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Published: Fri, 02 Feb 2018
Employee and Employer Relationships
Mr Witanga has enjoyed model making as a hobby for over thirty years. In March 2004 he was engaged by Hans Christian Anderson Model Making Studio Ltd (“the Studio”) to make miniature models for a film. The Studio had a close working relationship with another company “Ugly Duckling Ltd”, and it was not unusual for people working for the Studio to work for periods of time on Ugly Duckling Ltd’s projects.
In May 2004, Ugly Duckling Ltd won a tender to make models for a major film. It set up a special models unit to film some of the special effects for the movie. Ugly Duckling Ltd approached the Studio requesting contractors to work on a temporary basis in the special models unit. The Studio suggested that Mr Witanga work on the project and after some discussion, Mr Witanga agreed to provide his services to Ugly Duckling Ltd on a full time basis. He was taken on as a Special Effects Technician. By the end of May 2004 approximately 42 crew including carpenters, engineers, camera operators, lighting and model technicians, assistance directors, continuity staff, camera technicians and grips were engaged by Ugly Duckling Ltd to work in the Unit.
Mr Witanga did no have any written contract with the Studio nor was he given a written employment agreement or work contract when he started working for Ugly Duckling. For the first few weeks he received training from Ugly Duckling but from then on, he was left to his own devices to build models for the film according to designs drawn by the director. He worked fixed hours, 8am to 6pm Monday to Friday, with a 45 minute break for lunch. He did not work for anyone other than ugly Duckling Ltd despite the fact that he had on occasion completed one-off jobs for other companies while doing work for the studio.
He was paid an hour rate of £45 which was paid in one lump sum without deductions into his bank account on a monthly basis. He had specifically asked for this means of payment so that he could make the most of lower tax rates for the self employed. Although he provided personal services to Ugly Duckling Ltd, it was agreed he would continue to receive payment from the studio. The Studio in turn invoiced Ugly Duckling Ltd for Mr Witanga’s services. In July 2004 he asked Mr Lucasfor, and received a pay increase from £45 to £52 an hour.
In September2004, following his attendance at a seminar on employment issues given by Ugly Duckling Ltd’s solicitors, Mr Lucas issued written contracts to all people working in the unit. It was a standard form contract for workers and it referred throughout to “Contractor” and” Independent Contractor”.
The contract included a clause permitting the contractor or the independent contractor to terminate the contract on one week’s notice. It also included the following clauses:
3.6 “This document contains the whole agreement between the parties and any amendment to it must be made in writing.”
4.2 “The independent contractor will be paid an hourly rate of £52.This will be paid on the 26th of each month or if that is not possible, the contractor will be paid out of the proceeds of the film.”
Other than checking to make sure that he was being paid his agreed £52per hour, Mr Witanga did not take much notice of the contents of the contract. He signed the bottom and returned it to Mr Lucas. Except for the contract, there were no other changes to the working relationship and Mr Witanga continued to carry out his job as normal.
In August 2005 rumours started circulating that Ugly Duckling Ltd was going broke and many of Mr Witanga’s colleagues left to work on other films. Mr Witanga, however, stuck with it until he did not receive his monthly payment on 26 September 2005. Mr Witanga immediately contacted the Studio and was informed that Ugly Duckling Ltd had not paid theStudio’s invoices since May 2005. Consequently, the Studio would no longer be paying Mr Witanga. The Studio told him to contact Ugly Duckling Ltd instead.
On 28 September 2005 Mr Witanga spoke with Mr Lucas who said that as the film was running over budget, the company would pay all contractors out of the film’s proceeds. Mr Witanga told Mr Lucas that this was against his employment rights, to which Mr Lucas responded that Ugly Duckling Ltd was well within it contractual rights to make payment in this manner. Mr Witanga asked when the film would make it to the big screen, to which Mt Lucas replied: “at this stage, chances are it will only ever be released on video in 10 years time!”
The following day, Mr Witanga submitted a letter of resignation and in the afternoon, filed an ET1 claim against Ugly Duckling Ltd at the local Employment Tribunal. In his ET1, Mr Witanga alleged that he had been constructively dismissed from his position as Special Effects Technician.
