Contract of Service and Contract for Service

It is important to Employment law to know who is an employee and who is an employer for the purposes of claiming unfair dismissals and statutory redundancy. The Employment Rights Act (ERA) of 1996 defines an employee as “an individual who has entered or works under (or, where the employment has ceased, worked under). The ERA defines ‘contract of employment’ as “a contract of service or apprenticeship, whether express or implied, and (if expressed) orally or in writing. The variance between the two is Contracts of Service and Contracts for Service.

To begin with, the difference a Contract of Service is, where an employer and an employee have a relationship that is continuous. The employer has a duty of care to its employees, for example to, work in a healthy and safe environment. The employer is liable for the vicarious acts of employees. There is protective legislation that applies to the contract and which the employers have to follow or the employer could be prosecuted if not followed. Secondly, a Contract for Service is where the employer is an independent contractor, and the relationship is organised around the completion of a once off piece of work.

The duty of care arising from Occupiers Liability Act 1995 “is to ensure that a visitor employee does not suffer injury or damage by reason of any possible that exists upon the premises which the person is working”. The employer is generally not liable for the vicarious acts of the independent contractors. In each of these contracts both parties have specific rights and responsibilities, which differ according to the contract in place. It is not always easy to define who is an employee or an independent contractor and has frequently come under legal consideration.

The courts will look at the factual situation and deicide as a matter of law what type of contractual relationship exits. In O’Coindealbhain, (Inspector of Taxes) v Mooney (1990), the written contract is the one which influenced the Judge. The written document will not change the relationship but it could influence the outcome of a court or tribunal as to the status of the person carrying out the work. These tests have been used to establish the status of employment: * The Control Test * The Integration Test * The Mutual obligation Test * The Mixed Test * The Control Test.

This test is based on the master and servant relationship and relic of common law. One of the first tests to be developed by the courts which the employer has control over the employee is Yewens v Noakes ((1880)6 QBD 530 at 532 per Bramwell LJ). Bramwell stated that “{a} servant is a person subject to the command of his master as to the manner in which he shall do his work” The test has been used in the twentieth century with Lane v Shire Roofing Co. (Oxford) Ltd. [1995] IRLR 493, 495 (Henry LJ).

The Court of Appeal suggested that the test to apply in determining whether an individual was an employee or self-employed was ‘who lays down what is to be done, the way in which it is to be done, the means by which it is to be done, and the time when it is done? ’ In practice this test, especially in the case of skilled professionals the employer exercises very little actual day to day control over the work being done. This has proven hard to due to the jobs and the freedom that is needed to carry out the work for example, Journalists (In Re Sunday Tribune (1984)IR 505), hospital doctors (O’Friel v St Michael’s Hosptial (1990)IR LM 260) and university lecturers (Cahil v DCU (2007) ELR 113 (HC): (2009) LESC 80 (SC).

* The Integration Test The integration test looks at whether the person performing the services is an integral part of the company or whether they conduct business similar to someone performing services as a contractor. If they are integral to the organisation they are considered an employee.

The basis of the integration test is that under a contract of service or employment, “a man is employed as part of the business and his work is done as an integral part of the business; whereas under a contract for services his work, although done for the business, is not integrated into it but is only accessory to it” Stephenson, Jordan and Harrison Ltd v McDonald and Evans (1952). Similarly, it has been suggested that “the greater the skill required for an employee’s work, the less significant is control in determining whether the employee is under a contract of service”. Beloff v Pressdram Ltd. (1973) 1 All ER ,241,250: see also Cassidy v Minister of Health (1951) 2 KB 343.

Integration is less on where and how you are told to do your job but more on how the employee organises his/her time and how he/she implements their knowledge on how to do the job or project when asked of the employee. * The Mutual obligation Test Is there a mutual obligation between the parties to provide or accept the work offered? This test has been used in concerning temporary casual staff, agency workers or homeworkers where there were gaps in service and the worker was therefore engaged under a series of short-term contracts, Carmichael v National Power (2000) IRLR 43.

