The Basic Distinction between Employee and Self Employed Person - Essay Example

? In English employment law the issue of employment status is almost exclusively one for the courts to decide upon. Outline the ways and means whereby the Court of Appeal and the Supreme Court differentiate between an employee and a self-employed person and comment critically on their procedures. Name Course No: Course Name: Instructor’s Name: Date: University: In English employment law the issue of employment status is almost exclusively one for the courts to decide upon. Outline the ways and means whereby the Court of Appeal and the Supreme Court differentiate between an employee and a self-employed person and comment critically on their procedures. The basic distinction between employee and self employed person is that employee has to serve under the employer with certain terms and conditions whereas the self employed has to work under the contractor for specific job on fixed payment. Another simple way of distinguishing employment from self employment is: a) buying an employee or b) buying a service1. Employment Tribunals Act 1996 provides the formation of employment tribunals. It comprises of judge and two lay members. Most of the times tribunals deal with the employment disputes leaving few exceptions where a judge has to sit alone2. The Tribunal can hear and decide the case if it falls within the ambit of the given acts: a) equal Pay Act 1970 breach of equality clause in contracts of employment b) employment Agencies Act 1973 application by the Secretary of State for a prohibition order c) sex discrimination Act 1975 d) race relations Act 1976 e) Section 230 (3) 19963. Employment Tribunals Regulations 2004 governs the procedures of employment. The tribunal in question examines the nature of employment with specific reference to the relationship of an employee and the self employed. The decision of the Tribunal is binding on all stake holders. In such cases, if affected employees hire the services of a solicitor he / she have to bears the fee4. The aggrieved party can challenge the decision of lower judiciary in the Court of Appeal or in the Supreme Court as the case may be. The apex court while dealing with the employment cases frequently refers the judgments of House of Lords5. The Supreme Court can: a) affirm or set aside the impugned orders of the subordinate courts b) Order subordinate courts to retrial the case if found that the trial was not fair6. The terms that create confusion in the trials are ‘implied’ and ‘irrelevant’. Employment status is determined on the basis of actual relationship. Court has its own guidelines which prevail in the event of any dispute. One question that arises is that why should the two parties be in dark over this issue for a considerable amount of time. Many workers carry on their duties under the employment status labelled on them by the employers. This goes on for months and even years. There should be a rigid framework that prevents workers from living in ignorance or being completely oblivious to the benefits they can receive from a change in their employment status7. Control Test One of the most important tests to determine the employment status is the Control Test. This test determines the manner in which the work is done8. In the ancient times most of the workers were unskilled. Now there has been a dramatic change in the labour market. Workers are skilled and have in-depth knowledge about their work as compared to their employers. As mentioned earlier, changes in the working styles of corporations and individuals have made the control test less effective in many ways. The problem multiplies when dealing with skilled workers who are not under the direct control of the employer / client, but an integral part of the organization9. Of course there are strengths and weaknesses in control test. Many factors can be considered in the physical control such as presence at work, timely completion of task and the quantity of work given to workers. But with skilled workers who decide their own pace and timing may not be under direct ‘physical control’10. But this doesn’t stop the employers from having a psychological control over the workers. If the work is clearly defined in terms of timeline and the desired quality of work, then the worker is under the guidelines provided by the employer. In the control test overlapping of physical control and financial dependency can be seen. For example, in the case of Hitchcock v Post Office, the applicant ran a sub-post office as a part of the shop he owned. Although the Post Office exercised control over many of its activities, it was held that this was because of the need to ensure financial control and security, rather than being a control over managerial functions. Hence, the court’s decision was that Mr. Hitchcock was not an employee of the Post Office. This judgment suggests that following rules for the purpose of financial security doesn’t count as control. This can also be a contentious point because it is not clearly established whether adherence to rules and freedom from control can always be mutually exclusive11. Organizational Test As argued in the above section, a worker may not be under direct control of the employer but still it can be an integral part of the organization / corporation. This problem is solved by the Organizational Test which checks whether under a contract of service the person employed is part of the business and the work done by him/her is an integral part of the business. This test was suggested by