Tests of the Common Law

In order to determine whether David is an employee, the first place to turn is to the Employment Rights Act 1996, which provides little to no assistance. Under the statute an employee is defined as an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment” according to section 230(1). A contract of employment is then defined under section 230(2) as contract of employment’ as ‘a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing’. As a consequence of the lack of a sufficient statutory definition for an employee, the common law has established a number of tests, which shall be discussed below.

The control test

This test originated from Bramwell LJ statement in Yewens v Noakes [i] , he stated that ‘a servant is a person subject to the command of his master as to the manner in which he shall do his work’. This test however is not really applied today due to the fact that it is not really of essence in relation to skilled workers such as David, as in order to apply the employer would have to have control over the work carried out and the nature in which it was also carried out.

The right to control

This test evolved in the case of Walker v Crystal Palace [ii] , which involved a professional footballer, and shows how the law deals with skilled workers who have a high degree of independence in how they carry out their role. Here the footballer was said to be an employee as the manager of the club still exercised sufficient control over him, even though he could not tell him when to pass or shoot (tell him how to carry out his job). In relation to David, although not clear from the facts one would presume that he would work a set number of hours per week that the budget he works to is set and that he can only order from set suppliers etc. There is also the covenant in the contract that he cannot work for another pub within 2 miles of the Cuthbert for six months. A covenant is consistent with one being an employee as independent contractors would be free to work for whomever they want whenever they want, as they only usually work for an employer for a short period of time and then move on.

The Ready Mix Test

There are many tests which have been used to determine whether one is an employee; however the test used most these days is the so called Ready Mix Test, which is embodied in MacKenna J’s decision in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [iii] .

In return to the ready mix test, I will now go through each of the factors in turn:

(i) 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;

This criterion has been described as an irreducible minimum for a contract of employment according to the case of Carmichael v National Power [iv] . This case involved tour guides who were employed as casual workers, only being called in if they were needed. They were held not to be employees as there was no obligation on the employer to pay them or to provide them with work. In regards to David, this is surely not the case, as he is paid £2000 per month in arrears, according to the facts and so cannot refuse work, and therefore this is consistent with him being an employee. There is also no power of substitution in his contract, in the case of Express & Echo v Taunton [v] , it was said that a power of substitution was inconsistent with employee status. The strictness in application to the power of substitution was stretched through the case of MacFarlane v Glasgow City Council [vi] , where although there was a power of substitution it was limited, in that the employee could only choose substitutes from a list approved by the council and could only do so when unable to take the class. As David from the facts must provide personal services, this is consistent with him being an employee.

(ii) 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;

This was dealt with above in relation to the right of control test, the employer here has control over David’s salary, and the covenant also shows an element of control.

(iii) The other provisions of the contract are consistent with its being a contract of service.

In Market Investigations v Minister of Social Security [vii] Cooke J stated that the fundamental question was- “Is the person who has engaged himself to perform these services performing them as a person in business on his own account?” [viii] What one needs to do at this stage is balance all the factors for and against Dave being an employee to determine this.

Factors which are consistent with employee status

Paid £2000 monthly in arrears (mutuality of obligations) and usually employees are paid monthly, whereas independent contractors on a whole are paid when they complete a job or meet a target. The covenant which prevents him from working for another pub within 2 miles of the Cuthbert for 6 months (restraint of trade clauses are more applicable to employees than independent contractors). A bonus is available and bonuses are on the whole usually reserved for employees, this can be seen from a guidance document produced by HM Revenue and Customs [ix] .

Factors which are inconsistent with employee status

David’s contract is fixed for a period of nine months, usually employees will not have fixed contracts, however note the case of Walker v Crystal Palace [x] , which concerned a professional footballer, who was found to be an employee and it is common knowledge that footballers are subject to fixed term contracts. Also one can use the case of Nethermere v Gardiner [xi] here to reinforce this point, here there was a part time home worker who had no fixed hours, was paid by the amount of work done and was not obliged to work and was still held to be an employee, as she was not in business on her own account. This case would also apply if David sets his own working hours for example, as there is no information in the question regarding this. David is not directed how to do his job, does this show that there may be a lack of control needed to be an employee.

