Employment Law: Independent Contractor or Employee?

A person who agrees to work or perform particular services for the other person who is an employer for a degree of supervision of a wage or salary is known as an employee. This agreement is called contract of employment by The Industrial Relations Act 1967 or a contract of service by The Employment Act 1955.

Alternatively there are agreements that do not fall under employment law. Such agreements are called contract for service. This contract is different from contract of service and it does not involve employee and employer relationship. Here, a person who is willing to work for an employer is not an employee but such person is known as an independent contractor.

It is necessary to distinguish between contract of service and contract for service. One of the reasons is because an employer is liable for any incidents causes by his employee’s negligent acts. This is called vicarious liability.

It is also important to distinguish between contract of service and contract for service because entitlement of benefits and reward rates payable due to the contributions is dependant on whether a person is an employee or an independent contractor.

The Control test

The control test would clearly be satisfied if a person controlled both what another did and how he did it.

Yewens v Noakes (1880) is an English tax law case which decided that a salaried clerk was not in a master servant relationship as “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.”

Performing Right Society Ltd v Mitchell and Booker (Palais de Danse) Ltd [1924], an agreement between a band and the dance hall company that determined that the company has the right to control over the type of music that is to be performed by the band and how they will behave on their performance. Here, the members of the band are said to be employees as the dance hall company had control over the members of the band.

Nowadays employees are more skilled and professional and the size and complexity of businesses has increased. The control test has therefore become less effective and when the ‘right to control’ has been changed to actual control, it is no longer possible to draw the correct distinctions by only using a single test. The control test is also said to be unsuitable for employees who are highly skilled, therefore other tests have emerged.

The Integration test

The Integration Test is also known as the organization test. Here, the court will analyze whether the work being done is an integral part of the business operation of the person hiring the services of the worker or is merely an accomplice to it. In other words, the court will examine how integrated the employees are in the company. The greater the person is integrated in the company, the greater possibility that this person is an employee.

In Stevenson, Jordan & Harrison Ltd v Macdonald & Evans Ltd (1952), Lord Denning decided that even though the employer does not have any detailed control of what the employee does, a person who is integrated with others in the organization or business is an employee.

In Whittaker v MPNI (1976) a trapeze artiste engaged by a circus also performed other jobs including as an usherette, fell during her act. She claimed industrial injury benefit. The court decided that although the circus had no control over the artiste during the act, it was integrated into other duties and therefore she could claim compensation.

The multiple tests

As for the multiple test, it is also called the economic reality test. Nowadays, this test is more relied upon where it considers several factors in order to determine whether there is an employer and employee relationship. Those factors are such as remuneration by way of payment of wages or salary, membership of company pension scheme, holiday pay, payment when absent illness, prohibition on working for competitors, control by employer’s disciplinary code and work done on employer’s premises rather than at home.

Ready-Mixed Concrete (South East) v MPNI is a case example of the multiple test. In this case, each driver of the company must buy his own vehicle and paint it in the company’s colours. They must wear the company’s uniform as well and must be available for work when needed. Their salary was paid based on mileage rate for the work that has been performed for the company. Here, the drivers are independent contractors and not employees as they were operating at their own financial risk.

What are your views?