Contract of Service versus Contract for Services - Essay Example

EMPLOYMENT LAW CASE ANALYSIS Table of Content Denise: Contract of Service Versus Contract for Services 3 Contract of Service Versus Contract for Service 3 Application to the Case 4 Conclusion 5 Samira: Restrictive Covenant 6 Rules 6 Application 7 Conclusion 8 Adil: Dismissal and Disciplinary Action 10 Rules 10 Application to the Case 11 Conclusion 12 Jonah: Redundancy and Discrimination 13 Rules 13 Application 14 Conclusion 15 Denise: Contract of Service Versus Contract for Services The issue with this case is about the rights of Unique.com to dismiss Denise based on the breach of an exclusivity clause. This can be determined by examining whether the labour relationship between Denise and Unique.com is a contract of employment or a contract for services. This is because each of the two contracts come with various implications for the formation and termination and this will determine whether Unique.com has the right to terminate their contract or not Contract of Service Versus Contract for Service The contract of employment is central in defining employment relationships in all situations and contexts1. This is because the definition of an “employee” comes with various rights and privileges that might include amongst other things, protection from unfair dismissals and dismissal2. This is because the Employment Rights Act, 1996 provide various statutory protections and rights for different persons who might find themselves in situation and matters whereby they will need to be protected. The Act distinguishes an employed person and a self-employed individual who is plying his trade independently. An employed person qualifies for various levels of protection whilst a self-employed person retains many risks that could lead to less protection under the law. Unfair dismissals relate to unilateral decisions taken by employers in relation to the termination of the employment of a worker. Unfair dismissals lead to major issues that can be contested in court. And this is done on the premise that the individual in question has an employment contract and is protected by statute. Section 230 of the Employment Rights Act 1996 states that an “employee” is a person who has a “contract of employment” this implies that the person has a contract of service. A contract “for” service suggests that a person is hired to provide a specific service to an organisation without a contract. This is the opposite of a contract of service which is used to describe the contract of employees. In O’Kelly V Trusthouse Forte3, it was held that waiters hired through an agency to provide dinner functions were not employees, because they did not have a schedule for commencing and ending work, hence, they could be dismissed as and when the hiring entity deemed fit. This is because the contract and commitment to work lacked mutuality and could not be described as an employer-employee relationship. Application to the Case From the facts of the case, Denise is hired by Unique.com for a specific task and the task is to provide 250 bags each year. This was a unique and a standalone activity that Denise is supposed to complete in a given period. This means that there was a definite service that she was being contracted to conduct. Unlike an employee who might have a contract to do what is required by the employer in a more general framework, Denise is required to complete these bags only. One element of employees as opposed to independent contractors is that they receive a regular remuneration in return for their service and they are held to a higher standard of care because their employers have vicarious liabilities for their conduct4. From this scenario, it is apparent that Denise does not have such high standards of supervision and control. Rather, she was to provide bags according to certain specifications. And from the facts of the situation and context, she was to be paid for her effort and the bags she turns in. Independent contractors are limited to the common law contract terms and systems because they are self-employed and in most cases, they provide their own tools and resources to complete projects5. Therefore, from the facts of this case, it apparent that the contract for service signed between Unique.com and Denise are meant to get her to provide specific bags according to laid down standards and requirements. This makes Denise an external entity and a freelancer or independent contractor rather than an employee. Therefore, as an independent contractor, it can be said that Denise is connected to Unique.com only by her contract, rather than a statutory provision meant to protect her from various things. Thus, any action meant to dismiss her will be based solely on the terms of her contract. Clearly, one of the most important conditions expressly stated in her contract is that she has to produce exclusively for Unique.com. Hence, her decision to produce for another entity is a fundamental breach of the contract. And as such, Unique.com, the aggrieved party can terminate the contract for hiring her without any issues. Conclusion From the facts of the case, it is apparent that Denise is self-employed. Hence, her relationship with Unique.com is solely based on the agreement and contract they have. With this fundamental breach of the contract, Unique.com has the right to terminate the contract. Therefore, the