"The dichotomy between employee and self-employed is being eroded in employment law, so much so that today it appears meaningless". Discuss.

The courts realised that, in a modern industrial society, no one factor could be isolated as the determination of the relationship and, therefore, they developed what is known as the ‘multiple test’. This was first propounded by McKenna J in Ready Mixed Concrete (South East) Ltd v MPNI where he looked at a variety of factors, some indicating that the lorry drivers were self-employed, some indication that they were employees. As the drivers could delegate driving duties and, therefore, although there were factors indicating that they were employees, McKenna ruled that this term was inconsistent with a contact of service and, therefore, the drivers were self-employed.

While his decision was later criticised, the basis of it, that is, looking at a multitude of factors, was not and this is the approach of the courts today. Cooke J summarised the approach of the courts in Market Investigation Ltd v MSS when he said that the question to be determined by the court was whether the person was in business on his own account ( the small businessman approach). The small businessman approach means that the courts looks at a variety of factors such as investment, ownership of tools, who bears the risk of loss and who stands to make a profit. If so, then there was a contract for services.

In Hall (Inspector of Taxes) v Lorimer, however, the court stressed that the list of factors should not be gone through mechanically. Upholding a decision of the special commissioners, the court said: ‘The whole picture has to be painted and then viewed from a distance to reach an informed and qualitative decision in the circumstances of the particular case.’  The court was apparently influenced by the large number of separate engagements Lorimer had undertaken- some 580 in 800 days- and the short duration of many of them. This would appear to be a common sense decision, despite the fact that Lorimer did not have any investment in equipment, made no financial contribution and took no risk of profit and loss as detailed in Market Investigations.

Home workers and casual workers are particular groups where establishing the nature of the relationship may prove difficult. In both Airfix Footwear Ltd. V Cope and Nethermere (St Neots) Ltd v Taverna and Another, it was decided that home workers were employees, in Cope, because work was provided on a regular basis and there was a strong element of control and, in Nethermere, because, in reality, there was a mutuality of obligations because of the length of the relationship.

By contrast, a case involving casual workers was O’Kelly v Trust House Forte plc where it was held that casual workers were self-employed, even though they worked solely for one employer, because there was no obligation for the employer to provide work when they showed up and no obligation on the casuals to offer their services. It was thus the lack of mutuality which leads to the decision, despite the clear control exercised by the employer and the fact that it would be difficult to describe a casual worker as being in business on his own account.  The House of Lords reached a similar conclusion in Carmichael and Lesse v National Power plc , where it was decided that guides employed on a ‘casual as acquired’ basis were self-employed. Lack of mutuality of obligations has led to agency workers being classed as self-employed (Wickers v Champion Employment), although McMeechan v Secretary of State for Employment and trawler men who entered separate crew agreements for each voyage were also deemed to be self-employed, despite the fact that they invariably returned to the same employer, again because of the lack of obligation to provide work or services. However, the position seems to have changed by the application of the recent case Motorola Ltd v Davidson where the court found that the requisite employment relationship existed given the practical degree of control exercised by Motorola Ltd over Davidson, and from the fact that Motorola Ltd had conducted disciplinary proceedings culminating in Davidson's dismissal without MC's (an employment agency) knowledge.

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he question which must now be asked is: why is the distinction between employees and independent contractors important? A variety of rights and liabilities apply in respect of employees which do not apply to independent contractors. An employee pays insurance contributions which are a percentage of his earnings and the employer also makes a contribution. This gives the employee certain benefits in respect of unemployment, sickness and industrial injury as well as Sate pension rights. An independent contractor pays a flat rate insurance contribution, irrespective of earnings and has no rights to the benefits mentioned. Moreover, an employer must deduct tax at source for his employees and may be committing a criminal offence should he fail to do so (Jennings v Westwood Engineering). The employer is under no such obligation in relation to independent contractors, although, in the building industry, the employer is required to deduct tax as if the workers are employees and the workers can then claim tax back if they are genuinely self-employed. Furthermore, an employer is vicariously liable for his employees if they cause damage during the course of their employment, while, generally, no such liability exists for his independent contractors. In addition, while independent contractors and employees are protected by the Health and Safety at Work Act 1974, the employer owes more stringent duties to his employees, supplemented by implied terms in the contract of employment. Finally, employment protection legislation, in the form of unfair dismissal and redundancy compensation, time off rights, guaranteed payments and maternity rights only apply to employees. Independent contractors have no such protection, although Quinnen v Hovell has decided that all workers whatever their status, are protected by the Sex Discrimination Act 1975 and the Race Relations Act 1976 where they are providing personal services.

