Employment Status: Employee vs Worker - Essay Sample

Introduction

In determining a person's employment status, the overarching consideration will be the substance of the relationship existing between the employee and the employer. An employee works under a service contract that binds him with the employer, whereas workers work under their terms. There, however, exists a minimal distinction between the two. The definition of a worker is broader than that of an employee as independent contractors who are personally involved in daily operations are included.

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Employees possess certain vital rights, including claiming unfair or wrongful dismissal, and legal redundancy pays. The rights are protected under the health and safety acts and the insolvency legislation upon a business transfer. The difference is between an independent contractor (or one who is self-employed). It is working under a contract of services and an employee working under a 'contract of service.' The difficulty in this issue has seen courts come up with several tests to try resolving it.

In Section 230(1) of the Employment Regulations Act (ERA), an employee is 'a person who has entered or works under a (where the employment has stopped, worked under) an employment contract.' In Section 230(2), ERA defines an employment contract as a contract of apprenticeship or service, be it express or implied, and if expressed, then whether written or oral. The courts have developed specific criteria to define employment status. According to the Ready Mixed Concrete (South East) Ltd v the Minister of Pensions and National Insurance [1968] 2 QB 467, there must be mutuality of obligations (the obligation to work and to pay).

A tribunal would decide if the person has the correct minimum amount of work or pay. The move would show the employment status, or whether the person could decline work or the contract terminated upon a project coming to an end. The second is personal service, which is the right to substitute another individual, third is enough control by the person benefiting from the work. The tribunal would look at all the facts to determine if the employer had sufficient control over the individual to constitute employment status. Here, considered are levels to which the person is answerable to the employer, level of integration into the business, training, and seniority levels. The fourth consideration by the tribunal is the consistency of the other provisions within the contract guiding the employment contract. These include financial risk, insurance, type of pay, leave, among other considerations.

In Young and Woods Ltd v West: CA 11 Feb 1980, the applicant complained of being dismissed unfairly. However, the employment contract had addressed the applicant as a self-employed service provider, so that he may benefit from the tax, which was illegal. The employer appealed, arguing that the contract was unlawful, and should be ignored by the courts. The Court held the judgment of the lower tribunal and concluded that it would not be contrary to public policy to have an employee withdraw from an unlawful contract. One of the judges said that the parties' label to describe their relationship is not enough to change or define how they relate, but in deciding their right relationship, how they express their real intention is relevant but not conclusive. The facts of the case may vary its importance. In this case, the Court relied on the content of the contract during hiring.

In Massey v Crown Life Insurance Co [1978] 2 All ER 576, CA, John Massey was given a one-month termination notice by a company he had served for four years. A move he considered unfair. Upon being advised to change his relationship with the employer from that of master and servant to that of employer and independent contractor, the Industrial Tribunal looking at the case found out that the change was a good agreement between the parties, and not meant to deceive the tax department. The name change got upheld. Massey was not an employee under a service contract, hence could not be fired under the unfair dismissal provisions in the Act of 1974.

In Interlink Express Ltd v Night Truckers Ltd and Another: CHD 23 Mar, 2000, the claimant had contracted for night delivery of parcels, and the defendant had hired other drivers. With the defendant operating the vehicles, he needed a license to carry the goods. Given that he had no such consent, the Court held that the agreement was void, as the defendants' drivers were not employees of interlink who did not possess such a license. There existed no employment contract between the drivers and the claimant.

In McMeechan v Secretary of State for Employment, after his agency went insolvent, Mr. McMeechan claimed unpaid wages from the National Insurance Fund through the secretary of State for Employment. Despite having no written contract, he received a job description for every assignment. The Department of Employment refuted the claim, arguing the person was an independent contractor. The Employment Tribunal, however, held that he was not an employee and should not be entitled to the complaint. Upon appeal by the former, the judge held that McMeechan was an employee of the agency, and could claim unpaid wages. The written job description served to prove that he was he had been working for the firm.

In Autoclenz Ltd v Belcher & Ors [2011] UKSC 41), the Supreme Court upheld the Court of Appeal's view that the bargaining power of the parties must be considered when making decisions on whether one is an employee hence should enjoy employment rights. The Employment Tribunal found that the claimants were at least workers, if not employees. Autoclenz appealed the findings that they were workers, and the claimants appealed to the claims that they were not employees.

