The Case Law Concerning the Ascertainment of Employee Status - Essay Example

?UK Employment Law + Department UK Employment Law Issues that deal with employment status arecentral to the governing and execution of employment law. It is essential to determine the employment status of an individual, that is whether they are self-employed or employees. As such, only employees can be made redundant, avert statutory redundancy payments or bring claim for unjust dismissal. In this context, employers under the usual law principle of vivid liability may be liable for the convoluted actions of their employees; however, it is not a must that they be accountable for the actions of contractors employed independently. Moreover, employees usually are taxed within a diverse tax regime; under the PAYE, while the self-employed usually pay their taxes at the end of each tax year. This is due to the fact that self employed work generally falls under a contract for services while the employed work under a contract of services1. Nonetheless, there is a certain amount of ambiguity linked to the legal formula by which workers are categorized. In this view, the effectiveness of the law may be questioned. Furthermore, some perceive that the current classifications have grown to become too rigid to deal efficiently with the advancement of non-standard employment forums. Such queries have proved to be the subject of many policy-oriented and legal analyses for the last two decades. Many studies have looked into employers’ reasons as to why the employed flexible forms of work. This paper offers a critical review of the given law as it relates to the means by which employee status and a consideration as to whether the current tests are suitable for purpose. The ‘worker’ concept One way for augmenting the number of people covered by employment law includes the use of the wider definition of worker and not employee as the basis for determining protective legislation2. This would include even people who do not have employment contracts but still contract to offer their own individual services to their employers. To some extent, they are economically dependent on the business of their employer. In some way, this broader definition is useful for fair treatment legislation and that which touches on the payment of wages. Recently, the legislation was approved by the National Minimum Wage Act 1998 as well as under regulations that implement the Working Time Directive3. Nonetheless, most of its aspects with regards to its use have remained unclear. There appears to be extremely few decisions about the distinction between a self employed worker and an employee. For this reason, it is hard to comprehend how many people would be affected by extending employment protection rights to those under the definition ‘workers’ and not ‘employees’. Employment status The hardship linked with defining workers, employees, and the self-employed, as well as the issues of giving status to individuals in non-standard work, have added several practical implications to the execution of the law in practice. Ambiguities that surround the distinction between the self-employed and employees should mean that there are many of those who enjoy employment rights without their knowledge. On the other hand, those who may thing they fall under employee category, and therefore enjoy employment rights, may turn out otherwise on close legal scrutiny. This uncertainty may mean that some employers may leave out their obligations4. The Law Governing the Classification of Employment Relationships The decisive factor by which legal classification are decided on are not put down in legislation, however, they have been hugely developed through what is known as Case Law. In particular, four tests are relied on: ‘Integration’, ‘Control’, ‘mutuality of obligation’, and ‘business reality’. Behind such states are a known determinant that includes the means of payment, the stability and the overall length of the employment relationship, as well as the degree of coverage of grievance and disciplinary procedures. The weight that the court attaches to a particular factor seems to be a matter of discretion5. Control The control law is arguably the most frequent of all law tests. The Court of Appeal, as recently as 1995, offered a suggestion that the test be used to determined whether a person was self-employed or an employee. In its most basic form, the control test depicts the thought that the independent contractor has a greater level of autonomy and discretion over the manner in which they can execute their work over the case with an employee. Nonetheless, this has endured cutting criticism6. Some have stated that the right of control does not distinguish self-employment from employment since its presence is totally consistent with the two type of contract. It is for this reason that the test has been replied upon less frequently7. Integration The integration test, in cases that date back to the late 1940s was depended upon as the alternative to control used to explain various issues, for instance, why professional and skilled workers were not employees if they work in huge and bureaucratic institutions. The basis of this test is that under employment contractual services, an individual is employed as part of the institution and the vocation is completed as part of the firm. In a similar manner, some have suggested that the greater the amount of skill needed for the work of an employee, the less significant is control in deciding whether the person is under a contract of service8. Thus, integration places minimal emphasis upon the individual subordination of the employee to their employer. The test appears to be appropriate to cases where the managerial authority takes place in a de-personalized manner and put under bureaucratic procedures and rules. Arguably, the test is less used in cases where the boundaries of the firm are unclear or diffuse such as in situations of agency labour or sub-contract. Economic