Introduction
In this paper, I will argue that the fact that a certain individual is recognized as an employee, automatically “grants” employer status to the person or entity that hires this individual; the legal status of employer is inherently connected to the status of employee. Both parties acquire certain rights and obligations as soon as their relationship falls under the definition of employment. However, as much as there are no strict criterion that help to determine whether a person is an employee, similarly, whether an entity or an individual is an employer will largely depend on the form of relationship between the hiring entity and the worker. Thus, I would like to discuss in detail the rules and standards applied by the courts when they determine whether an individual is an employee.
Defining “employee”
Historically, there has been two types of such relationships: master/servant and principal/agent relationship; nowadays, the latter is commonly known as client/independent contractor relationship. Current legislature and labour practice defines three types of workers: employees, workers, and self-employed professionals, also known as independent contractors. Each of those categories have their own legal status. However, among the triad – worker, employee and self-employed contractor - an employee enjoys perhaps the biggest amount of rights and privileges, which necessarily correspond to employer`s obligations. Among other important protections, an employee is entitled to the national minimum wage, minimal length of rest break, participation in a trade union, statutory sick pay, maternity/paternity leave and pay, protection against unfair dismissal, etc.
Section 230(1) of the Employment Rights Act 1996 defines employee as someone who works under a contract of employment. Obviously, this definition is too broad and non-specific, that is why the courts have developed various rules, tests and standards that guide them in their reasoning when they try to determine whether a person is an employee. In this field, it is hard to develop strict rules that define employment status as each case has to be decided on its own merits. Nevertheless, the following elements are inherent to the status of an employee:
The individual carries out the work personally;
Mutuality of obligations between two parties;
The employer has the right to control employee`s work. (An employee or a worker)
Defining legal status of an employee: overview of basic rules and principles
In the field of employment law, courts have laid down different tests and conditions that help to determine whether a worker is an employee. At the same time, none of these tests provides a comprehensive answer to this question. That is why the courts have consistently held that every case must be decided on its own merits. (The Employment Status Manual)
In determining the nature of employment status, the courts often have to decide a specific question: whether a contract between the parties is a contract of service or a contract for services. Under a contract of service, the parties are bound by master/servant relationship, whereas, under a contract for services, the parties are designated as “client” and “independent contractor”. Historically, one of the distinguishing features of a master/servant relationship was the right of control over the work carried out by a servant. In Queensland Stations Proprietary Ltd, Dixon L.J argued that the right of control over the way the work was performed may not be a decisive factor, under certain circumstances. (Queensland Stations Proprietary Ltd v Federal Commissioner of Taxation)
In Montreal v Montreal Locomotive Works, the court said that it may be necessary to apply more complicated tests to determine the employment status. For example, it was proposed to apply such elements as ownership of tools, risk of loss and chance of profit. (Montreal v Montreal Locomotive Works)
In Cassidy v. Ministry of Health, Somervell L. J. argued that the owners of the ship have no right to tell the master of a ship how to do his work (navigate the ship). This case pointed out to an important rule: a contract of service may exist even when the master has no right of control over the servant. (Cassidy v. Ministry of Health)
In Bank voor Handel en Scheepvaart NV v Slatford, the same view was reaffirmed; Denning L.J. said that submission to orders no longer remains the main element of a servant`s legal status – his status largely depends on whether or not he can be considered: “part and parcel of the organization”. (Bank voor Handel en Scheepvaart NV v Slatford)
Principal case law
In Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance, the High Court established three conditions, which help to determine whether a contract of service exists:
The servant agrees that in exchange for a compensation, he will perform certain work;
The servant agrees that in performance of services, the master has the right to control his actions;
Other provisions are present typical to a contract of service.
