THE GOVERNING OF THE EMPLOYMENT STATUS BY ORTHODOX LAW PRINCIPLES - Essay Example

?Orthodox law Principles THE GOVERNING OF THE EMPLOYMENT STATUS BY ORTHODOX LAW PRINCIPLES By First and foremost, in order to be able to examine the effect to which orthodox contract law elements govern the employment status in relation to sham self-employment arrangements, it is important to understand the terminologies that are used in the paper. (Bosse, 2011) It is a challenge defining the term ‘sham employment’ since there is no accepted definition. However, having said that, there are a number of scholarly definitions for the term that have been made. One of the definitions describes it as a ‘disguise’ that is put up so as to hide the underlying factor. The definition made by Lockhart J. is; “... Something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.” The importance of sham self-employment is to disguise a person that he or she is self-employed while in essence they are actually not. This could be the case for a number of reasons which could be known to the employee and the company or the employee could be uncharacteristically oblivious of the on goings. The employers could at times stand to gain and so would the employees from time to time. Plans are underway to engage workers as independent contractors wherever the parties intend to create working relationships with adaptations that do not reflect their genuine intentions. It is common knowledge that disguising the employment status is possible through various ways. This could also happen under written contracts to both the employee and the employer as well as when an employee is hired on an informal basis to offer labour and is at times told that they are a contractor just like any other. Some businesses often do not register their workers as employees since it is a benefit to the business and the employees because they are treated as self-employed in regard to insurance remittals and income tax. This is a tricky situation in which the employees would find themselves in since there is no basis for protection of rights. Most of the companies will be of the view that their employees are not contracted for employment but rather for provision of services and consultancy. These, quite simply put, define sham contracts. Such contracts are mostly entered into by immigrant workers who are in desperate need for jobs and also lack the necessary immigration papers. Thus it is easier for them to try and avoid the authorities. Diplock LJ in Snook v London and West Riding Investments Ltd (1967) gives adequate consideration of what would be considered a ‘sham’. In his judgment, he said: "As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a ‘sham’, it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. The one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v Maclure and Stoneleigh Finance Ltd v Phillips), is that for acts or documents to be a ‘sham’, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a ‘shammer’ affect the rights of a party whom he deceived". (Emplaw) To many, there might not be a problem with sham employment, reason being that it dismisses workers as contractors when in actual sense they are employees. Most businesses simply want to profit from their workers by engaging them as contractors but still controlling them as workers, which is a selfish deed that does not consider the welfare of the workers themselves. An individual should be given the freedom to choose whether to be a worker or a contractor thus any efforts by employers to make their employees work for less would be against their right and unlawful despite whether the employee consents to it or not. (Hotch, 54) The case of Autoclenz Ltd v Belcher (2010) is a landmark case in the United Kingdom (UK) regarding employments status and especially the conditions in which the Employment Tribunal is entitled to find that an alleged self-employment contract is taken to be a ‘sham’. For years on end, employers have been trying to get round employment agreements. The Supreme Court in this case showed that despite there being a contract between the business and the employer, an employer cannot avoid his or her responsibilities. Therefore, the most fundamental thing is the reality of the relationship and not what the contract says. Under section 230 of the Employment Rights Act 1996, the most important employment rights are only available to actual employees i.e. those who have entered into a contract of employment. (Emplaw) Autoclenz was a business offering car cleaning services to auctioneers and vehicle retailers; however, they described their valeters as their sub-contractors instead of employees. In the contract, the valeters were allowed to get other people to carry out the valeting for them, they were not allowed to issue their services and neither did Autoclenz guarantee them that it would on any specific occasion provide them any work. The motive for all this was that the valeters would be self-employed and as a result they would not qualify for minimum wage nor paid leave. The valeters brought a case against the company with the claim that they were indeed workers and consequently had the right to qualify for the minimum wage and paid leave. The case eventually reached the Supreme Court and the judges ruled in their favour, stating that in spite of what their contract stipulated, the valeters were in deed employees of the company. The judges took into account all the circumstances of the case and were willing to consider the conditions of both parties, not just the laid down contract only. Therefore, it was determined that the written contract did not reflect the actual agreement between both parties, and in actual sense the requirements for an employment contract were in fact satisfied in this situation. The National Minimum Wage Act 1998 and the Working Time