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t is now to be discussed whether the distinction between self-employed and employee is meaningless. It is submitted that certain cases has deaden the significance of the distinction. For example, the case of Lane v Shire Roofing Co. Ltd where Mr. Lane who was a self-employed roofer was retained by roofing company and paid on a price per job basis. Whilst working from a ladder tiling a porch roof, he slipped and fell, sustaining serious head injuries. He maintained that the company should have provided him with scaffolding from which to work, and this they were negligent. The company argued that Lane was an independent contractor and consequently they were not liable. The Court of Appeal held that Lane was in fact an employee of the company. The court apparently felt that, although there was evidence to the contrary, the deciding factor was the question: ‘whose business was it?’ With regard to the overall project being undertaken, the answer must be that it was the company’s not Lane’s.  It is important to mention that the case concerned issues of health and safety. It is suggested that had the central issue been one of unfair dismissal or redundancy, the court may well have viewed things rather differently.

The distinction has also been blurred for the reason for self-labeling. The courts have consistently taken the view that the parties to the employment relationship cannot decide to ‘opt in’ or ‘opt out’ of the coverage of legislation, simply by choosing to describe that relationship in a particular way: a ‘label’ will be disregarded. However, there are some clear cases of false self-employment in which the employer attempted to change the status of the employee by attaching a different ‘label’ to the relationship. More common situations are in which employers seem to have been trying to take advantage of the case-law on mutuality, by altering the contract terms in such a way as to lead a court or tribunal to regard the relationship in terms of a contract for services. Hence self-labeling is used by the employer to exclude employee status by denying any obligation upon him to provide work - in other words, the use of ‘status-denying’ clauses.

There are some legislations which have also eroded the distinction between employee and self-employed. For example, the non-discrimination legislation (Sex Discrimination Act 1975, Race Relations Act 1976 and the Equal Pay Act 1970) uses the terms ‘employer’ and ‘employee’, but defines them more widely – ‘employment’ means employment under a contract of service or apprenticeship, or a contract personally to execute any work or labour. This actually includes most people who are independent contractors. Again, the law relating to public interest disclosures in part IV of the Employment Rights Act 1996 uses the definition of ‘worker’ in section 230(3) of that Act but extends it to cover home workers, certain agency workers, National Health Service practitioners and certain categories of trainees. Also, the Trade Union and Labour Relations (Consolidation) Act 1992 contains a definition of ‘worker’ under section 296 which differs slightly from the definition in the 1996 Act. Section 296 states: In this Act, “worker” means an individual who works, or normally works ….under a contract on employment or under any other contract whereby he undertakes to do or perform personally any work or services for another party to the contract who is not a professional client of his. The Transfer of Undertakings (Protection of Employment) Regulations 1981 provides that “employee” is “any individual who works for another person whether under a contract for service or apprenticeship or otherwise” but goes on to specifically provide that it does not include a person who “provides services under a contract for services”. This unique coverage goes beyond the 1996 Act definition of ‘employee’, but not as far as the ‘worker’ definition in that Act. Further more, section 23 of the Employment Relations Act 1999 enables the Secretary of State to extend some or many statutory employment rights to those who are currently excluded from them.