David is expected to pay his own tax and national insurance; employees are usually taxed by their employers at source (PAYE), whereas independent contractors are responsible for their own tax. However if one looks at the case of Davies v New England [xii] , it can be seen that the court will look at all the circumstances objectively, here the teacher requested himself that he pay his own national insurance and tax and was still deemed to be an employee. So this is not an indicative factor in its own right.

Conclusion

Following the Ready Mix [xiii] and the other applicable tests it would appear to me that David would have a strong argument that he is an employee. David is paid monthly, he can receive a bonus and there is a restraint of trade clause operating. Although there are factors which point to him being an independent contractor and Hall v Lorimer [xiv] shows that just because one appears to be an employee or independent contractor does not mean they will be found to be one. I still believe that the factors consistent with being an employee outweigh those against, especially in regards to the fact that there is mutuality of obligations and no allowance for substitution, meaning that he must provide a personal service. Although in this case we don’t know if a label has been placed on David, according to the case of Lane v Shire Roofing [xv] , this will not matter as the tribunal will ignore the statement and apply an objective test looking the facts.

b) Introduction

Employment status is a frequently quarrelsome area of employment law. Although the workforce generally consists of employees, workers and the self-employed, the differences between these categories are crucial as their status determines the rights and protections available. Employers seek cost-effective means of catering for demand without the administrative burden of employee engagement. Their answer lies in the often ‘temporary’ recruitment of ‘workers’. Yet, an inordinate amount of case-law has illustrated the vulnerable position of the worker and will be examined herein. One particular category is the ‘agency worker’, which is an ever-growing feature with around 1.3 million agency workers engaged on a working day. [xvi]

This essay will consider whether the ‘worker’ should possess the same rights and protections as employees who are undoubtedly better suited in bringing employment claims, particularly in the realms of unfair dismissal and redundancy. [xvii] The law has increasingly recognised that this category of worker is left vulnerable without effective recourse should they be treated unfairly. [xviii]  Consequently therefore, the impending Agency Workers Regulations (AWR) 2010 will seek to correct the unreasonableness of such decisions from October 2011.

Who is a worker?

The term ‘worker’ is broadly defined under s. 230(3) Employment Rights Act (ERA) 1996. It is prescribed under this provision that a worker operates pursuant to “(a) a contract of employment, or (b) any other express or implied contract…” A definition also exists under s. 296 Trade Union Labour Relations (Consolidation) Act 1992. [xix]

Who is an employee?

The statutory definition of the “employee” can be found in s.230 (1) of the ERA 1996 and relates to an individual who has entered into or works “under a contract of employment”.

On the basis of these definitions, the boundary between an employee and worker may be increasingly blurred. The task of determining the status is for a court or tribunal using the common law tests.

Applying the traditional common law tests to determine ‘worker’ status

Where a worker is allocated a position by an agency which subsequently suffers insolvency, should the worker be entitled to a redundancy payment?  In McMeechan v Secretary of State for Employment [xx]  the worker was removed from their role after the insolvency of the agency. The Court of Appeal considered that where the worker was actually an employee of the agency a redundancy payment should be made.  However, the ruling was contingent upon the facts and limited contractual terms that existed. An ‘irreducible’ minimum of obligations as described by McKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pension and National Insurance, [xxi] did not exist.  The employer’s obligation to offer work and the employee’s requirement to accept in McMeecham did not exist as the worker was engaged on a temporary 4-day arrangement. A contract of employment did not exist and the claim for a redundancy payment failed.

The appearance of an ‘employee’

It is possible for a worker to transmute into an employee and become indistinguishable from other employees. In the situation of an agency worker who seeks to adopt the internal procedures of their end-user ‘employer’, such as submitting holiday requests or voicing grievances, the decision on Motorola Ltd v Davidson [xxii] illustrates this. Here the worker claimed unfair dismissal and the Employment Appeals Tribunal (EAT) held that an implied contract of employment existed between the end-user and agency worker.

