A Employment Tribunal Report

Part I. A Summary of Key Facts of the Case

HR Painters and Decorators carries out contract work for more than 15 years. The number of contractors they use is not fixed; it varies from time to time according to the market’s demands. All subcontractors are paid on a weekly basis by a cheque. The majority of jobs are paid on a job-basis. Day-work-basis payment is rare and only for small jobs. HR Painters and Decorators determine the payment together with the clients. It also works out the prices for work based on past experience and different locations. The prices are not negotiable. If subcontractors want to work, they need to submit an invoice to work by Monday and turn up at XX Park. If subcontractors are not satisfied with the price or if they do not want to work, they are allowed to decline the work. In order to get paid, the job must be done at a satisfactory and standard level. No training is provided by HR Painters and Decorators and there is no case that HR asked subcontractors to attend some particular training. HR Painters and Decorators provides the materials needed to complete the job, but subcontractors provide their own tools and bear their own transportation costs.

The claimant, Mr. H. has worked for HR Painters and Decorators for four to five years. Within these four to five years, he did not work for anyone else. Because jobs can be turned down if he is satisfied with the price or he does not want to work, he did decline the work for three times.

Mr. H. is now working for another decorating company as a subcontractor and not an employee.

After stop working for 6 or 7 month, he claimed unfair dismissal and holiday pay of his wage. The key problem in the case is to determine whether the claimant was an employee of HR Painters and Decorators or not.

Part II. Backgrounds and Relevant Legal Issues

The claimant first claimed for unfair dismissal in breach of contract. According to Pitt, the direct reason for introducing law on unfair dismissal was from ‘the recommendation of the Donovan Commission in its 1968 Report’, but people were unanimous agreed it was necessary to develop the legislation (Pitt, 2007:227).

This legislation gives employees more right to be protected and they can only be dismissed by ‘their conduct or capacity or the operational requirements of the business’ (Pitt, 2007:227). First, let’s first look at who is entitled with this right.

Not everyone in the workforce can make a complaint of unfair dismissal. There are some factors to be fulfilled. The factors relate to ‘the employment status and length of continuous service’ (Sargeant and Lewis, 2008: 120). To be able to complain for unfair dismissal, the person has to be an employee; and the employee has to be continuously employed for more than one year and end with an effective date of termination (Sargeant and Lewis, 2008).

Therefore, the first and the key issue is to determine whether Mr. H. is an employee of HR Painters and Decorators or not.

According to The Employment Rights Act 1996, Section 230(1), an employee is

‘an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment’ (in Bowers, 2005:16). Section 230(2) then defines a contract of employment as ‘a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing’ (Sargeant and Lewis, 2008:37).

A worker is defined as

‘…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.’ (Working Time Regulations 1998, Regulation 2(1))

There are many ways to test whether a person is an employee of a company or not. The tests are not mutually exclusive and sometimes the tests are applied together (Sargeant and Lewis, 2008).

Control Test

A traditional and early developed test was control test. It was best described in Yewens v Noakes: ‘a servant is a person who is subject to the command of his master as to the manner in which he shall do his work’ (Deakin and Morris, 2009:133). The control includes ‘power of deciding the thing to be done, the means to be employed in doing it, the time when and the place where it shall be done’ (Ready Mixed Concrete Ltd v Minister for Pensions and National Insurance). The control also includes ‘duties of fidelity, confidentiality and obedience to instructions’ (McMeechan v Secretary of State for Employment).

This test was developed less detailed and more about employer’s general directions. During a contractual relationship where there is no control, it cannot be called a contract of employment. However, it is not essential to have control on how the work should be done. In some cases, it is enough for the employer to just have ‘a very general idea of how the work is done and no inclination directly to interfere with it. However, some sufficient framework of control must exist’ (Montgomery v Johnson Underwood Ltd).

The control test is just one of the factors that may be considered during the judgement, but it could have important influence on the final decision, especially when the case lacks clarity, the control test could be an important factor (Sargeant and Lewis, 2008). Because the control test was first designed for workmen, for some highly skilled professionals, this test may be not strong enough. Just as mentioned in Cassidy’s case, ‘the greater the skill required for an employee’s work, the less significant is control in determining whether the employee is under a contract of service’ (Cassidy v Minister of Health).

Organisation or integration test

Integration test is about ‘under a contract of service, a man is employed as part of the business and his work is done as an integral part of the business; whereas under a contract for services his work, although done for the business, is not integrated into it but is only accessory to it’ (Stevenson Jordan & Harrison Ltd v McDonald and Evans). If an individual is integrated in a business, there is more possibility that he/she is an employee.

