The Classification Of A Worker And Employees In Employment Law

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The classification of a worker and employees is paramount in employment law today. The Employment Rights Act 1996 (ERA) defines a worker, as well as an employee, although with very little direction, as ‘an individual who has entered or works under (or where employment has ceased, worked under) a contract of employment.’ It defines a ‘contract of employment’ as ‘a contract of service or apprenticeship, whether express or implied, and, if expressed, whether oral or writing.’ The definition of an employee also covers workers, in the Equality Act 2010, which defines ‘employment’ as a ‘contract of employment, a contract of apprenticeship or a contract personally to do work.’ In order to establish the relationship between an employer and employee, it is essential to determine the status of employment of a person, as through this courts can distinguish a variety of employment rights concerned with the worker. It is vital to make the distinction between an employee who is working under ‘a contract of service’ and an independent contractor working under ‘a contract for services’ as because of employee’s rights, the employees under ‘a contract of service’ are the only ones qualifiable for the rights. Workers have a variety of rights, such as right to claim wrongful or unfair dismissal and statutory payments; to which they are given protection under the health and safety legislation and the insolvency legislation.

The parties involved, employer and employee, are not liable to declare the nature of the relationship, as this is down to the courts and tribunals to decide through looking at the substance and not the form. The assessment of what of the requirements in law for a worker to be considered an employee or not is developed with three common law tests in order to identify the existence of a contract of employment. The general statement for courts to decide whether a contract of employment exists was given by MacKenna J in the Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1986] 2 QB 497, where it was stated that a contract of service exists if three conditions are satisfied: 1) 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, 2) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the control of the other in a sufficient degree to make that other master, 3) The other provisions of the contract are consistent with it being a contract of service. The courts use this case as a guide for distinguishing employment status for future cases. With regards to the Ready Mixed Concrete Ltd case, a driver who delivered concrete in their own lorry was held to be self-employed. The fact that the driver had to purchase the lorry to carry out the job as well as him being able to use a replacement driver if he couldn’t carry out the job were all vital factors in coming to this decision. In order to find an employment relationship, the court requires an irreducible minimum of obligation for the contract to be one of service. In the Nethermere (St Neots) Ltd v Taverna and Gardiner ICR 612, CA case, the courts held that ‘ there must be an irreducible minimum of obligation on each side to create a contract of service. They held that ‘the inescapable requirement concerning the alleged employees however is that they must be

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subject to an obligation to accept and perform some minimum, or at least reasonable, amount of work, for the alleged employer. An arrangement under which there was never any obligation on the outworkers to do work or on the company to provide work could not be a contract of service.’ From this case courts can identify that there must be an obligation on the employer to offer the work and for the worker to accept it.

The first test used by courts was established in the nineteenth century and was known as the ‘control test’. This test had asked the question around the degree of control of the alleged employer used over the alleged employee. The courts wanted to identify whether the employer could control what was done by the employee as well as how it was done. If the employer could satisfy these conditions, then this would indicate a contract of employment existed, whilst the contrary would lean towards self-employment. In the Yewens v Noakes (1880) 6 QBD 530 case, Bramwell LJ said that ‘a servant (employee) is a person subject to the command of his master (employer) as to the manner in which he shall do his work’. Over the last hundred years, as technology and work became more technical and efficient, this test had become outdated and not sufficient enough in being the sole determinant. Highly skilled employees could not be held to be under the control of an employer such as an airline pilot and an airline company can’t control the way in which a pilot flies a plane. The control test was used in many cases with regards to the classifying of employees by their employers to temporary employers. This raised the question as to whether the temporary or original employer are liable for the tortious acts of the employees. Although outdated, the control test is still seen as fundamental in establishing the employee relationship although is no seen as conclusive anymore.

The second test, developed in the late 1940s to early 1950s, accounted for more realism in its approaches and this was known as the integration test. During this time, a number of cases concerning whether hospitals were vicariously liable for the actions of surgeons, radiographers and other specialists. Firstly identified by Somervell and Denning LJJ in the Cassidy v Ministry of Health [1951] 2 KB 343M Ca case, to which it was highlighted that a doctor working within the NHS was employee of the Health Authority, and Denning LJ further emphasised this test in the Stevenson, Jordan and Harrison Ltd v MacDonald and Evans [1952] 1 TLR 101 case. This case considered the topic as to whether the person is employed as part of the business, whether their work is done as ‘an integral part of the business’ or whether it is just an accessory to it. This test was fairly straightforward for courts to use, however it turned out to be of limited usage as this brought about the clarity question behind the word ‘integral’ and what constituted being an integral part of an organisation. This was taken on in the Tilson v Alston Transport [2011] IRLR 169, CA case where the Court of Appeal had held that there was likely to be a high degree of integration between the worker and the end user, with regards to the nature of the work, when it had to be done and how it was to be completed. This highlighted the fact that he or she would perform the work in the same way as any other employee in the business. Question also arised involving employment agency and whether the agency or the agency’s client is the employer as employment agencies usually have control over the worker but this doesn’t mean they are the employer. In the Cable & Wireless v Muscat [2006] case, the court found a contract of employment between the end-user and the client, on the basis that there was sufficient mutuality and control between the parties. However, where the agency has a high degree of control over the worker where sufficient mutuality is established, the worker may be held to be an employee of the agency. In contrast to the Dacas v Brook Street Bureau [2004] case, where the Court of Appeal held that a worker was not the employee of the employment agency, on the grounds of absence of mutuality of obligation, and lack of sufficient degree of control. Therefore, the presence of mutuality of obligation and control are vital in determining the employment status of a worker.

