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Matriculation to BSc OSHE
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Employment Law Assignment 1
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Assignment:
Dan operated a business providing statistical
analysis in the financial services sector. Eve and Fred have both worked for
Dan for three years. They were both described as self-employed and both paid
tax as self-employed persons. Dan provided all of their specialist computer
equipment and software. Eve was required to work solely on the projects Dan
provided, and she has to attend Dan’s premises every day 9am until 5pm.
Fred, on the other hand, usually worked at home and
was allowed to work on other projects. Fred could even arrange for his work for
Dan to be done by someone else if he was too busy to do it personally.
As a result of the downturn in the financial
services sector Dan has told Eve and Fred that there will be no more work for
them and they will not receive any further payment or compensation from him for
their loss of work.
REQUIRED:
1.
Advise
Eve and Fred as to whether they are employees or self-employed
2.
Explain
how the courts decide whether someone is an employee or self employed
3.
Advise
Eve and Fred what rights they have on their dismissal by Dan
Question 1. Advise Eve and Fred as to whether they are
employees or self-employed
The following facts distinguishes whether a person
is an employee or self-employed
Employee
An employee is a person who works in
the service of another person under an implied contract of hire. An employee is
hired for a specific job or to provide labor to the employer, under which the
employer has the right to control the details of work performance.
In general, anyone who performs services for an
organization is an employee if the organization can control what will be done and how it will be done. A
contract of employment is a contract of service or apprenticeship whether
express or implied, and (if it is express), whether is it oral or in writing.
The distinction between employees and independent contractors is important,
because an employer must deduct Social Security/N.I. taxes from employees and
must pay an equivalent amount to the Social Security Administration
Independent Contractor
(Self-employed)
Basically, an independent contractor is an independent
business person who runs his or her own business but who does work for another
business.
If an individual is working as an independent contractor, the
"employer" does not make Social Security/N.I. deductions, and the
independent contractor must pay his or her own "self-employment
taxes" along with income tax on earnings
Significance
of the Distinction of Employed and Self-employed:
Social
Security
Employed:
Employers must pay secondary class 1 contributions
on behalf of employees. Employees make primary class 1 contributions. There are
also difference in statutory sick pay and leaves for industrial training purposes.
Self-employed:
Independent contractors pay Class 2 and 4
contributions.
Taxation
Employed:
Deductions must be made by an employer for income
tax under PAYE (Schedule E) from salary paid to employee.
Jennings
v West Wood Engineering 1975
A person was given the option of
receiving his pay net or gross. He chose the latter. Sometime later he was
dismissed so he sued for an unfair dismissal arguing that dispute the situation
he was in fact an employee (independent contractors have no protection against
unfair dismissal)
The court head, looking at the
realities of the relationship that Mr. Jennings was indeed an employee,
however, as Mr. Jennings had not had tax deducted as source and had not paid
any tax, the purpose of his contract had been illegal because there was
intention to defraud the Inland Revenue. Conversely West Wood Engineering had
committed the crime of (criminal offence) had not deducted Mr. Jennings
P.A.Y.E.
Self-employed:
The self-employed are taxed under Schedule D and are
directly responsible to the Inland Revenue for tax due.
Employment
Protection
Employed:
There is legislation which confers protection and
benefits upon employees under contract of service, including:
·
Minimum
periods of notice
·
Remedies
for unfair dismissal
Minimum periods of notice
The Employment Rights Act 1996 provides for a
minimum period of notice to be given to employees to terminate their employment
when they have worked for one month or more. (Not including probation period)
Periods
of notice:
The minimum periods of notice are as follows:
·
If
his continuous employment is less than two years: 1 week
·
If
his continuous employment is less than twelve years, but more than two years: 1
week for every year of continuous employment
·
If
his continuous employment is more than twelve years:12 weeks
An employee who has been employed for one month or
more is required to give his employer at least one week’s notice.
Remedies for unfair dismissal
Remedies for unfair dismissal include:
·
Reinstatement
·
Re-engagement
·
Compensation
An employee who alleges unfair dismissal must
present his complaint to an employment tribunal within three months of the
effective date of termination. The dispute is referred to a Conciliation
Officer and only comes before the tribunal if his efforts to promote a
settlement fail.
Reinstatement
If unfair dismissal is established, the tribunal
first considers the possibility of ordering reinstatement.
Reinstatement is return to the same job without any
break of continuity: s 114.
Re-engagement
The tribunal may alternatively order
re-engagement. The new employment with
must be comparable with the old or otherwise suitable.
Re-engagement means that the employee is given new
employment with the employer
(or his successor or associate) on terms specified
in the order.
In deciding whether to exercise these powers, the
tribunal must take into account whether the complainant wishes to be reinstated
and, whether it is practicable and just for the employer to comply. Such orders are in fact very infrequent.