However, according to Deakin and Morris, whether the work is ‘integral’ to a business is sometimes hard to decide (Deakin and Morris, 2009). They mention it ‘may be useful for explaining the employee status of managerial and professional workers, but it is less effective in explaining the position of outworkers or workers employed by a sub-contractor of the ultimate user of labour’ (Deakin and Morris, 2009:135). Because of its ‘hard to determine’ feature, the integration test is usually used together with other tests to decide the employment status.

Entrepreneurial or economic reality test

This test is to help to decide whether the person is doing business on his/her own account. If the person is doing his/her own business, the contract is a contract for service; if the person is not, the contract is a contract of service (Sargeant and Lewis, 2008; Market Investigations Ltd v Minister of Social Security). Even though, other factors also need to be considered.

The multiple factor test

The multiple factor test recognises the importance to consider different factors, balance those factors and then make final decisions. This is because the importance of different factors play different roles in different situations.

‘a contract of service exists if these three conditions are fulfilled: first, 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; second, 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; third, the other provisions of the contract are consistent with tis being a contract of service.’ (Justic McKenna in the case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance)

In O’Kelly and others v Trusthouse Forte plc, although with different influences, the tribunal developed 18 possible factors to determine the employment status, including nine factors supporting the claimants were employees and nine factors opposing the claimants were employees.

This test seems to be comprehensive in balancing all the factors. However, according to Sargeant and Lewis, this test has a drawback; this test might be a problem if there is no clear statutory definition; because it is not clear whether the decision is a question of fact or law, sometimes it is hard for judges to make unanimous decisions (Sargeant and Lewis, 2008).

Mutuality of obligation test

From multiple factors test, we can see that no single factor can lead to the final decision about whether a person is in a contract of service or a contract for service. However, the existing of mutuality of obligation between employer and individual is an important factor which cannot be ignored. Mutuality of obligation means that there should be an obligation for the company to provide work and for the individual to accept the offer and carry out the work (Sargeant and Lewis, 2008). There are two levels of this term. First, there should be ‘an exchange of work for remuneration’; second, there should be ‘an exchange of mutual promises of future performance’ (Deakin and Morris, 2009:138).

When mutual obligation is absent, the contract of service tends to be not existed. Tribunals tend to put great attention on mutuality of obligation. In the O’Kelly case, the tribunal considered 18 possible factors, but it did put considerable weight on one of the factors which is lack of mutuality of obligation between the two parties (Sargeant and Lewis, 2008).

‘Both mutuality of obligation and control are the irreducible minimum legal requirements for the existence of a contract of employment’ (Sargeant and Lewis, 2008:47). Therefore, if there must be some decisive factors in determining the employment status, mutuality of obligation and control would be the factors.

Part III. Claims arguments on both sides

Claimant:

The claimant claimed that he worked as an employee and work on day-basis instead of conducting work-basis jobs.

He claimed that he worked on day-basis which was eight hours per day.

Respondent:

There is no obligation exist between the two parties. There is either no obligation for HR Painters and Decorators to offer work to any subcontractors or no obligation for the claimant to accept work. The important factor of mutuality of obligation is absent. If the claimant wants to work, he can submit an invoice and turn up in the XX Park by Monday. He has entire freedom to decline the job either because he is not satisfied with the price offered or he does not want to work at all; and he actually declined the work for three times.

The essential factor is not whether it is fixed price or day basis work; it is the claimant has no set wage. It is important for an employee to have a set wage. The claimant has to submit an invoice, get work done and then get paid. If he does not submit an invoice, he won’t get paid any day. The invoices he submitted were also not fixed; the invoices vary according to the job he actually completed. He did decline three times because he was not satisfied with the prices. If he were an employee, there should be consistency about pay each week or each month. This does not happen to job-basis work. Therefore, he is not an employee of HR Painters and Decorators.

Although the claimant worked only for HR Painters and Decorators, this did not necessarily suggest that work were always available to the claimant. There is no regular place of work, no regular working hours and no regular working days.

HR Painters and Decorators refused to accept that the claimant worked on day-basis and eight hours per day; it held that no fixed beginning and finishing time was declared. The claimant claimed that someone told him ‘you’d better start at 8.30’.