Reality The courts have hardly dealt with the issue of what exactly the common rules of employment status are attempting to attain. In several decisions, the courts saw the meaning of the control test as a distinguishing factor between workers on the basis of social class. From the more contemporary perspective of the social and economic legislation which has embraced the common law classification tests, the legal tests can be viewed as deciding the occurrence of statutory rules whose function is hugely protective of the sole employee. Therefore, the distinction between the level of self-employment and employment included an evaluation of how far specific economic and social risks are to be shared between workers, employers and the state. For instance, employees can gain access to several expectation of continuing security of employment and income, for which self-employed individuals are excluded. In the same manner, employees do not gain the same opportunities as self-employed individuals to execute their work-related expenses against income tax9. Equally, the obligation of specific legal liabilities on employers is dependent of the idea that the employer can avoid the risk in question and not the employee. Therefore, when a tribunal or a court makes a ruling with regards to the employment status of a person, in effect it is deciding where the weight of taking safety measures against the risk of a specific form of loss should be allocated. Intermittently, the courts state the process of categorizing employment relationships in this risk allocation functional sense. The economic reality test has had some form of influence on the English Courts comes close to expressing this thought. This test is about where financial risks lie, and how far or whether the worker has an opportunity to gain from sound management in the execution of his/her job10. Therefore, it implies an economic independence test11. The economic reality test also depends on the context under consideration. In cases that deal with safety and health the courts appear to embrace the idea that a vast interpretation should be given to the idea of employee to make sure that employers who are thought to harbour the main responsibility for upholding occupational safety do not shy away from their obligations. Mutuality of obligation There appears to be a difficulty in the application of the common law criteria with regards to employee status12. Consequently, this has excluded certain protection for workers in key forms of casual employment, where oftentimes the mutual obligation to offer work or to accept it is offered is oftentimes in doubt. Agency workers, homeworkers, workers in casualised trades, and zero-hours contract workers have been thought to be outside the protective legislation scope under these grounds. The mutuality test is different from the economic reality with regards to terms that deal with individual hiring. The mutuality test seeks forma l evidence of subordination especially in contract terms. The application of the mutuality test is especially relevant for those employed in non-standard types of work, because it may mean that those who do not have their own business and thus are not in business on their own, but lack a stable and regular employment link with a particular employer are in a zone between self-employment and employment13. These people can hardly take advantage of the benefits with regards to national insurance system and tax, of self-employment, because they may have no business assets or their earnings may be too insecure or too low for these individuals to gain significantly from executing work-related expenditures. Often, the economic reality test would categorize such people to be employees; however, the test cannot be applied as a matter of course. Under this doctrine of mutual obligation, both of these parties are bound to execute their obligation lest the law will take the agreement in such a way that neither of the parties is bound to act upon. When an offeror and offeree agree on performance, one party is likely not to be awarded the unlimited and absolute right to do away with the contract. Such contracts try to allow one party to behave in whatever way they wish, thus not easing the other party of their obligations to perform. Most courts would declare such arrangements null due to lack of assurance that is given. Some courts would invalidate the contracts for due to lack of consideration – a party with absolute power to terminate a contract has no legal disadvantage. Indeed, the mutuality of obligation is crucial for contractual employment. This is one of the reasons for why it is not always easy for certain workers to ascertain that they fall under the employees’ category. In Carmichael v National Power plc, the House of Lords failed to entail a key clause into a conclusion with two particular casual workers. Likewise, a very similar approach was used in Stevedoring and Haulage Services Ltd v Fuller (2001, IRLR 627). This criterion is also essential to prove that an individual is actually an employee. It is hard also for agency workers. For example, one should consider the case Dacas v Brook Street Bureau (UK) Ltd (2004, IRLR 358). As such, this represented a case where Ms Dacas was involved with a local authority hostel for nearly six years. Notwithstanding these elements, employment status is not automatically guaranteed. It is often the case that employment tribunals will take into consideration other things like the intention of all the parties involved, the extent to which an individual doing the job offer their personal equipment, harbours a level of financial risk or is incorporated into the company. Factors considered by the courts Employment status is vastly an issue of importance for a tribunal to decide upon. Its decision can, and oftentimes are, overruled only when it has made a mistake in its decision or has failed to follow the law. The issues will become of law when the construction of a