Download Contract of Service versus Contract for Service

Contract of Service versus Contract for Service
Employed or Self Employed, Langille and Davidov
 Distinction b/w employee and contract worker critical (concept of employee is “gateway” to protection –
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employee qualifies for benefit of employment/ labor law, entitled to sue for wrong dismal, able to
unionize, benefit from basic employment standards, minimum wage, vacation, equal pay for equal
work, parental, overtime)
Most statutes contain unhelpful definitions for employer, employee
Changing nature of labor environment, development in information technology, new methods of
organizing productive activity, competitive pressures of globalization – new modes of laboring – thus
traditional understanding inadequate, needs to change
Globalization results in eclipsing of law contract, undermining traditional regulatory measure to
protect workers
Possible tests: control, ownership of tools, length of contract, ability to subcontract work, chance of
profit or loss – fluid, no one definition, problematic, but difficult concepts are the nature of law
Assisted by (i) purpose, context, (ii) drawing boundaries (say this is employee, this is not)
Not problem that concept cannot be defined, fascination of law
Purpose test: ex: where employees turened into independent contractors by employers can use
purpose test
Purpose: not only one, to protect work, also contravening purpose to promote competition
History of employee/ independent contractor distinction in Canada
 Control as opposed to commercial relationships
 Historically, every worker indisputable employee, not as result of globalization serious shift
 New class: temporary, part-time, tenured worker, multiple job holder – does not affect employee’s
status, but makes them more susceptible to employer manipulation, evasion as regards their rights
 Purposive interpretation: meaning of word employee determined w/in context, purpose used – one
can be employee for purposes of employment standards but IC for purposes of vicarious liability –
protection of workers main purpose – assumption is that employer can, should take responsibility for
employees
 Basic purpose of employee/ IC distinction thus is to distinguish workers who are in need of particular
sort of protection (have identifiable employer) from those workers who are in position to protect
themselves – protection of workers, essence of labor law
Fourfold test
 Lord Wright: in earlier case single test such as presence or absence of control was often relied on to
determine whether the case was one of master and servant, mostly in order to decide the issues of
tortuous liability on the part of the master, superior. In the more complex conditions of modern
industry, more complicated tests have often been applied. It have been suggested that fourfold test
would in some cases be more appropriate, a complex involving (i) control, (ii) ownership of tools (iii)
chance of profit (iv) risk of loss. Control in itself not always conclusive… in many cases the question
can only be settled by examining the various elements which constitute the relationship b/w parties
(Montreal v Montreal Locomotive Works [1947] 1 DLR 161, 169)
 Fourfold test boil down to two questions (i) whether worker controlled by employer/client (ii)
whether worker is economically independent, w/ characteristics of independent businessperson (attn
given to chance of profit, risk of loss) – ownership of tools simply one indicator of economic
independence
 Direct control inadequate: worker of today specialized professional, work requires discretion,
performed outside employers premises – instead of direct control, courts have shifted to
administrative, bureaucratic control (power to discipline work, promote, fire)
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Quebec: main criteria is existence of legal subordination, originally meant direct, actual control by
party over day to day work; now control over regularity and quality; much like administrative control
Use of work subordination: implies workers not free, in need of protection, unable to freely, fully
purse their goals, realize themselves to make decisions that directly affect their lives
Second question: whether economically independent suffer risk of profit or loss increasingly
important alongside control – assess degree of dependence worker has on employer
Still problematic ex: postmistress held to be IC b/c paid on commission, salary commensurate to her
efficient Canada Post and Canadian Postmasters [1989] 5 CLRBR 2d 79, 91 – problematic b/c
allocation of risk still open to employers manipulation, worker still in need of protection
With this problem in mind better to see loss/profit w/in context on economic dependency – courts can
more effectively protect workers, bypass manipulation – can find employment relationship when
worker assumed most of the risk, but still economically dependent
Worker relationship dependent on two factors: control, economic dependency; other test business
integration or organization test, leads to same two categories
Organization test: Lord Denning: under contract of service, a man is employed as part of the business,
and his work is done as an integral part of the business; whereas, under contract for services, his
work, although done for the business, is not integrated to it, nut only accessory to it Stevenson Jordan
and Harrison Ltd v MacDonald and Evans [1952] 1 TLR 101, 111 CA
Integration into employing organization just another way of saying administrative, bureaucratic
control – development of original test; also shows economic dependency
Essence of market society is that for best prices, competing pressures to develop market equilibrium
IC and employer’s assets must be separate, if profits tied together not capitalistic, free market
Test far from perfect, but offer basic guidelines so judges interpret, secure protection for workers
Control/ subordination and economic dependency reasonably related to basic purpose of identifying
workers in need of protection w/ identifiable employer; some judges miss this basic aim applying law
in rigid, formalistic way, risk of excluding some workers, w/out real reasons
Dependent contractor: most interesting example of tension between purposive approach and actual
application by courts
 Real economic situation of workers which must be examined, not formal aspects of relationship
 If driver (owns own truck, on road outside control, but has one single client), would be IC; but