The claimant did not have enough arguments and proof to prove that he was an employee of HR Painters and Decorators. The claimant discussed many things which the judge called irrelevant to this case. The main argument he held was that he worked under day-basis and he had to work eight hours a day with fixed starting and finishing time. But the invoices (proof to show his payment history) indicated that his payments varied depended on different jobs he had conducted.

Part IV. Evaluation of the Decision

Decision of the tribunal

The tribunal has made unanimous decision in the case that Mr. H was not an employee and he was a worker of HR Painters and Decorators. The reasons are as follows:

The label which identifies the relationship between the two parties is not necessarily true, but it is a starting point for the case. The claimant in the relationship is referred as self-employed and there is no dispute about this. He was offered and accepted on this basis.

Mr. H. was informally engaged in the relationship. The submitting invoices system put his work on a weekly basis. If he submits an invoice and get the job done, then he will get paid by HR Painters and Decorators. However, if he does not submit an invoice, he will not get paid. The prices of the invoices also vary dependent on the respondent’s business.

On the one hand, the claimant has no obligation to accept any work. The claimant himself agreed with the evidence that he had the freedom to decline the job offered to him either because he was not satisfied with the price or he was not happy about the job; and he did do this for three times which indicate further that there was no contractual obligation on the respondent to offer any particular quantity of work. He understood that he won’t get paid if he turned the job down. On the other hand, the respondent has no obligation to offer any work to any subcontractors. If there are few demands from contractors (market reason), the company is free to reduce the amount of work. HR Painters and Decorators is not 100 per cent sure that there are always work available. Therefore, the tribunal found that the important element of mutuality of obligation was absent throughout the relationship.

Therefore, the claimant is not entitled the complaint of unfair dismissal in breach of contract. But he can complain for holiday pay as a worker of HR Painters and Decorators.

Evaluation of the decision

I think the tribunal is correctly decided that the claimant was a worker of HR Painters and Decorators instead of an employee.

The moment the claimant entered the relationship with HR Painters and Decorators, the contract identified him as self-employed and he did not question about that. Because employment contract is often decided by one party and the individual can choose either take it or leave it, it is possible that ‘sham’ may be existed (PROTECTACOAT FIRTHGLOW LTD v SZILAGYI). In PROTECTACOAT case, Justice Sedley and Keene pointed that ‘in the employment context, the tribunal has to consider whether or not the words of the written contract represent the true intentions or expectations of the parties’; if the true relationship is different from what is described in the contract, the tribunal then needs to consider the true relationship and the contract and make decisions. The claimant, in reality, had no fixed working hours, no fixed work place and no fixed working days; his true relationship was consistent with his contract. The ‘sham’ contract does not exist.

In this case, the irreducible minimum of mutual obligation was absent. HR Painters and Decorators had no obligation to offer the claimant work; the claimant had no obligation to accept any work because he was free to refuse to work, and there were occasions when the applicants had declined the work.

Another important minimum requirement was absent as well. HR Painters and Decorators also had little control in the relationship. Mr. H. had his own tools; no uniform was provided by HR Painters and Decorators; no training was either provided or demanded by the company; there was no fixed working time; as long as the job was done in the industry’s standard satisfactory level, the company was happy to pay.

I do not think that Mr. H. was a worker of HR Painters and Decorators. According to the definition of a worker (Working Time Regulation 2(1)), an individual has to undertake work personally. In this case, Mr. H. was allowed to have helpers and there was no clear requirement to ask him personally conducts the job, and as long as the job was completed at satisfactory level, he did not break the contract. Within the four years, he worked only for HR Painters and Decorators. But he was allowed and free to work for other contractors. This indicates that the relationship was more like a commercial transaction for the supply of service (Deakin and Morris, 2009).

Implications for management

Although HR Painters and Decorators won the case, it was still at least waste of time and money (to hire a lawyer). Here are some things HR Painters and Decorators can do to prevent future lawsuit.

Being in the business for 15 years, HR Painters and Decorators knows what work they offer and what the employment relationship between the subcontractors and them. Most of the work is on a job-basis; they have little control on subcontractors; they have no obligation to offer subcontractors any work and subcontractors have no obligation to accept the work. But because they do some few day-basis jobs, subcontractors sometimes may feel confused about their work which is Mr. H.’s case. Therefore, in order to avoid the confusion, it would be better if the company can provide a clear handbook which includes all terms and conditions and how the payment system works. In the handbook, it should point that subcontractors should follow what the handbook says which can override face to face casual talking.