written text is in use as evident in Davies v Presbyterian Church of Wales (1984) ICR 280, HL14. In cases that involve problems of employment status where injuries exist by a claimant, policy considerations appear to overshadow legal principle, thus leading to contract of service, as evident in Ferguson v Dawson (1976) IRLR 346, CA; and Lane v Shire Roofing Co (Oxford) Ltd (1995) IRLR 493, CA15. Current multiple test used by the court system to decide on the employment status allows all factors to be considered. Some individuals may point towards self-employment while others point towards an employment contract. Clearly, the designation of the parties as either employment or self-employment is not a determinant but is a factor that should be considered. The courts will not look at the form but at the substance as evident in Young & Woods Ltd v West (1980) IRLR 201, CA16; and Ferguson v Dawson (1976) IRLR 346, CA17. Nonetheless, an authentic agreement that accords with the accurate legal interpretation will be sustained as evident in Massey v Crown Life Insurance Co (1978) 2 All ER 576, CA18. Certain cases have entailed contracts that contain a power of delegation or substitution that is a contractual provision that allows the individual worker to substitute another individual to continue with their work. According to the Court of Appeal, a huge power of substitution is intrinsically conflicting with the irreducible minimum of commitment. The minimum of obligation can be exempted from a contract by a distinct express term. In a case like this, not term can be implied to seek a contract of employment as evident in Stevedoring & Haulage Services Ltd v Fuller (2001) IRLR 627, CA19. Several cases that involve company directors who hold controlling shares in the firms for that have caused some issues for the courts. Can such individuals be taken as employees when they somehow control their employer?20 This poses to be a query of truth to be determined upon discussing all the factors. Problems usually arise where an individual is assigned to a particular client by an employment agency. There will likely be some form of contract between the worker and the agency, but is the worker under a contract of employment with its client or the agency?21 In Dacas v Brook Street Bureau (2004) IRLR 35822, the Court of Appeal stated that Mrs Dacas, a temporary cleaner under Wandsworth Council, was not the agency’s employee on the grounds that the agency was under no obligation to supply work. Also, there was no form of corresponding obligation to acknowledge any work offered. Secondly, the agency could not control her work. Nonetheless, by a majority, the Court of Appeal indicated that Mrs Dacas could be a worker for the end-user. In view of this, the obiter indication will be open to question. According to the court, a contract of employment can be implied between two or several parties. In James V Greenwich LBC (2007) IRLR 16823, the judge presiding considered such a possibility; however, he held that the contract could be implied between the end user and the agency worker only. Also, the manner in which the contract is executed is consistent with the implied contract only and in situation where it would be contradictory with there being no such agreement. This decision was confirmed by the Court of Appeal24. Successive case law about the status of agency workers supplied to an end user shows that clarification is required in such an area. To determine that the worker is indeed an employee of the agency, enough degree of control and mutuality of obligation have to be present between the worker and the agency. This was lacking in Bunce v Postworth t/a Skyblue (2005) IRLR 557, CA25, although it could be present between the worker and the client, as evident in Cable & Wireless v Muscat (2006) IRLR 254, CA26. Certain cases where the agency seems to show a degree of control over those working and in which enough mutuality can be found, the worker can be said to be an employee of the agency. With regards to fraudulent contracts, the Supreme Court established in 2011 that the accurate approach where a fraud is being contented for was for the tribunal or court to establish what the correct legal obligations of those are involved27. The point at issue in Express & Echo Pub Ltd v Tanton case was whether a newspaper delivery driver was involved under a contract for services or a contract of service28. All factors in this case pointed to a contract of service; nonetheless, payment was done for the round and not by week, day or hour. On originally hearing the appeal, the Industrial Tribunal established the worker as an employee. The EAT also agreed to this finding. Nonetheless, the Court of Appeal in 1999 overruled the decision and determined that the individual was indeed self-employed. Here, the Industrial Tribunal had established as a fact that the individual did not have to offer his services on a personal basis and that this was not consistent with a contract of service. According to this finding, therefore, it means that Mr Tanton never had to execute the services himself. In the Nethermere (St Neots) Ltd v Gardiner and Taverna, the Industrial Tribunal had to regard as a preliminary subject whether the applicant would fall under the category of “employees” under contracts of service or they would be self-employed entities under the section of contracts for services29. Mrs Gardiner was amongst a number of outworkers incorporated by the Nethermere Company as part-time. They sewed pockets and trouser flaps while using machines offered by the company. Without fixed hours, the company paid them according to the amount of work done and thus were not indebted to agree to any specific amount of work. Mrs Gardener worked for the company up to 1976 but worked on her own from 1979 starting with her own machine. Later, the company gave her a machine and general work was given to her and collected on a daily basis. She worked for the remainder of the fiscal