heavily dependent on client, often times use to work there, they helped him buy truck, cannot deliver
for other company – formalism, rigidity might promote injustice, purposively – is employee, puts
worker in position which calls for protection
 Such workers excluded, truck owners, operators, peddlers, taxicabs, farmers, fishermen
 Unequal power b/w workers and employer, if you cannot be classed as employee, barred from
collective bargaining – weak
 Suggest development of category dependent contractor – should be eligible for unionization
 Sweden: for purposes of this Act, person shall be regarded as employee even if not formal
engagement exists, provided that he performs work for another person, thereby occupies in relation to
the person position of dependence essentially similar to that occupied by an employee in relation to
his employer (Act Respecting Collective Agreements) – cited by Arthur
 New category (i) legal form not determinative, flexible, reality of relationship should be examined (ii)
eliminates, downplays ownership of tools; often main barrier for workers; Ontario Act adds
something more than Swedish definition: for person to be considered dependent must be under
obligation to perform duties for employer – could unjustly exclude many, truck drivers, etc. who are
not under any formal obligations to regularly work for employer, although economic reality is that
they are left w/ no other options
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Instruction of new category mixed blessing, resulted b/c of failure of Canadian courts to interpret
purposively rather than formally – if interpreted properly no need for new category of dependent
contractor
Reflects failure of employment law: no reason why workers who are economically dependent upon
specific employer should not be considered employees for purposes of some employment standards
New category limited development in law to purposive ends, exists only in labor relations acts,
impediment to law’s growth – only recognize collective bargaining
CL: courts show willingness to recognize workers in intermediate status b/w employees and IC; have
right to reasonable notice before termination, reciprocal duty of fidelity in favor of employer; main
criterion are duration/ permanency of relationship, degree of reliance, closeness; degree of exclusivity
Statute: Ontario Labor Relations Board lists: use of, or right to use substitutes; ownership of tools,
supply of materials; evidence of entrepreneurial activity; selling of one’s services to the market
generally; economic mobility or independence, including freedom to reject job opportunities;
evidence of variation in fees charged; integration into employing organization; degree of
specialization, skill, expertise, or creativity involved; right to control manner and means of
performing work; whether remuneration, contract terms, manner of payment resemble employment
relationship; whether individual works under conditions similar to persons who are clearly employees
Same two criterion present – control, economic dependence (must derive 80% of salary from
employee, question of whether DC can employ others)
Where health, safety, social security involved, Canadian legislatures use term worker – very broad
Ontario Occupational Health and Safety Act defines worker as “person who supplies services for
monetary compensation”
Distinction b/w IC/ E understood less rigidly, more purposively, in context – courts more willing to
extend employment statute to facilitate protection as long as control, economic dependency satisfied
New problem: identifying employer, non-self-dependent contractors with very little market power, in
need of protection: ex: freelance reporters, photographers w/ very little bargaining power (new
economy has given rise to such workers)
Proliferation of part-time, casual, temporary workers, multiple job holder, people who work at home
– much less employment security – globalization pressures to outsource, subcontract; business tend to
focus on core competencies then contract out for services, cut labor costs, more efficient, specialized
skills, non-unionized labor force, ignoring labor laws; subcontractors also take risk off business
Tendency – less security, more contingent relations, contract out work – workers find themselves
self-employed, often involuntarily
Truckers: gas prices increased by taxes in Canada, truckers claimed lost money going to work, but
could not shift prices to clients, no bargaining power, had to lobby government to reduce prices
Solutions
 Abolish connection b/w work or employment and certain rights (health insurance available to all
whether employee or not) – concerns too employees who too frequently change jobs
 Using occupations status designed to protect continuity of lifelong trajectory rather than stability in
particular job, including transition from wage employment to self-employment; make everyone
benefit from social security thru taxation
 Issue workers permanent smart card, portable employment record follow workers throughout life –
employers would have to pay much more, but w/ globalization, de-regulation, tax cuts, less emphasis
 Collective action by non-self-dependent contractors
 Employment contracts often unfair b/c of inequalities in bargaining power; legislature can intervene
by forcing terms which ensure justice
Employed or Self-employed, Davies and Freedland
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Employment law forms of welfare provisions (health, safety, minimum wage, parental leave) – one
aim is protection of workers but not the only aspect
If goal is securing social welfare rights for workers, this has to be understood in particular economic
context rather than in purely theoretical terms
Two types of work relationship: dependent or subordinate work relationship, other is independent
work relationship
Difficult to class b/c worker independent in some respects, independent in others
Welfarism and efficiency can be maintained by developing techniques to adjust emplyment law to
suit changing trends in labor relations
Use word worker – broader, rights extended to more people
Intermediate category of laborers under common law
Independent Contractors and the Challenge of Vertical Disintegration to Employment Protection
Laws, Hugh Collins
 Mangers of firms interested in disintegration – arranging work thru subcontracting, franchising,
concessions, outsourcing – similarly, public sector adopts policy of privatization
