Testing If Working Under Contract of Employment

In writing this paper I shall be critically analysing the numerous tests that have been established by the courts throughout the years in determining whether an employee is working under a contract of employment, as stated in the Employment Rights Act 1996 s230 it states that an employee is “…an individual who has entered into or works under…a contract of employment”. It is not difficult to prove workers that work under a contract of employment and these can be written into a contract, however, this is not always the case and, on occasions the contract can be a verbal agreement, and so the courts have had to set up various tests in order to ascertain whether someone is working under a contract. There have been common law tests in place from as early as 1880 which have obviously been developed to some extent to take on board varying degrees of changes in employment over the last century, I shall be discussing all the tests applicable and discussing the various cases associated with each and draw a conclusion detailing how effective each test may be.

The definition contained in the Employment Rights Act 1996 refers to those who work under contracts of employment, which are in turn defined as being contracts of service or apprenticeships. This is not helpful in identifying whether a contract of employment actually exists, so the common law must be considered [1] this has been used done using various tests as briefly discussed above, it is important to define if a worker is working under a contract of service or a contract for services as those working under a contract of service are entitled to varying statutory rights from their employer this could be in forms of the National Minimum Wage, working time and equal pay and many other statutory provisions, and as this as a contract is not always in writing it is left for the courts to decide the outcome, the tests will now be discussed that are frequently used by the courts to decide if someone is working under a contract of service.

The Control Test

“In the nineteenth century the relationship was viewed as existing between the ‘master (the provider of payment) and the ‘servant’ (the provider of labour). Much of the work provided was unskilled and the relevant test related to degrees of control exerted over the servant in the fulfilment of his duties by the master. The greater the degree of control, the more likely that the relationship was one of employment. The control test was expounded by Bramwell, L.J, in Yewens v Noakes 1880 6 QBD 530 this case involved a worker and his employment status for the purposes of the Workmen’s Compensation Act it was stated by the judge thus, a ‘servant is a person subject to the command of his master as to the manner in which he shall do his work” [2] . It is said that the greater degree of control exercised by the employer this will represent a contract of service

The control test is very much outdated with certain statements that could not guarantee a contract exists, there are numerous examples taken when an employee is more qualified than that of his employers, for example a lawyer in the legal department of an office, the managing director may not know anything about the law so he could not be told what to do and how to do it, or maybe a more complex matter such as a brain surgeon in a hospital he may be the only person in the hospital that knows how to carry out the required element but he may still have a contract of service but under the control test if it was still in use today these workers would not and instead have a contract for services. Another problem that could arise with the control test is if a worker was sent to another location to work with a different employer and his employer has no direct control, the question arises who would be responsible for the employee?, it would seem that the employer would still be responsible but this is in contradictory terms to the control test a good example can be seen in Whittaker v Minister of Pensions and National Insurance 1966 3 All ER 531 where a trapeze artist fell and broke her wrist when carrying out her act, it was held that the trapeze artist was an integral part of the business and was entitled to claim injuries benefit. The judge stated in his judgement:

“…persons possessed of a high degree of professional skill and expertise…may nevertheless by employed…under contracts of service, notwithstanding that their employers can…exercise extremely little, if any, control, over the way in which the skill is used”

The Organisational or Integration Test

This test was established as an alternative to the control test. In Stevenson, Jordan and Harrison Ltd v MacDonald and Evans 1952 1 TLR 101, Denning L.J suggested a more up to date test. ‘Under a contract of service he said ‘a man is employed as part of the business and his work is done as an integral part of the businesses. This ‘organisational test’ has certain advantages, particularly in relation to employees who are ‘integrated’ into an enterprise , e.g. doctors, nurses etc, in respect of whom the control test is inappropriate. [3] This can be seen again in the case of Whittaker v Minister of Pensions and National Insurance 1966 3 All ER 531 This test is not without its problems also for example take a doctor that works in various hospitals they may be an integral part of the business but only working as a contractor so this test would also be inappropriate for those type of workers.

“The move towards new forms of work such as tele-working and homeworking in some employment sectors, which may be difficult to categorise in terms of the worker’s degree of ‘integration’, also illustrates the shortcomings in the application of the integration test.” [4]

The Multi-factored Test

The problems arising from the application of a single factor in determining employment status are illustrated by the tests outlined above, which relied on the elements of control and integration respectively. However, although such factors are not particularly useful if applied in isolation, when combined with other factors they become good indicators of the real nature of the relationship under scrutiny. This multi-factor approach has become known as the ‘multiple test’ and it has been used by

the judiciary since the late 1960’s [5] this the market investigations case Market Investigations v Minister of Social Security [1969] 2 QB 173 in which a company that employed both permanent workers and temporary workers, it was claimed that all workers were employees of the company so was responsible for paying national insurance, it was held the workers were employees this was done by following some relevant factors including control, whether they provide their own equipment, whether the worker can hire helpers are just some of the factors considered. It was stated by the judgement in the case “No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of considerations which are relevant in determining the question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases.”

Three factors must be considered and if present this may indicate a contract of service, once all other relevant factors are considered.

The basic ingredients plus test can be seen in

Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance 1968 2 QB 497 in this case a driver that drove a mixer lorry was employed on a contract of service his employers decided to make him self-employed as an independent contractor the terms and conditions of his employment were completely different than before, he was required to purchase a vehicle and this had to be painted in the company’s own colours, he was also responsible for the upkeep of the vehicle and any running costs incurred but he could only use the vehicle for delivering the companies own product’s, he would also wear the companies uniform and be paid but this was without deduction of income tax and national insurance he could also hire a suitable replacement to carry out any work required if he was unavailable, it was held that the pursuer had a contract for services so in fact he was an independent contractor, three factors were considered when applying the decision first the worker agreed to a wage to provide work, secondly the worker agreed to some sort of control and thirdly the other provisions are consistent with it being a contract of service.

The basic ingredients required are:

Control

Mutuality of obligation

Work on a “casual as required basis”

Carmichael v National Power Plc [2000] IRLR 43

A degree of personal service

Byrne Bros (Formwork) Ltd v Baird [2002] IRLR 96

“a limited power to appoint substitutes is not inconsistent with the obligation of personal service”

“Mutuality of obligations, together with elements of control, are usually seen as an essential pre-requisite for a contract of employment to exist, whether the claimant is a worker or an employee(Montgomery v Johnson Underwood Ltd), together with an irreducible level of personal service (MacFarlane v Glasgow City Council)” [6]

Other relevant factors considered by the courts are:

No specific list but a number of factors commonly relied upon:

the specific contractual provisions;

the provision of tools, equipment etc;

method of payment and the arrangements made for tax, national insurance etc;

the opportunity to work for other employers;

whether the person undertakes any financial risk;

membership of a pension scheme; and

whether the person can hire their own staff.

Conclusion

The tests have been conducted by the courts for many years but none of them are completely realistic in terms of being useful to determine whether someone has a contract of service, the control test is out of date and is only really useful for skilled workers where their employer can exercise the control over them, so is not useful for workers that have more skill than that of their employers, so therefore applying the test to this principle would fail in identifying the employer/employee relationship, the sole problem that arises with the integration test is that someone can be contracted (i.e. on a one of basis) by the business but in essence still be an integral part of the business, so the outcome that the best method for testing whether an employer/employee relationship exists is by using the multi-factored test, however it must be noted that the courts are not very clear about what weight is applied to each of the criteria it has laid out.

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