Employment Law

The test currently used to determine employment status is far from satisfactory and, in some cases, produces anomalous and/or unjust results. Critically discuss this statement.

Introduction
This paper will give a description of the current test that is used to distinguish between contracts of service and contracts for services rendered relationships. This will commence with an explanation for the need to establish a legal test as opposed to use of the contractual terms as an exclusive deciding factor. There will then follow description of historical development to the current test adopted and finally it will be considered whether the current test is satisfactory and if not, whether it produces anomalous and/or unjust results?

A The importance of establishing a test for employment status

There are four main reasons why there should be a test for the determination of employment status. The first relates to the fact that it is not just that the distinction between the employed and the self employed status should be based purely on the terms of the contract. This used to be the case but it was soon discovered that such a method was unfair on account of the unequal bargaining powers of the parties. S. Webb and B. Webb stated in 1897 that: Individual bargaining between the owner of the means of subsistence and the seller of so perishable a commodity as a day labour must be, once and for all, abandoned. In its place, if there is to be any genuine freedom of contract, we shall see the conditions of employment adjusted between equally expert negotiators acting for corporations reasonably comparable in strength. The second reason for the adoption of a judicial test is due to the importance that such a distinction brings. There are a number of employment protection measures that are exclusively held for employees, such as those provided for Trade Union health and safety officials. The third reason is that the self employed are taxed under Schedule D and the employed fall under the Schedule E category. The significance of this distinction lies in the fact that the self

employed are allowed to offset expenses against income tax, such as pension contributions, fuel bills, premises rental and all other forms of legitimate business expenses. Finally, the employer is vicariously liable for the actions of his/her employees and, in relation to this, a duty of care is also owed by the employer for the welfare and safety of employees while they are carrying out obligations under their contract of employment. B.Historical development of judicial tests 1.The control test This was the first test adopted, was a determination of McCardie J, in Performing Rights Society v Mitchell and Booker which stated that, the final test, if there is to be a final test, and certainly the test to be generally applied, lies in the nature and degree of detailed control over the person alleged to be a servant This test proved to be flawed when considered in relation to skilled workers whose qualifications exceeded that of their employers. 2.The organisation test This test was devised by Lord Denning in Stevenson, Jordan & Harrison Ltd v MacDonald and Evans, where he stated: Under a contract of service a man employed as part of the business and his work is done as an integral part of the business but under a contract for services his work, although done for the business, is not integrated into it but only accessory to it. Unfortunately, there was no assistance provided for the interpretation of integration or organisation, and, beyond this case, the test was barely used. 3.The Multiple test This test was first established in the case of Ready Mixed Contcrete (South East) Ltd v MPNI. The test is based upon the realisation that no one deciding factor can distinguish between contract of service and contracts for services rendered, since the employment relationship is far more complex and there are a number of issues that require to be taken into consideration. In Ready Mixed Concrete, the distinction was crucial from a tax point of view since, if the appellants were to be deemed as employers, they themselves would be liable to pay the National Insurance contributions of the employee lorry drivers. McKenna J began by setting aside the facts of the case that fell into either the employment or self-employment categories. For the former, this consisted of the fact that the Lorry was painted in the colours of the company and was for the exclusive use of the company. The team of drivers also had specific orders to obey and they were provided with a minimum income guarantee of 1500 per annum. For the latter, the lorry was purchased by the drivers via a company loan, which was subsequently serviced by the drivers. The drivers could also delegate their driving duties but the company did reserve the right to insist on a particular driver. Finally, the drivers were guaranteed a minimum payment and extra was determined on the basis of the amount of concrete that they borrowed. McKenna J then assessed these facts against three conditions that he deemed to be required in order for the contract to be that of a contract of employment. Firstly, skills must be provided in exchange for a wage, secondly, there should be an element of control exercised on the part of the employer and thirdly, the provisions of the contract ought to be consistent with a contract of service. McKenna J held, on the basis of there being freedom to delegate, that the contract was one of self employment. This is easily a flawed answer from the point of view that many supervisory or department Head employees are given powers of delegation however the important issue here is that the fundamentals of the test were accepted.

CIs the multiple test satisfactory?