 Explains limited scope of legal protection for laborers; employment protection rights (claim against
unfair dismissal, redundancy payment) typically vested only in employees who fit in traditional
complementary paradigm of vertically integrated production: employment which is fulltime, stable,
for indefinite duration
 Trend toward disintegration places many workers outside this paradigm, therefore beyond range of
employment protection – marginal workers include, temporary workers, casuals, self-employed, parttimers, home workers
 B/c employment protection laws limit protection according to hours of work, length of service, place
of work, many fail to acquire protection by choice of legislature – parliamentary reform
 Despite new forms, workers still in position of social subordination, economic dependence, same as
ordinary employees – still in need of protection – de facto employees (weak bargaining power,
control, dependence)
 However, nature of market is that you want business to have more options to source labor; conflict in
policy – promote business, capitalism but also protect workers – invariably business will try to reduce
labor costs, cost of regulation
 Legislatures unlikely to alter decision that IC should be denied rights – common sense, business
dealings w/ each other at arms length should not be responsible for each other’s economic, physical
security beyond contractual agreement, ordinary duty of care owed by citizens to each other
 Core rights: statutory notice period, maternity rights, unfair dismissal, redundancy payments,
statutory sick pay, rights in event of insolvency, sale of business
 Many workers, in form comprise independent contractors, but in substance function as employees,
unsatisfactory predicament that courts may deny them protection
 Disintegration might be temporary, but beneficial; establishes network of small firms, flexible,
specialized skills, innovation – growth of subcontracting, self-employment
 Natural – entrepreneur decides whether he can produce goods, services more cheaply inside his own
organization by direct controls over labor or whether it would be cheaper to purchase commodities,
services in open market
 Potentially break power of business interest – give laborers greater bargaining power – firm limits
activities to areas of special skills, deter management from establishing overreaching conglomerate
 Other hand, weakening bargaining power b/c of high levels of unemployment, more restrictive rules
governing legality of industrial action weakened power of workers to restrict external contracting
 Men are not machines: will work only for incentives such as money, status, job satisfaction – owner
of business faces difficulty to ensure fair return of labor power for money
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Employers use two techniques for achieving efficient acquisition of labor power
First, contractual allocation of risk b/w firm and worker, risk of inefficiency on worker
Second, bureaucratic controls, worker rules, managerial supervision, penalties for poor performance,
incentives such as promotion
When owner assume all risks – employee not work diligently, risk of unforeseen contingencies,
unavailability of work – time service contract, employee pays wages for fixed number of hours,
thereby assuming risk of shirking by worker, unforeseen contingencies which delay completion, etc.
When workers assume all these risk, parties select task performance contract, where specific task is to
be performed in return for remuneration, if owner not satisfied he can refuse to pay, seek other
contracting party for future; managerial prerogative becomes transformed into bargaining power,
labor is essentially commodity
Thru productive schemes, profit related pay, employer transfers some risk to employees; making
contract terminable on short notice, relaying on casual, temp workers, unavailability risk transferred
to workers
Bureaucratic controls difficult where job entails complex tasks, considerable discretion on part of
workers to identify needs, solutions (nurses, teachers, solicitors, supervisors)
Organization
 Thru structure of bureaucratic organization, employer can supervise, direct, monitor performance of
work – include: rank order of authority, grading structure based on job evaluation, promotions,
performance evaluation, disciplinary code – permit higher echelons to control lower
 Business has choice – either integrate workers thru control techniques, keep them out
 Bureaucratic controls suggest that management would prefer to retain unfettered prerogative power,
bureaucracy forced on them by resistance of workers to managerial authority; however controls also
benefit workers, subjects managerial prerogative to rules, procedures, becomes more predictable
exercise of power, one subjected to detailed negotiations, monitoring by workforce
 Presence or absence of bureaucratic controls unlikely to reveal to court true nature of contract for
services, use of bureaucracy may betray staggering profits, imperative for quality control, strong labor
movement; its absence need not indicate economic relation one where employment protection
legislation unnecessary
 Binary division b/w employees and independent contractors embedded in legislation tries to force into
neat compartments difficult, myriad patterns of allocation of contractual risk, degrees and ranges of
bureaucratic controls – if they focus on these, bound to lead to errors of classification since these
techniques may prove unrelated to real concern of employment protection law for relief of workers
from economic dependence and social subordination – precise mistakes courts have made in applying
legislation
Tests:
 Control tests: hirer of services controls worker w/ respect to time, manner in which he performs work
 Organization test: whether worker has been integrated into organization, by being graded, paid
according to job evaluation scheme, required to conform to employer’s disciplinary code
 Allocation of risk: if worker is in business on his own account, meaning income from work depends
upon productivity, skill, and perhaps worker risks capital in venture
Criticisms: tests are indeterminate, do not provide clear criteria in borderline cases; tests often appear
dysfunctional in that they draw line b/w IC and worker in place that deprive worker of protection
 Indeterminacy: control test never satisfies question what type of control suffices; impossible for
employer to literally control manner of work w/ respect to skilled craftsmen, professionals