The Employment Appeal Tribunal has ruled that an
order for re-engagement should not be made if there has been a breakdown in
confidence between the parties: Wood Group Heavy Industrial Turbines Ltd v
Crossan 1998. In this case the employee was dismissed following allegations of
drug dealing on company premises and time-keeping offences.
Compensation
If the tribunal does not order, reinstatement or
re-engagement the tribunal may award compensation, which may be made in three
stages as follows.
(a)
A
basic award calculated as
follows. Those aged 41 and over receive
one and a half weeks pay (up to a statutory maximum per week) for each year of
service up to a maximum of 20 years. In
other age groups the same provisions apply, except that the 22-40 age group
receive one week’s pay per year and the 21 and under age group receive half a
week’s pay.
(b)
A
compensatory award for any
additional loss of earnings, expenses and benefits on common law principles of
damages for breach of contract. This is
to compensate the employee for financial loss suffered as a result of unfair
dismissal insofar as that loss is attributable to action taken by the employer:
s 123 (1). This is limited to a
statutory maximum and may be awarded in cases where reinstatement or
re-engagement are deemed in appropriate by the tribunal.
(c)
If
the employer does not comply with an order for reinstatement or re-engagement
and does not show that it was impracticable to do so a punitive additional award is made of between 26
and 52 weeks’ pay (again subject to a statutory weekly maximum).
The tribunal may reduce the
amount of the award in any of the following circumstances.
·
If
the employee contributed in some way to his own dismissal:s123(6)
·
If
he has unreasonably refused an offer of reinstatement
·
If
it is just and equitable to reduce the basic award by reason of some matter
which occurred before dismissal:s123(6)
Tortious
acts
Employed:
Employer is generally vicariously liable for
tortuous acts of employees, committed in the course of employment.
Limpus
v London General Omnibus Co (1862)
The claimant’s bus was overturned
when the driver of the defendants’ bus drove across it so as to be first at the
bus stop to take all the passengers who were waiting. The defendants’ driver
admitted that the act was intentional and arose out of bad feeling between the
two drivers. The defendants had issued strict instructions to their drivers
that they were not to obstruct other omnibuses. The court decided that the
defendants were liable. Their driver was acting within the scope of his
employment at the time of the collision, and it did not matter that the
defendants had expressly forbidden him to act as he did.
Self-employed:
Liability of person hiring an independent contractor
for contractors’ acts severely limited unless there is strict liability.
Implied
terms
Employed:
There are rights and duties implied by statute for
employers and employees. This will
affect things such as copyrights and patents.
Self-employed:
These implied rights and duties do not apply to such
an extent to a contract for services.
Vat
Employed:
Does not apply
Self-employed:
An independent contractor may have to register for
and charge VAT.
Bankruptcy
Employed:
In liquidation, an employee has preferential rights
as a creditor for payment of outstanding salary and redundancy payments, up to
certain limits.
Self-employed:
An independent contractor may have to register for,
and charge VAT.
Health
and Safety
Employed:
There is significant common law and regulation
governing employer’s duties to employees with regard to health and safety.
Self-employed:
The common law provisions and much of the regulation
relating to employees also related to independent contractors.
Question 2. Explain how the courts decide whether
someone is an employee or self employed
The courts will apply a series of tests to the
relationship, considering all relevant factors.
The
Control Test
The court will consider whether an employer has
control over the way in which the employee performs his duties.
Mersey
Docks and Harbour Board v Coggins and Griffiths (Liverpool) 1947
The facts: Stevedores hired a
crane with its driver from the harbour board under a contract which provided
that the driver (appointed and paid by the harbour board) should be the
employee of the stevedores. Owing to the driver’s negligence a checker was
injured. The case was concerned with whether the stevedores or the harbour
board were vicariously liable as employers.
Decision: In the House of Lords,
that the issue must be settled on the facts and not on terms of contract. The
Stevedores could only be treated as employers of the driver if they could
control in detail how he did his work. But although they could instruct him
what to do, they could not control him in how he operated the crane. The
harbour board (as ‘general employer’) was therefore still the driver’s
employer.
The
Integration Test
The courts consider whether, if the employee is so
skilled that he cannot be controlled in the performance of his duties, he was
integrated into the employer’s organisation.
Cassidy
v Ministry of Health 1951
The facts: The fulltime
assistant-medical officer at a hospital carried out a surgical operation in a
negligent fashion. The patient sued the ministry of health as employer. The
ministry resisted the claim arguing that it had no control over the doctor and
his medical work.
Decision: In such circumstances
the proper test was whether the employer appointed the employee, selected him
for his task and so integrated him into the organisation. If the patient had
chosen the doctor the ministry would not have been liable as employer. But here
the ministry (the hospital management) made the choice and so it was liable.
