furnish the Commissioner with the employer’s earnings; and
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Pay the necessary fees to the Commissioner.
First, some necessary definitions. COIDA defines an “Employer” as any person, including the State, that employs an employee. While this definition seems obvious, it is quite nuanced, particularly in terms of how “employ” is interpreted. This, however, warrants its own discussion. As a matter of interest, the definition is extended to include any person who controls the business of an Employer.
In turn, an “Employee” is defined as a person who has entered into or works under a contract of service or of apprenticeship or leadership.
Ultimately, COIDA imposes obligations on the employer in respect of its employees. Put differently, an employer has obligations imposed on it by COIDA only by virtue of it having employees as defined by COIDA itself. It follows that COIDA will not impose an obligation on a person who owns a business or entity that does not have employees or does not control another business that has employees.
Reverting to our scenario, if we assume that Company A has no employees of its own then it would seem, on the face of it, that COIDA would not impose any obligations on Company A. However, this is not necessarily always the case.
Section 89 of COIDA specifically relates to agreements in terms of which an entity, in its normal course of business, appoints a second entity to undertake work. While COIDA uses the terms “mandator” and “contractor” respectively, this clause is clearly relevant to a contractor-subcontractor agreement, which, aptly, applies to our scenario. There may be circumstances where this would also apply to a developer-contractor agreement.
This clause regards the subcontractor as an employer for the purposes of COIDA in respect of its own employees. However, if the subcontractor fails, refuses or otherwise neglects to comply with these obligations, the employees of the subcontractor are then deemed to be the employees of the contractor, who is then obliged to comply in terms of COIDA.
Thus, if the subcontractor does not comply as the employer, the contractor is then obliged to register and pay all necessary fees, but only in respect of the subcontractor’s employees employed for that specific contract.
LETTER OF GOOD STANDING
It is important to bear in mind that if an employer is willfully or negligently non-compliant, he may be held liable for the entire compensation payable, or part thereof, to an employee injured in the course of his employment.
As set out above, there are circumstances where obligations and liability of a subcontractor would transfer to the contractor and a contractor should always be certain that its subcontractors are compliant.
A Letter of Good Standing (LOGS) is a document issued by the Commissioner that confirms an employee is properly registered and all payments that are due have been made.
An employer is not covered by COIDA by virtue of LOGS being issued; LOGS simply reflect that the employer is, in fact, compliant. This is a subtle, but important, difference.
While LOGS are not a requirement in terms of COIDA, it is clear that there is a material risk to a contractor in the event of an injury on-site if an appointed subcontractor is non-compliant.
Therefore, in construction projects, LOGS are typically a contractual condition that requires a subcontractor to demonstrate its compliance with COIDA and, accordingly, the risk of liability in the event that an employee is injured on-site is limited.
We can therefore summarise the consequences of our scenario as follows:
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LOGS are not a requirement in terms of COIDA and confer no inherent limitation of liability.
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Company A will have no obligations directly imposed upon it under COIDA.
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Company B will be required to fulfil all obligations as an employer under COIDA.
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Should Company B fail to fulfil its obligations, Company A will be deemed to be the employer of Company B’s employees.
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However, this deferred obligation will only be in respect of those employees of Company B specifically employed for the works under the agreement between Company A and B.
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Should the obligation defer, Company A will be entitled to recover any payments made in this regard from Company B.
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If neither Company A nor B has registered and/or paid with the Commissioner, it is possible that Company A, as deemed employer, could be held liable by the Commissioner for the compensation payable to the injured employee, which would in turn be recoverable by Company A from Company B.
Andrew Seymour
Andrew Seymour is an admitted practicing attorney as well as a Professionally Registered civil engineer (B.Sc. Civ Eng) and with over 17 years' experience working in the Built-Environment Industry.
This article is intended for information purposes only and should not be taken as formal legal advice.
For more information, contact us on info@seymours.co.za or 074 125 1622 to arrange a consultation.
www.msattorneysinc.co.za
Andrew Seymour °
B. Sc Civ Eng, LLB, Pr. Eng, AAArb Practicing Attorney of the High Court of SA