Advise Mr Witanga as to whether he has a claim against Ugly Duckling. Your advice should outline the relevant case law, procedure and any arguments that Ugly Duckling Ltd may put forward in response. You should also outline any employment tribunal process now that Mr Witangahas filed an ET1, and consider the ways in which the matter could be resolved.
Employee is a person who is engaged in work under the direction and control of another the employer in return for a wage or salary as defined in Melhuish v. Redbridge Citizens Advice Bureau  IRLR 419EAT. However, under common law an employee is defined by making reference to the contractual relationship at common law. Employee is also defined under section 230(1) of the Employment Rights Act 1996(ERA). Whereas, an employer is the person who engages another employee to work under his/her direction and control for a return for wages and salary. If the employer is a company then the company shares the characteristics of an employer. Alternatively, where there are group of companies, they are deemed as associate employers even if one of the companies control the employee it is a sufficient proof that the employee is employed under the same umbrella.
There are number of test that can be used at common law to determine whether a person is an employee of the employer. One of these tests is the control test but this is considered inadequate in highly skilled workers. However, control test is usually used along with other tests.
According to case law, the courts tend to adopt the ‘integration’ or’ organisation’ test. These tests take an approach from a distinctive dimension by assessing and examining whether the person performing the job was integrated into the business or whether s/he subsisted as a division and apart from the business as considered in Whittaker vMinister of Pensions and National Insurance  1 QB 156.
There are number of changes in terminology such as the contract of service is now referred to contract of employment. Furthermore, integration and organisation test still subsist but when the courts consider the existence of a contract of service or employment the court are more prone to consider the following factors in reaching a conclusion and ascertaining the employment status of the person:
- The mutuality of the obligation between the contracting parties. In other words, the employee agrees to provide his own work and skill in the performance of some service for the employer on consideration for a wage or other remuneration.
- Secondly, the degree of control that the employer has over that person employed to perform the job. If the person agrees to be expressly or impliedly bound or be subject to a degree of control by the employer in the performance of his/her duty as subjecting himself to the control of the employer.
- If the provisions of the contract indicates a consistence that draws the contract more to the employer and employee relationship as in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance  2 QB 497 at 515.
In almost all cases control is considered as the “irreducible minimum” legal requirement for the existence of a contract of employment (Montgomery v Johnson Underwood Ltd  EWCA Civ 318) along with other factors. A person’s employment status is likely to be dependent on the balance of many relevant factors. Some of these factors may include mutuality of obligation, control, integration and organisation. In number of cases courts focus on all the relevant factors as in Market Investigations Ltd v Minister of Social Security 2 QB 173 which was also applied in Lee Ting Sang v ChungChi-Keung  2 AC 374.
Some of the factors that have been considered by the courts in the fast have included; method of payment, degree of obligation to work only for the that specific employer or the employee’s discretion to choose who s/he works for, stipulation as to hours, overtime, holiday and so forth, arrangements for payment of income tax and national insurance contribution (however, this factor is not determinative as in Davis v New England College of Arundel  ICR 6, EAT) a person paying tax as a self employer was later held to be an employee), how the contract may be terminated, whether the individual may delegate work, who provides tools and equipment and who ultimately bears the risk of loss and the chance of profit (Lee Ting Sang v Chung Chi-Keung 2 AC 374, ).
In President of the Methodist Conference v Parfitt  QB 368 the nature of the work assisted the court to determine the person’s employment status. In number of cases where the contracting parties attempted to treat the contract in such a way that it advantageous for that party appears to be decisive, thus the courts tend to consider the person’s employment status in an objective way (Young and Woods Ltd v West  IRLR 201CA).
In the course of an employment, a person may have been described as a self-employed but on the termination of an employment and the consequences of a claim for unfair dismissal or any other claim s/he may be established to be an employee of the business (Young and Woods Ltd v West  IRLR 201 CA). Nonetheless, this usually has a complicated tax implication both for the employer and the employee.
