Matriculation to BSC

 

 

 

 

Matriculation to BSc OSHE

Employment Law Assignment 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

-          School of Business & Computer Science Ltd. Professional development, HND Employment Law

 

 

 

 

 

 

 

 

 

 

 

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