Saturday, April 9, 2016

Essay on Employment Status UK (2013) By Abdul Rehman Yasin

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.

[2] Collins et al, Labour Law: Text and Materials (2nd ed, Hart, Oxford, 2005), p 70.
[3] Freedland, The Personal Employment Contract (Oxford University Press, Oxford, 2003), p 22.

[4] Freedland, ‘‘From the Contract of Employment to the Personal Work Nexus’’ (2006) 35(1)
ILJ 1, p 16.
[5] DTI 2002: 7
[6] ERA 1996, s 230(3) - http://www.legislation.gov.uk/ukpga/1996/18/section/230
[7] Labour Law by Simon Deakin & Gillian S Morris, 6th Edition

[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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