Furthermore, it is not always feasible to determine the employment status of a person just from the outset of the contract instead it is likely that the court will examine the whole circumstances and all relevant information including oral and written information and documents and the relationship between the parties. In a case of what is often referred to as ‘atypical employment’, such as temporary or casual work, sporadic work or home working, it may be appropriate, when determining on the employment status of an individual subject to such a regime, to consider whether there is adequate mutuality of obligations to justify a finding that there was a contract of employment.
There may be two or more employers that may be treated as associates in accordance with the relationship and control of the associates. If one of the other company is directly or indirectly controlled or a third party has a direct or indirect control of the two companies they are to be deemed as associates and employers of the employee in question Merton London Borough v Gardiner  QB 269. Thus under section 231 ERA associates are construed accordingly. If one, company controls the other by way of voting control as having majority of the voting rights attaching to the shares and exercisable in general meetings. Control does not necessarily mean by one person or one organisation it may include a group of people or companies jointly possessing the requisite of majority rights as long as the group act as one whole entity or identity. Voting control test is most appropriate in the circumstances to establish an association Payne v Secretary of State for Employment  IRLR 352, CA.
The relationship between an employer and employee to a contract of employment is the type of a conventional relationship between a ruler and the ruled. The relationship is governed by the express and implied terms of the contract and by statutory rules that the contract cannot exclude. These relate to unfair dismissal, redundancy, maternity rights, trade union memberships and activities, and health and safety at work. On the doctrine of vicarious liability, third parties may hold an employer liable for certain, wrongs committed by his/her employee in the course of his/her employment.
A self-employed is engaged under a contract for services and owes hisemployer or customer no duty other than to complete the specified workin accordance with the terms of the individual contract for thatspecific work. Self-employed is not under the direction or the controlof the employer as to how and when the work is to be performed.
CONTRACT OF EMPLOYMENT
Contract of employment is where a person agrees to undertake certainduties as an employee under the direction control of the employer inreturn for salary. Generally, the contract of employment need not be inwriting but under the Employment Rights Act 1996 the employee isentitles and must be given written statement of terms of employment.The contract of employment can be inferred from the conduct of theparties or any other arrangements that have passed between the parties.Even if the contract was never expressed by the parties, but from theconduct of the parties there is indication that contract of employmentexist.
Thus, an employment tribunal is more prudent in examining all therelevant evidence including the conduct and communication as it willassist the court in making inferences from implied reactions of theparties, which have not been expressly expressed in the contract. Onthe contrary, if there is evidence, which indicate that such intensionwas not intended then it will prevail over any other inference that thecourt will make. In effect, this will rebut the existence of thecontract of employment.
Every contract of employment contain an implied term whereby thereis a duty of mutual confidence and trust, the employer’s duty toprotect the employee from danger and risk to his health, the employersduty to perform the work to the best of his ability.
Employees employed for a continuous term in the same business isentitled to certain statutory rights relating to unfair dismissal andredundancy that do not apply to the self-employed. Continuousemployment is the period for which the employee’s employment subsistedin the same business.
TERMS OF CONTRACTS OF EMPLOYMENT
The contract of employment has a major significance as it characterisesthe terms and conditions in the contract which will inevitably assistin a common law claim for damages for a breach of the contract. On theother hand, it can also serve some importance in statutory employmentlaw. In Laws v London Chronicle (Indicator Newspapers) Ltd  2 AllER 285 it was held that a contract for service is assessed in the sameway a contract is assessed.
The applicability of the Unfair Contract Terms Act 1977 to theemployment contracts remains uncertain. According to Brigden v AmericanExpress Bank Ltd , IRLR 94 it was held that Unfair Contract TermsAct has an application in contract of employers on the basis that anemployee can deal as a consumer thus, the terms of the contract ofemployment is subject to the reasonableness test.
There are number of types of term in a contractual relation, which alsocovers the contract of employment. The implied terms under anemployment relationship context, in particular is a term that isimposed on a contract of employment by statute. In other words, it is aterm that is not agreed by the parties in words but either regarded bythe courts as necessary to give effect to their presumed intentions orinduced into the contract by statute. If the implied term is introducedby statute, it often cannot be expressly excluded. Thus, such terms areconsidered as obligations hence considered to be imposed on the partiesrather than implied.
