The Approaches of the Judiciary to Employee Status - Coursework Example

The Court have resolved questions of employment status over the years by the application of various tests. Explain by reference to the law, the testsused and briefly indicate the advantages and disadvantages of each test. The continuous development of different working structures to accommodate the modern business environment has rendered the complex area of employment law a legal minefield. The significant variances in contemporary working relationship structures have compounded the need for legal certainty whilst simultaneously ensuring that justice is served in individual cases. For example, the legal status of a worker as an independent contractor or employee is fundamental in determining the rights of a worker, particularly in light of the increasingly employee centric protective legislative framework. The focus of this paper is to critically evaluate the approach of the judiciary to employee status and in particular to consider the advantages and disadvantages of each test. The conventional approach has been to implement checklist tests to distinguish between independent contractor and employee and it is submitted at the outset that the issue remains contentious particularly in light of the continuous changes in working practices. To this end, it is submitted as a central proposition in this paper that whilst the traditional test of employee status was logical in distinguishing between employee and self-employed; the changing nature of contemporary work arrangements have led to inconsistency in tribunal determinations distinguishing between employee and self employed status. In turn, the central disadvantage of the judicial approach to employee status is that whilst attempting to frame the test as definitive legal principles; the results have sometimes fuelled uncertainty (Pitt 2007). This is further supported by the earlier empirical study of Burchell et al on “Employee Status of Individuals in Non-standard Employment” (1999), which asserted that “there is concern that the existing classifications fail to reflect the growth of certain flexible or non-standard forms of employment, in particular causal work, zero hour contracts, fixed terms and task employment and freelancing” (Burchell et al, 1999, p.5). From a statutory perspective, the legal definition of employee is described under Section 230(1) of the Employment Rights Act 1996 (ERA) as “an individual who has entered into or works under……..a contract of employment”. The section 230 definition has been criticised for being ambiguous (Honeyball & Bowers. 2006) and it is necessary to refer to the common law test for defining the status of employee. Moreover, the further disadvantage of this is the fact that the implied obligation of “mutuality of obligation” lacks definition and often causes problems in causal employment scenarios (Pitt 2007). This is highlighted by the earlier empirical study of Burchell et al where regardless of legal tests for employee status; employers resort to “contractual documentation containing “waiver” or “relabelling” clauses which purport to determine employee status (Burchell et al, 1999, p.7). As such, this highlights the potential pitfalls of entrenched legal tests regarding employee status to reflect commercial realities in employment contracts. The statutory provision is bolstered by the Ready Mixed Concrete test (Ready Mixed Concrete (South East) Ltd v Minister of Pensions & National Insurance [1968] 2 QB 497), which requires an examination of the “overall picture” (Jupp, 2005). The starting point for determining whether an individual is an employee is the “control” test (Honeyball & Bowers. 2006). This was established in Yewens v Noakes (1880 6 Q.B.D. 530), where Bramwell LJ asserted that:” a servant is a person subject to the command of his master as to the manner in which he shall do his work” (at pp.532-533). However, socio-economic developments in the labour market have changed the shape of employment status, thereby undermining the suitability of the control test as a sole determinant of employment status (Pitt, G. 2007). Indeed, Burchell et al highlight the point that “the legal division between employment and self employment does not correspond to perceptions of a clear divide between different forms of work on the part of many individuals in non-standard employment” (Burchell et al 1999, p.7). Accordingly, it would appear that notwithstanding the legal distinction, the central disadvantage is the inability of legal principles to adequately adapt to complex working arrangements. Nevertheless, the courts have attempted to address changes in working arrangements, which is clearly an advantage in expanding the ambit of working relationships falling within the employee status paradigm. This is further evidenced if we consider the judicial development of the control test. For example, the socio-economic reality of n employer/employee relationship was further acknowledged by the Court of Appeal in Walker v Crystal Palace FC ([1910] 1 KB 87), where the control test was given a different slant by focusing on whether the employer had the right to control the