Contract of Service or Contract of Employment - Research Paper Example

Employment Law Whether Cameron was an employee of Veritus Airways Ltd An employee can be under contract of service or contract of employment as per The Employment Rights Act 1996 (ERA). It has to be distinguished from the position of an independent contractor or self-employed person who is considered to work under contract for services. As per section 230(1) of ERA 1996, an employee is a person who works under a contract of employment. It can be contract of service or apprenticeship both express and implied. If express, it can oral or in writing. The act does not define independent contractor or contract for service. In view of the nature of the definition, courts have prescribed several tests for distinguishing an employee from the self-employed and also contract of service from contract for services. In Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968), court have already laid down for the first time a 'multiple test' to arrive at conclusion whether the person who was a lorry driver was an employee or self employed. This question arose in order decide who was liable to pay national insurance contributions. The contract with the driver had contained the following conditions. 1 The driver had bought the lorry which he was supposed to drive on hire-purchase agreement. 2. He wore company's uniforms and insignia. 3. The lorry was painted in the same colour as that of the company. 4. The lorry was meant for exclusive use of the company. 5. The driver agreed to obey reasonable orders as if he was an employee of the company. 6. Driver was responsible for repairs of the vehicle and a cost of repairs was borne by him. 7. The driver was not under compulsion to drive the vehicle himself and was allowed to have a substitute driver in his place. The court held that the driver as self employed because the driver did not contract to drive personally and also the tools of the trade, here lorry was his own and not the employer. MacKenna J laid down three conditions for contract of employment. (1) Servant agrees to work for wages as consideration for service rendered to his master. (2) He also agrees that his service will be under the control of his master in sufficient degree (3) The other conditions of the contract should be consistent with those of a contract of service. In another recent case namely Express and Echo Publications Ltd v. Tanton (1999), the Court of Appeal held that if a person is not required to work personally, he was not an employee. In yet another case of 2001, MacFarlane v Glasgow City Council (2001), the Employment Appeals Tribunal distinguished the above Tanton case. The Glasgow City Council had engaged gymnast trainers at the various centres of the council. If a trainer was unable to take a class, she could substitute herself by another gymnast who was on the approved list of coaches maintained by the council. The substitutes were paid by the council and not the gymnast trainer. In Tanton case, the substitute could be from outside and he was paid by the individual and not the employer. Thus he was not expected to turn up for work and could send substitute for a lesser price and make profit out of it. He himself became the master. In an earlier case of O'Kelly v Trusthouse Forte Plc (1983), regular casuals were held to be not employees since there was no mutuality of obligation and they were only kept as standby. Although the court of Appeal tried to give a finding that they were employees, since they had no business of their own, that the employer had effective control over the casual workers, that there were discipline and grievance procedures, that they should take permission to take off from rostered duties, the fact that they were self employed, revealed that there was no mutuality of obligation i.e the workers did not have right to claim work if not offered nor they were under obligation to accept work if offered with work. House of Lords in the subsequent case Carmichael v National Power Plc (1999) reaffirmed that the casual workers could not be regarded as employees for want of mutuality of obligations. In this case the claimants had worked as tour guides on causal basis i.e to work as and when required. Their payment was based on umber of hours worked after deduction of income tax and National Insurance payments. By virtue of their causal nature, neither they had the compulsion to take up any work nor the company guaranteed availability of work to them. With the aid of the above case law, it can now be examined whether Cameron could be regarded as an employee of Veritus Airways. His service conditions are stated below. He was required to wear a uniform supplied by Veritus Airways Ltd. He was not entitled to sick pay or membership of the airline's non-contributory pension scheme In the event that he was unable to work due to sickness, he could substitute himself with one of Veritus Airways Ltd's other pilot's, on receipt of written permission from his General Manager. He was responsible for paying his own tax and national insurance: the Human Resources Department had asked him two months ago if he would prefer to work on a self-employed basis, saying that he would pay less tax. Cameron agreed to this. He was required to do 24 hours of flying time a week from Thursday through to Monday to fit in with Veritus Airways Ltd clients' needs. Applying the House of Lord's ruling in Carmichael case, the last condition above being suggestive of mutuality of obligation, Cameron could be considered as an employee of Veritus Airways Ltd. The fact he was offered to work on self employed basis does pose some problem. But looking at it deeply, merely because he is named as a self employed, he does not become self employed unless other conditions are satisfied. He has not brought his own aircraft, i.e. the tools of the trade as had been held in Ready Mixed Concrete Case where in the claimant had his own lorry brought for work. Moreover, Cameron was not allowed to bring outside substitute pilot on