The court held that one of the main characteristics of employment status is wage or other consideration paid to the servant, as well as the right of control. There is no contract of service if the master has no right of control over servant`s work. At the same time, this factor is not determinative, although rather important (among other factors) in determining employment status. In addition, a person is an employee if he provides personal services. However, a contract of service may still exist if it implies a limited right of delegation. Finally, in determining employment status the court may consider other factors consistent or inconsistent with a contract of service. (Ready Mixed Concrete (South East) Ltd)
Another type of employment cases considers the concept of mutual obligation. These cases often discuss the employment status of temporary or casual staff employees. In order to prove their employee status, such workers often have to establish that their relationships with the employer were governed by a “global” contract of service. More often than not, the courts found that the parties` relationship lacks mutual obligations, meaning that there was no global contract. However, consistent dealings over a period of time often implies that the parties had a continuing mutuality of obligation. (The Employment Manual)
In Market Investigations Ltd v Minister of Social Security, the court developed a one-question test that helps to determine whether the disputed contract is a contract for service (self-employed) or a contract of service (employee): whether the person who provides the services does so as a person in business on his own account? If the answer is positive, then the contract is a contract for services and if the answer is negative, then the contract is a contract of service. At the same time, Cooke J noted that it is unlikely that an exhaustive list of all factors relevant to determining an employment status will ever be compiled. Similarly, no strict rules can be developed on relative weight that these factors must have in particular cases. Cooke J reaffirmed the rule articulated in Ready Mixed Concrete, stating that the right of control “will no doubt always have to be considered”, (Market Investigations Ltd) but it no longer remains the sole determining factor. Other factors may play a crucial role in determining a legal status of a person who performs services: whether he uses his own tools, hires assistants, takes on monetary risk, whether he has an opportunity to profit or has a degree of responsibility for investment. For these reasons, it is important to keep in mind the basic question in order to determine employment status: whether the person is in business on his or her own account.
In Nethermere (St Neots) Ltd v Gardiner and Taverna, the court reaffirmed the basic principles articulated in previous cases: a contract of service must stipulate a wage or other remuneration in exchange for the servant`s obligation to perform services by his own work and skill. Absent consideration, there will be no valid contract. Additionally, the court noted that each of the parties must have “an irreducible minimum of obligation” for a contract of service to exist. Such obligations, for example, could arise throughout consistent dealings over several years. (Nethermere (St Neots) Ltd)
The concept of mutual obligation discussed in Nerthermere was also applied in Clarke v. Oxfordshire Health Authority. The court ruled that a bank nurse was not an employee because her employment lacked mutual obligations. Contract provisions stipulated that the Authority was under no obligation to offer work to Ms. Clarke, while she did not have an obligation to accept it. However, the court noted that even the lack of mutual obligation to provide and perform work does not necessarily imply the lack of contract of service; for example, the fact that the employer paid a retainer during periods of non-work would be sufficient. (Clarke)
In Carmichael & Another v National Power PLC, the House of Lords ruled that the station guides, who worked on “casual as required” basis, were not employees because there was no contract that would cover periods when the guides were not working. (Carmichael)
In Stevedoring and Haulage Services Ltd v Fuller , the court followed the same approach. The contract provided that the company was under no obligation to provide work and the workers were not obligated to accept it. The criterion of mutuality of obligation is difficult to establish for those who work as agents.( Stevedoring) Thus, in Stevenson v Delphi Diesel Systems Ltd), the agency worker argued that he could claim unfair dismissal for the period when he worked as an agent (he then took on an employee position). However, the EAT dismissed this claim, arguing that there was no mutual obligation during the time he worked as an agent. (Stevenson)
Even though the terms of the contract are the starting point of analysis, the court may look beyond the contract if there is evidence that those terms do not reflect actual relationship between the parties. In Autoclenz Limited v. Belcher, the claimants` contracts provided that there was no mutual obligations between the parties and that the valeters could find substitutes for this work. However, the Supreme Court found that those terms were in fact “unrealistic possibilities”; in reality, the valeters had to carry out their work personally, despite the contractual wording. (Autoclenz Limited) Consistent with this approach, the Court of Appeal in Stringfellows Restaurants Ltd v Quashie found that the person was not an employee, even though the terms of the contract had all indicators of employment status: mutuality of obligation, right of control, personal performance. The court reasoned that a claimant was paid exclusively by third parties, rather than the “would be” employer, which is inconsistent with an employment relationship. These cases demonstrate that despite the importance of the three elements of the test, the courts may often look at all aspects of relationship to determine whether a person is an employee. (Stringfellows Restaurants Ltd)
Personal performance
One of the main characteristics of contract of service is that the worker performs his duties personally, by his own work and skill. If, however, the worker has the possibility to delegate his duties (and if he uses that opportunity), the relationship may be determined as the contract for services. Thus, in Express and Echo Publications Ltd v Tanton the court decided the issue whether a newspaper delivery driver was an employee or an independent contractor. After fact analysis, the court determined that the parties had an unsigned agreement which provided that if the contractor is unable or unwilling to perform his work, he may arrange at his personal expense, a substitution worker who would perform the services. In practice, the contractor occasionally used this opportunity, including a six month period when he was ill.
