Employment law

Employment Law

Employee

An employee is a person employed under a contract of employment, also known as a contract

of service.

A contract of employment requires:

• agreement

• consideration

• an intention to create legal relations

• it may be written or oral

The employer must give the employee a written statement of prescribed particulars.

Formation of the employment contract involves agreement on essential terms, with

consideration. The latter is the promise to work in return for the promise to pay the agreed

salary or wage. Capacity is important, especially for minors.

Implied terms include:

[1] Statutory terms e.g. Employment Rights Act 1996.

[2] Common law i.e. case Law

So the contract of service for employee’s allows them to enjoy all employment rights. These

include sick pay and holiday pay and the right to make a claim for unfair dismissal.

Independent Contractor

An independent contractor (self-employed) is a person who makes a contract to provide a

service but does not do so as an employee. S/he has a contract for services.

An independent contractor can also be a company or even a partnership that agrees to provide

a service to an employer..

Why it is important to know if a contract of employment exists?

Amongst the reasons we have:

a] An employer must deduct income taxes from salaries and wages. So employees will be paid

net of income tax.

b] If the business becomes insolvent, employees have certain preferential rights over other

creditors for unpaid salaries and wages.

c] An employment contract has express and implied rights and duties (which also bind

employers). Implied rights include redundancy pay, right not to be unfairly dismissed (both

are subject to an employee having 2 years continuous employment).

d) Employers can be vicariously liable for the actions of their employees that are carried out in

the course of employment.

e) Employees have entitlements in the form of statutory protection. For example, in relation

to unfair dismissal and redundancy.

Distinguishing employees from independent contractors is a problem area. This has been

a controversial issue, and the matter is not always so clear-cut. As the facts have varied in each

case the Courts have treated the issue as one of fact in each case.

The Courts have used various tests to tell the difference between employees and independent

contractors.

In answering the question. we have to explore who is:

1] An employee

2] And who is not, i.e. self-employed (independent contractor)

Today we have a wider range of working relationship, such as agency workers and casual

workers

Distinguishing Tests

These have been created by the Courts to distinguish employees and independent contractors.

These have moved from a single concept test to more realistic multi concepts. The traditional

tests were the control test, integration/organisation test and multiple/economic reality test;

recently the courts have developed tests based on mutuality of obligation and personal service.

However, in order for a contract of service to exist (i.e. a contract of employment) there has to

be personal service, control and mutuality of obligations.

A written contract is not the deciding factor, it is a starting point.

BELCHER V AUTOCLENZ [ [2011] Supreme Court.

The contract stated that car valets were self-employed and there were clauses in the contract

which negated employment status; there was no mutuality of obligation and there was power

to supply a substitute. However, when they looked at the evidence these clauses did not reflect

the reality of the situation. The valets were subject to a high degree of control; they were fully

integrated into the business; they were expected to turn up for work and the substitution clause

did not reflect what was agreed, so the court looked at the actual legal obligations of the parties.

Held - the valets were employees.

1. The Control Test – a simple, but inadequate test, looking at the degree of control over a

worker. An employer tells the employee:

• What to do

• How to do it

• When and where to do it

An independent contractor gets paid for a completed task/job, but personally decides how to

do it.

2. The Organisation or Integration test – this was formulated in STEVENSON V

MACDONALD [1952]. It looks at the degree of integration of a worker into an employer’s

business. For example, is the individual included in an occupational benefit scheme or a

disciplinary procedure? (This is outdated because there has been a change in business structures

with outsourcing e.g. payment and pensions and Human Resources.)

STEVENSON V MACDONALD [1952] CA – The integration test- “(It) was intended

to overcome the deficiencies of the control test. However today it may frequently be

misleading, if not useless. It has become increasingly common for businesses to contract out

parts of their operation…”

3. The multiple or Economic reality test - the test looks at the economic reality of the

situation.

MARKET INVESTIGATIONS LTD V MINISTRY OF SOCIAL SECURITY 1969 -

Justice Cook said “is the person who has engaged himself to perform these services performing

them as a person in business on his own account?” If the answer is ‘yes’ then the worker is

self-employed. Factors taken into account when deciding this were whether the worker

“provides his own equipment, whether he hires his own helper, what degree of responsibility

for investment and management he has.” The court looks at all the circumstances: how much

control does an employer have over the activities, how is payment made and how is status

defined in the contract.