In this ruling the rights of workers engaged for a lengthy period provided practitioners with some certainly when advising. If the worker appeared to be an ‘employee’ there was a greater chance they could mount a claim as an employee. When this seemed to be a logical reasoning the EAT decision in Esso Petroleum Co v Jarvis [xxiii] threw a spanner in the works. Two workers engaged by the end-user for nearly 20 years pursuant to contracts between them and the agency only failed in their claim of unfair dismissal. The EAT did not draw on the precedence of Motorola in an ostensibly unfair ruling

A year following this decision, Franks v Reuters Ltd [xxiv] examined the ‘duration argument’ again. The worker was engaged by Reuters for 6 years and subsequently dismissed. In contrast to the decision in Esso, an implied contract of employment had been created given the period of the relationship between the parties.

The courts may imply a contract of employment between an agency worker and end user notwithstanding contrary terms between an agency and its worker. [xxv] Whilst a contract of employment is not explicitly required, an employer or agency should provide a written statement of terms to provide a minimum-governing tool in the relationship. A risk exists however that such terms will be overridden by a tribunal of court in any event. It is suggested that “ …in any case where an agency worker is introduced to the end user pursuant to contractual arrangements which purport to govern exhaustively the parties’ respective rights and obligations, there is simply no scope for ‘deducing’ a contract of employment between worker and end user by way of necessary inference…” [xxvi]

Does the contract reflect the ‘reality’ of the situation?

A tribunal or court will consider the conduct of the parties as to the applicable contract. In National Grid Electricity Transmission Plc v Wood [xxvii] the worker was a ‘wholly integrated member of staff’, notwithstanding being posted to the role by the agency.  The tribunal implied a contract of employment between the claimant and end-user employer.  The previous contract between the claimant and agency did not reflect the reality of the situation.

In James v Greenwich LBC [2008] EWCA Civ 35, the Court of Appeal considered an arrangement where parties did not agree a contract despite a longstanding relationship. Whilst a tribunal has difficulties where a contract exists, the absence of a contract exacerbates the matter and places further risks on a claim by a worker. It was emphasised following this case that ‘…many agency workers have no contract of employment at all and the Court of Appeal in James has done little to ameliorate their position’. [xxviii]   If the worker has a say in the primary terms of an arrangement with an end-user however a contract may be implied. Here, James failed in a claim of unfair dismissal, which appeared grossly unfair, and would no doubt have been different under the AWR 2010.

The AWR 2010 in brief

The AWR 2010 will seek to elucidate the common law uncertainty. Agency workers are to be placed on an equal footing as employees in respect of working conditions and pay having fulfilled a 12-week qualifying period. However, while the economy recovers from a recession, it has been suggested that the AWR is an unnecessary burden on employers who will be exposed to further opportunities of litigation. It remains to be seen on the full extent of the AWR and its format as ‘our new Prime Minister had lodged an Early Day Motion during the last session of Parliament which proposed revocation of the Agency Workers Regulations 2010’ given the increased strains on employers. [xxix]

There UK law on employment law has failed to clarify how the triangular relationship should work in practice. It is mooted that, ‘by the Court of Appeal’s own admission, the British legal system has so far failed to clarify the complexities of triangular work relationships, effectively determining an absence of job protection for agency workers’. [xxx]   It may therefore be necessary to establish a coherent standing for agency workers before formal rights are afforded to them.

Conclusion

This essay has considered whether workers should be classified as employees for the purpose of bringing claims of unfair dismissal and redundancy. Difficulties abound as employment law makers struggle to find a certain footing for ‘employee status’. Inconsistencies in the decisions considered herein are evidence that although workers should be treated as employees, there is no firm legal basis that they will. Yet, it is practically certain that the decisions of Esso and James would be decided differently under the AWR, and we wait to see the full effects of this legislation from October 2011. In light of the burden on employers, a recent survey suggests ‘65 per cent of [employers] anticipate a reduction in the use of agency labour’ when the legislation comes into force. [xxxi]   The AWR may in fact increase unemployment and partially extend employment rights to those agency workers fortunate enough to be engaged by an end-user.