The Appellate judge held that they were employees, though the contract described them as self-employed. The Supreme Court unanimously held that the valeters were operating under employment contracts, so they were not affected. Such clauses stated that they had no obligation to work, were self-employed, had no right to receive work, or could not substitute another valet. The Court ruled based on the premise that an employment contract was a specific contract. Hence, it could not receive a similar treatment to commercial contracts, given that there may exist an element of unequal bargaining of power.

Salomon v Salomon & Co Ltd

The case of Salomon v A Salomon & Co Ltd addresses the doctrine that an incorporated company is a separate and legal entity from its owners. The issue has lately gained importance in company law. The case gave birth to the separate entity rule. This case has formed the basis of company law and corporate theory. In the case, Lord Halsbury aptly stated that either the business was a legal entity or it was not. If it was, then the business belonged to the entity and not to Mr. Salomon. If it was not a legal entity, then there was nothing to be an agent to at all, and no person. This, however, is impossible since you cannot have a company that does not exist.

Mr. Salomon, a businessman, incorporated his business, following the Companies Act of 1862, which required the existence of at least seven shareholders. He, therefore, included his family as partners, each holding a share. When the business collapsed, it owed Broderip some £5,000. When the latter sued the firm, the judge held that Broderip's claim was valid, given that other signatories were mere dummies, and that Salomon was just an agent of the company. The firm was, therefore, stood indemnified from the owner, in this case, Mr. Salomon.

In the Court of appeal, the previous ruling was upheld, that Salomon had disobeyed the privileges of incorporation. The judges stated that the business's establishment was not proper, given that the Act only stipulated the inclusion of shareholders who were independent in thought and not just pawns. At the House of Lords, the claims of fraud and agency got rejected. They held on to the Companies Act of 1862 as the guide, stating it's improper constitution.

The House of Lords observed that even though the firm was still the same even after incorporation, legally, it was neither a trustee nor any agent of the shareholders, and the latter could also not be held liable for the liabilities of the company's debts. Since this case, courts and legislatures have followed the separate entity principle as stipulated in article 16 of the Companies Act 1997. The issue of Salomon has remained a valid reference in the corporate field. Salomon's case has become a landmark company case law in the UK and is often cited in most cases within the area of company law. An incorporated company is legally a separate entity from the owners, and can separately sue or be sued.

There, however, exists two significant exceptions to the principle of a separate entity. These are the judicial and statutory exceptions. The statutory exceptions include provisions penalizing officers through the imposition of personal liability. Several statutory provisions have made exceptions to the separate legal entity rule. An example is the Insolvency Act 1986, involving wrongful trading or fraudulence. Under the provision of fraudulent trading, whenever fraud is seen in a transaction, the Court may, on the application of the liquidator, declare any of the parties liable for making contributions as the Court may deem necessary. Judicial exceptions, on their part, is about the firm's separate legal personality. These exceptions here, however, are not easy to define. Making of such limitations are also not easy to justify. Fraud may also be a reason enough for a court to lift the corporate veil.

In Adams v Cape Industries Plc, the Appellate Court held that the subsidiary company had acted as an agent to the principal firm; hence the parent company had to indemnify it. In Trustor AB v Smallbone, the Court held that there existed enough evidence to lift the veil on the basis that it was a "mere facade", and there existed no breach of fiduciary duty by Mr. Smallbone. In Barnes v Addy, the Court held that none of the solicitors were aware of, or had any reason to suspect dishonesty in the transaction in which they were accused of participating. In Royal Bfrunei v Tan, It was held that what mattered was the dishonest assistant's state of mind.

The test of liability in assisting the breach of trust was dependent upon dishonesty, and this is objective. The trustee's state of mind is considered irrelevant in this case, if the assistant proves to have acted in deceit. In Brinks Ltd v Abu-Saleh, the Court held that Mrs. Elcombe did not assist the, given that her accompaniment was just because she was his wife, and not aiding in the money laundering. She, therefore, could not be considered an accessory to the breach of trust.

In all the cases above, it is right to conclude that impropriety alone is not sufficient reason to pierce the veil. Still, courts may do so when a firm is used to hide facts and the liability of responsible people. It is important to note that courts, even in the UK, can disregard the principle of separate entities when public funds are at stake. In such cases, the courts may impose financial liability on the owners and directors of the said firm. Despite the criticism leveled against such exceptions, it is worthy to note that they define further the scope of the doctrine, stipulating more guidelines and narrowing its scope for better utility.

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