The Control in Employment Relationships - Essay Example

Factors Identifying Employees An employee is an individual hired by another person, an organization or a firmto do a certain job. The person may be hired contractually or perpetually. In a contractual form of employment, the individual has to work as per the contract and exactly as stipulated and until it expires. This type of employment is mostly common in the media industry and with large organizations. However, the latter form of employment is more common and less complex. It simply entails one having a job indefinitely. The employment or job may be terminated at any time and without any prior notice. It is important to note that perpetual form of employment has some elements of a contractual type. This is because both parties have to agree on work done, how it is to be done, remuneration among other things. There are several factors that should be deeply looked at when determining whether one is an employee or is self-employed. Top among those factors is the Terms of Employment. It is important to analyse the substance of a contract rather than only look at its wording. In Ferguson v Dawson1 the judge found that workers would be self-employed only and would thus avoid deduction of income tax and insurance from their salaries. Plaintiff worked on the defendant’s building site. He argued that he was an employee when he suffered an injury and could recover damages for breach of statutory duties. The judge held that the actual nature of their relationship was that of an employer/employee and plaintiff could recover damages. It is essential that courts exercise their power in a keen way. This ensures that they cannot be abused when the plaintiff wishes to be compensated whilst he had readily chosen to be employed as an independent contractor in order to avoid tax. Sebastian is under no legal or contractual obligation to accept any of the projects offered and, therefore, no contract exists between him and Giga Systems Limited. Control is also a factor that should be considered in trying to make out the existence of the employer/employee relationship. In a typical master/servant relationship, the master has total control over the actions of his servant. Bramwell LJ in Yewenes v Noakes2 stated: ’’A servant is a person subject to the command and directives of his masteras to the manner in which he shall do his work’’. The control can be seen in employment relationships where the employer exercises total control over the actions of his employee. It, therefore, emerges that such a relationship exists where an employer tells his employee what to do and how to do it. While the test may still be in use, it appears to be outdated. This is due to the simple reason that some employers frequently expect employees to show initiative on their jobs and not to be told what to do all the time. For instance, if a manager at an airline company hires a pilot, he expects that the pilot should fly the airplane because he is a skilled worker who can do so on his own initiative. The control test, therefore, seems unrealistic and can no longer be considered as the only determining factor. The third factor to consider is the quantity of work done at the employer’s premises rather than at some other place. This factor is heavily in use in Sebastian’s scenario. The premise that individual uses for work is an indication that one is an employee or self-employed. If one works at the employer’s premises, then he is an employee, especially where the job can be done at some other place. This is because working close to the employer shows that a certain degree of control and supervision attained. Conversely, if an individual works away from his employer then it shows that he is not under his control and, therefore, not an employee. Integration of an individual into any business should be considered when determining if one is an employee. This factor requires analysis of just how much of the employers business can be affected by the acts of the employee. If the success or failure of the business is either wholly or partly dependent on his performance, then he qualifies as an employee. Sometimes, the performance of the individual is insignificant on the reputation and success of the operations of the business. Sebastian only took a handful of jobs from Giga Systems Limited and could, therefore, not be depended on to ensures that the operations continued. In Stevenson Jordan and Harrison v McDonald and Evans3, Mr. Evans, employed as an accountant for McDonald and Evans and after termination of employment wrote a book based on his experiences with the firm. He assigned the copyright to Stevenson Jordan and Harrison. The firm brought an action to restrain his publication stating that it infringed on their confidential information. The judge held that he had not infringed on the confidentiality of their business. In his judgement Denning LJ stated: ’’Under a contract of employment, a man is employed as part of the business or organization, and his work done as an integral and essential part of the business. Whereas under a contract of services or duty, his work, albeit done for the business ororgaization; is not integrated into it but only accessory to it’’. Mutuality of obligation is next in the list of factors to consider when considering if one is an employee or is self-employed. This requires thorough analysis of the nature of the contractual matrix affecting worker and employer. This determines whether there exists a mutuality of obligation that should be present to identify a contract of employment. The mutuality of obligation also ensures that both parties stick to their end of the bargain. It, therefore, can be said that if there is a mutual obligation between the two parties, employment exists. Sebastian, on the other hand, is under no such obligation to either work for or accept the offers presented to him Giga Systems limited. No mutuality of obligation exists and, therefore, no employment exists. In Market Investigations v Minister of Social Security4 the court adopted mutuality of obligation where a