Rudimentarily speaking, employment
is an exchange relationship, i.e. the employer pays for the work the employee
carries out for him; also known as the “work-wage” bargain. The parties
involved are usually the worker and the employer and the relationship they
enter into is one of ‘power’ as compared to others, e.g. slavery or
conscription. Often the status of both
parties is spoken in terms of equality but the economic reality of employment,
in practice, is quite different as described by Wedderburn (1986), while
discussing the employment contract, that : “The individual employer is from the
outset an aggregate of resources, already a collective power in social
terms .
. . In reality, save in exceptional
circumstances, the individual worker brings no equality of bargaining power to
the labour market and to this trans- action central to his life whereby the
employer buys his labour.”[1]
The modern workplace is a locus
of seemingly continuous transformation and, as a consequence, people
increasingly work under a diversity of arrangements. Thus, it is central for
the law to regulate employment relationship as to accommodate the needs of the
employment industry and to protect the rights of the employees. Kahn-Freund
described the contract of employment as the cornerstone of the modern labour
law system; in his book “Labour and the Law”.
Collins
writes that the ‘‘starting point for the analysis of legal obligations arising
in the context of working relations must always be the terms of any contractual
arrangement’’.[2] The current situation is
that the courts have fashioned a standard model of rules founded on a ‘‘binary
divide’’ between employment and self-employment, between subordinated labour and
autonomous work relations. Thus, consequently those who claim to work under a
contract of employment/service were characterized as employees, while others,
namely the self- employed were considered to work under a contract for services
and hence fell outside the scope of “employee”. The main reason for such a distinction was
based on the ides that those in self-employment or those in business on their
own needed less protection against unemployment, sickness and old age than
those in a ‘‘master-servant’’ relationship.
Freedland,
in particular, has heavily criticised the ‘‘strict legal dichotomy’’ between
the employed and self-employed [3]
and advocated a conceptual shift away from the contract of employment model to
a model based on what he refers to as a ‘‘personal work nexus’’ which refers to
the ‘‘connection or connections, link or links, between a person providing a
service personally and the persons, organisations or enterprises who or which
are involved in the arrangements for, or incidental to, the personal work in
question’’.[4]
He
argues that the employment relationship needs revision to include a broader set
of relationships which would necessitate the development of the idea of the
traditional ‘‘employer’’ to include tri-lateral or multi-lateral arrangements,
whereby diverse ‘‘employing entities’’ may have varied and overlapping
obligations to the same worker; for example, as in the case of an employee of
an agency. This issue has arisen, in large part, due to apprehensions about the
conceptual and practical difficulties of drawing the distinction between a
contract of service and a contract for services which is aggravated by the fact that there is no complete
statutory definition of either ‘‘employee’’ or ‘‘contract of employment’’; instead,
it was basically up to the courts to define these concepts, a duty with which
they have struggled.
However,
the current standing of the law relating to employment status describes working
people in three broad terms : employee, worker and independent
contractor (i.e. self-employed). It is very important to appreciate the distinctions
between these categories because of the access to statutory rights to each
category and also in determining the contractual arrangements under which a
person works. Statute law provides very limited distinction and much of the
guidelines are laid down in case law. Undeniably it was admitted by government
that ‘the definitions of “employee” and “worker” in legislation are not sufficiently
clear and “user-friendly”’[5].
The starting point for the
consideration of these distinctions between these categories is the Employment
Rights Act 1996 which states that: In this Act ‘worker’ (except in the phrases
‘shop worker’ and ‘betting worker’) means an individual who has entered into or
works under (or, where the employment has ceased, worked under) –
(a) a contract of
employment, or
(b) any other contract
whether express or implied and (if it is express) whether oral or in writing,
whereby the individual undertakes to do or perform personally any work or
services for another party to the contract whose status is not by virtue of the
contract that of a client or customer of any profession or business undertaking
carried on by the individual. (ERA 1996, s 230(3))[6]
This definition is,
however, insufficient to distinguish effectively between the facts and circumstances
of individual working people. Consequently, case law is necessary to determine
whether a person is either an employee on a contract of employment, a worker on
some other contract, or an independent contractor.