Regulations 1998 grant workers the rights in relation to working time, annual leave and rest breaks as well as the rights to minimum wage. However, there are limited statutory structures in place to provide guidance to discerning employment status thus common law has been mostly used as a guide. The Court of Appeal case of Consistent Group Ltd v Kalwak (2008) has provided precedent for subsequent cases. In this case, the claimants had entered into contracts which on face value appeared to show that they had agreed to be self-employed subcontractors. Before the case was appealed to the Court of Appeal, it was previously held by Elias J that even though the agreement made between both parties was unrealistic, it did not alter the true nature of their relationship. However, Rimer LJ of the Court of Appeal criticized Elias J’s ruling by holding that it was not possible to imply in the clauses to the agreement between the parties because it would contradict the express clauses made in the signed contract. (Emplaw) In Protectacoat Firthglow Ltd v Szilagyi (2009), the Plaintiff claimed unfair dismissal from the company due to health and safety issues. On commencement of duty for the Respondent, the Claimant signed contracts that purported to create an agreement between the Plaintiff and another individual. It was originally determined by the Employment Tribunal that the Claimant was an employee since the contract was a sham since it did not reflect the ‘true relationship’ between both parties. However, the Employment Tribunal’s decision that the Claimant was an employee was later uphold by Smith LJ of the Court of Appeal. In Smith LJ’s opinion the Employment Tribunal correctly held that both the service agreement and the partnership agreement were shams and they in fact did not represent the true relationship of both parties. (Emplaw) There are fundamental flaws in the orthodox contract law principles that determine the extent to which the law can govern these sham self-employment arrangements. The laws can be easily manipulated and bent to favour desired results. Arrangements can be structured so that a person is to all practical intents and purposes working as an employee in the face of the law, yet is not treated so. Workers should have the right to choose their businesses and hire out their services as contractors at will. However, if their self-employment is genuine, there should be implications to suggest the same. The main challenge is identifying those that are in sham self-employments and having them treated as employees (Painter and Holmes, 10) The commercial contract law has hence; due to its flaws been termed as a “perception of a loose grouping of pragmatic considerations given a superficial veneer of coherence by reference to a substantively empty concept of interpretation.” Its contents, suggestions and desired results are not in rhythm. The will theory of contract details that it should invoke human freedom and allow a beneficial deal to be created while restraining the same freedom since the terms of the contracts should be upheld. Such is the self-contradiction that flaws it and provides room for sham self-employment. According to Charles Fried, the conferring of rules in the law of contracts means that it allows individuals to enter agreements of their own choice on their own terms. It is a moral obligation that we intentionally invoke. It therefore is hard for the existing laws to govern the extents of the sham self-employment all the way under such provisions. There are cases in which the orthodox contract law principles can be used to govern the sham agreements however they are exhaustible. These doctrines include; Consideration, illegality, frustration, duress and exceptional statutes like unfair contract terms. However the orthodox account is not favourably in tandem with the modern rules as it is seemingly old fashioned hence cannot coincide with the existing values. In Redrow Homes (Yorkshire) Ltd v Buckborough & Anor (2008) the Court of Appeal was to judge on the issue of whether the workmen employed by Redrow to work on their building sites were actually workers under the Working Time Regulations, or whether they were self-employed contractors. The contract between the parties stated that the workers would provide the required labour necessary to maintain the needed rate of progress. However, the workers were not obliged to in deed perform the work themselves. The Court of Appeal held in favour of the workers, that the provisions of the contract gave the workers the duty to either provide labour themselves or find others who would. This therefore meant that the workers were under contract to personally execute the work. (Emplaw) The rights and protections afforded to employees cannot necessarily be extended to ‘dependent contractors’. This is because, while many dependent contractors can fairly be regarded as disguised employees, this is not invariably true. The orthodox laws of contract principles are therefore limited in governing the sham employment on this front. Some contractors may quite clearly be running their own business, yet be in the habit of working for only one client at a time. They could as well secure a major contract that for a while occupies all of their time and attention. Telling the difference between the genuine and sham contractors has no outline criterion and as such the principles of the contract law are incapacitated. This does not suggest that it is inappropriate for certain rights and protections to be afforded to contractors, whether dependent or independent. For example, it is entirely fundamental and reasonable that an organisation comply with health and safety obligations in relation to anyone who it engages to perform work, whether as an employee or contractor (Beale, Bishop and Furmston, 134) There are solutions that have