Thus, the Court of Appeal found that the worker did not have an obligation to provide services personally, which is inconsistent with a contract of service. (Express and Echo Publications Ltd)
At the same time, the mere possibility of substitution does not mean that a worker is an independent contractor. In MacFarlane & (2) Skivington v Glasgow City Council, Employment tribunal followed the logic of Tanton case, holding that since the claimants had the opportunity to arrange a substitution to perform work on their behalf, they were not employees. However, the EAT concluded that the case at hand was distinguishable from Tanton case for the following reasons:
Claimants had to attend work in person
They could provide someone as substitution only from the Council register, and the Council often organized the replacement.
The council did not pay claimants, but paid the substitute.
Thus, the Tribunal concluded that there was an important distinction between two cases. In Tanton, the driver had the right at his own will to perform his duties by delegating them to another suitable person. In this case, however, the agreement allowed that, in certain circumstances, a worker may arrange substitution to attend the work in his place, subject to employer`s approval. Thus, the Tribunal held that the claimants were employees, not independent contractors. (MacFarlane)
Each case is decided on its own merits.
One of the main principles in employment status cases is that each case must be analyzed on its own merits: there is no common standard or rule that could be equally applied to each similar scenario. That is why even the presence of such definitive elements as the right of control or mutual obligations does not necessarily mean that the worker is an employee. Thus, in Walls v. Sinett, Vinelott J. said that it is practically impossible to decide a case by comparing its facts to the facts of similar cases. In this field, there is a variety of factors that have to be weighed and considered; the importance of each factor is relative to a particular case – what may be important in one case, may be ignored in another. That is why the court must look at the totality of particular facts in a case, rather than read across from one case to another, comparing facts and arguing that the employment status is the same in both cases. (Walls)
Conclusion
Thus, determining whether a person is an employee can be a tricky task. Over the decades, the courts have developed a set of tests and principles that should help make this job easier. However, those rules often have to be adjusted and modified to the reality of labour relationships between parties to employment contracts. The case law discussed above demonstrates that many situations are unique and they often may require unique approach. The defining factors often have different degree of significance from case to case, that is why the courts need to make a “totality of facts” analysis in order to render a lawful decision. These complications necessarily reflect on the legal status of an employer and employee, making it very difficult to determine whether the parties are bound by employment relationship. However, as soon as the determination is made, everything falls in its right place: “who is who” question is no longer relevant - both employer and employee acquire their rights and obligations under the law.
Bibliography
“An employee or a worker” (September 2005). Retrieved from: http://www.thompsons.law.co.uk/ltext/l1520004.htm
Autoclenz Ltd v Belcher [2011] UKSC 41
Bank Voor Handel en Scheepvaart NV v. Slatford and Anor. [1953] 1 QB 248
Carmichael v National Power plc [1999] UKHL 47
Cassidy v Ministry of Health [1951] 2 KB 343
Clarke v. Oxfordshire Health Authority [1998] IRLR 125
Express & Echo Publications Ltd v Tanton [1999] IRLR 367
Market Investigations Ltd v Minister for Social Security [1969] 2 QB 173
MacFarlane & (2) Skivington v Glasgow City Council EAT/1277/99
Nethermere (St Neots) Ltd v Gardiner And Another [1984] ICR 612
Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497
Montreal v Montreal Locomotive Works Ltd [1944] UKPC 44
Stevedoring and Haulage Services Ltd v Fuller (2001, IRLR 627)
Stevenson v Delphi Diesel Systems Ltd (2003, ICR 471)
Stringfellow Restaurants Ltd v Quashie [2012] EWCA Civ 1735
Queensland Stations Proprietary Ltd v Federal Commissioner of Taxation [1945] 70CLR539
Walls v Sinnett [1987] STC 236
The Employment Status Manual, HM Revenue and Customs (updated on 7 April 2016). Retrieved from: https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm0000