 Nature of control must be under as residual right to control by the exercise of direction and
monitoring performance; but once nature of control required becomes so diffuse, then it provides
uncertain guidelines
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Ex: construction workers, professionals might agree to be subject to such general power of direction,
monitoring, yet in all other respects retain their autonomy, regard themselves as IC
 Control test does not offer clear analysis of nature of requisite form of monitoring; cannot be limited
to direct supervision of workers, would exclude piece work, sale on commission, workers who are
largely unsupervised, though closely monitored by quality assurance, productivity
 Control test does not indicate whether employer must dictate number of hours worked,
 Organization test: arose in part to compensate for indeterminacies of control test, suffers from similar
weakness, although organization test makes plain that residual form of control suffices, it tries to
establish existence of such control by reference to badges of membership in organization
 Test flounders with smaller businesses which lack clear marks of organizational membership; works
for larger firms, easier to search for badges
 Badges include membership in firm’s internal labor market, ranking in hierarchy, pay taxed at source
as required for employees, subjection to work rules or employers handbook, subjection to dress code,
disciplinary code, so forth
 Indeterminacy comes because workers hold some badges but not others, for certain purposes such as
deferred payment and pension treated as IC, for other purposes as discipline, calculation of pay,
grading as employee different badges
 Organization test offers no guidance on how to classify such workers, unless certain badges of
membership are regarded as conclusive
 Risk test: examines financial arrangement b/w parties to determine whether employee bears risk of
profit, loss also lacks determinacy
 At first, test appears to require IC to risk capital in venture, but this would unduly restrict category for
many genuine contractors such as portrait artist who only bring human capital, skill, few elementary
skills to market
 Better to interpret risk of profit, loss as referring to level of remuneration compared to time and effort
involved; both employees and IC undertake risk (ignorance, uncertainty of market forces, effort, time
involved, ordinary employees risk reduced income from poor performance thru employer’s
disciplinary system for deductions from pay, and stand to benefit from increased effort from profitrelated pay schemes, commissions, promotion
 Risks are arranged, subdivided in plethora of different ways
Dysfunction: straightforward application to factual circumstances produces results which seem to defeat
clear purposes of labor law regulation
 Control test suffers from problem that it is both under and over inclusive; under inclusive b/c tend to
exclude skilled workers, senior management, professionals, any employee whose employer only
exercises minimal control over work performance of their work
 Under inclusive also b/c assumes all contracts of employment must fit into time service mode of
acquisition of labor power described above
 Under task performance contracts, monitoring of work effort does not require control over
performance but merely measurement outcomes, yet many of these including piece work and sale
commissions should count as contracts of employment
 Control test over inclusive: include dependent entrepreneurs: there is degree of subordination b/w
large business and small contractors similar to that b/w employer and employee; ex: labor only
subcontractors, home workers, temporary workers, casuals
 Dependent entrepreneur accepts considerable financial risk together with subservience to core
employer’s instructions, risk of timing, quality, quantity of performance; ex: suppliers to part of
automobiles, franchise, tenant of petrol station, distributors of automobiles, car components,
newspapers, US agricultural system of share cropping and gangs of migrant farm workers
 Organization test runs risk of dysfunctional result; test assumes employment is coterminous w/ full
bureaucratic control, so that absence of normal badges of membership of organization leads
inexorably to conclusion of status of independent contractor
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Skilled craftsman working in his own workshop on task performance contract for single core firm
probably lacks any badges of membership of organization, would not be protected, but his degree of
economic dependence puts him in class of persons in need of protection
Reality of managerial control thru bargaining power sufficient to bring him w/in fold of employment
protection rights
Reliance upon organization test alone reveals naivete w/ respect to plentitudes of mechanisms thru
which employer may acquire labor power
Dysfunction results in cases where employer can acquire labor power efficiently w/out acquiring
expense of bureaucratic controls
Makes little sense to judge employees needs for employment protection rights by reference to
managers decisions which have been calculated to limit those rights
Risk test becomes dysfunctional b/c it is contingent upon parties decision w/ respect to system of
remuneration, more closely parties tie remuneration for services to productivity and effort the greater
the likelihood that this test will treat the relationship as one b/w IC
Even where income depends entirely upon specified share of profits of business, certainly possible to
be employee (ex: crew of fleet of fishing vessels)
No good reason why worker on task performance contract who accepts risk by adopting status of
casual worker should therefore be deprived of employment protection rights – but exactly what court
did in Nethermere Ltd v Gardiner [1984] ICR 612 where CA ruled that in absence of obligation to
work on one side and to provide work or pay wages on other there could be no contract of
employment – to set up one criteria of risk determining question of entitlement for protection bound
to be dysfunctional
Employer should not be able to escape duties by means of avoiding contractual obligations to pay
regular wage – mean reason why this approach proves dysfunctional is that it assumes that there is
necessary link b/w task performance contracts and status of independent contractor
Task performance contracts places risk of unforeseen contingencies, fluctuations in product demand,
