Employment & Industrial Relations Law - Essay Example

Employment & Industrial Relations Law Question As discussed in Topic 2, the legal obligations that apply to the employment relationship can be ‘avoided’ if a person is engaged to work as an independent contractor. This situation has generated significant conflict between employers, workers and worker unions, because the legal rights afforded to an independent contract tend to be less beneficial than those provided to employees. Nonetheless, if it is satisfied that the factors in the multi-factor test are met, a court can determine that a person is an employee. This is so even though the person agreed to and signed a contract that describes them as an independent contractor. In light of the issues discussed in Topics 1-6 of your study materials, discuss whether or not you agree with the opinions stated in the paragraph above. In particular you should discuss whether or not you agree that it is fair that the courts – rather than the parties to a contract – should decide whether or not a person is an independent contractor or an employee. Introduction: Courts have played an active role in adjudicating issues related to the determination of employer liability, especially in cases where the worker may be an independent contractor and may not receive the full benefit of legal provisions existing for workers. In a capitalist economy, employment contracts governed by the free will of the parties may not conform to standards of fairness due to the inequity of bargaining positions of an employer vis-à-vis employee.1 Historically, labour laws had a protective function, allowing workers to form unions to protect their interests in an employment relationship.2 Although further inequalities may exist from a social perspective; since only paid work comes under the purview of labour laws, while unpaid and domestic work is ignored thereby placing such workers in a subordinate position. Contract law principles premised on common law form the legal basis of the employment relationship. The 19th century notion that a contract between two parties is a freely negotiated instrument based upon the free will of the parties also forms the basis of employment contracts.3 In a capitalist economy, laissez-faire principles of contract are vital because they ensure parties have flexibility in negotiation of terms. However, the basic assumption in such contractual agreement is that both parties are in a position of equal bargaining power, although this may not be the case. In an employer-employee relationship, the common law basis of laissez-faire contracts may reinforce existing inequalities, placing the employer in a superior position of social and economic bargaining over workers. The parties may have divergent interests since there is an inevitable conflict generated between employer and employee, due to the worker being in a subordinate position.4 The pluralist view of industrial relations recognises the divergent positions of the employer and worker – the employer is motivated largely by profit, while workers are interested in acquiring decent conditions and occupational security.5 Due to these conflicting goals, tension exists in the employment relationship and economic exploitation may lead to a fundamentally unstable system, as espoused under a radical view of industrial relations.6 Bargaining positions: The employer-employee contract is one where the parties are not in an equitable bargaining position. Since labour laws only govern paid relationships, domestic and unpaid work may create further socio-economic inequities. An employer is generally in a stronger position in relation to resources and bargaining power, because the employer usually mandates an offer of employment on their terms. In Hamlyn7 a contractual relationship was deemed to exist even where terms were vague and at management’s discretion. Additionally, application of laissez-faire principles of contract may mean that employers can easily withdraw offers at will. It is only in rare instances that resultant inequity may justify the use of estoppel to enforce the offer.8 Furthermore, workers may be forced to adhere to conditions that may not be their free will choice, purely because of negative consequences for failure to conform, such as in Universe Tankships.9 In such occasions, duress as a factor influencing the contract further supports the inequalities in bargaining positions of employer-employee. In employment relationships which do not fall within the purview of labour laws, the worker may have even less means for redress of inequity. The inequality in bargaining positions arises especially in cases where a bargain to perform work is based on the assumption that parties do not intend to be legally bound, for example, a charitable or social nature or unpaid and domestic work. Nevertheless, courts have challenged these presumptions in Ermogenous10 where it found that the intent of the parties had been to create a legal relationship, despite the charitable nature. Role of courts: Creighton and Stewart’s standpoint on the objectives of law making is that the goal must be “.... to enact laws which will relieve employees from some of the consequences of their relative lack of power”.11 However, since employment contracts derived from common law principles then it should be the parties who frame the terms of their contractual relationship. Although a body of rules has developed to regulate employment relationships, which places obligations upon the worker to be loyal and obedient, no corresponding onus of responsibility by the employer for worker-welfare is required.12 Additionally, the stronger bargaining position of an employer could compel a worker to accept terms, which may not be equitable. In the event that inequities exist, the parties ought to be able to renegotiate their terms, if laissez-faire principles are applied. The inequity in bargaining power between the parties however, and inadequacy of legislative provisions may mandate intervention by the courts to redress such imbalances. For example, although termination of a contract of employment must involve a period of notice, an employer can dismiss an employee with pay in lieu of a reasonable period of notice.13 In such situations, a worker is in a position where an employer may not be amenable to modification of the contract on more equitable terms therefore laissez-faire principles may not successfully address worker rights. The question considered in this context, is whether the parties themselves or courts should tackle such inequalities arising out of the stronger bargaining position of an employer. According to Creighton and Stewart, irrespective of how comprehensive an award to an employee is under statutory provisions, it cannot encompass all aspects of the employment relationship.14 The denouement will have to assess contractual terms and the interest of the parties to arrive at an equitable outcome. The parties themselves may be successful, to a limited extent, in addressing such disputes since the worker is in a weaker bargaining position and may not be able to persuade an employer to accede to better terms. Since economic exploitation is the cause of social inequalities that generate industrial conflicts, this trend led to the development of worker unions. This engineers the trend for political movements involving the rebellion of the labour force against inequitable employment and thereby protects worker interests. Economic factors propel the designation of an employee as an independent contractor, since such an arrangement is advantageous from an economic standpoint to the employer and allows increased flexibility for an employee. There is less degree of control exerted by the employer and these employees may enjoy a wider range of discretion in the performance of their services.15 Hiring a worker as an independent contractor enables the employer to escape obligations to pay entitlements.16 Wheelwright, in