his own terms so as to make profit out of it. He was expected to work personally and allowed to put substitute only from the pool of pilots available with the Airways Company. So, the test in Express Echo Publications also would not apply in Cameron's case. On the other hand McFarlane case above would apply since gymnast trainers could not be substituted from outside the council's list of approved trainers and the council paid them. Neither was he a causal worker. He had to be present during the specified days of the week. He had other usual terms of contract of employment such as having to wear company uniforms, subjecting himself to disciplinary procedures. Only exception found is that he paid his own tax and National Insurance Premium. This may be taken as terms of contract of employment. Thus Cameron has fulfilled the following multiple test conditions laid down by McKenna. (1) Servant agrees to work for wages as consideration for service rendered to his master. (2) He also agrees that his service will be under the control of his master in sufficient degree (3) The other conditions of the contract should be consistent with those of a contract of service. An important worth mentioning here Young and Woods v West (1980). West paid his own tax and National Insurance. There was no holiday or sick pay for him. When his employment was terminated, he claimed himself to be an employee and made a claim for unfair dismissal. Court of appeal held that West was an employee even though he paid his own tax and insurance since other terms were the same as other workers. (Broadhurst 2005) This case itself will be of ample assistance to Cameron to stake his claim as an employee. The Airways' contention that Cameron is not an employee is not correct since the characteristics of self employments are totally absent. The mere agreement to lesser payment tax does not make him self-employed until the said terms are implemented provided other conditions of self employment are also present such as own tools of the trade, absence of master and servant relationship and bringing in of his own substitutes at his own terms of payment to the substitutes. In fact Veritus Airways Ltd's inducement of Cameron to be treated as self-employed is an unfair labour practice Besides conduct of disciplinary proceedings for self-employed person was not necessary. The fact the company conducted enquiry for the allegations of bad landing and sexual harassment of showed that it held Cameron as an employee under their control. Taking a holistic view, an airline pilot's job which is a highly technical and risky profession can not be said to have been self-employed unless he has his own aircraft and possess the required licences to run it on his own or under some lease to another company. It will be ridiculous to call such calling which should be under tight scrutiny as a self-employed occupation. He had only contract of service and not contract for service with the airways. Above all, the contract of employment or whatever entered into by the Airways with Cameron should serve as evidence of employee status or otherwise. In the absence of any such express terms of contract which is difficult to imagine in an airline company, as per section 1 of the Employment Rights Act 1996, the employer must have issued to Cameron a written statement of terms and conditions which should show the terms of employment agreed upon. Sections 1-7 of ERA 1996 are the statutory requirements for the written statement mentioned. The statement which can be furnished or filled in stages but must be a single document containing the following particulars. 1 the names of employer and employee; 2 the date of start of employment with the employer; 3 the date of start of continuous employment; 4 the details relating to pay, hours of work, holiday entitlement, the employee's job title and the his place of work 5 Employees notice period 6 Employers disciplinary and Grievance procedure. .This written statement containing the above particulars must have been given to Cameron within eight weeks of the start of the employment. Whenever any changes are made to these statements variations to the employment terms, such changes must be notified to the employee within one month as per section 4 of the ERA. (Hardy T and Upex VR 2006 p) If Cameron is in possession of these documents of original statements and statement of changes if any given by the employer, it will become amply clear about his employment status and may serve as a tool for his claim against the employer for unfair dismissal. 2) Whether Cameron could claim unfair dismissal assuming that he is an employee of Veritus Airways Ltd The employer must follow certain procedures for dismissing an employee so that employee can not claim unfair dismissal. The employer must first take an informal action and see if the employee can be helped by counselling to improve his performance. If even after the counselling, the employee does not show improvement, a formal action of a disciplinary meeting must be held by the employer with the employee. The employee must be cautioned and offered time to improve and told that if he does not improve written warning will be issued. Minutes of the meeting must be made and copy of it should be given to the employee. If still there is no improvement during the time allowed, a second meeting must be held and all the complaints about him must be repeated to him and he should be given opportunity to explain his case. If his explanation is not satisfactory, he must be issued with a first written warning detailing the complaints and further time given to him for correction. If there is no improvement from him after the first written warning, a final written warning should be given to him showing all the facts and circumstances again. At this time the warning must state that in case of no improvement within the further time given, he will be considered for dismissal. Even after this, if the employee fails, if dismissal can not be avoided, then statutory discipline and dismissal