Denning LJ during the trial Stevenson, Jordan and Harrison Ltd v MacDonald and Evans. The advantage of this test is that it is extremely useful to assess the situation of skilled workers who are ‘integrated’ into an enterprise and for whom the control test has proved to be ineffective12. One of the major weaknesses of the Organizational Test is that it determines the level of integration of the worker to the employer. On the basis of this decisions are made. But in working environment the importance of a person’s work cannot be rated so easily. For example, a photographer may be working freelance for a newspaper but his work is equally important and significant compared to that of a regular employee. If in the present level there is a gap then it can be easily filled in the immediate or distant future. The photographer may come up with some work that makes him an integral part of the newspaper. Employers may not consider them to be an integral part of their businesses but still their hard work should be respected and they also rewarded. Mutuality of Obligations There are many issues that the Control Test and the Organizational Test do not touch. Hence, they prove to be ineffective in the complicated trials which requires a much more flexible and comprehensive approach. Mutuality of obligations, together with elements of control, are seen as an essential pre-requisite for a contract of employment13. As seen from the title itself, this test doesn’t count just the amount of control exerted. It is more interested in the dynamics of relationship between the two parties. Rather than measuring the magnitude of ‘integration’ or control, the Mutuality of Obligations test concentrates on the following factors: a) whether there is a contract or a series of contracts b) If one contract, claimant agree to undertake a minimum amount of work c) the presence of contract of employment d) lack of sufficient control to do a minimum amount of work14. The employment status is not determined by what was intended but what turned out to be in the working relations between the two parties. This test looks into the patterns and trends that are developed during the employment. The nature of relationship is looked at and then it is decided whether the two parties had obligations to each other15. As said earlier mutuality can be inferred from how the contract operates in practice. In the case of Prater v Cornwall County Council, the claimant was employed as a home tutor to teach children. The council was under no obligation to offer pupils to the claimant, and equally she was under no obligation to accept pupils sent to her. In practice, she never refused orders for a period of 10 years, during which time she had a succession of individual teaching contracts16. One major yardstick in mutuality of obligations test is that there should be an obligation of personal service. In Ready Mixed Concrete (South East) Ltd v Ministry of Pensions and National Insurance case the lorry drivers were declared as self-employed by the courts. It was because of the following reasons: i) the employee agreed to provide labour and skill in the performance of a service for the employer ii) There must be some control over the employer iii) other terms of contract must not be inconsistent with a contract of employment17. A question that arises amidst all of the above refinements, and tests, is about the relevance of the contracts that are signed before the resuming of work. Is the value of a signed contract completely nullified by the rulings of the courts? Does this mean that no matter what the employment contract says, courts will always give precedence to the various tests over the contract? If a clause in a contract is so unrealistic when compared with what happens in practice, the employment tribunals will ignore it altogether. Thus, the fact that the contract states that there is no obligation on the worker to do the work personally, or that he can provide a substitute, or can refuse to accept the work ordered, or is described as a self-employed sub-contractor, etc, these clauses will be disregarded if they do not reflect the reality of the relationship between the parties18. It doesn’t rely on features such as control and integration, but addresses the dynamics between the two parties that come together for a common objective. But there are traces in this test which suggest that it indirectly focuses on the financial aspect of both the parties. It can be argued that when it is observed that the claimant is independent and ‘powerful’ enough to make its own choices, the courts seem to withdraw their protective support. There are more tests which have been devised to focus on the independence of the employees. These tests seek to examine whether the work committed by the worker is for the employer or is it an entrepreneurial venture in collaboration with the employer / client. Entrepreneurial Test This is one more test which measures the degree of freedom of a worker before deciding on the employment status. In this test a lot of questions are asked about the nature of dependence or freedom of the worker. There is no certain list of compulsory questions which are addressed. But the common queries are directed towards answering the following questions: a) Is he / she own business? b) Does he / she provide own equipment? c) Does he / she hire own helpers? d) Is there any degree of financial responsibility for investment or degree of risk? e) Does he /she undertake other sort of commission, business or employment? f) Is there any opportunity