To determine if an individual is an employee, the courts examine the contract of employment. Section 230 (1) ERA states that an employee is one who has a contract of employment. The definition of contract of employment is found under section 230 (2) ERA. It is defined as a 'contract of service'. There are three minimum requirements for a contact of service. They are control, mutuality of obligation and personal service.
When determining if an individual has been working under a 'contract of service' the aforementioned will be examined by the courts. When doing problem questions that involve determining if an individual is an employee or not you will need to discuss these elements. You should discuss them with reference to the relevant case law. The main case law you will need are below. The information should help you understand the main facts of the cases, the decisions reached in court, and the reasons given for the decisions.
Control: Is the person carrying out the work subject to the organisation's control?
Relevant case: Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968) 2 QB 497.
Facts: Latimer's contract with Ready Mixed described him as an "independent contractor", despite him having to put the company colours on his truck and wearing a company uniform while he was working. Additionally the lorry could only be used Ready Mixed purposes.
Decision and Ratio: Latimer was said to be self-employed and not an employee. The court examined the level of control exerted by the company over Latimer, and found there was insufficient for him to be classified as an employee. The court stated that a contract of service exists if (1) 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, (2) he agrees 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, and (3) the other provisions are consistent with its being a contract of service.
Mutuality of Obligation: Does the employer have an obligation to offer work and does the worker have an obligation to accept the work?
Relevant case: Nethermere (St. Neots) Ltd v Taverna & Gardiner (1984 ICR 612, CA)
Facts: Gardiner was one of a number of outworkers engaged by a company, Nethermere (St Neots) Ltd. Using machines provided by the company, these part-time outworkers sewed trouser flaps and pockets. There were no fixed hours and they were paid according to the work they did and were not under obligation to accept any particular amount of work.
Decision and ratio: The workers were employees. The court reiterated the point that rhere must be an obligation on the employer to offer work and on the worker to accept.
Relevant case: Camichael v National Power plc (2000) IRLR 43
Facts: The tour guides in this case worked only as and when required, and had the right to turn down work offered.
Decision and Ratio: The court decided they were not employees. Absence of mutuality of obligation means no contract of service exists.
Personal service: Can the person carrying out the work substitute workers? If so, to what degree?
Relevant case: Express and Echo Publications Ltd v Tanton (1999) IRLR 367
Facts: Tanton had worked as an employee but he was made redundant . After re-engagement as a driver on what the company intended to be a self-employed basis he was sent a document which included a clause that permitted him to substitute workers. He did not sign the document, but he did occasionally substitute workers.
Decision and Ratio: The contract was not one of a contract of employment. The right of a worker to substitute workers is inherently inconsistent with a contract of employment.
Relevant case: MacFarlane v Glasgow City Council (2001) IRLR 7
Facts: Some gym instructors worked under a contract that permitted them to provide a replacement when they were unable to work. This list of substitutes was kept by the council.
Decision and ratio: The gym instructors were employees. Limited substitution does not necessarily contradict a contract of service. This case was distinguished from Express and Echo Publications Ltd v Tanton (1999) because in Tanton's case substitution could be made at any time, but in MacFarlane's case substitution could only be made if the gym instructors could not attend work. This substitution power was limited to a replacement from Glasgow City Council's register, at times the council arranged the substitutes without the approval of the workers objecting and it was the substitutes were paid directly.
Relevant case: Autoclenz Ltd v Belcher and Ors (2011) UKSC 41
Facts: There was a substitution clause in the valeters' contracts. This substitution clause was never invoked. Additionally, there was an expectation that the valeters would undertake any work given to them, and they did comply with this requirement.
Decision and ratio: The valeters were employees. Inequality of bargaining power between parties is a defining element in a contract of service. If the practices taken between parties are not reflective of the contract signed, the court will disregard the contract.
What does the examiner want to see in your answer?
The examiner wants you to resolve the legal problem outlined in the exam question. In order to do this you are expected to show your ability to apply the law to the set of facts outlined in the problem question.
How should I answer law problem questions?
There are two approaches to answering problem questions. One approach is the FLAC approach, and the other is the IRAC approach. I normally use the IRAC approach.
How does the IRAC approach work?