MD has the right to terminate the contract without notice and this means the new contract signed by the MD is valid and Denise has no recourse to any forms of privileges an employed person or a person with a contract of service can make under UK labour law. Samira: Restrictive Covenant The issue with Samira’s situation is to ascertain the position of restrictive covenant placed on her and the impact of the right of Unique.com to make demands that will prevent Samira from taking the job offer with the competitor that she has gotten a job with. Rules A restrictive covenant is a clause in a covenant that prevents an employee from competing with her ex-employer for a certain period of time after she leaves employment6. A restrictive covenant is a condition inserted in an employment contract that specifies a number of competitive practices that an employee is prohibited from in a given period of time after terminating employment with an entity7. A restrictive covenant could have various connotations and dimensions. This could include restricting ex-employees from dealing with certain customers of the firm or preventing them from working for other competitors or poaching their co-workers8. In order to enforce a restrictive covenant, there are three main pointers that ought to exist in order to allow a court to authorise the enforcement of a restrictive covenant; 1. Reasonable; 2. Necessary to protect a legitimate business interest; 3. Cover a duration that is necessary to protect the business interests in question9 Restrictive covenants can be invoked if an employment contract is terminated in a legitimate manner. Where an employment contract is terminated in a manner that is not legitimate, a restrictive covenant cannot be invoked, rather, proceedings for breach of contract might be more appropriate. Senior staff members are often allowed to go on a garden leave and this implies that they are restrained from the employee’s employment during the period of notice and in that period, two main things happen10. First of all, an employee is to surrender his electronic equipment to the management and must not contact clients whilst s/he is at home. Secondly, the firm must pay the customer his wages and entitlements whilst she remains at home during the garden leave. Application There are several pointers that come up in this case that lead to unique individual issues that can be addressed by critically evaluating the facts of Samira’s case. First of all, the main way of assessing and evaluating the actions of Unique.com is to critique the essence of the restrictive clause in Samira’s employment. First of all, Samira is a senior staff member who has access to privileged and important information. Hence, it is reasonable to infer that she is going to get sensitive information that could be detrimental to Unique.com if it is leaked or utilised in any way with a competitor. Therefore, there is a legitimate business interest that Unique.com needs to move to handle and control. This means there is something that Unique.com can act upon legally to demand that the elements of the restrictive covenants can be put in place and applied. The second issue is about the claim of Samira that she has done six months of inactive service could pass for serving within the term of the restrictive covenant. Technically, a restrictive covenant only comes into force after the notification of termination is submitted11. Therefore, it can be stated that the elements of the restrictive covenant on Samira come into force only after she turned in her resignation request “… to spend more time with her family”. Thus, it is an appropriate time for Samira to be put under garden leave after the 3-month notice. This means that Unique.com can demand a garden leave after 3 months to complete the 6-month restrictive covenant. On the other hand, the restrictive covenant is meant to protect the legitimate business of Unique.com. Although it is apparent that the original idea was to protect Unique.com from competitors in Yorkshire, if Unique.com is able to prove that a competitor in Leeds, which is 23 miles from York (within the 45 mile-radius) poses a credible threat to Unique.com by way of targeting consumers in the same industry, then it can be said that the demand for a restrictive covenant is reasonable and legitimate. Conclusion There is a six-month period after giving notice that Samira must serve under the restrictive covenant. It starts after the period she gave notice and her maternity leave does not overweigh this. This is a reasonable demand for the protection of a legitimate business need – the need to protect privileged information from leaking to competitors. Secondly, the new contract Samira has taken with Unique.com’s competitors in Leeds can be contested and rendered void by Unique.com because it was taken before Samira served her term under the restrictive covenant. Hence, on the basis of protecting a reasonable, legitimate and definite business interest, Unique.com can seek an injunction to stop Samira from taking up the new contract with the Leeds firm. Adil: Dismissal and Disciplinary Action The issue here is about whether the MD can dismiss Adil without facing any claims or demands for wrongful or unfair dismissal from Adil. In order to critique this problem, there will be the need to analyse and evaluate issues relating to these two aspects of defences against