poor performance on provider of services, whereas time service contract allocates these risks to
employer – inherent flaw in economic risk analysis lies in assuming that task performance contracts
rule out possibility of employment relationship; but in case of piece work, commission sales, these
illustrate ideal cases of employment relations
Important: freedom of contract combine with underlying stance of company, labor law to avoid
meddling w/ managerial discretion; courts must respect freedom of choice of business to select labor
acquisition method, invariably means owner of business will severely confine scope of duties arising
under employment protection law
Main problem: freedom of contract gives owner choice contract in or out of normal incidents of role
of employer – business in better position b/c of bargaining power, access to information – however
courts do demonstrate tendency towards paternalism when workers in need of protection
Courts treat express declarations of status by parties as relevant, though not conclusive factor, one
which can be important in boarder line, ambiguous cases
Solution: involves abandonment of deference to contractual arrangements agree to by parties
Legislature can only provide limited assistance in this respect; could identify standard pattern of
service arrangement, such as labor-only construction worker or home workers in toy industry, and
establish appropriate regulatory framework
Courts can adopt purposive approach, however need additional guidance or this can prove highly
indeterminate and vulnerable to judicial misconceptions of purpose
Require firmer set of criteria which both make sense in world and establish intelligible boundaries to
reach employment protection legislation
Simplified rule: contract of employment exists for purposes of employment protection law if worker
performs services for another, referable to contractual agreement, unless that contract satisfies two
conditions: that it is a task performance contract and than no badges of membership of the firm’s
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organization apply; this test raise presumption in favor of employment, which a firm can only rebut
by demonstrating that it has managed to acquire labor power efficiently w/out using any techniques of
control other than that of checking the adequacy of completed service
Current approach weak b/c ignores express wishes of parties, frustrate proper functioning of
employment law
Simplified rule: recognizes task performance contracts can achieve equivalent managerial control
provided some aspects of organizational membership remain, thus any badges of membership of
organization should drive courts to find employment relationship
New test: diminishes significance of allocation of risk b/w parties
Recognizes that managerial workers may be employees provided they carry badges of membership of
the organization – drop common legislative requirement that service must be performed personally
which exclude those who organize others to perform work – on other hand avoids inclusion of all
dependent entrepreneurs by maintaining test of organizational membership
Distinguishing B/w Contract of Service and Contract for Service, Rahim Bacchus
 “This has proved to be a most elusive question and despite a plethora of authorities the courts have
not been able to devise a single test that will conclusively point to the distinction in all cases” Privy
Council Lee v Chung and Shun & Shing Construction & Engineering Co Ltd [1990] IRLR 236, 238
Control Test: developed at time when employer master, worker servant (elaborate on context) – decisive
factor was measure of control – not only what worker should do, but how work done
 Suitable in society where master expected to be superior to servant in knowledge, skill
 Shifting social/ economic context after industrial revolution, control test not absolute
 Court of Appeal: “a servant is a person subject to the command of his master as to the manner in
which he shall do his work” Yewens v Noakes – suited to conditions where master superior
 Walker v Crystal Palace Football Club Ltd Cozen Hardy: in my judgment it cannot be said that man
is taken out of the operation of the Act simply because in doing a particular kind of work which he is
employed to do, and in doing which he obeys general instructions, he also exercises his own
judgment uncontrolled by anybody – differentiated b/w control as generality and control as absolute
 Rodriques v Griffith [1929] LRBG 1 (P’s car involved in accident w/ another; driver of car had dual
relationship w/ P, one as chauffer and as hirer of car; at time of accident, held he was not driving in
capacity as chauffeur, thus not under control of employer) differentiated b/w actual control and right
to control
 “By the employer is meant person who has right at the moment to control the doing of the act”
Donovan v Liang, Wharton, and Down Construction Syndicate Bowen LJ
 Used not in employment law, but in tort to establish vicarious liability – different interests, policy
concerns Bain v Central Vermont Ry Co Lord Esher: employee was bound to work… according to
orders and under the entire and absolute control of the employer [1921] 2 AC 412
 Rodrigues differs Savary J: he gave no directions or orders to the driver as to how to drive but merely
as to where to drive and there was in fact no necessity for the driver to be under his control in the
former sense
 Short v J&W Henderson Ltd (1946) 174 LT 417 Lord Thankerton expanded single control test to
series of indications of control by looking at power of selection of employee, payment of wages, right
to control method of work, right to suspend or dismiss employees
 Count moved then to inquire whether control, either direct or indirect, may be only one of several
factors
 Clear that control test had to be modified if it were to remain working rule; right to control (rather
than actual control) revived in HOL as test of power to direct, delegate (Mersey Docks and Harbor
Board v Coggins & Griffith Ltd [1947] AC 1 at 12 – similar to subordination, organization test
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Austinian/ Benthamite command of master had to give way to Weberian managerial skills of modern
employer; employer employed persons with various bureaucratic, technocratic skills of which he was
ignorant
Organization Test: Lord Denning (Stevenson, Jordan, Harrison Ltd v MacDonald and Evans [1952] 1
TLR 101 at 111) said: “under contract of service, man is employed as part of the business, and his work is