1.Handling the multiple facts! The inherent error of McKenna in Ready Mixed Concrete vested in the fact, that while he had made the correct considerations for the purpose of ascertaining the status of the drivers, he had arrived at the wrong conclusion as a result of an error in the handling of facts and the resulting identification of deciding factors. This practice of balancing facts in order to determine employment status has been used widely since this case but it remains flawed from the point of view that judges have still not acted to aid in identifying the very factors that define the employment status. As such, the single sentence remark of Cooke J, who stated that the one question to answer is whether the person is in business on their own account, have not assisted in any way. This failure raises two key questions. (a)How many facts ought to be considered? In general, all relevant facts, such as the ownership of equipment, the presence of a business account, the autonomy of the employee/self-employed in terms of the task, hours, methods of payment, tax liability assessment, employee control and liability for injury are all integral to the thought processes. This generally does not tend to be a problem as courts in general are used to the process of sifting facts. There is however a problem where no priority is given to key issues and this is especially apparent where courts have identified in excess of seventeen factors that would influence the decision either way. (b)Which facts take precedence over others? There is an inherent lack of priority in the handling of these facts and this was clearly illustrated in the string of cases concerning Home Workers. At first, considerations pertaining to the regular nature of the work and the power of the employer to control the method, time and place of the work all determined that the Home Worker was employed. This decision was upheld in Nethermere (St Neots) Ltd v Taverna and Another but for the separate reason that there existed a long standing relationship pertaining to mutuality of obligation and that this took precedence over the obligation to provide regular work. Despite the fact that the Home Worker status was maintained as that of an employed individual, the difficulty lies in the fact that there is confusion as to what the real deciding factor should be. While it is certainly arguable that the recent emphasis given to the mutuality of obligation does resemble a step towards priorities, it is a false priority due to the fact that no proper justification is given to its status. (c)What happens when the facts result in ambiguity? In the event of ambiguity, the courts may at least look to the considerations of the employer as a contributory factor however this is unlikely to constitute a great aid given that the parties are in dispute on this very matter. As stated by Stephenson LJ in Young & Wood Ltd v West: it must be the courts duty to see whether the label correctly represents the true legal relationship between the parties. Again while such statements are valid, they are far from useful in the determination of the facts to arrive at an answer, and it is this very difficulty that resulted in the original anomalous and unjust result in the Ready Mixed Concrete case. 2.Distinguishing between the various jobs Another argument that supports the unsatisfactory and unjust nature of the multiple test is the fact that the courts are refusing to modify the multiple test so that it is subjectively tailor made to a specific job. While this may create a level of uncertainty for those jobs that have no

judicial precedent, it is clear that a blanket application of various deciding factors has proven to be extremely difficult. The practice of finding a deciding factor has the result of working well in certain types of job but also produces anomalous results in others. The above recognition of the mutuality of obligations was applied in relation to the Home Worker, which is wholly unacceptable as a vehicle for the pronouncement of all casual and agency temporaries as self employed. However, this was the finding in the case of Wickens v Champion Employment. This was rectified in McMeecham v Secretary of State for Employment where it was stated that this was not a general application for this type of work and that other factors, such as rules and regulations set by the agency, the weekly wage structure and client procedures for complaints were entered as issues that took precedence over mutuality of obligations. This therefore rendered the agency worker as an employee of the agency but this position has however remained uncertain following the decision of Motorola Ltd v Davidson in which it was held that the agency worker was an employee of the client on account of the day to day control under the contract. Some law reforms have taken place to aid in solidifying the employee status of the agency worker and these include express treatment as an employee in the Working Times Regulation 1998 and the National Minimum Wage Act 1998. Despite these changes, the case law still acts to illustrate that, not only should a set rule be created for each type or category of job, but that these rules should also be strictly applied in order to maintain a much needed certainty of the law.

Conclusion
So far, it seems that the courts are experts in the gathering of the key facts required for determination of employment status, but there is no satisfactory guidance with regard to their sifting and prioritising of these facts. Further to this, there is no contingency in the event of ambiguity and little attention is paid to the fact that different criterion require to be set and strictly applied to different types of jobs. As it currently stands, the courts are given virtual carte blanche to determine whichever facts they please in order to arrive at a pre-ordained answer and while this has lead to some satisfactory results, anomalousness and injustice have resulted where has focused on the wrong factor to decide the case.

Bibliography
Legislation National Minimum Wage Act 1998 Employment Relations Act 1999 Working Times Regulations 1998 Case Law Costain Building & Civil Engineering Ltd v Smith [2000] ICR 215 Hall (HM Inspector of Taxes) v Lorimer [1994] IRLR 171 CA Canadian Pacific Railway Co v Lockhart [1942] AC 591 Performing Rights Society v Mitchell and Booker [1924] 1 KB 762 Hillyer v Governors of St Bartholomews Hospital [1909] 2 KB 820 Stevenson, Jordan & Harrison Ltd v MacDonald and Evans (1952) 1 TLR 101 Ready Mixed Concrete (South East) Ltd v MPNI [1968] 2 QB 497