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f the distinction has been eroded, then what is the justification to maintain the two different status still? However,  before lifting the veil between employee and self-employed, it is necessary to examine the potential effects of  shifting the status of workers from that of self-employed to employees and on whether any lack of clarity in the regulatory framework should be addressed by regulation or by other means.

Abolishing the distinction may guarantee protection for more atypical workers and increase working peoples’ willingness to take up atypical work, knowing their rights are secured. The numbers of atypical workers in the UK labour market remains surprisingly low and the extension of rights may increase the take-up of atypical work arrangements. Again, it may enable a more diverse range of people to participate in the labour market, particularly those who cannot accept regular work, due to other commitments.  Most importantly, it will increase clarity in the law. It may remove anomalies in the coverage of some employment and other rights. For example, some non-employee workers may have a right to receive statutory maternity pay (SMP), but would not automatically have a right to take maternity leave or a right not to suffer detriment for reasons of pregnancy. This may be confusing for both employers and workers. It may also increase certainty and clarity for working people who are on the employee/non-employee borderline and their employers if a single definition were used in employment rights legislation, or fewer different definitions were used. This may particularly help small businesses.

However, there are arguments against the removal of the distinction. If non-employees have a broader range of statutory employment rights, employers might increase their demands on them or the degree of commitment they expect of them. This could reduce flexibility for these working people. Some atypical workers may enjoy a higher remuneration package than other workers because they do not have the same employment rights protection. Moreover, the elimination of the distinction would fundamentally change the nature of the relationship between certain work providers and working people. Furthermore, it may reduce employers’ willingness to offer atypical working arrangements and some rights, such as maternity rights and the right to unfair dismissal may increase administrative burdens on business.

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o conclude, it is, therefore, possible to say that a high degree of uncertainty attaches to the legal criteria by which workers are classified. This means that the effectiveness of the law, in practice, may be called into question. However, it is important for both parties to know what the legal relationship is. On the part employer, he will then know the extent of his liability and on the part of the worker; he will know that rights he has, both in respect of his employer and in the wider context of welfare benefits and employment protection rights. It has also been made clear by above arguments that the existing classifications have become too rigid to deal effectively with the growth of non-standard forms of employment, that is to say, those forms of work which depart from the model of the 'permanent' or indeterminate employment relationship constructed around a full-time, continuous working week. The result is said to be the exclusion of certain groups of workers, whose status is unclear, from the protection of employment legislation. However, my opinion is in support to maintain the status quo and consider the scope of new rights of the self-employed on a case-by-case basis because radical change of their status may require changing some key Acts of Parliament in order to redefine workers and it will impact adversely to the small-businesses and overall economy.

BIBLIOGRAPHY

TEXT BOOKS

1. Collins, Ewing & McColgan, Labour Law, (Hart Publishing, 2001) Chapter-2, Page 63-202
2. Deakin and Morris, Labour Law 3nd ed. (Butterworths, 2001) Chapter- 3
3. Smith & Thomas, Industrial Law (Butterworths 7th ed, 1999) Chapter-1& 2

STATUTE BOOK

Blackstone's Statutes on Employment Law 2002-2003 (Twelfth Edition)

CASE BOOK

Painter, Richard W., Cases and materials on employment law. - 4th ed-Oxford University Press, 2002. Chapter- 2( Page 49-189)

WORLD WIDE WEB

1. Lexis-Nexis 
2. West-law 
3. Advisory, Conciliation and Advisory Service  
4. ‘Discussion document on employment status in relation to statutory employment rights’- July 2002 ()
5. ‘The Employment Status of Individuals in Non-standard Employment’ - Brendan Burchell,Simon Deakin and Sheila Honey. ()

ARTICLES

1. Brodie, Douglas 1998. ‘The contract for work.’ Scottish Law and Practice Quarterly, 2,

138-148.

2. Kahn-Freund, Otto 1951 ‘Servants and Independent Contractors’ Modern Law Review,

14: 504-509.

OTHER MATERIALS

Law Questions and Answers, Employment law, Deborah Lockton, Cavandish Publishing, 2nd edn. 2000

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