done as an integral part of the business, whereas under contract for services, his work although done for
the business is not integrated into it but is only accessory to it” – Denning however does not elaborate on
what constitutes part of the organization
 Superintendence and control cannot be decisive factor when one deals w/ professional man, man w/
particular skill and experience
 Organization test failed – eventually led to promulgation of mutiple test
Multiple or Mixed Test: formulated in MacKenna J (Ready Mixed Concrete Ltd v Minister of Pensions
and National Insurance [1968] 2 QB 497, 515): “I must now consider what is meant by a contract of
service. A contract of service exists if the following three conditions are fulfilled: (1) servant agrees that
in consideration of wage or other remuneration, he will provide his own work and skill in performance of
some service for his master (2) he agrees expressly or impliedly that in performance of that service he will
be subject to the other’s control in sufficient degree to make that other master (3) other provisions of the
contract are consistent w/ its being contract of service
 Control still relevant but not decisive factor; involves business, economic interpretation of social
relations of production, industrial capitalism (US)
Economic reality test: US v Silk (1946) 331 US 704: judges agreed that common law test of power and
control over manner of performance of task, was to be replaced by test decided as matter of economic
reality
 Important factors: degree of control, opportunities for profit and loss, investment in facilities,
permanency of relation, skill required in performance of task
 Case involved two suits against P, Silk and Greyvan; Silk hired unloaders, truck drivers, Greyvan
engaged truck drivers
 Judges held unloaders were employees despite lack of control b/c they had no opportunity to gain,
lose except their labor and simple tools; truck drivers IC b/c they had responsibility for investment
and management and were therefore small businessmen despite very significant degree of control in
respect of truck drivers hired by Greyvan – while this appears to be multi-factor test, court was really
only concerned with whether worker had opportunity to make a profit or loss
 PC in Montreal v Montreal Locomotive Works Ltd [1947] DLR 161: court rejected control in favor
of more complicated tests necessary as result of more complex conditions of modern industry
 In this case, fourfold test more appropriate: control, ownership of tools, chance of profit, risk of loss
 Some case possible to ask whose business is it; ask whether party carrying on business in sense of
carrying on for himself and not merely for superior
 Marketing Investigations Ltd v Minister of Social Security [1969] 2 QB 173: Cooke J: while control
will always be important other factors also important: whether one provided his own equipment, hired
helpers, degree of financial burden undertaken, degree of responsibility one had for management and
investment and opportunity for profit Cooke: “I therefore proceed to ask myself two questions: first,
whether extent and degree of control exercised by company, if no other factors were taken into
account, be consistent with her being employed under contract of service; second, whether when
contract is looked at as whole, its nature and provisions are consistent or inconsistent with its being
contract of service, bearing in mind the general test I have adumbrated”
 Cooke J: “is person who has engaged himself to perform these services performing them as person in
business on his own account?” if yes contract for service, if no contract of service
Other tests
 Withers v Flackwell Health Football Supporters Club [1981 IRLR 307 Bristow J: “elementary lay
approach” might be to suppose employee was asked whether he was his own boss as this was the
ultimate test on whose business the worker was engaged, employee provided himself to service while
IC provided his services
 Express intention of parties: Ferguson v Dawson [1976] 1 WLR 1213 refused to give effect to the
expressed intention of the parties, arguing parties could not merely change their status by putting a
label on it Massey v Crown Life Ins [1978] ICR 590 Lord Denning: where intention ambiguous,
effect should be given to express intention of parties – Massey approach adopted in Caribbean
 Mutuality of obligations: O’Kelly v Trusthouse Forte plc [1983] IRLR 369: regular casual waiters
were not employees b/c relationship lacked mutuality of obligations since they could refuse to work
when offered – CA timid in granting protection to workers, development of mutuality of obligations
test can be seen as attempt to limit part-time, casual workers from getting protection b/c if business on
his own test applied would be different result, test backward move
 While mutuality of obligation basis of contract, right to refuse work cannot by itself transform
employment relationship, albeit casual, to that of IC – workers in Silk also had right to refuse work
Conclusion: control as absolute test buried, continue to assume importance in different circumstances;
integration test short lived, not as bad as seems, compromise between control and business ethics of
modern employer, modern or mixed test suffers from vagueness as to exactly what are the factors;
mutuality of obligations test should be avoided, attempt to reincarnate control test in Caribbean
 Modern position: rights may not depend on whether contract for services of service but rather what is
status of worker
 Employee/ IC dichotomy must be radically altered; must be statutory presumption of employment
once labor is engaged; this presumption should be rebuttable on evidence of genuine business
operation, taking into account not only economic realities of profit and loss but also social realities of
unequal bargaining power, unemployment, low wages
 Until statutory presumption is achieved, courts of Com Car should use economic reality test as basis
for multi-factor approach where all social circumstances are taken into account
 Different emphasis may be necessary to determine whether one is employee for one purpose or other
Chapter three, Butterworths 2001
 Bramwell LJ: Yewens v Noakes: servant is person who is subject to command of his master as to
manner in which he shall do his work – sense that test misapplied since inception , b/c concept of
servant looses meaning in modern complex society of the employee, professionals, managers, etc.