year in addition to the next two years except for five weeks. The Court discovered that Mrs Gardiner was under a single contract of service. Due to the course of dealing for a number of years, mutual obligation had grown thus the company appealed. However, the EAT disregarded the appeal stating regardless of whether an individual under a contract of service or for services was not fact but a question of law. Thus the Tribunal Court was correct in stating that the applicants were under contracts of service. Here, the Court had based their rationale on the idea that a contract of service had the irreducible least obligation between the parties – the people involved were paid according to the work done and were, therefore, obliged to give out their own work. The point at issue in the Ready Mixed Concrete (South East) Ltd v Minister of Pension and National Insurance was whether an owner-driver of a car used totally for the deliverance of a firm’s ready mixed concrete was involved under a contract of service30. Here, the minister established that Mr. Latimer was involved under a contract of service. However, on a further appeal to the High Court, Mackenna believed that he was involved in a business of his own. According to Mr Mackenna, Mr Latimer was not a servant but a small business man thus the contract was of carriage and not of service. The point at issue in the case of Carmichael & Another v National Power plc was whether Mrs Carmichael was indeed an employee in tandem with ‘contract of employment’ as envisioned in the Employment Act 1978 and thus befit for written terms that constitute the details of employment31. To gain such entitlement, it is essential to be involved under a contract of employment for at least 13 weeks. Without going into the particulars, the Industrial tribunal believed that the case fell at the initial impediment. Here, the correspondence never constituted any form of contract when they were not working as guides. The EAT went ahead and dismissed the appeal; however, by a majority, the Court of Appeal, let her appeal go through. The successor, National Power plc, appealed against the decision. Nonetheless, according to the House of Lords, the Industrial Tribunal was correct in deciding that there was no contractual obligation. The Point at issue in the Market Investigation Ltd v Minister of Social Security (1969) 2QB173 was whether an interviewer involved on a casual basis was indeed employed under a series of contracts for services or under a series of contracts of service32. Market Investigation Ltd, a market research firm, employed a few full-time interviewers; nonetheless, it drew on a team of interviewers. The case was about this latter group. In his decision, the Minister of Social Security rules that Mrs Irving worked under a contract of service and the firm appealed against the decision. According to Cooke J, Mrs. Irving was working on the basis of a series of contracts of service. In Stephenson Jordan & Harrison Ltd v MacDonald & Evans (1952) 69 RPC 10 (UK CA), an accountant had written a certain book that included lectures that he had already given earlier33. Here, the query was whether the lectures incorporated part of his normal duties of employment or whether they were executed during his part time. The decision was that, even though his employer had added to the expenses, they were not under the course of his employment. Therefore, the contract was a mixed one, partly for services and partly of service. Thus the copyright for some parts of the book was owned by the company and some owned by the individual. As it appears, issues that deal with ownership of copyright will be constituted in an employment contract that is written, which will then establish the query. To conclude, questions that deal with employment status stem from a worker’s request to his perceived employer for a statement under sections 1, which gives specific particulars of employment. Notably, the major causes of uncertainty in cases discussed above came from employers’ attempts to employ contractual devices of different kinds to shift the balance away from the status of the employee. It includes relabeling clauses that describe the working relationship of mutuality and self employment clauses that specified that the employer was not obligate to offer work a continuing basis to the person concerned. Agency workers and those working under casual arrangement were the most likely groups to be subject to such degree of indecision. On the whole, agency workers viewed themselves as employees of their agencies. They did not view their insecurity as a factor affecting the question of employment. Although self-employed, such individuals are contracted to offer their personal services and are dependent on an employer. Set of Cases Davies v Presbyterian Church of Wales (1984) ICR 280, HL Ferguson v Dawson (1976) IRLR 346, CA Lane v Shire Roofing Co (Oxford) Ltd (1995) IRLR 493, CA Young & Woods Ltd v West (1980) IRLR 201, CA Ferguson v Dawson (1976) IRLR 346, CA Massey v Crown Life Insurance Co (1978) 2 All ER 576, CA Stevedoring & Haulage Services Ltd v Fuller (2001) IRLR 627, CA Stevedoring and Haulage Services Ltd v Fuller (2001, IRLR 627) Stevenson v Delphi Diesel Systems Ltd (2003, ICR 471) Dacas v Brook Street Bureau (2004) IRLR 358 Dacas v Brook Street Bureau (UK) Ltd (2004, IRLR 358) In James V Greenwich LBC (2007) IRLR 168 Bunce v Postworth t/a Skyblue (2005) IRLR 557, CA Cable & Wireless v Muscat (2006) IRLR 254, CA Nethermere (St Neots) Ltd v Gardiner and Taverna (1984) IRLIR 240 Ready Mixed Concrete Ltd v Minister of Pensions and National Insurance (1968) 2QB497 Carmichael & Another v National Power plc (1999) 1 WLR 2042 Market Investigation Ltd v Minister of Social Security (1969) 2QB173 Stephenson Jordan & Harrison Ltd v MacDonald & Evans (1952) 69 RPC 10 (UK CA) Express and Echo Publication Ltd v Tanton (1999) IRLR 367 Bibliography Barnard, Catherine. 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