dismissals. Rules When a dismissal occurs, there is a basic requirement for an employer conducting the dismissal to show evidence that there was actually a frustration of the employment contract and/or there was a constructive dismissal in which the employee himself did something that effectively rendered the employment contract null and void12. Where the dismissal was not done in the right way and manner, an aggrieved worker can either sue under an unfair dismissal claim under statute or the common law rule of wrongful dismissal. Wrongful dismissal implies that the dismissal occurred in a situation where the employer was clearly in breach of the employment contract. In other words, there was something fundamental in the employment contract that the employer was required to follow that was not followed. In most cases, employment contracts are said to be breached if the employer failed to go through a laid down set of rules for the investigation and drawing of conclusions on the facts of a situation at hand. Secondly, employers breach their contracts where they do not follow an agreed pattern in defining a formula for redundancy. In the decided case of Dietman v Brent London Borough Council13, it was held that although there was a clear and apparent misconduct of an employee that led the employers to terminate his contract, the employer should have done the termination by referring to the elements of the terms of the contract. Also, an employee who is dismissed is entitled to all his severance pay and other entitlements stated in the employment contract and his reputation in the organisation does not stand in the way of gaining such settlements14. This means that an employment contract creates a system and a framework within which the rights and fundamental benefits of employees are protected even in times of dismissal. However, this entitlement could be reduced in proportion to the losses a company bears that is directly linked to the misconduct conduct of the employees in question15. Unfair dismissal is based on the Section 94 of the Employee’s Rights Act, 1996 which creates a right for employees not to be unfairly dismissed at work. This is followed by section 98(2) which defines the main elements of fair dismissals which include capability, conduct, age, redundancy and contravention of position. This sets the framework for a legal system for ensuring that there could be a good and a fair system through which dismissals can be done. Section 98(1) states that some other substantial reasons could be used as basis to dismiss an employee fairly. Application to the Case From the facts of this case, it is apparent that Adil has had some negative actions and to the layman, dismissal might be the most logical thing to do. However, legally, it is not so simple. This is because Unique.com is bound by precedents from the Dietman case which requires an entity of that nature to stay within the terms of the contract for the dismissal of an employee. Thus, the terms of the employment contract must be invoked and it ought to be used as the reference point for the processing of the dismissal of Adil. Secondly, there is the need for Adil to go through due process. As it stands, the fact that 1,500 is missing from the petty cash is substantial. There is the need for an independent enquiry to be conducted into the circumstances around which the loss occurred. And it should conclusively indicate that Adil is guilty and actually, he stole the money. Without that, any hasty decision to dismiss him is likely to culminate in some kind of right for him to claim that he was wrongfully dismissed and unfairly dismissed. Adil has worked in the company for 2 years. Therefore, it will be unfair and unjust for the MD to just dismiss him without paying him his entitlement. And from the Addis case, it is apparent that there can be no dismissal without the payment of compensation. And as to whether he actually stole the money does not interfere with Adil’s right to receive all his entitlements. Furthermore, the MD will need to prove that the conduct of Adil merits dismissal otherwise Adil can sue under the premise of unfair dismissal under Section 94 of the ERA 1996. This is because he was not sufficiently shown to have conducted himself in a way and manner that was against his right to a fair dismissal. Therefore, there are some limits placed on the MD and this must be thoroughly evaluated and analysed before any dismissal is made. Conclusion The MD cannot just dismiss Adil for the loss of 1,500 since this will give rise to claims under wrongful dismissal or unfair dismissal or both. To avoid wrongful dismissal claims, the MD must follow dismissal procedures stated in Adil’s contract of service and also go through due disciplinary process. To avoid claims for unfair dismissal, the MD must first get an independent system to establish that the loss of the 1,500 gives rise to a bad conduct that has culminated in the right of Unique.com to dismiss Adil. Jonah: Redundancy and Discrimination The issue is the approach for the conduct of redundancy in Unique.com due to the need to terminate contracts as a procedure for the reduction of costs and the adherence to a new strategic focus. Rules Redundancy ought to be done in a way and manner that is consistent with the contract for the employees of an organisation16. Some authorities assert that redundancy clauses and terms must be stated