been put forward as remedy for the issue. Among them are the statutory provisions that deem certain types of worker to be employees, or allow industrial tribunals to do so. This is a suggestion that is may be both too broad and too narrow in its scope. A provision that deemed all plasterers (for example) to be employees would plainly be too wide, in that some plasterers are genuinely self-employed. But at the same time, a deeming provision operates by reference to a class of worker, when in fact any type of worker can be disguised as a non-employee. This adds to the notion and genuine concern that the orthodox contract law principles cannot govern the sham employment as such (Burne, 17) The law provides for unfair contract provisions that rely on the individuals sourcing litigation in the courts; which is just expensive for them. Very few cases therefore make it to the courts over the years. The employees who are swindled in unfair contracts are generally not expected to be well of and financing litigations as private parties against businesses that should have more resources at their disposal is hard. As such, most choose the easy way out of it which is remaining silent. The law will therefore not be in a position to work cases of businesses that do not enlist their workers as employees as very few are willing to take cases of lesser remuneration or such before the judicial system (Painter and Holmes, 48) The easiest way would be a redefinition of the term ‘employee’ so as all workers are treated the same unless they genuinely run personal registered businesses. If such provisions would be made, they would not entirely be a redefining factor of the far that contract law provisions extend but just a reprieve to the situation (Hotch, 109) With or without action on successful disguise of employment arrangements, sanctions an still be imposed on persons or businesses that are found responsible for disguising employment as independent contracting. These provisions may be used in circumstances where the employer has misled or dismissed an employee from duty. Since current laws draw no penalty to being party to sham; only payment of the normal entitlements associated with employment. The concern is whether the provisions should be expanded to capture the notion of being a party to a sham arrangement. Many feel this would extend the mandate of the orthodox contract law principles on the sham arrangements but scholarly material has suggested otherwise. An ABCC inquiry found that if simply being a party to a sham arrangement triggered liability, workers could find themselves facing civil penalties, as they would be regarded as a ‘party’ to a sham arrangement. This would be inappropriate, as it is usually the employer who decides the form of relationship between it and its workers. Even if, as sometimes happens, it is the worker requesting to work as an independent contractor, it is usually the employer that prepares the contract, often in consultation with its professional advisers. Employers too are generally in a better position to understand, or at least obtain advice on, the true legal position. Accordingly it is the employer, if anyone, who should be held responsible in the event that the arrangement is found to be a sham (Bosse, 67) Secondly, it is important that the sham arrangements provisions be aimed at those who attempt to disguise employment as independent contracting, rather than those employers who genuinely try to establish an independent contracting relationship with their workers. Given the uncertainty surrounding the application of the tests for employment to particular fact situations, employers can sometimes quite unwittingly, and without any criticism of their conduct, find themselves a party to a ‘sham’ arrangement. It would be inappropriate to penalise all employers in this situation, regardless of their culpability – especially since there are in any event likely to be adverse consequences from a finding of employment status, such as a liability to make superannuation contributions, provide (or pay out) leave entitlements, and so on (O’Sullivan and Hilliard, 78 ) Conclusion The great body of case law that has built up over the years suggests that the tasks of the Courts to discern employment status is over the course becoming more arduous rather than simpler. Therefore, this increase in case law is adding more weight rather than wisdom to it all. It cannot be adeptly estimated as to when these orthodox contractual principles will be relaxed which calls for an analysis of the reality of an employment relationship. Reforms are required in this area of employment status through better statutory guidance. However, in the meantime it seems that common law led by the Supreme Court’s ruling in the Autoclenz case, will continue providing the needed guidance and clarity in this challenging area. In conclusion, the flaws of the law have limited the extent to which orthodox contract principle should govern the employment status in the context of sham self-employment arrangements. It would require restructuring of the current laws and a redefinition of terms to extend their mandate and hopeful deal with the sham self-employment once and for all (Waddams, 35) References Beale H, G, Bishop W. D., Furmston M. P., (2007), Contract, Oxford University Press Bosse, Claire (2011) Extension Protection by Labour Law, Kluwer Law International, Burne, Nicole, (1998) Principles on Company Law, Routledge Emplaw Online Hotch Janet, (2000) Classing the Self Employed, Regents of the University of Minnesota O’Sullivan Janet and Hilliard Jonathan, (2012) The Law of Contract, Oxford University Press Painter, Richard and Holmes, Ann, (2012) Cases and Materials on Employment Law, Oxford University Press Waddams, Stephen, (2011) Principle and Policy in Contract Law, Cambridge university press Read More