to earn profit from sound management? The crux of this test is the framework around which work is performed by the worker/s. The question that is worth mentioning is: is the framework provided by the employer or is the framework self manufactured? This test, unlike the Integration test, provides more relief for the unskilled workers. The more unskilled and untrained a person is, the less likely it will be that the employment tribunal will hold that he is running his own business. This means that it is assumed that skills provide more freedom to the worker. In Airfix Footwear Ltd v Cope the applicant was a home-worker making heels for shoes manufactured by the respondent company. She was provided with the necessary equipment and material, and worked in accordance with instructions given to her. The EAT upheld a finding that she was an employee19. On the other hand, in Argent v Minister of Social Security an actor taught drama on a part-time basis at a school. It was held that she was self-employed lecturer20. As far entrepreneurial test is concerned, there is a danger that it may look at matters in black and white. There are many complicated factors involved in the employment status of workers. For example, in Withers v Flackwell Health Football Supporters’ Club, the EAT stated that difficult cases could be resolved by using industrial rather than legal terminology. Hence, the person could be asked a simple question, ‘Are you your own Boss?’ This makes workers exposed to situations where their independence may be detrimental to their own well-being. Even if one person has sufficient control over one’s work, there are many areas where there is equally an increasing magnitude of dependence on the employers21. It can be observed from all the above mentioned tests that they aim to target many issues so that justice is provided to the deserving party. Throughout the world economic climate is changing and gradual shifts are being observed in economic balances between the countries. This has made an impact on the world’s labour markets. New technologies have led to the integration of workers from different continents who can perform many tasks together. In order to deal with such a changing environment it is necessary that English employment law is flexible and adaptable. This demand has led to the creation of a Multifactorial approach. It can be transpired from the cited cases and in the case of Autoclenz Ltd v Belcher, Supreme Court of UK decided the scope of statutory protection of rights for working individuals. It also confirmed the view of the Court of Appeal in relation to bargaining power of the parties in deciding the detailed terms of a contract under which an individual works, and in particular whether that contract amounts to a Contract of Service22. In the mentioned case, Supreme Court of UK upheld the decision of Court of Appeal regarding twenty employees of Autoclenz Limited as employees and not self-employed in line with their employment contracts23. Multi factorial approach While making a decision about the employment status of workers, the following factors must be taken: a) whether the relationship of being self-employed is a genuine one, or whether there is an attempt to avoid modern protective legislation (Young Woods Ltd v West)24 b) the number of assignments, the duration of the engagement, and the risk of running bad debts25. Throughout the essay it has been seen that many of the tests are not mutually exclusive. They tend to overlap. It is because of this reason that a multifactorial approach can become extremely useful in deciding the employment disputes. While other tests tend to focus on one aspect and deal with either skilled or unskilled workers separately, Multifactorial approach assesses most of the features and hence provides a solid framework for dealing with the disputes. Employed and self-employed professionals are considered quite different in the eyes of court of appeal and Supreme court on the basis of their statutory entitlement in terms of an individual and requirements linked to the employer. According to the Supreme court, an employee is one who has entered into a contract of employment that is a contract of service of apprenticeship. According to the section 230 (3), the employed persons and self-employed persons are quite different from one another. Employers are categorized as workers who have proper rights and can appeal for unlawful subtraction of pay. There are rights related to minimum wages, unfair dismissal, guarantee payments, working schedules, allowed leaves, breaks between working hours and so on. Similarly, self-employed professionals have their own rights such as taxation, social security and protection, legal obligations and so on. Therefore, a person who enters an employment contract is regarded as employed by Supreme court while the court of Appeal decides on the sections authorised by the Supreme court. In totality, it can be said that various tests that are presented such as control test, organizational test and entrepreneurial test inform about the status of employed and self-employed in different status co in terms of Supreme court and Court of Appeal. Employed and self-employed professionals can be differentiated on the basis of their rights that are provided to them. An employee enters into an employment contract according to which, he is liable to serve under some employer while self-employed person is an independent worker. Employed buy a service while employer buy an employee. 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