background arrangements for the work such as when and where the work was done, payments and holiday entitlements. However, the Walker extension of the control test was further developed into the “integration” test as propounded by Lord Denning in the case of Stevenson Jordan and Harrison v MacDonald & Evans ([1952] 1 TLR 101) “…under a contract of service, a man is employed as part of the business and his work is done as an integral part of the business; whereas under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it” (at p.111). Alternatively, factors pertaining to the working arrangement between an employer and a worker will also be important in determining employee status such as responsibility for tax, national insurance and labelling of employee status. However, the integration test is difficult in reality to apply to the modern labour market and what Pitt refers to as the “shamrock organisation” where firms have different types of workers including permanent full time workers, supply workers, and the flexible workforce (Pitt, G. 2007). As such, in recent years, courts and employment tribunals (whilst taking account of the integrated test) now lean towards a multifactor approach, taking into account all possible relevant factors and weighing them against each in order to determine if an individual is an employee (Pitt, G. 2007). Whilst this clearly appears to be a pragmatic approach in reflecting reality, it clearly undermines legal certainty and the fundamental doctrine of judicial precedent. This was propounded in the leading case of Market Investigations v Minister of Social Security ([1969] 2 WLR 1). In this case, Cooke J highlighted the following non-exhaustive factors as relevant to determining the issue of whether or not an individual was an employee: whether or not the worker provides personal service, control which “will no doubt always have to be considered, although it can not longer be regarded as the sole determining factor”; whether the employer or the worker provides the tools and equipment, whether the worker hires his own helpers, what degree of financial risk the worker takes, if any; what responsibility for investment and management the worker has, and if the worker directly profits from good work. A case that is often utilised as a prime example of the multifactor approach is the decision in the case of Ready Mixed Concrete v Minister of Pensions and National Insurance ([1968] 2 QB 497). In the Ready Mixed Concrete case, the company had institute a scheme whereby delivery of its concrete to customers would be carried out by a team of “owner-drivers”. The issue was whether the owner-drivers were employees of the company. If so, the company was liable to pay national insurance contributions in respect of them. The company argued that they were self employed and they had been described as such in their written contracts. If we consider the facts of the case, the drivers owned their lorries; had to keep them and maintain them at their own costs. However, the lorries were bought on hire purchase from a company subsidiary, had to be painted in the company colours and the company was entitled to instruct them to carry out repair work if required. Moreover, the drivers were not able to use the lorries to work for anyone other than Ready Mixed Concrete. Secondly, as regards personal service, the drivers could delegate work to another competent driver but the company could insist on the driver himself carrying out the work. With regard to control, there were no fixed hours of work and they could choose their own routes. However, they had to be available when required and to obey reasonable orders “as if an employee”. Moreover, they were paid by results. Additionally, although stated to be self employed in the contract, it was held that the relevant test was the substance of the contract in practice. This was reiterated in Ferguson v Dawson ([1976] 1 WLR 1213) and Massey v Crown Life Insurance ([1978] 1 WLR 676, where it was held that the express label given to the employment status as between the parties was a relevant consideration, however the overriding factor was to consider the substance of the contract between the parties. Furthermore, in Lane v Shire Roofing Limited ([1995] IRLR 493) it was held by the Court of Appeal that even if paying tax on self employed basis, the relevant question was whose business was being carried out on this occasion? If the answer was that it was the company’s as opposed to the individual’s own business, then this was a factor operating in favour of employment status. In the Ready Mixed Concrete case, it was held that a balancing act had to be undertaken and whilst many of the circumstances pointed towards a contract of service, the fact that the drivers paid for and maintained the lorries, meant that the drivers had effectively assumed part of the economic risk under the contract. As such, they could not be stated to be properly under a contract of service and therefore were not employees. Whilst these decisions pertaining to employee status clearly fly in the face of established employment law principles, they are arguably necessary to achieve a just result and prevent