"Certainly there is no one factor which marks out a contract of employment. A factor which is important in one case may be insignificant or not present in the next". (Michael Jefferson, Principles of Employment Law) With reference to case law, discuss the difficulties surrounding the legal tests used to identify a contract of employment. Word Guidance: 2000 Words Hand in date: Monday November 17th 2003 Most people, I think, could answer the question "Are you an employee? ".
Some people may answer yes, while others, those being self-employed, will reply in the negative. However, as simple the question appears, in law a positive result gives significant rights and obligations. It is imperative therefore that an employee be distinguished from a independent contractor. It is said that an employee works under a contract of service, whereas an independent contractor works under a contract for services. In my opinion, that distinction does nothing to help distinguish, indeed it perhaps confuses, the situation.
There are a multitude of rights that flow from being an employee which are not available to independent contractors. These include written particulars of employment; unfair dismissal, redundancy, equal pay, statutory sick pay and maternity rights; health and safety provisions; rights to statutory and contractual notice periods; social security payments; amongst many others. Therefore, it will generally be in the interest of the worker to be an 'employee', but in the interests of the employer for them to be 'self-employed' to avoid offering such rights.
The exception is the perceived tax benefit of being self-employed, and it is for this reason many of the cases to be examined have come about. The importance of distinguishing each type of worker has prompted the Courts over the years to develop a series of tests they can apply to discover the relationship between the parties. The Employee Rights Act 1996, s230(1) does provide a definition of an employee, but it is unsuitable for these purposes as it refers solely to a contract of employment and not the factors attributable to either type.
Control Test Thus, the first test the courts created flowed directly from the test for Vicarious Liability. Based on the antediluvian idea of Master and Servant, it looked to the extent of control exercised by the employer over his 'servant'. In Performing Rights Society v Mitchell and Booker1, the test was determined by whether the employer controlled, or had the right to control, what the worker did and the manner in which the worker carried out their work. In a modern working environment though, this test is clearly inadequate.
An employee may be highly skilled and qualified, and employed for that reason, so the employer may often be in a position where he is unable to offer instruction as to how the work is to be done. In Hillyer v Governers of St Bartholomew's Hospital2, the court held that nurses were not employees of the hospital when carrying out theatre duties as they took instruction from the surgeon not the hospital authority. This judgement was heavily criticised, and effectively brought the end to the single factor control test. Organisation Test
In Stevenson, Jordan and Harrison v MacDonald and Evans3, Denning LJ suggested a more up-to-date test. An employee "is employed as part of the business and his work is done as an integral part of the business", whereas an independent contractor "is not integrated into [the business] but only an accessory to it". In Bank voor Handel en Scheepvaart v Slatford4, Denning LJ added to the test in that is was "whether the worker was part and parcel of the employer's organisation". It was applied in Whittaker v Minister of Pensions5, where a trapeze artist broke her wrist following a fall.
It was held that she was an integral part of the circus business and thus an employee. The lack of definition of integration and organisation would bring about unsatisfactory results, and so with more complex cases being brought, the courts needed a more decisive test. Multiple Test The complexity of the employer employee relationship has forced to courts to look at a range factors in deciding employee status. The test began in Ready Mixed Concrete v Minister of Pensions and National Insurance6.
The issue in the case was whether the company would be liable for the National Insurance contributions of its workers. Obviously, it would only be so liable if the workers were employees. The workers drove ready mixed concrete lorries, which they had purchased from the company. Their agreement stated that the workers must obey all reasonable orders, maintain the lorry according to company rules, and only use the lorries on company business. They were painted in company colours, and the drivers had to wear uniform.
These criteria suggested close control, and hence that the drivers were employees. However, there were no requirements as to the hours of work or when they took holidays. They would incur all running costs of the lorries. They could have more than one lorry and could delegate their duties to a substitute driver. Also, the drivers were paid, subject to an annual minimum payment, according to the amount of concrete they delivered. MacKenna J identified three criteria for a employment contract to subsist. Firstly, the employee agrees to provide his own work and skill in consideration of a wage.
Second, there is an element of control exercised by the employer. Thirdly, other provisions in the contract are consistent with it being a contract of service. On the facts, MacKenna concluded that the drivers were independent contractors, mostly because of the final limb of the test was not satisfied. The fact that the drivers could delegate their duties was crucial as this is not something seen in employment contracts. The test has now been accepted by the courts. The first limb of the test can be seen from Lord Thankerton's adapted control test in Short v J & W Henderson7.
Adrian Williams argues that the inclusion of "or other renumerartion" can be criticised in that it doesn't distinguish between the regular salaries paid to employees and the lump generally paid to independent contractors. The second test is merely a restatement of the control test. In Market Investigations v Minister of Social Security8, Cooke J observed that "control will no doubt always have to be considered, although it can no longer be regarded as the sole decisive factor". In that case, Cooke J considered the third limb of the test.
The question to be determined by the court was whether a person was in business on his own account. That case concerned an interviewer who carried out market research part time. She could do the work at whatever time she wished, provided that it was done within the given time. It was held that she was an employee. Cooke J outlined a number of factors that tend to show that a person is in business on their own account. These include whether they provide their own equipment, whether he hires helpers, what degree of financial risk he takes, whether he stands to make a profit from sound management of the task.
This is the so called entrepreneurial test. However, this still leaves the question of what factors indicate employment. However, "perhaps no exhaustive list can be compiled of the considerations relevant to determining the question"9. Indeed, "the object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture… and making an informed, considered, qualitative appreciation of the whole"10. Selwyn however has formulated a list of factors any tribunal should consider11, many of which have been noted above.
It is submitted this amount of judicial flexibility could be considered a bad thing. It allows the fact finder to choose the factors they think to be important. For example, in the Ready Mixed Concrete case, MacKenna chose to consider the power to delegate, despite the fact that it was never actually used. The courts need to consider all factors available to them to make an informed decision. In the majority of cases though looking at all the factors available, the court should be able to answer the question. Homeworkers though are a particular group that can cause difficulties.