There are basic requirements to determine whether there is a contract in existence at all, there are: * That the engager must pay a wage or other remuneration, * That the worker must provide his or her own work or skill These both could be either a ‘contract of service’ or a ‘contract for service’ and, on their own will not determine the nature of a contract, O’Kelly and Others v Trust House Forte plc (1983),Nethermere (St Neots) Ltd v Gardiner and Taverna [1984] IRLR 240. In summing up Dillon L. J. stated:

“There was a regular course of dealing between the parties for years under which garments were supplied daily to the outworkers, worked on, collected and paid for. If it is permissible, on the evidence to find that by such conduct a contract had been established … I see no necessity to conclude that the contract must have been a contract for services and not a contract of service. ” The length that a relationship has been in place might also be relevant Younis v Transglobal Projects (2005) EAT 0504/05.

Minister for Agriculture and Food v Barry and Others (2008) IEHC 216 This was an appeal to the High Court on a point of law against a decision of the EAT. The case highlighted the importance of mutuality of obligation on an employer to provide work for the employee and on the employee to perform that work for the employer. It was noted that in the absence of such a condition there can be no contract of service. * The Mixed Test Looks at every aspect of the relationship and uses all the tests to determine the nature of the relationship.

This is best illustrated in the following case:- In 1968 In Ready Mixed Concrete v Minister of Pensions and National Insurance and Judge Mackenna J laid down three conditions which needed to exist if there was a contract of service: i. “A worker provides his own work or skill for payment in performing some service for the employer” ii. “He agrees to be sufficiently subject to the other parties control to make that other party his employer” iii. “The other provisions of the contract are consistent with being a contract of service”

The multiple or mixed test asks a series of questions such as, are there wages, sick pay and holiday pay? If there are, who pays them? Are PAYE and PRSI deducted? Does the worker share in the company’s profits and loses? Who provides the tools and equipment for the job? Is the employer entitled to exclusive service from the employee? However, the overriding consideration or test will always be whether the person performing the work does so “as a person in business on their own account”, or is the person a free agent with an economic independence of the person engaging in the service?

Criteria on whether an individual is an employee who: * is under the control of another person who directs as to how, when and where the work is to be carried out * supplies labour only * receives a fixed hourly/weekly/monthly wage * does not supply materials for the job * does not provide equipment other than the small tools of trade * works set hours or a given number of hours per week or month * works for one person or for one business * is entitled to extra pay or time off for overtime. Criteria on whether an individual is self-employed:

* Owns his/her own business; * Is exposed to financial risk by having to bear the cost of making good faulty or sub-standard work carried out under the contract * Assumes responsibility for investment and management of the enterprise * Has control over what is done, how it is done, when and where it is done and whether he does it personally * Is free to hire other people, on his own terms, to do the work which has been agreed to be undertaken * Can provide the same services to more than one person or business at the same time * Provides the materials for the job.

* Provides equipment and machinery necessary for the job * Has a fixed place of business where materials, equipment * Costs and agrees a price for a job * Provides his own insurance cover, such as public liability cover * Controls the hours of work in fulfilling the job obligations There are some case studies that show that the court has to find out if people are employees or self-employed for example, * Market Investigations Ltd v Minister of Social Security [1969] 2QB173 * Autoclenz Ltd and Belcher & Ors [2009] EWCA Civ 1046, which ruled that they where valeters of the Autoclenz.

* Phlean v Coillte Teoranta (1993) * Henry Denny & Sons (Ireland) Ltd; v Minister for Social Welfare (1998) This is a Supreme Court decision which acts as the leading Irish authority in this area and provided strong guidance on the issue when Keane J. stated that “each case must be considered in light of its particular facts and of the general principles which the courts have developed” “In general a person will be regarded as providing his or her services under a contract of service where; he or she is performing those services for another person and not for himself or herself.

The degree of control exercised over how the work is to be performed … is not decisive. The inference that the person is engaged in business on his or her own account can be more readily drawn where; he or she provides the necessary premises or equipment or some other form of investment, where he or she employs others to assist in the business, where the profit which he or she derives from the business is dependent on the efficiency with which it is conducted by him or her”. [1998] IR 34 at 50.

In conclusion, taking everything in to account it is about the court receiving all the facts from both sides. The court looks at other cases and decides whether the facts do add up to whether a person is an employee or self-employed. It is not always as easy decision to make from looking at cases mention above. In this modern age where the lines and rules are blurred regarding employment, we could see more cases going forward in regards determing the type of employment contracts used.

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