In terms of the FAIS Act, a financial services provider (FSP) is responsible for the activities of its representatives which are performed within the scope of the representative’s contract. This responsibility cannot be taken lightly as the actions and decisions of representatives have implications for the FSP and its clients. Having the right contract in place can avoid complications later in the relationship.
Representatives act for or on behalf of the FSP, either in terms of an employment contract or any other mandate and they must confirm to a client, the existence of an employment contract or mandate in terms of which they represent the FSP.
It is therefore the responsibility of the FSP appointing a representative to have an employment contract or a mandate in place. However, many FSPs find it difficult to distinguish between an employment contract (also referred to as a service contract) and a mandatory agreement.
It is important to ensure that you are aware of the legal implications of an employment contract versus a mandatory agreement and to implement the correct one, taking into account each individual’s circumstances.
What is a mandate?
In a mandate, a person is obliged to carry out, on his own account or on behalf of another, acts or services, with or without remuneration. Therefore, the purpose is to hire a person to provide a service or to do something, in his or her own name or on behalf of the person or organisation doing the hiring. The following appears in a mandate:
- The representative, who works in the name of another (e.g. the FSP).
- The represented (in this case, the FSP) which is the one on whose behalf the services or actions are performed.
What determines an employee?
In terms of Section 200a(1) of the Labour Relations Act[1] there is a presumption that a person who works for, or renders services to, any other person is an employee if any of the following factors are present:
(a) the manner in which the person works is subject to the control or guidance of another person;
(b) the person has working hours determined by another person;
(c) in the case of a person who works for an organisation, the person forms part of that organisation;
(d) the person has worked for that other person for an average of at least 40 hours per month over the last three months;
(e) the person is economically dependent on the other person for whom he or she works or renders services;
(f) the person is provided with tools of trade or work equipment by the other person; or
(g) the person only works for or renders services to one person.
An employee is therefore a person who has specific working hours, needs to apply for leave and gets paid a salary/commission and who qualifies for certain benefits.
It is important for an FSP to know if an employee is employed through an employment contract or if a person is only acting on behalf of the FSP and does not qualify as an employee.
Key differences between a mandate and an employment contract
- Through a mandate the employer has less legal obligations where in terms of an employment contract the employer has more legal obligations such as:
– Minimum notice periods that need to be adhered to.
– At termination of the contract the employee is entitled to certain statutory minimum termination pay-outs, for example leave.
– Procedurally fair termination of the contract.
- Through a mandate the employer has less control over the mandated person where through an employment contract the employee has more control over the employee. In terms of an employment contract the employer stipulates what hours the employee shall work, how various tasks should be performed, and provides all the resources to the employee. A person working through a mandate is not subjected to the abovementioned control of an employer and can for example, dictate his/her own working hours.
- The consequences of terminating a mandate are also less than terminating an employment contract. A person appointed through a mandate does not enjoy any protection through the termination of a contract other than general protection against unlawful termination. The relationship is governed by the agreement between the parties, where in terms of an employment contract the employee is protected by the Labour Relations Act.
In terms of the FAIS Act, a representative engages in the same activities as its principal but does so for and on behalf of the FSP and, as mentioned above, the FSP is liable for the conduct of their representatives. This relationship is either based on the fact that the representative is an employee of the FSP or holds a mandate from the FSP.
The contract between parties is therefore a very important document as it regulates the relationship between them. It identifies what the FSP will provide, and it specifies what the representative is entitled to. The FSP must therefore identify the responsibilities between the FSP and the representative to ensure that the correct type of agreement is concluded. Factors to take into consideration by the FSP before contracting with a representative, are the following:
- What type of remuneration will be paid? (e.g. Commission or salary)
- Who will provide the resources to ensure that the employee can provide a service?
- Does the FSP want to exercise control over the representative in terms of working hours, leave, etc.?
If a representative is working for commission only, working from home, uses his/her own resources to provide a service and dictates his/her own leave and working hours, then the representative will most likely be appointed through a mandate contract.
If the representative is paid a salary, working from the FSP’s offices, have working hours and needs to apply for leave, then it is more likely for the representative to be appointed through a service contract.
It is therefore recommended that FSPs review their current contracts which they have with representatives and ensure that they are in line with what they really had in mind. In other words, the contract must reflect the real and true intentions of the parties.
Where the two contracts (i.e. service contract versus mandate contract) have different qualities and remedies, as indicated above, the correct choice of contract will ensure that the rights of the FSP and the representative are protected when it becomes necessary to refer to and/or rely on the contract.