Whereas, express terms under contract of employment are provisions of acontract agreed to by the parties in words or spoken. The implicationsof any terms have the same application and effect as under ordinarycontract law.
Furthermore, terms may be implied into a contract under either the“officious bystander” test or the “business efficacy” tests. Thesetests are assessed subjectively aiming to establish the existence of animplied agreement between the parties. However, the implication of suchterms must be balanced and emphasized. In the employment context,implied terms are used as a mechanism to impose a solution to thedispute between the parties. Additionally, such a terms is favourablein overcoming grey areas of employment law and aiming to simplify theemployment relations, obligations and rights of each party.
Nonetheless, there still remains the grey area of whether UnfairContract Terms Act 1977 has any application despite the case, whichindicated the applicability of the Act. On the contrary, their stillremains uncertainty in the applicability of the Act. Therefore, thereis arguable case for the extension of the orthodox of law of contractto employment contracts especially more sharp focus on thereasonableness of employment contractual terms.
The employer has a contractual rights under the express terms of acontract and also under the implied terms of trust and respect so thatin the event that the employer exercises his contractual rights in anunreasonable manner in breach of contract; the employee is entitled toabdicate from his post and claim compensation and damages forconstructive dismissal.
Employer’s conduct may give rise to a circumstances entitling theemployee to terminate his/her contract of employment without priornotice may still make a claim for dismissal on a constructivelydismissed basis Hilton International Hotels (UK) Ltd v Protopapa IRLR 316 EAT. However, employee is only entitled to this right wherethere is an actual breach of contract (Walker v Josiah Wedgwood &Sons Ltd  ICR 744) rather than anticipatory Norwest Holst GroupAdministration Ltd v Harrison  ICR 668. Upon the repudiation ofthe contract employee must inform the employer, if not inform it mayamount to waiver of a breach and affirmation of the contract however;this will depend on case by case basis and circumstances leading tosuch conduct.
The question as to whether there is a repudiatory breach by theemployer is a question for the tribunal to determine in thecircumstances of each case. Quite often, reported cases are not used asprecedence and they cannot regarded to be. There may be a finding ofconstructive dismissal in one or more of the following findings:
- Employer’s failure to pay wages (Stokes v Hampstead Wine Co Ltd  IRLR EAT) or unilateral decision to cut pay
- Demotion or other change in status
- A change of job content not permitted or envisaged by the contract
- Undermining a senior employee’s position
- Change of the place of work, or breach of a mobility clause, whether express or implied
- Unilateral change of hours
- Failure to ensure the employee’s safety
- Breach of the term of trust and respect
- Failure to follow a contractually binding disciplinary procedure
- Imposition of a disciplinary measure in a disproportionate manner
- Failure to provide a reasonably suitable working environment
- Failure to deal with grievances properly and timorously
The automatically unfairness does not apply to constructive dismissalhence is subject to contributory fault on the employee’s behalf if s/hehad not clarified the matter before jumping into conclusions on anexistence or non-existence of a fact which he considered it as beingrepudiatory breach resulting from the employer’s conduct. It must bethe employer’s conduct or another employee’s conduct performed in thecourse of his/her duty to constitute a repudiatory breach of contractof employment.
CLAIM FOR CONSTRUCTIVE DISMISSAL
The employee is presumed to have been continuously employed unless thecontrary is substantiated as under section 210(5) of the ERA 1996. Thetribunal is likely to consider the following facts in establish thecontinuity of the employee’s employment:
- Whether the employee’s employment is capable of being counted towards a period of continuous employment OR
- Whether periods either consecutive or otherwise are to be treatedas materializing a single period of continuous employment.
The computation/calculation of the period is assessed on week by weekbases. Conversely, if the circumstances call for the calculation to bedone by month by month or year by year then it must be done accordinglyin such format to give the correct effect to the period of employment.
MR WITANGA’S POSSIBLE CHALLENGE
Mr W is within the limitation period of three months to initiate hisaction for constructive dismissal to the employment tribunal from thedate of his termination of employment, which is the date when he hadleft work as a consequence of repudiatory breach. The difficulty withMr W application is in relation to the continuation of his employmentfor a period of two years. Under ERA he must show that he had beenemployer for continuous of two years and he must be under the age 65unless there is an inadmissible reason for his dismissal, which lengthof service or age is disregarded.