employer abuse of power in imbalanced bargaining scenarios. However, the fundamental flaw of these decisions is the fact that the judiciary have articulated their decisions under the language of “legal principles” whereas they are in fact case by case determinations. Moreover, whilst the Massey and Ready Mixed Concrete tests are clearly practical in considering the substance of the working relationship, a particular problem has arisen with regard to the status and protection of agency workers (Selwyn, 2006). For example, Freeland highlights the fact that: “there is great resistance to the construction of triangular personal employment contracts … [and] there may be great difficulty in deciding whether the workers bilateral personal employment contract is with the end-user or the intermediary … [therefore] the triangular nature of the arrangement may have the effect that the worker fails to qualify as having a contract of employment … of any kind’ (Freeland, 2003, p.55). If we consider the judicial approach, the decision in Motorola v Davidson ([2001] IRLR 4) related to the status of an agency worker and it was held that “in deciding whether the right [of control] exists in a sufficient degree to make one party the master and the other his servant. The right need not be unrestricted”. The Motorola rationale appears to have been supported by the rationale by the majority decision in Dacas v Brook Street Bureau (UK) Ltd [2004] EWCA CIV 217 where it was commented that agency workers were more likely to be “regarded as an employee of the end-user”. This approach to the status of agency workers has been mirrored by the decisions in Royal National Lifeboat Institution v Bushaway (EAT/0719/04) and Cable and Wireless plc v Muscat (UKEAT/0661/04/). For example, in the Muscat decision it was held that it would be a brave Employment Tribunal that decided it should not follow the decision in Dacas because it considered it was decided per incuriam”. Accordingly, the above analysis highlights that the judicial approach to determining employee status has clearly moved beyond the original control test, which is clearly welcome in acknowledging the continuing evolution of the employee/worker relationship. Additionally, the recent cases regarding agency workers suggests a judicial acknowledgement of contemporary working practices outside of rigid contract principles when considering legal status. Whilst the majority of such arrangements are undertaken on a self-employed basis in practice (Pitt, 2007), it doesn’t per se mean that they will not constitute employees, which would be protected under the UK law of unfair dismissal. This begs the question as to whether they should be considered employees. The problem is the amount of regulation imposed on private individuals in homecare vis-à-vis the lack of protection for such workers. Alternatively, the Ready Mixed Concrete case widens the parameters of the potential candidates that fall within the definition of employee for the purpose of unfair dismissal law. Moreover, it is reiterated that whilst the inconsistency of judicial determinations regarding employee status clearly undermine established employment law principles; in the absence of further guidance have proved necessary to achieve not only a fair outcome, but also a result that adequately reflects the inherent complexity of employee status in contemporary working arrangements. However, as highlighted in this discussion, the inherent problem has been applying a consistent legal framework which has been unable to keep up to speed with the commercial reality of employer requirements and practices regarding employment. As a result, whilst recent judicial determinations regarding employee status have been coined in terms of applicable legal principles; in reality tribunals have been implementing procedures on a fairness basis, which undermines legal certainty. It is submitted that arguably the central problem is that the judiciary are expanding the test for employee status within the confines of precedent and established principles of employment status whereas the complex reality of business/worker relationships requires a case by case approach to strike the necessary balance. On this basis, it is submitted that perhaps judicial consideration needs to be given to changing the legal definitions adopted in employment law as regards employee status, with an increased focus on the legal concept of “worker” beyond entrenched distinctions of employee and self employed. Bibliography Burchell,B., Deakin, S., & Honey, S. (1999). The Employment Status of Individuals in Non-standard Employment. Available at www.berr.gov.uk accessed February 2010. Freedland, M. (2003). The Personal Employment Contract. Oxford University Press. Jeffery Jupp (2005). Agency Work: A Black Hole. New Law Journal Honeyball & Bowers (2006). Textbook on Labour Law. 9th Edition Oxford University Press. Painter and Holmes., (2006). Cases and Materials on Employment Law. 6th Edition Oxford University Press. Pitt, Gwyneth., (2007). Employment Law. 6th Edition Sweet & Maxwell. Selwyn’s Law of Employment (2006). 14th Edition Oxford University Publishing. Employment Rights Act 1996 Read More