The control
integration tests are important, but no longer decisive in determining whether
a person is an employee.
The
multiple (economic reality) test
They also consider
whether the employees working on his own account.
Ready
Mixed Concrete (South East) v Ministry of Pensions & National Insurance
1968
The facts: The driver of a
special vehicle worked for one company only in the delivery of liquid concrete
to building sites. He provided his own
vehicle (obtained on hire purchase from the company) and was responsible for
its maintenance and repair. He was free
to provide a substitute driver. The
vehicle was painted in the company’s colours and the driver wore its
uniform. He was paid gross amounts (no
tax etc deducted) on the basis of mileage and quantity delivered as a
self-employed contractor. The Ministry
of Pensions claimed that he was in fact an employee for whom the company should
make the employer’s insurance contributions.
Decision: In such cases the most
important test is whether the worker is working on his own account (the
entrepreneurial test or multiple test).
On these facts the driver was a self-employed transport contractor and
not an employee.
Relevant
factors
Significant factors are as follows.
·
Does
the employee use his own tools and equipment or does the employer provide them?
·
Does
the alleged employer have the power to select or appoint its employees, and may
it dismiss them?
·
Payment
of salary is, as mentioned above, a fair indication of there being a contract
of employment.
·
Working
for a number of different people is not necessarily a sign of
self-employment. A number of assignments
may be construed as ‘a series of employments’.
In difficult cases, the court will also consider
whether the employee can delegate all his obligations, whether there is a
restriction to place of work, whether there is a mutual obligation and whether
holidays and hours of work are agreed.
O’Kelly
v Trusthouse Forte Plc1983
The facts: The employee was a
‘regular casual’ working when required as a waiter. There was an understanding that he would
accept work when offered and that the employer would give him preference over
other casual employees. The tribunal
held that there was no contract of employment because the employer had no obligation
to provide work and the employee had no obligation to accept work when offered.
Decision: The Court of Appeal agreed with his
finding. Whether there is a contact of
employment is a question of law but it depends entirely on the facts of each
case; here there was no ‘mutuality of obligations’ and hence no contract.
Question 3. Advise Eve and Fred what rights they have
on their dismissal by Dan
Eve :
Eve seemed to have been wrongly classified as she
was an employee and not self-employed. Eve had to work solely on projects
provided by Dan, and she had to attend Dan’s premises at a specific time every
day. Eve is classified as an employee, as stated on page 1, “an employee is
hired for a specific job, under which the employer has the right to control the
details of work performance.” Eve was unfairly dismissed and has the right to
be given 3 weeks notice before termination of her employment, because she had
continuous employment for 3 years (see page 3). Eve is also entitled to sick
leave and vacation. Since her employer
was facing a downturn in the financial sector, Eve has no chance of being
reinstated or to be re-engaged because there is not work for her, therefore she
has the right to receive compensation (see pages 3-4) for being unfairly
dismissed.
Airfix
Footwear Ltd v Cope 1978
The facts: The case concerned a
classic outworking arrangement under which the applicant (having been given
training and thereafter supplied with the necessary tools and materials)
generally worked five days a week making heels for shoes manufactured by the
respondent company. She was paid on a piece work basis without deduction of
income tax or NIC.
Decision: Working for some seven
years, generally for five days a week, resulted in the arrangement being
properly classified as employment under a contract of employment.
The case below marks an important shift away from
courts accepting as fact the contents of an employment contract towards looking
at the actual working arrangement when deciding on an employee’s employment
status. It also means that the relative bargaining power between the parties
should be considered.
Autoclenz
v Belcher 2011
The facts: A group of individuals
worked as car valeters. Their contracts stated that they were self-employed
contractors, that there was no obligation to provide them with work, that they
had to provide their own materials and that they could substitute others to
work in their place.
Decision: The reality of the
situation did not agree with the contracts. The workers would arrive each day
and be provided with work, there was never any substitute of labour, the
workers had to provide advance notice if they would not be available to work
and they were provided with cleaning materials for a small charge. In the
court’s opinion, the contract did not genuinely reflect the reality of the
situation and should be set aside. There was a difference in the relative
bargaining power between the parties which indicated an employer/employee
relationship.
Fred:
It has been concluded that Fred was self-employed
based on the Multiple (economic reality) test and the Ready Mixed Concrete (South East) v Ministry of Pensions & National
Insurance 1968 case (see page 8), therefore Fred does not have any rights
of an employee or receiving compensation, when his contract ends, his work
ends.
Bibliography:
-
Jean
Murray Employee About.com Guide biztaxlaw.about.com Glossary E [2013, February
18
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School
of Business & Computer Science Ltd. Professional development, HND
Employment Law
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