MARKET INVESTIGATIONS V MINISTRY OF SOCIAL SECURITY [1969]

MI employed interviewers who worked part-time, as and when, called upon to carry out more

than 8,000 interviews a year. The issue was, “Were they employees?” so that MISS had to pay

NI contributions. One interviewer was selected for a test case. She decided her own hours,

provided the task was finished within an overall timetable. Cooke J looked at the factors

involved in the work and devised the test: Is the person who has engaged herself to perform

these services performing them in (someone else’s) business or on her own account? Held she

was an employee.

Alongside the economic reality test is the Multiple test. This looks at many factors; the degree

of control and integration. The test originated in READY MIXED CONCRETE [1968] –

RMC had a scheme by which owner-drivers bought lorries on hire purchase from the company

and delivered RMC concrete to its customers. The trucks were painted in RMC colours and the

drivers had to wear company uniforms. Payment was related to results but had a guaranteed

minimum. The drivers were responsible for maintaining the trucks and buying the fuel. The

company exercised some control e.g. for repair work. However, the drivers could delegate

some of the work to other drivers and could decide their own routes and hours of work. Held

they were not integrated into the business, so for social security purposes were independent

contractors, not employees.

4. Mutuality of Obligations Test - there exists an obligation on the employer to provide work

and an obligation on the employee to accept and perform it. For example, is there a requirement

to give notice or are they free to leave at any time and take other work– useful for casual and

homeworkers. The focus is, “Does an employment relationship exist?”

See CARMICHAEL V NATIONAL POWER PLC [2000] HL

The claimants took ‘employment’ on a ‘casual as required basis’ at a power station. There was

no indication of when and how often work would be available. The sickness, holiday and

pension provisions for ordinary staff did not apply. They worked on invitation when they were

available and when they chose to work, and no sanctions were imposed if either of them was

not available. The Court of Appeal held that a letter of appointment which required tour guides

to work ‘on a casual as required basis’ could be … sufficient … to amount to .. a contract of

employment’. The HL reversed the CA and held that they were not employees, at least during

the times when they were not actually working, because there were no clear mutual obligations

during these times.

STRINGFELLOW RESTAURANTS LTD V QUASHIE [2012] CA

The contract described the claimant as a “table side dancer”. The court held her obligation to

provide personal service and Stringfellow’s exertion of some degree of control did not

amount to ‘mutuality of obligation’. She was paid by customers in the form of a voucher, the

club would exchange that for sterling, minus deductions at the end of the night. As her earnings

came entirely from customers, there was no obligation on the club to pay her any wages, so she

was not an employee and could not bring a claim for unfair dismissal.

So what about the “gig economy”?

Pimlico Plumbers Ltd v Smith (2018)

The Supreme Court held that an employment tribunal was entitled to decide that the plumber

who worked under a contract which said he was an independent contractor was a worker –

He had to wear a uniform, he leased a van from PP, he could choose which jobs he took, he

provided his own tools and paid his own tax and NI. However, an obligation of personal

performance was the dominant feature of the contract.

Also Uber V Aslam (2018) - The Court of Appeal, by a majority, upheld the employment

tribunal’s decision that Uber drivers are workers. The tribunal was entitled to disregard terms

of the contract portraying the drivers as self-employed service providers who contracted

directly with the passengers, with Uber acting as an intermediary because this did not reflect

the reality of the working arrangements. Leave has been given to appeal to the Supreme Court.

(What updates are their on this case? Please do some research into this case).

Whistleblowing

See further in your own reading and from what we covered earlier in the module.

Discrimination

The Equality Act 2010

Discrimination on the following grounds will be deemed unlawful:

• Age

• Disability

• Gender reassignment

• Marriage and civil partnership

• Pregnancy and maternity

• Race

• Religion or belief

• Sex

• Sexual orientation

Compensation is not capped.

Termination of the Contract of Employment

Either side can terminate the contract of employment by notice.

A contract for a fixed term ends automatically when the term ends. However, it is more usual

for employment to continue for an indefinite period and the worker or employer can give notice

to terminate.