The courts had finally seen that using one factor as a sole determinant of employment status was not sufficient enough and therefore decided to take on a more flexible approach by adopting the multiple test. This highlighted how no single factor would be conclusive and instead all factors are to be considered and weighed up when deciding the issue of employment status. This comprised of a three-fold test: 1) a contract of service requires duty to give personal service, 2) the existence of a sufficient degree of control and 3) the terms of the contract being consistent with the service. This test was applied in the Market Investigations v Minister of Social Security [1969] 2 QB 173 case, where Cooke J held that the important issue was ‘Is the person who has engaged himself to perform these services performing them as a person in business or his own account?’ If yes, then the contract was for services, but with this case the market researcher was identified to be under a contract of service. The multiple factors taken into consideration in this case consisted of: the degree or control taken by the employer, the degree of risk taken by the worker, the ownership of tools and equipment, regularity and method of payment, regulatory of obligations and lastly the ability to provide a substitute. The courts would also have to take into account the degree of control, therefore integrating the control test in, but ultimately, they had to take into account a range of other factors which could be important to the relationship. The multiple test allowed courts or tribunal more flexibility by including a range of factors. By adopting this approach, this proved to be useful when certain factors had led towards self-employment such as the issue of substitution such as the contractual rights given to the worker to substitute another worker for themselves whilst other factors may be pointed towards employment status when the unrestrained power to control the time and manner in which the work is performed. By observing all the factors contributing to the case and giving weight to these factors, this allows for courts to reach a reasonable conclusion, without the heavy reliance on a sole factor determining the outcome. However, in certain cases that involve technical factors, it can be difficult for both the parties involved to identify the employment status. In this case, it may be difficult to highlight whether an employee is under the obligations of the employer, for example the employer’s vicarious liability for the torts of employees while in the normal course of their employment as well as whether a worker has the right to claim unfair dismissal. The flexibility involved in the multiple test has become useful in situations where directors are concerned. Company directors are often viewed as employees as they are under a contract of service, but problems can happen when they are also a controlling shareholder. In the Fleming v Secretary of State for Trade and Industry [1997] IRLR 682, Ct Sess case, the court held that the managing director of a company who owned 65 per cent of the company’s shares was not an employee. A variety of factors contributed to this decision such as: he had not drawn his salary for the last month of the company’s existence, he had personally guaranteed the company’s debts, he had no written contract of employment and he held the majority of shares of the company. However, this is not always the case as in the Secretary of State for Trade and Industry v Bottrill [1997] IRLR 120 case, where the court held that a director who had temporarily held the only share in an off-the-shelf company, pending purchase of the share by another company, was an employee. Although the majority shareholder like in the previous case, he was paid by PAYE, under a written contract of employment and worked in the same manner as employees.

Issues around the status of casual or temporary workers can be challenging to resolve. In these particular cases, a mutuality of obligations is a vital factor. In Clark v Oxfordshire Health Authority [1998] IRLR 125, CA case, a bank nurse retained by the health authority on a casual basis to fill temporary vacancies was not held to be an employee. The court held that there was no mutuality of obligations during the periods when she was not engaged on a contract. The health service was not under obligation to offer her work likewise she was not under any obligation to accept the work if offered. Similarly, in the Carmichael and Leese v

National Power Plc [2000] IRLR 43 case, two ‘casual’ guides at a nuclear power station were not classified to be employees. Their lordships approved the tribunal’s findings that the applicants were ‘founders upon the rock of absence of mutuality’. The guides were not obliged to take work upon it being offered and the company were under no obligation to offer it.

In conclusion, it is clear to see that when the issue of employment status arises, it is paramount that the legal principles must be applicable to the facts of the case and all factors, as in the multiple test, must be considered. The cases discussed only provide a small guidance are not strict in their rulings as many cases contradict each other. Both the control and integration test have been absorbed into the multiple test to allow greater flexibility in decision making when taking into account all factors. However, it is clear to see that the law in this issue requires greater clarification to provide fairer results all round. Also, mutuality of obligations has become an essential requirement in a contract of employment as without it there would be no finding of a contract of services. Overall, the evolution of the tests has shown that there is more to identifying the classification of a worker than just if they work for a “reward” or “future work”.

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