Market Investigations Ltd v MMS [1969] 2 QB 173 OKelly v Trust House Forte plc [1983] IRLR 369 CA Airifx Footwear Ltd v Cope [1978] IRLR 396 Nethermere (St Neots) Ltd v Taverna and Another [1984] IRLR 240 Byrne Brothers (Formwork) Ltd v Baird [2002] IRLR 96 Massey v Crown Life Insurance Co [1978] ICR 590 Ferguson v John Dawson Ltd [1976] IRLR 346 Young & Wood Ltd v West [1980] IRLR 201 Wickens v Champion Employment [1984] ICR 365 McMeecham v Secretary of State for Employment [1997] IRLR 353 Serco Ltd v Blair (1998) IDS Brief 624 Motorola Ltd v Davidson [2001] IRLR 4 Text Books M Sargeant, Employment Law, (Longman, 2nd edition, 2003) D J Lockton, Employment Law, (Palgrave Law Masters, 4th edition, 2003) N M Selwyn, Selwyns Law of Employment, (Butterworths, 13th edition, 2004) G Pitt, Employment Law, (Sweet & Maxwell, 5th edition, 2004)
CONTRACT OF SERVICE AND CONTRACT FOR SERVICE The law makes a distinction between a contract of service and a contract for service. Basically, a contract of service applies to an employee-employer relationship, while a contract for service applies in the case of an independent sub-contractor. This distinction is most important as protection of employment legislation does not apply to independent sub-contractors with the exception of health and safety legislation and equality legislation. The following is a summary of the essential differences between the two sorts of contract. Contracts of Service

Employer employee relationship Usually a continuous relationship A duty of care is owed to employees, as the employer The employer is generally liable for the vicarious acts of employees Protective legislation applies to the contract
Contract for Service

Employer-independent contractor relationship exists A relationship organised around the completion of a once-off piece of work A duty of care, arising from occupiers liability The employer is generally not liable for the vicarious acts of independent contractors
How do Courts differentiate between contracts of service and contracts for service? Courts have applied the tests of control, integration and multiple or mixed. The control test simply asks the question can the employer tell the employee what to do? In other words, is the employee under the control of the employer? The integration test asks to

what extent is the employees work integrated into the business. Someone brought in on contract to repair or maintain plant or premises may not be integrated in any way into normal operations. The multiple or mixed test asks a series of questions such as are there wages, sick pay and holiday pay? If there are, who pays them? Are PAYE and PRSI deducted? Does the worker share in the companys profits and loses? Who provides the tools and equipment for the job? Is the employer entitled to exclusive service from the employee? A courts interpretation will not necessarily depend upon what it says in a contract labels will themselves not determine the matter, the court will decide. In short, is this a case of genuine self-employment or an attempt by an employer to avoid protective legislation? However, the overriding consideration or test will always be whether the person performing the work does so as a person in business on their own account. Is the person a free agent with an economic independence of the person engaging the service? Criteria on whether an individual is an employee While all of the following factors may not apply, an individual would normally be an employee if s/he-

Is under the control of another person who directs as to how, when and where the work is to be carried out; Supplies labour only; Receives a fixed hourly/weekly/monthly wage; Cannot sub-contract the work. If work can be sub-contracted and paid on by the person sub-contracting the work, the employer/employee relationship may be transferred on; Does not supply materials for the job; Does not provide equipment other than the small tools of trade. The provision of tools might not have a significant bearing on coming to a conclusion that employment status may be appropriate having regard to all the circumstances of a particular case; Is not exposed to personal financial risk in carrying out the work; Does not assume any responsibility for investment and management in the business; Does not have the opportunity to profit from sound management in the scheduling of engagements or in the performance of tasks arising from the engagements; Works set hours or a given number of hours per week or month; Works for one person or for one business; Receives expense payments to cover subsistence and/or travel expenses; Is entitled to extra pay or time off for overtime.
Criteria on whether an individual is self-employed While all of the following factors may not apply to the job, an individual would normally be self-employed if s/he-

Owns her or his own business; Is exposed to financial risk by having to bear the cost of making good faulty or substandard work carried out under the contract; Assumes responsibility for investment and management of the enterprise; Has the opportunity to profit from sound management in the scheduling and performance of engagements and tasks; Has control over what is done, how it is done, when and where it is done and whether s/he

does it personally; Is free to hire other people, on her/his own terms, to do the work which has been agreed to be undertaken; Can provide the same services to more than one person or business at the same time; Provides the materials for the job; Provides equipment and machinery necessary for the job, other than the small tools of the trade or equipment which in an overall context would not be an indicator of a person in business on their own account; Has a fixed place of business where materials, equipment, etc can be stored; Costs and agrees a price for a job; Provides her/his own insurance cover, such as public liability cover, etc; Controls the hours of work in fulfilling the job obligations
It should be note that a person who is a self-employed contractor in one job is not necessarily self-employed I the next job. It is also possible to be employed and selfemployed at the same time in different jobs. Consequences arising from the determination of an individuals status

The way in which tax and PRSI is payable to the Collector-General. An employee will have tax and PRSI deducted from her/his income. A self-employed person is obliged to pay preliminary tax and file income tax returns whether or not s/he is asked for them; Entitlement to a number of social welfare benefits such as unemployment and disability benefits. An employee will be entitled to unemployment, disability and invalidity benefits, whereas a self-employed person will not have these entitlements; Other rights and entitlements, for example, under employment legislation. An employee will have rights of working time, holidays, maternity/parental leave, protection from unfair dismissals, etc. a self-employed person will not have these rights and protection;Liability in respect of work done.