According to the facts, Mr W has not been employer for a period acontinuous period of two years therefore his claim may be difficult tobring but if he is able to prove that his dismissal was a result ofinadmissible reason then he has a great chance of initiating hisaction.
Mr W would claim that the contractual term, which gave specificconditions under which independent employer, was employer does ineffect not apply to him as his hourly rate was increased as a result ofhis request not because he should be classified as an independentcontractor. Secondly, he had not realise the term in the contract priorto signing the agreement and without giving due consideration to thelikely consequences (good faith, he had not doubt his employer).
Employment of service: According to the facts, Mr W employment statusmay seem ambiguous as the terms created under the terms of his contractof employment and the circumstances that connote with the facts of thecase. It is likely that Mr W will face a challenge on this issue. Inadopting the test applied for the determination of a persons employmentstates it may be established that he may be an employee of UglyDuckling and the Studio. He is likely to allege that he is an employeeon the following basis:
- Mr W may argue that since he had no control over who he could workfor meant that he was confined to the working hours of the companywithout being able to work for others. In effect, he was restrictedwithin the ambit of the hours delegated to him to perform the dutiesspecified by the employer. Additionally, over the course of hiscontract he had only done few odd jobs from time to time.
- Furthermore, under the control test, it is arguable that Mr W wasprimarily had to follow the designs directed by the director and alsothe fact that he was given few weeks training at the commencement ofthe employment (consider the application of Montgomery ). He hadcontractual obligation to work within the hours of 8 am until 6pm fromMonday- Friday. This limited his weekly hours to work for any otheremployer other then the employer in question.
Associate: Mr W may challenge that Ugly Duckling and the Studio may beassociates. However, there is no indication in the fact that suggestthat both entities are associates but since they both trade in the samefield it sound obscure that the Studio is permitting its employees towork for a competitor. There is a strong connection that the one of thecompanies is a parent and the other is a subsidiary. If that is thesituation, and the majority voting control is held either by UglyDuckling, the Studio or a third party then this may be evidence of anassociation following the case of Merton London Borough. If they areassociates, Mr W may initiate an action against either one of theassociates or join the other associate to the action as jointdefendants.
Unfair Contract Term: Mr W may allege in his application to thetribunal that the terms entered into his contract of employment wasunfair on the basis that he was informed that he is likely to receivehis wages in 10 years time after the film have been released on videoand the proceeds have been collected. He may use the case of Brigden ,by arguing that in the incorporation of the contractual terms him andhis employer as the parties to the contract were dealing as consumersin relation to the contractual relations on the basis that (1) heneither made the contract in the course of a business nor holds himselfout as doing so; and (2) the other party does make the contract in thecourse of a business. In addition, he may use Section 12(1)(a), (b) toshow that term 4.2 is unreasonable term under the unreasonableness testas 10 years wait for wages is unjustifiable. The case of Brigden vAmerican Express Bank Ltd  IRLR 94 may be distinguish on thegrounds that in Mr W case, the employer is intending to pose aunreasonable delay on the fulfilment of his contractual obligation ofpaying the employee within a reasonable time.
Constructive dismissal: Mr W claim for constructive dismissal is likelyto be on the ground that he had not been paid his wages for substantialperiod and furthermore, he was indirectly informed that he would bepaid his wages in 10 years time.
The facts do not suggest who Mr Lucas is but even if he is an employeeof the employer and was acting in the course of his employment then itis likely to constitute to the employer’s conduct. This argument willpossibly succeed as in Hilton International Hotels (UK) Ltd v Protopapa IRLR 316 EAT.
UGLY DUCKLING LTD’S POSSIBLE DEFENCE
Firstly, and mostly the defence would challenge the admissibility ofthe claim on the basis that Mr W has no right to initiate the action ashe has not been in continuous employment for a period of two years.Secondly, if Mr W overcomes the continuous employment period then thedefence is likely to represent that he was only employed as anindependent constructor as specified under the terms of the contractwhich Mr W had independently signed without any dispute. The terms ofthe contract of employment was not unanimous but clearly indicated toeach employer the conditions and terms of employment.