procedures should be followed. There are of three stages i.e written statement, hearing and appeal. If the employer does not follow these procedures which are statutory, the employment tribunal will hold the dismissal unfair and order compensation from 10 to 50% and in cases of employees not having attended the disciplinary procedures without a good cause, compensation can be reduced. The tribunal can also order re-instatement or re-engagement of the employee. (Business Link) An example of what should be done in a typical case is given hereunder. Discipline in practice - example 5 Ten pounds has gone missing from the company's petty cash account and the firm's cashier is suspected of taking the money. You investigate the matter and decide that the cashier does have a case to answer. You write to the cashier setting out the allegation that he has taken money without authorisation from the petty cash account and your grounds for it and that the allegation is of gross misconduct for which he could be dismissed. You also invite him to a meeting to discuss the matter. At the meeting the cashier admits having taken the money for his personal use but argues that it was only 10 and he was intending to pay it back as soon as he received his week's salary. You decide that this is not sufficient justification for having taken the money without authorisation and you dismiss the cashier for gross misconduct. You inform him that he can appeal against the decision if he wishes. (ACAS) In the case of Cameron, his employer does not appear to have followed these procedures except conducting a management meeting and taking a unilateral decision to dismiss Cameron though with a right to appeal. An unfair dismissal is different from wrongful dismissal for which remedies are available in common law. For an unfair dismissal, statutory remedy is available under Employment Rights Act.1996. This arises out employment contracts terminated by the employer for no fair reason or for the manner in which dismissal was made. Here, Cameron who is holding a responsible job of a pilot is charged with having made unsafe landing and sexual harassment of two female staff of the company. The charges are serious in nature. These do call for adoption of appropriate disciplinary procedures. On this count alone, Veritus Airways have defaulted. This is patently unfair. No opportunity was given to the employee to explain his case. Another point is that it is unfair dismissal if made without any reason. In Cameron's case the employer has got a reasonable case to conduct enquiry and then take a decision. They did not do it. Their contention may be that even if procedures had been followed, the outcome would have been the same given the nature of the charges. But this being first time occurrence, Cameron need not have been given such a harsh treatment. Unfortunately Cameron has completed only 13 months of continuous employment with the company. The minimum qualifying period as per section 108 of ERA 1996 for claiming unfair dismissal under section 94 of the ERA 1996 is two years subject to exceptions. One of the exceptions falls under section 108 (3) (c) which deals section 100 (2) & (3). Whether this provision has any relevance to the Cameron's following charge against the management. "Leading on from the above, prior to this point in time, Cameron had reported Veritus Airways Ltd to the Health and Safety Executive in connection with a catalogue of unsafe working practices following persistently unsuccessful attempts to get the matter resolved internally" Section 100(2) states as follows. "For the purposes of subsection (1)(e) whether steps which an employee took (or proposed to take) were appropriate is to be judged by reference to all the circumstances including, in particular, his knowledge and the facilities and advice available to him at the time."(ERA 1996) The above subsection (1) (e) of section 100 is as follows. "100(1) (e) in circumstances of danger which the employee reasonably believed to be serious and imminent, he took (or proposed to take) appropriate steps to protect himself or other persons from the danger" (ERA 1996) Cameron says that he had made unsuccessful attempts to resolve matters of unsafe working conditions internally before formally representing before Health and Safety Executive. This is one of the exceptions which does not require minimum qualifying period of 2 years of employment for claiming remedy for unfair dismissal. As Cameron has only 13 months of employment, he is not eligible for unfair dismissal claim except for few exceptions. He suspects that his conduct of taking the matter of unsafe working practices to the Health and Safety representative must have prompted the employer to dismiss him under the pretext of unsafe landing and sexual harassment charge. Though he can come out successful because procedures were not followed, the minimum qualifying period is an obstacle indeed. Hence his remedy lies under section 100 (1) (e) for claiming unfair dismissal. The court or the defendant may take the view that he is resorting to this as an after thought only to circumvent his handicap in claiming unfair dismissal for want of minimum qualifying period. Nevertheless he should exploit the provisions contained in section 100 (2) to prove his bonafides. References ACAS The Statutory Procedure, accessed 9 May 2008 < http://www.acas.org.uk/index.aspxarticleid=906> Business Link Practical Advice for Business Dismissal Avoiding unfair dismissal and consequence of getting it wrong. Accessed 9 May 2008 < http://www.businesslink.gov.uk/bdotg/action> Broadhurst Emily 2005 Employment Law Straightforward co Ltd p 24 Carmichael v National Power Plc (1999) 1 WLR 2042; [1999] I.C.R. 1226 Echo Publications Ltd v. Tanton (1999) IRLR 367 ERA 1996 Employment Rights Act 1996 Hardy T Stephen and Upex V.R. 2006 Employment Law for Business Students p 22 Johnson v Unisys Ltd (2001) I.R.L.R. 279 O'Kelly & ors v Trusthouse Forte Plc (1983) ICR 728 CA Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968) 2QB497 Read More