 Control evolved not b/w distinction of IC v dependent contract, but b/w manual, non-manual laborer
(Workmen’s Compensation Act National Insurance Act)
 Yewens (tax case, court decided clerk, earning substantial yearly salary was not servant, any more
than managers of banks, foremen w/ high wages, persons almost in positions of gentlemen
 Use example of foreman (IC) hiring workers, relieved ultimate employer of liability
 Notion of DW is one whose mode of performance is closely monitored, controlled by superior
embodies strong version of personal, formal subordination, which is not appropriate for many
workers whom modern law regards as employees
 Bramwell’s test not include as dependent workers who have high level of occupational or
professional training, or who have substantial degree of discretion as to hours of work, mode of
performance; however, many doctors, lawyers, mangers who work in large bureaucratic organizations
as self-evidently employees
 Legal distinction b/w manual, clerical workers has little distinction in law as far as workmen’s
compensation and social insurance are concerned – replace now by IC v employee substantially
incorporated into employment legislation, thus control ceases to be helpful fallen into disuse
 If control understood as employers right to dictate precise way work is done, test is anachronistic
 However, if wider sense, employee is one who agrees to serve as opposed to producing finished
goods or supplying specified service, control can still be one of the factors that help to determine
status – and if understood as right to give orders, direct general nature of employee’s work it is far
from irrelevant in modern context
 According to MacKenna in Ready Mixed Concrete: “control includes power of deciding thing to be
done, means to be employed in doing it, time when and place where it shall be done; all these aspects
of control must be considered in deciding whether right exists in sufficient degree to make one party
master, other servant
 McMeechan v Secretary of State for Employment: agreement under which agency worker agreed “to
fulfill normal CL duties which an employee would owe to an employer so far as applicable, including
duties of fidelity, confidentiality, obedience to instruction – more likely to give rise to employment
b/w himself and agency
 Control used recently to find user of agency worker’s labor may assume status of employment
 Cases indicate methods of control less personal, more bureaucratic, still critical in modern context
Integration: sees essence of employment as employee’s subjection to rules, procedures of organization,
rather than subjection to personal commands – integration test Stevenson v McDonald
 Integration test response to difficulty of control test – under new test journalist working on
newspaper, doctors, nurses would be considered employees
 Thus in Beloff v Pressdram Ltd [1973] 1 All ER 241, 250 highly paid journalist unable to argue that
given her high status she could not be regarded as having contract of employment, even though she
worked full time for newspapers and treated as employee for purposes of tax, national insurance
 Ungoed-Thomas J “greater the skill required for employee’s work, less significant is control in
determining whether employee is under contract of service”
 Notion of which work integral to business not easily applied – useful for managerial, professional
worker, not useful for outworkers, workers employed by sub-contractors of ultimate user of labor,
may frequently be integral to users business w/out being employees – modern labor deals heavily w/
outsourcing thus focus has shifted away from integration test to economic reality and mutuality of
obligation
Economic reality: whether worker essentially in business on his own account as entrepreneur or works for
another who takes ultimate risk of loss or chance of profit; casual irregular workers who have great
degree of personal autonomy in arranging work may nevertheless be classified as employees under this
test if they are economically dependent on one principal employer
 Market Investigations Ltd court held that part time market researcher could be employee for this
reason, notwithstanding that she had limited discretion as to when she should do the work
 Same principle applied to skilled, professional workers who organize their own working schedule and
do not come under close personal supervision – still be employees if owners of tools vests principally
with employers and it is latter who takes residual risk of business failing, method of payment gives
indication of who bears risk
 If worker received regular salary, wage based on time – employee; if paid commission, piece rate,
profit related pay may still be employee – employers decision to link pay to profit does not in itself
imply workers undertake responsibility for management, profitability of business
 Lee Ting Sang v Chung Chi Keung Lord Griffith: there is difference “ b/w skilled artisan earning his
living by working for more than one employer as an employee and… small businessman venturing
into business on his own account as IC w/ all its attendant risks; facts: appeal from Hong Kong, PC
held that skilled construction worker was employee for health and safety regulations; applicant
neither hired his own helpers nor provided his own equipment; he had no responsibility for
investment in, or management of work on construction site, he simply turned up for work and chipped
off concrete to the required depth upon the beams indicated to him on plan by employer; he was not
supervised in his work but he was skilled man and he had been told beam upon which he was to work
and depth to which they were to be cut and work was measured to see that he achieved that result
 Does not mean that either professional or casual worker must be employee so long as he does not
have identifiable business of his own; on contrary, category of workers who are self-employed w/out
necessarily being entrepreneurs, for reason that they lack dependence on any particular employer Hall
v Lorimer [1994] IRLR 171 where respondent was skilled television technician who worked for
around 20 separate companies on series of short term engagements; he was held to be self-employed
therefore chargeable to income tax Nolan LJ: question whether individual is in business on his own
account, though often helpful, may be of little assistance in case of one carrying on a profession or
vocation. A self-employed author working from home or an actor or singer may earn his living w/out
any normal trappings of a business… most outstanding feature to my mind is that of Mr Lorimer
customarily worked 20 or more production companies and that the vast majority of assignments…
last for only single day
 Question: how about assessing short time workers Lane v Shire, claimant was building worker who
was hired by D employer to carry out re-roofing job for which he would be paid according to daily
rate; D considered it prudent and advantageous to hire for individual jobs; while carrying out work,
claimant fell and was injured; was held that he was employee for purposes job so was owed duty of
care for health and safety
 Henry LJ: business involved in work was that of D, not the claimant; health and safety context of
Lane cannot be ignored; the courts appear to take strict approach to claims that worker is selfemployed in this type of case (where there is policy issue of the need to protect workers court more
inclined to find employment link)
Mutuality of obligation: mutuality refers to presence of mutual commitments to maintain employment
relationship in being over period of time