woman who intermittently engaged a market research company to act as an interviewer for a fixed remuneration. The woman obtained detailed instructions. The judge held that she was an employee although part time. The economic reality also offers insight on whether one is an employee or is self-employed. Under this factor, what should be considered is with whom the risks and costs lie and how they can be shared between employers, the state and workers. For instance, there are certain benefits that may be enjoyed by employees such as paid holidays, social security benefits and tax. These benefits are those that self-employed do not enjoy. On the other hand, individuals who are employed do not have the opportunities such as setting their work related expenditure against tax. In Lee Tin Sang v Chung Chi-Kueung5 the plaintiff became injured whilst working. He sued for damages under the Employees’ Compensation Ordinance. It was necessary that the courts determine if he was an employee or working under a contract of service. The judge held that he was an employee, and he recovered damages. Sebastian also works from home and incurs considerable overhead cost for services such as light/heat, phone and others. The fact that he pays for all the services he obtained shows that he is self-employed. Usually, when an individual becomes employed the costs that go into running of operations should be borne by his employers or someone other than himself. As such, expenses and/costs are also a factor to consider. If borne by the individual then he is self-employed, and if met by the organization, firm or his employers then he has employment. An individual should not meet personal expenses such payment of remuneration and holidays if he is to be classified as employed No test is perfect to determine whether or not one is self-employed or employed. The multiple tests which incorporate factors such as control, integration and a host of others were created in order to indicate a contract of employment. In Ready Mix concrete v Minister of Pensions and National Insurance6, Ready mix operated a business of making and selling concrete and similar materials. They divided their business into manufacturing and delivery and gave the latter to drivers who would render the service. The drivers did not have a meal breaks, did not have to follow instructions of loading and offloading and benefits such as holidays had to be arranged with the company. They also had to wear uniform and carry out reasonable orders from any competent server of the company. They were paid a mileage rate. The judge held that the drivers were not employed but independent contractors as they were operating at their own private risk. MacKenna J considered all the facts and established three conditions to show a contract of service7: i) The servant approves that in consideration for wages, salaries or other remuneration, he will deliver his work and skill in the performance and enactment of some service for his master. ii) He agrees explicitly or impliedly that, in the performance, some service he will be subject to the others control and directives in a sufficient degree to make the other master. iii) The other provisions of the contract are consistent with being a contract of service. The aforementioned factors were created by common law courts to determine if a person was employed or self-employed. There are other numerous factors that exist and that can be used. They include a) Holidays pay. b) Payment when absent for illness. c) Supply of uniform. d) Whether the person providing the services does so with his own equipment. e) Whether he hires his own helpers. It can be seen that Sebastian is clearly not an employee of Giga Systems. This is because he fails to meet any of the requirements of an employee. He has control over the type of job he performs, and how he carries it out, he meets his own expenses and pays the overhead costs, and although remunerated, he is under no contractual obligation to accept any of the projects presented to him, and he rarely visits the premises of Giga Systems Ltd. The rates that Sebastian pays should be those of an individual who is self-employed. The amount he pays should also reflect the amount that he gets. The fact that he does about ten jobs a year, earning between 40,000 – 60,000 pounds and that he incurs all the costs should be reasonable enough to analyse how much he pays. In conclusion, there are different factors that determine whether an individual is employed or self-employed. None of these factors that have been analysed can be taken in isolation. They are all essential in answering the fundamental question surrounding employment. The tests created by common law courts have helped a lot, but as it can be seen there are other emerging factors now in relatively widespread use to indicate contracts of employment. Consolidation of the tests and the emerging factors will help to make better judgments by the judges. It will also aid the HRMC in knowing who can or cannot be categorized as an employee and as in Sebastian’s case also go a long way in determining how much tax he is to pay. Bibliography Robert S.Schriebman, EDD Factors Used to Determine Whether a Worker is an Employee or an Independent Contractor, (2007) www.robertschriebman.net/Articles/EDD-Employee-Contractor.pdf‎, accessed 8.March.2014 Brendan Burchell, Simon Deakin and Sheila Honey, The Employment Status of individuals in Non-Standard Employment,[1999] www.dti.gov.uk/files/file11628.pdf‎, accessed 8.March.2014 Employees Compensation and Ordinance, CAP 282 Tony Weir, A Casebook on Tort, 10th Edition, Sweet and Maxwell 2004 William V.H Rogers, Winfield and Jolowicz on Torts, 17th Edition, Sweet and V.H Harpwood, Modern Tort Law 7/e, revised edition, Routledge 2008 Victor Thuronyi, Comparative Tax Law, illustrated edition, Kluwer Law International 2003 B.J.M Terra ,European Tax Law ,revised edition ,Kluwer Law International 2005 Http://www.hmrc.gov.uk/employment-status/#1 Http://www.hmrc.gov.uk/payerti/employee-starting/status.htm Http://www.e-lawresources.co.uk/Tort-law.php Read More