Length of Notice

Normally an express term in the contract of employment/written statement of terms governs

the length of notice. If no such term is included reasonable notice must be given. If a term is

included, it cannot be for less than the statutory minimum period; if it is for a shorter period,

then the statutory minimum period will apply. Statutory minimum periods are laid down by

the Employment Rights Act 1996.

a] If there has been one month of employment, the worker has a right to a minimum of one

week. This lasts up to two years, when s/he is entitled to a minimum of two weeks. Thereafter,

a minimum of a further week for every year up to a maximum of twelve weeks.

b] An employer has a right to a minimum of a week’s notice from the worker after a month’s

continuous employment. The big difference is that there is no sliding scale beyond the first

month. The maximum statutory notice a worker ever needs to give is one week, however long

the employment lasts. No notice is needed if a worker is sacked instantly for serious

misconduct. If notice is not given the employee may bring a claim for wrongful dismissal (see

below).

Individual variations – Individual contracts may have express or implied terms for longer

periods, but never shorter. In addition, on leaving or dismissal either party can give up the

right to notice. The employer may give payment in lieu of notice. The ERA sets out rights to

protect a worker during any notice. Failure to give required period of notice will give rise to a

claim for wrongful dismissal (see later).

We need to note that even if proper notice is given, an employee may be entitled to sue for

statutory redundancy or unfair dismissal. These are quite separate issues, as we shall see next.

Dismissal

Constructive dismissal

An employer repudiates an essential term of the contract and the employee resigns.

The employer commits a serious breach of contract (e.g. reduces pay).

The employee leaves because of the breach.

The employee has not “waived” the breach and affirmed the contract.

Wrongful Dismissal arises from a breach of the contract of employment, e.g. any failure to

give the required period of notice (see above). An employee is entitled to damages. Employers

are also entitled to notice from employees who leave without giving the minimum notice.

Dismissals are governed by the Employment Rights Act 1996 (ERA).

Unfair dismissal – Unfair has a technical legal meaning. The employer has to show:

1. the dismissal was for a potentially fair reason under the ERA and

2. the employer acted reasonably in dismissing the employee for the reason given.

If not, the dismissal is unfair.

The dismissal could still be unfair if the employer did not follow a fair procedure.

2 years’ continuity of employment requirement..

The potentially fair reasons are:

• Capability

• Conduct (i.e. misconduct)

• Redundancy

• Statutory Illegality (eg chauffeur loses driving licence)

• Some other substantial reason (wide variety of reasons)

Certain reasons for dismissal, or selection for redundancy are automatically unfair and there is

no requirement for a qualifying continuous period of employment so the employee is protected

from the moment employment begins e.g. leave for family reasons, pregnancy, maternity &

paternity leave, health and safety cases, assertion of a statutory right ( e.g. right to be paid the

minimum wage), whistleblowing and reasons that are to do with trade union membership or

activities.

Redundancy is the termination of employment when the need for a job (not the person) no

longer exists. Compensation can be claimed only by employees aged 20 or over, with two years

continuous employment from the age of 18.

Definition of Redundancy has three factors:

a] Closing of the business where employee was employed.

b] Closing of business at the place where the employee was employed.

c] A stopping or reduction of work of the particular kind that the employee does.

The formula for payment is laid down by the ERA (as amended) as follows:

• 1½ weeks’ pay for every continuous year in which an employee was 41 or over.

• 1 week’s pay for every continuous year in which an employee was 22 but under 41.

• ½ week’s pay for every continuous year in which an employee was not over 22.

Continuously Employed - This applies to both full and part-time employment. For unfair

dismissal and redundancy, this requires two years. Under sections 212 -218 ERA 1996, this is

built up by any week or part of a week of employment.

Gaps - Certain ‘gaps’ can be included, e.g. absence due to sickness or injury (up to a maximum

of 26 weeks). Generally, any week where this continuity is broken, means that a worker has

to start all over again to build up the qualifying weeks.

Early conciliation via ACAS

From 6th of May 2014 anyone considering bringing a case to an employment tribunal must first

contact ACAS (Advisory, Conciliation and Arbitration Service) and be offered early

conciliation.

This means there is an opportunity to settle disputes without going to court.

Remedies

There are three remedies for unfair dismissal

1. Reinstatement - an order that the employee returns to his old job with no financial loss.

2. Re-engagement - an order that the employee is given new employment on terms

comparable to that from which he was dismissed, or in other suitable employment. (This is a

more flexible remedy).

If an employer does not comply with an order for reinstatement or re-engagement then an

Employment Tribunal may make an additional award of between 26 to 52 weeks’ pay (subject

to a prescribed maximum).

3. Compensation – a monetary award to the employee.

This comprises of a basic award and a compensatory award.

Basic award

AND

Compensatory award

* * *