The classic modern test for
deciding employment status is embodied in MacKenna J’s decision in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968]
. He stated that a contract of service exists if three conditions are
fulfilled:
(i) The servant agrees
that, in consideration of a wage or other remuneration, he will provide his own
work and skill in the performance of some service for his master;
(ii) He agrees, expressly
or impliedly, that in the performance of that service he will be subject to the
other’s control in a sufficient degree to make that other master;
(iii) The other provisions of
the contract are consistent with its being a contract of service.
However, since then judges
have further refined the distinction with the addition of a number of tests to
determine employment status. It was in the context of vicarious liability that
the courts first considered who was an employee, Performing Right Society v Mitchell and Booker (Palais de Danse) Ltd (1924),
thus giving birth to the control test. But it soon led to rigidity; when was
taken to its logical conclusion when a court held that nurses were not
employees of a hospital when carrying out duties in the operating theatre as
they took their orders from the operating surgeon and not from the hospital
authorities - Hillyer v Governors of St Bartholomew’s Hospital (1909).
Nonetheless, courts still are unenthusiastic to forgo the idea of control, and consequently
it became one of the main determining factors towards employment status, Montgomery
v Johnson Underwood Ltd (2001). Secondly, the courts considered the
test of integration; which involved the courts to consider the ways in which the
person contributes to an organisation and whether he is or is
not a part of its structure, i.e. is the person ‘integrated’ into the organisation or ‘accessory’ to it and to
what extent does the person contribute to service delivery or the production of
goods. Thus, the test focuses on the organisation of work and lesson control or subordination. If integration
is established, then a person is has more of a chance to be declared an
‘employee’. Thirdly, courts usually make use of the economic reality test; as
per Lord Justice Nolan in Hall v Lorimer [1994], where he said
that it ‘implies a test of economic dependence, in the sense that employee
status is the result of “the extent to which the individual is dependent or
independent of a particular paymaster for the financial exploitation of his
talent”’. For example, a genuine self-employed persons may likely provide their
own tools and be responsible for their own training and not be integrated into
the structure and operation of the employer’s organization.
The forth and most
important test, is the mutuality of
obligation test, initially laid down in O’Kelly v Trusthouse
Forte [1983] which determined the question whether or not a person
is an employee and whether or not a contract of employment exists or not, depended
on an examination conducted by the courts and tribunals of the obligations that
the person who is working owes to the employer and vice versa. The crucial
requirement is to examine the obligation of work on the employee, in an
employment relationship, when the employer has put an obligation on him/her to undertake
the work offered; normally, it will be an obligation to undertake any work that
has been accepted by the employee.
However, it has been
suggested by Deakin and Morris[7]
that there may be a second degree of mutuality – mutual promises of future
performance of the employment relationship, i.e. which provides an examination
of the stability and continuity which is characteristic of the employment
relationship of the ‘standard’ worker. If this second level is missing, then,
there is probably no contract of employment. In Carmichael and Leese v
National Power plc [2000], the COA held that even where a worker had a
long-established relationship with the employer, albeit a casual one; a court
may find evidence of mutuality of obligation; but this decision was overturned
on appeal to the HOL.
In contrast, genuine
self-employed workers are, as far as the respect of mutuality of obligation is
concerned, free to ‘pick and choose’ the work they do; where they agree to do
work, they need not provide it personally. Furthermore. they may delegate it to
another person to undertake it. Thus, no mutuality of obligation exists which evidences
an employment contract.
And
finally the multiple test, whereby the Court of
Appeal specified that any decision on ‘employee’ status does not involve an automatic
examination of factors; an overall view must be taken of the facts and
circumstances; including whether or not the worker makes his or her own
arrangements for tax and social security contributions. This complete assessment
would involve evaluating the implication of specific factors; and considering, if
appropriate, the intentions of the parties and their behaviour. No single factor may be sufficient in itself, however,
control, the payment of wages and mutuality of obligation are seen as indispensable
- Hall (Inspector of Taxes) v Lorimer [1994] .