discussing the implications of the decision in Damevski,17 where the worker was allowed recompense for unfair termination of service, indicates how employers are able to utilise labour hire arrangements to implement contracts that negate their liability to pay adequate compensation and workplace protection to its workers.18 From the employee’s point of view, the offer of services as an independent contractor aids in greater flexibility in working conditions and a higher degree of control in terms of hours, selection of employer, wages as well as other terms.19 From a social perspective, it places an independent contractor in a socially and economically advantageous position of independence. However, despite the designation of a worker as an independent contractor, relief to the worker may sometimes be necessary, as was the case in Damevski.20 While firms may utilise outworkers and not designate them strictly as employees for tax purposes; though for the purposes of application of statutory rights, they are considered employees under the law.21 For instance, in Airfix22 an outworker who worked five days per week, per employer’s instructions was deemed an employee under contract. In Nethermere,23 outworkers had flexible, part-time hours and nevertheless deemed by the court as employees. In such cases, courts intervene to redress inequities in some instances, where statutory provisions may not be applicable to independent contractors who do not approximate the mold of employer-employee, for example, unpaid work. The intervention of courts appears necessary in cases where employers attempt to restrict the rights of employees and reduce their own liability at the same time. The inferior bargaining position of the worker ensures that while the employer is in a position to negotiate favourable terms, the worker may not be in a similar position of strength. The case of Byrne24 is significant because it made provision for unilateral termination of an indefinite employment contract, through a default rule that if ‘reasonable notice of intention’25 is provided, then such dismissal will stand. Accordingly, where workers are hired on a probationary basis, it allows scope for the employer to dismiss the employee unilaterally without any legal redress, further exacerbating the inequity of an employee’s position. Tests for independent contractor: It appears that courts are in a better position as impartial mediators, to address disputes in employment contracts. In order for courts to inculcate justice to employment contracts, appropriate tests must apply in making a determination about the status of a worker. The test traditionally adopted by courts to distinguish between employment relationships and other relationships is the multi-factor test in Stevens.26 The court considers factors as the: (a) degree of control the worker has over the work; (b) degree to which the worker is integrated into hirer’s enterprise; (c) whether worker is paid by results which support a finding of independent contractor or by wages which support an employee relationship; (d) whether hirer dictates hours of work; (e) place of work and degree of delegation of tasks; (f) whether income tax is deducted from wages and whether skilled services are offered; and (g) whether these services are offered to others.27 Nonetheless, tests applied by courts may not necessarily be in accordance with the objects of the WRA28 mandating employer-employee autonomy in employment contracts. The question of the degree of control exerted by the employer is deemed by courts to be the paramount factor in determining status of a worker, rather than the extent of worker autonomy. This has faced criticism, as Creighton and Stewart suggest, it is more relevant to question the degree of economic independence of the worker rather than the degree of control exercised by the employer.29 A more relevant criterion to determine the status of an employee would be to question whether the worker operates as an independent economic unit, in which case the designation of independent contractor can be correctly applied.30 The degree of control as a determining factor has been reiterated in Hollis31 where no vicarious liability was imputed upon the appellant because the defendant was deemed an independent contractor. In this case, the question of whether a person is hired as an employee or independent contractor was deemed to affect whether or not the employer will be held vicariously liable for the injuries caused by such workers and the basis for the decision was that the degree of control exerted by the appellant was less.32 Additionally, Byrne33 also establishes that an employer may not be liable for unilateral dismissal of a probationary employee, so long as notice of intention to dismiss is provided. In Odco,34 building workers were supplied through an agency and therefore, no direct contract of employment existed between builders and employers. Consequently, the employers were not liable for paying the builders an all-out rate not on par with the award. This case illustrates how unscrupulous employers may be able to exploit workers supplied through agencies and avoid fulfilling their legal responsibilities.35 The criterion of degree of control alone may therefore not be adequate to determine liability of employers. The courts may have to take into consideration the plight of those workers who are employed through agencies or employed in socially inferior positions and place their rights on par with those of regular employees in order to ensure that an equitable social and economic outcome is produced. In Byrne Brothers,36 the issue of working time regulations was involved. In this case, the court held that the criterion of mutual obligations, due from both parties, would also apply in the case of those providing services and therefore designated as workers. In Stevens,37 the issue was one of tortious liability of the employer, and the issue of whether or not an employee is an independent contractor is important in assessing the extent of worker’s rights and employer’s liability. The cases above demonstrate that employee’s rights be placed on par with that of employers, in order to bring equity to employment contracts. Conclusions: The parties may not be in a position to bring about equality in employment contracts, due to the inferior bargaining position of the worker. Although acknowledged that while there were more unions in the earlier part of the century, the modern trend is a shift towards a greater number of independent contractors as opposed to employees in employment relationships. This arrangement benefits both employer-employee as it is entered by the free will of the parties in accordance with contractual principles of laissez-faire. However, in the event of a dispute, it places the worker in an inequitable position, which may require third party intervention such as courts. Common law principles of laissez-faire or the free will of the parties has formed the basis of employment contracts. While worker unions existed, rights of workers could precipitate on par with rights of employers. However, individual employment contracts tailored to meet the requirements of parties may contain terms extending beyond the realm of general provisions provided under agreements, thereby requiring intervention by courts. Economic and social inequality generated by the superior bargaining position of employers may stimulate social divisions fuelling political unrest, such as the move to unionise labour in the earlier part of the century. Economic gain drives a capitalist economy and these economic considerations have directed the shift towards more independent contractor employment relationships. However, in the interest of equity, courts can impart the necessary redress in individual disputes. The courts may therefore be the best bodies to intervene in such disputes to bring equity while taking into account individual circumstances of each case.38 Read More