Distinction Between Employee And Independent Contractor
Employment law is a type of law that deals with the rules regarding the relationships between employer and employee. This relationship is based on ordinary contractual relationship where there is an offer from one party and acceptance from another party. The two parties to an employment contracts are the employer (the person who employs) and the employee (the person who is employed). There are difficulty in determining whether someone is an employee or not. For example someone who is not an employee is known as an independent contractor and here the laws relating to employment law would not be applicable to an independent contractor. Some of the important legislations that are related to an employee and not an independent contractor are Employment Rights Act (ERA) 1996, which is an important statute that deals with unfair dismissal , redundancy, notice rights , protection of wages and the Trade Union and Labour Relations Act 1992, the Employment Relations act 1999 and 2004 concerns the law governing trade unions, their relations with their members and employers , industrial action and collective bargaining.
REASONS FOR THE DISTINCTION BETWEEN EMPLOYEE AND INDEPENDENT CONTRACTOR
Section 230(1) Employment Rights Act 1996 (ERA 1996) defines an employee as “an individual who has entered into or works under contract of employment". Contract of employment means a contract of service or apprenticeship whether express or implied and if express whether it is oral or in writing. There is no definition under the Act on the meaning of independent contractor. Therefore we can say that an employee is someone engaged under the contract of service.
It is important to know if someone is an employee so that he can enjoy the benefits under the ERA1996. An employee will have been selected by the employer and will usually work full time for the employer under degree of supervision or a wage or salary. The employer will deduct income tax from his pay , the employer will also make social security contributions for the employee and will provide pension scheme which the employee can join. An employer under the ERA 1996 must give the employee two month (2) after the beginning of his employment , a written particulars of the major terms of the contract. It is also important to distinguish between the employee and the independent contractor as it will bring the effect of the Inland Revenue principle, employment protection purpose, vicarious liability and the degree of duty of care. One of the most important reason to determine whether a worker is an employee or not is that the employee can enjoy the rights and remedies provided under the Employment Rights Act 1996 and these are not available for independent contractor.
VARIOUS TESTS USED BY COURTS
Besides the contract of service , there are other tests adapted by the courts to decide if an individual has the status of an employee. They are :-
Multiple factor test
Mutuality obligation test.
This test refers to the level of control of employer has over its employees. This control arise from the division and enforcements of jobs, time and work time. The test is named control test as it has adopted the definition given by Lordship Bramwell B in Yewens v Noake i.e :-
“an employee is subjected to the orders of his employer as regards how the work ought to be carried out. The employer ‘s control over the workers is not confined to what has to be carried out but also in which manner it has to be carried out". In the case of Walker v Crystal Palace, a football player as a skilled person was given more freedom as to how to perform his job but yet he was under the control of his master as he was under the direction of the football club and direction of his captain all the times. Also his method of play, discipline and training were all controlled under his master and hence he was an employee. There were some weakness in this test as it had become less effective because in the modern industrial set up there are several specialist who monopolise a particular skill and the degree of control has become loose . the degree of control on employee has become lessen and this test was found to be unsuitable.
Also known as the organization test where it refers to employees being essential group of the organization. The question is how far is the employee integrated into the employer’s business . if the employee is integrated full into the employer’s business then he is an employee or is under the contract of service. It is clear the at an independent contractor do not become part of the employer’s business. Lord Denning in the case of Jordon & Harrison v MacDonald & Evans suggested that an individual is an employee if his work is an integral part of business even though the employer has no direct control on his employee.
Multiple Factor Test
It is also known as the mixed test refers to entire situation and much wider then the control and integration test. The courts would look at various factors to determine whether the person is an employee or not. In the case of Short v Henderson (1946), four criteria was used to ascertain whether a worker is an employee or otherwise. They are the power of choice, wages or remuneration, the right of suspension and dismissal and also right to control. In the case of Morren v Swinton Pendelbury Borough Council ( 1965). The factors looked into by the courts include:-
Number of working hours
The normal working hours
Geographical limitation of work
The skills and also the perception of the society as regards the worker
Methods of appointment and termination
Types of wages
Mutuality Of Obligation Test
This test means both employer and employee are under obligation, for example the employee is under an obligation to perform work and the employer is under obligation to provide work. There cannot be a contract of employment if there is no mutual obligations. Once there is an obligation by the employee she or he is entitled to pay , holiday pay and sick leave. In the case of Carmicheal v National Power Plc, there was no mutuality of obligation on the casual workers who were power station tour guides. When they were offered work they were asked to sign a statement stating that they were offered an offer of employment as casual as required. The court held that this means they are not employees but are independent contractor owing to their position as casual as required. They receive payment based on number of hours they work less deductions for income tax and National Insurance payments.
Compared to an employee, these people are employed by means of a contract for services. There is no control over them or supervision for example garage proprietors, house builders, dry cleaners etc since they are independent members of the public who use them. If a house owner pays a person or group of persons to paint his house, the contract between them is a contract for service. Where a factory manager gets a painter to repaint his factory the contract is for services rendered and the painter is not considered to be an employee.
5 DIFFERENCES BETWEEN AN EMPLOYEE AND AN INDEPENDENT CONTRACTOR.
An employee under the ERA 1996 is bound by the contract of service while an independent worker is bound by a contract for service. Is not an employee as per the Act. The employer has the responsibility and power to control over his employees whereas for the independent contractor there is no power of control but the party requiring the services can determine the date for the work to be done.
For the employee is entitled to the payment of wages and salaries. For the independent contractor it is the payment of fees or retainer and the need for the contractor to submit payment invoices for each piece of work completed. If the worker is an employee they are subjected to the different Acts for example the employer is responsible to contribute to Income tax and social security benefits. The contractor on the other hand is free and the party offering the services has responsibility over the work that has been assigned. The other matters are the responsibility of the original employer.
The concept of vicarious liability exist in the relationship between employer and employee where the employer is liable in tort for the wrong done by the employee while at work. In the case of Century Insurance Co v Northern Ireland Transport Board(1942), the driver of a petrol tanker was engaged in transferring petrol to an underground tank when he lit a cigarette and threw the match to the floor. A fire was caused and an explosion occurred causing damages. The question was whether the employer was liable for this and the court held that the employer was liable for vicarious liability since the driver’s negligence was not independent of the contract of service but was merely a negligent way of discharging his actual duties under that contract of service.
The other differences between an employee and an independent contractor are the tools and facilities to complete the work is provided by the employer whereas for the independent contractor the tools and facilities are provided in the contractual terms but usually these are provided by the contractor himself. The ERA 1996 provides that employees has no right to be unfairly dismissed and before the employee can bring an action against the employer certain requirements under the Act must be fulfilled. For example he must be an employee within the meaning of the Act, he must have been continuously employed for one year, they must present their complaint of unfair dismissal within three months of the date of dismissal and finally they must have been dismissed.
The tests used to ascertain whether a worker is an employee or independent contractor are control test, integration tests, multiple test and multiple factor test. Sometimes these test used by courts are not very conclusive. The most better approach to whether the contract entered into is a contract of service or contract for service would be to take into account the viewpoint of the ordinary man as regards the contract i.e whether according to the ordinary man’s view there existed a contract of service. Whether the parties have entered into a contract and all the terms and conditions were in written form. Without doubt then there would exist a contract and the relations between the parties has to be seen from the written documents themselves.