First you identify legal issue raised in the problem question.
Then you state the relevant rule or law.
Then you apply the law to the facts.
Finally, you reach a conclusion on the issue.
What common mistakes do students make when answering problem questions?
Commonly students fail to structure their work well. Using the IRAC approach helps students to structure their answers well, and avoid this common mistake. Additionally, students often fail to mention relevant law. It is crucial that you do not mention irrelevant law. When relevant law is discussed, it is important to support it by referencing legal authorities such as cases and statutes.
In the UK legal system an individual working with an organisation can be classified as either 'worker', 'employee' or 'self-employed'. You can learn more out more about the differences between the three classifications here. The Employment Rights Act and the Working Time Regulations 1998 provide statutory definitions. However, these definitions are limited. Consequently, over the years, the courts have developed three tests to determine which category individuals fall under. They are the control test, the integration test and the multi-factor test.
What is the control test?
This test questions the level or degree of control that was exercised by the employer over the employee. It was applied in Ready Mixed Concrete (South East) Ltd v Minister Pensions and National Insurance (1968) 2 QB 497.
The courts decided that a lorry driver was self-employed and not an employee because he could occasionally substitute another driver to do his work.
What is the integration test?
This test questions whether the person's work is done as an 'integral part of the business' or whether it is merely an accessory to it. The test was first identified in Cassidy v Ministry of Health 1951, 2 KB 343, CA.
The court decided that a surgeon was an an employee for the NHS even though his work could not be controlled by the NHS.
What is the multi-factor test?
This test does not focus on one factor. Instead, it considers all factors. It recognises that some factors may point to self-employment status and some may point to employee status. However, its main question is whether the evidence overall points to the individual being an employee or self-employed?
The test was applied in Market Investigations v Minister of Social Security 1969 2 QB 173.
In this case Cook J stated that the fundamental question is, 'Is the person who has engaged himself to perform these services performing them as a person in business or on his own account?'
In the UK employment relationships fall into one of three categories. They are 'worker', 'employee' or 'self-employed'. Determining the category that an individual falls under is significant for both the individual and contracting organisation, because at the heart of these categories lies three key issues.
The issues are as follows:
(1) Who has responsibility for liability matters such as tax and National Insurance Contributions (NIC), workplace injury and damage to others,
(2) what contractual rights does the contracting party have with respect to the individual's activities, and
(3) what statutory rights does the individual accrues such as unfair dismissal rights, maternity rights, redundancy pay, etc.
So, who is a 'worker'?
Most individuals except for self-employed persons, are workers.
The Working Time Regulations 1998 defines 'worker' as an individual who has entered into or works under a 'contract of employment or any other contract, whether express or implied, the individual undertakes to perform or to do personally any work or services for another party.'
In James v Redcats (Brands) (2007) IRLR 296 the Employment Tribunal outlined two factors that are critical to identifying whether an individual is a worker. It was stated that this depends on whether the individual and organisation are involved in mutuality of obligations during the time the worker undertakes work for the organisation and personal service being the the dominant purpose of the contract.
Being a worker affords us rights including working time limits and minimum wage. However, more rights are afforded to an 'employee'. For example s 94 (1) ERA affords employees the right to not be unfairly dismissed, but this right is not afforded to workers.
Who is an 'employee'?
Section 230(1) Employment Rights Act defines an employee as an individual who has entered into or works under a contract of employment.
Section 230 (2) defines a 'contract of employment' as a contract of service or apprenticeship, whether express or implied, and (if its express) whether oral or in writing'.
Who is 'self-employed'?
Unlike the employee, the self-employed person lacks a contract of employment with an employer. Such an individual is usually contracted to provide services for a fee that they have likely decided independently. The self-employed person has particular legal rights, but under existing statutes, these are fewer than those afforded to employees.
The limits of statutes in determining the category that individuals fall under:
Statutes have not always been sufficient in determining which of the three categories an individual falls under. As a result, case law has been used to help us determine who is a worker, employee or self-employed. A significant amount of the case law focuses on the differences between an employee and self-employed. Three tests have been developed to determine the differences between them. They are the control test, the integration test and the multiple test. You can read more about them here.