in a clear and obvious manner for the employees of an organisation to agree to it before they enter an employment contract. According to Section 139 of the Employment Relations Act 1996, redundancy is to be applied to “Workers of a Particular Class”. This means that certain groups of definite members of an organisation must be put on redundancy, rather than individuals or certain personalities in an organisation. This is because such a trend of individualisation of redundancy leads to a process whereby individuals could be picked and victimised. So the selection criteria must be fair and the procedures used by the selection process should target work of a certain type by an employee17. The fairness of the process is based on the capability and need of people for certain roles in the organisation and if this is done in the right way and manner it could be considered as fair18., The most important and the most vital set of steps to be taken by a firm that is going through redundancy is presented in the case of Williams v Compair Maxam Ltd19 which indicates that: 1. Appropriate notification must be given to the employees as often as possible; 2. The employer must consult with the unions for the best management result to be agreed; 3. The employer must ensure that the process is as democratic as possible; 4. The employer will have to ensure that selection is made fairly according to a laid down criteria created by consultation; 5. The employer must identify alternative options where there is none in place. The Equality Act 2010 states that there should be an equal treatment of all people in the workplace and no one must be discriminated against on the basis of sex, gender, sexual orientation and other social classifications. The Act makes it imperative for all people to be given equal chances and equal opportunities in the work environment to ensure that there is equality and fairness in all matters and issues. In most cases, the default position for taking decisions on which employees to place on redundancy is based on the LIFO method (Last-In-First-Out)20. This is a process where the newest employees are made redundant before the older members of staff are considered. Application From the facts of the case, it is apparent that the two main criteria for redundancy were not observed or utilised. Normally, the first thing to do was to go by the contractual redundancy clauses in order to ensure that the contract was followed appropriately and the right people who ought to be dismissed first were actually dismissed. Secondly, there is the need for notification to be given and for the entire process of redundancy to be democratised so that different stakeholders could be involved in the entire decisions making process through objective standards. This is to eliminate individual subjective views and matters that guide the way and manner within which redundancy is to be done. In this case, the whole decision was given to the manager of the distribution warehouse. Rather, the work of the distribution warehouse should have been identified as a unit of the organisation that needed restructuring and reorganisation. Hence, it should have been viewed as a point where redundancy should have been made in a structured way and manner. The Williams Case should have been used to guide the conduct of the process and this should have culminated in the best way and manner through which the affected population for redundancy could be defined and handled. It appears that the process to be used was the Last-in-First-Out procedure, however, the fact that 2 women who worked part-time were to be laid off raises issues of discrimination and this puts the whole process in disrepute. Conclusion The entire process was questionable and it was not done in a way that reflects the values of transparency, democratisation and impersonality. Rather, the process must be centralised and democratised in order to ensure that it is transparent and the criteria are steeped in the employment contracts of the workers. Secondly, there should be a procedure and a system through which engagements in the discussions relating to the redundancy process could be done openly. And the targeting of women and other sections of the population of the organisation should be discouraged. Bibliography Books Dooley, David & Dransfield, Rob, BTEC National Business, Book 2 London: Heinemann, 2013 Hughes Collins, Ewing Keith & McColgan Aileen, Labour Law Cambridge: Cambridge University Press, 2013 Kidger, Lisa & McColgan, Aileen, Labour Law London: University of London, 2014. Kontrimas, Andreas & Samsa, Mary, International Expatriate Employment Handbook Amsterdam, Kluwer Law International, 2013 Lagesse, Pascal & Norrbom Mariam, Restrictive Covenants in Employment Contracts and Other Mechanisms, Amsterdam: Kluwer Law, 2010 Morris, Andrew & Estreicher, Samuel, Global Labor and Employment Law for the Practicing Lawyer, Amsterdam: Kluwer Law International, 2012 Journal Lewis Alan, “Are Restrictive Covenants Enforceable?” Linder Myers Solicitors – News, Opinions & Resources Cases Addis v Gramophone Co Ltd [1909] AC 488 Dietman v Brent London Borough Council [1988] ICR 842, [1988] IRLR 299 Malik and Mahmud v Bank of Credit and Commerce International SA [1997] UKHL 23 Murray v Foyle Meats Ltd, [1999] IRLR 562 HL OKelly v Trusthouse Forte plc [1983] ICR 728 Williams v Compair Maxam Ltd [1982] ICR 156 Read More