The question on employment
status is largely a factual one for the tribunal to decide, and its decision can
be overturned only where it has erred in law or its decision is perverse - Lee Ting Sang v Chung
Chi-Keung [1990] and O’Kelly
v Trusthouse Forte Plc [1983];
for perversity, Bath Spa Experience
(t/a Il Toco d’Italia) v Lamarina,
EAT, 24 November 2008).
The question will only become one of law if the construction of a written
document is in issue - Davies v Presbyterian Church of Wales [1984].
The question whether
employment status is an issue to be dealt factually or legally has created an
era of disagreement. This is because this issue is an important one as
practically speaking it is only on a point of law that an appeal could be made
to the EAT from the ET - ERA 1996, s. 37 and TULR(C)A 1992, s. 291. In Ferguson
v John Dawson & Partners (Contractors) Ltd (1976) Browne LJ was
of the view that this question was an issue of fact and thus not open to
challenge on appeal. However, more recent in O’Kelly v Trusthouse
Forte plc (1983), the Court of Appeal
suggested that the question is one of law but that it involves matters
of degree and fact which are essentially for the ET to determine. The Court of
Appeal applying Edwards v Bairstow (1956) in
Nethermere (St Neots) Ltd v Taverna & Gardiner (1984) had the
effect that the EAT could no longer interfere with a tribunal’s decision unless
it had misdirected itself in law or its decision was one which no tribunal
properly directing itself on the relevant facts could have reached
However, just after 2 years
the House of Lords in Davies v Presbyterian Church of Wales (1986)
deliberated that the Edwards v Bairstow principle was immaterial
and Lord Templeman said that “If the industrial tribunal erred in deciding that
question (whether the applicant was an employee), the decision must be reversed
and it matters not that other industrial tribunals might have reached a similar
erroneous conclusion in the absence of an authoritative decision by a higher
court”. This principle formulated a method which allowed non-interference with
first instance decisions based on the idea that facts of employment status are
best evaluated by the ET. The decision went on to state that those factual
considerations which were relevant, not just to the current case, but of a
wider application, must in principle be reviewable by higher courts in order to
achieve a desirable uniformity and thus should be considered questions of law,
regardless of the meaning of that word in other contexts. This, arguably,
sensible conclusion was later compromised by the questionable reasoning of the Privy
Council in Lee v Chung (1990) which held that Davies was
limited to its own facts and where the relationship has to be determined by the
investigation and evaluation of the factual circumstances in which the work is
performed, the question is one of fact and degree.
However, this decision does
not restrict Davies to the situation where there is a written document
but rather construction of a written document could be a question of fact
within the meaning of Davies, as it may include evaluating matters
relating to just the parties in that case and thus not applicable normally.
Support for this view can now be found in the decision of the House of Lords in
Carmichael v National Power plc (2000), particularly in the
speech by Lord Hoffmann. Additionally, G Pitt (1985)[8]
and (1990) points out that to treat the question as one of fact may have the
result that different tribunals may come to different conclusions on the same
set of facts. Consequently, if a nationwide company dismisses all its workers
in a particular grade, doing the same work; the result may be that only some of
them may claim statutory employment protection as different tribunals may
legitimately come to opposite conclusions to the issue of employment status. However,
it seems that the decision in Lee
allowed for the burden of the appellate court to be lessened but it seems
erroneous that individual rights are be compromised in favour of administrative efficacy. Thus, McLean[9]
argues, it can only be hoped that a braver Supreme Court emerges to overturn
these authorities, but the wait continues.
(2476 words)
Bibliography
1.
Honeyball & Bowers, Textbook on Employment Law
2.
Principles of Irish Employment Law by Dr Brenda Daly &
Dr Michael Doherty
3.
Employment Law in Context,: An introduction for HR
professionals, 3rd Edition by Brian Willey
4.
Individual
Employment Law, 2d ed. by Geoffrey England
[1]
The Worker and the Law. 3rd edition. Lord Wedderburn of Charlton.
ILJ 1, p 16.
[8] G Pitt, “Law,Fact and Casual Workers” (1985)
[9] Contract of Employment—The Perennial Problem
of Definition by Hazel McLean [1990] CLJ 410 - http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=3191240
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