Self-employed: the first possible argument that the defence may laybefore the tribunal is likely to be that Mr W is not an employee of thecompany and that he is a self-employed. In their argument, they willdispute and also challenge the possibility that Mr W may be consideredas an employee on the following issues:
- Mr W is paying his own income tax on his earning from the company.He even specifically requested to be paid on a certain date in order toarrange his own tax liability and benefit from lower tax rate forself-employed. This in effect proves that he wanted to be classified asself-employed in order to benefit from lower tax rates. This is asignificant argument as identified in Tyne and Clyde Warehouses Ltd vHamerton  ICR 661, EAT.
- Secondly, Mr W must have accepted that he was a self-employed underthe terms of the contract as he even demanded for payment of his wageson the date that self-employed workers receive their payment.
- Under term 4.2 of the contract it was specified that self-employedwould be paid on the 26th of each month and the hourly rate of paywould be £52. Furthermore, the contract had been signed by Mr W withoutany undue influence on the part of the company. Additionally, thecompany gave an opportunity for every employer under term 3.6 torequest amendment in writing, if they wish to make any changes to thecontract. Nonetheless, if Mr W wanted to dispute the arrangements hehad an opportunity in the terms of the contract, which he fails torequest.
Unfair Contract Term: In response to Mr W arguments the company mayrepresent and challenge the matter on the basis that the term of thecontract (4.2) is in itself not unfair as it does not state when theproceeds of the film is likely to be received. On that basis and on thebasis that Mr Lucas was only making a speculation on the time period ofthe expected date for receiving the proceeds. Furthermore, it isarguable that even of the company had been insolvent Mr W wouldultimately receive some of his money as a creditor of the company atleast the first £800 then any remaining amount he will receives as aunregistered creditor. Additionally, there may be an argument that UCTAis inapplicable in this case because of the uncertainty as to theapplicability of UCTA in employment contracts as in Chapman v AberdeenConstruction Group plc IRLR 505.
Constructive dismissal: The employer is likely to defend the claim onthe basis that Mr W have jump to conclusion when he was informed thatthe film would release on tape 10 years later. Furthermore, Mr Lanceshad never informed Mr W that he would be paid 10 years later or thatthe proceeds of the film will be received 10 years later.
Additionally, if Mr Lucas is not the employer, the employer may defendthe claim on the fact that Mr Lucas’ conduct cannot constitute as beingthe employer’s conduct since firstly, he is not the employer andsecondly, that he was not acting in the course of his employment;Hilton International Hotels may be distinguished.
Furthermore, if the tribunal find constructive dismissal, the employermay argue that some of the fault is contributory by Mr W on the groundsthat had failed to make enquiries as to the date of his payment. Ineffect he had jump to conclusions without due consideration as to whenthe proceeds would be received.
EMPLOYMENT TRIBUNALS PROCESS
Usually, employment claims from go directly to a hearing before achairman but in some unordinary cases there may be an interim hearing.One the chairman looks at the evidence in the process of casemanagement conference s/he will consider the procedural steps. Thechairman may make an order for further evidential proof and the lengthand date of any subsequent hearings.
If the case is remitted to a main hearing the parties may be required,to produce more information at the main hearing. In a pre-hearingreview both side will explain the basis of their case. If the tribunaldecides the end of the case it may not admitted it to a main hearing.
At the main hearing, the parties will represent their argument before achairman or a full tribunal. Each party must represent their evidenceeither in affidavit statement, witness statement or an oral witnessstatement. At the end of the hearing the court will determine theoutcome based on the facts represented before it then it will make anorder as it considers necessary with the wish of the employee if s/heis successful in his/her claim.
RESOLUTION OF THE MATTER
Mr W may claim an interim relief from the employment tribunal.Furthermore, compensation for unfair termination of his employment bythe employer. Employment tribunal may order the continuation ofemployment but in this case Mr W may not want such a relief as theemployer is going insolvent. The availability of remedy must beinformed to the employee who must make the ultimate decision as to whatorder s/he wishes the court to make. The employment tribunal can makean order for reinstatement, re-engagement or compensation.
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