 Freeland: “at first level there is exchange of work for remuneration. At second level there is exchange
of mutual promises of future performance. Second level – promises to employ and to be employed –
provides arrangement w/ its stability and w/ its continuity as contract; promises to employ and to be
employed may be of short duration or may be terminable at short notice; but they still form an
integral and most important part of contract; they are mutual undertakings to maintain employment
relationship in being which are inherent in nay contract of employment so called
 Consequently, work relationships where second tier is lacking will not be considered employment;
thus casual workers, others w/ irregular work hours, variable commitments to their employees might
be classified as self-employed
 Mutuality test response to growth in this type of work, difficulty in classifying it
 Exclusionary test – absence of mutuality will most likely defeat claim of employee status
 O’Kelly v Trusthouse: applicant, wine waiters, employed as regular casuals; they were hired
periodically to work on particular catering job and could be relied upon to offer their services at
regular intervals; employer kept list of their names and gave them preferential treatment in allocation
of any available work; they had no other regular employment and if they refused work offered they
would be taken off permanent list; claimed they had been dismissed because of their membership in
independent trade union; two possible ways of interpreting employment, seeing two different periods
as employment or seeing it as whole continuing employment which spanned over period of none
work; tribunal held neither global contract not separate engagement contracts; CA restored tribunal’s
decisions
 Tribunal found employees were under no obligation to give service on regular basis: “applicants
entered into relationship w/ company in the expectation that they would be provided with any work
which was currently available; it was purely commercial transaction for supply and purchase of
services for specific events, because there was no obligation for company to provide work, no
obligation for applicants to offer further services
 Were thus IC whose chose to work for single client could be considered IC
 However, in Airfix Footwear v Cope [1978] ICR 1210 and Nethermere Ltd v Taverna and Gardiner,
cases concerning home workers, courts declined to accept arrangements for regular placing of work
lacked all legal force; in Nethermere Dillon LJ found it “unreal to suppose that work in fact done by
applicants for company over the not inconsiderable period… was done merely as result of pressures
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of market forces on applicants and the company and under no contract at all” – Stephenson LJ: could
not see why well-founded expectations of continuing home work should not be hardened or refined
into enforceable contracts by regular giving and taking of work over periods of year or more, and why
outworkers should not thereby become employees under contract of service like those doing similar
work in factory; also held that obligation on employee’s part of accept work could be used to imply
obligation on part of employer to offer it by way of reciprocity
By contrast, Clark v Oxfordshire Health Authority [1998] IRLR 125 CA held no evidence of global
contract of employment in case of nurse who under arrangement w/ health authority was offered work
as and when need arose, but who otherwise had no regular work hours
Similarly Carmichael v National Power plc [1998] IARLR 301 tour guide who worked on casual as
required basis correctly classified as being employed under arrangement that lacked mutuality of
obligation; important issue is that employees were free to refuse work when they wanted; different if
employee contracts to be on call; then their would be obligation
Test of mutuality mostly used to deny casual workers employee benefits; test refuse economic reality,
reassert subordination test, workers who do not make formal, long-term commitment to firm viewed
as having no employment
Temporary workers employed by agency lack element of continuity
Solution could be that considered employee for things like vicarious liability but not for employment
protection
Multiple test: Ready Mix Concrete concerned status, for national insurance contribution purposes, of
lorry drivers who delivered cement for applicants; he was in process of buying the lorry from them on
hire purchase
Notes
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The distinction between an employee and an independent contractor is important with regards to access to
rights under employment legislation which is premised on employment relationships.
If there is an employment relationship the employer has to assume various duties in respect of the employee
via benefits, expenses, privileges, statutory entitlements and procedural propriety.
It is the policy of legislators that rights are only to be accorded to persons in an employment relationship.
Employment protection legislation came about because if left to their own devices, employers would
impose rules that might not be fair to the employee but rather toward profit-making.
Legislation prevents the employee from being in a weak bargaining position since he/ she is dependent on
the employer for subsistence.
Gibbs v United Steel company: If no control is placed over the employee by the employer then there is no
employment relationship.
In the late 19th century and the early 20th century, the language of the law was that of master and servant,
there was little discretion on the part of the employee as to the nature and execution of the work.
Control Test: Employment relationship was determined by the control of the employer over the employee.
Other tests were developed that were more reflective of the reality of employment relationships and the
need for the employee to exercise his or her discretion. Eg. Stephenson v McDonald and Smith v Griffith
The emphasis was now whether the worker was part of the organization / the business of the employer.
The case of Ready Mix Concrete Ltd. v Minister of Pensions is instructive in this regard (multiple tests):
per McKenna J, the contract existed if; A, the servant agreed to a wage for providing his own work and a
skill to the master. B, There is sufficient degree of control exercised by the employer so as to say the
employer is the master. C, other provisions of the contract were consistent it was a contract of service (not
services). It was held that the drivers were not employees, the pertinent question is who bears the risk of
success/ profit vs loss.
The Intention Approach and Obligation Test – Effect of Globalisation resulted in the easy movement of
capital from one place to another, lead also to employer trying to find more efficient services and this
resulted in employment of an indefinite nature. The need to be flexible and out perform the competition
results in employers favoring employment that is less permanent or proportional to the employment
relationship.
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A tripartite scenario has developed between Employers- Employment agencies – Source workers. In this
relationship there is no direct contractual relationship between worker and the employer.
Intention Approach – Attempt in contract to determine if an employment contract may be inferred from
the making of declaration, clauses etc by the employer. Even where there are expressed provisions of the
contract, if they are contrary to legislation, then legislation policy applies.
Obligation Test: There must be