BUSINESS LAW LECTURE 7 EMPLOYMENT LAW I Dr.

Lawrence Modeme

EMPLOYMENT CONTRACTS: GENERAL PRINCIPLES 7.1 Introduction A person engaged in work or service for the benefit of another usually works under a contract. This contract determines the terms of the work/service and the relative powers of the worker and the person for whom the work is done. The general rules of contract law apply to contracts of employment with some peculiarities. There are, broadly speaking, two types of workers !independent contractor". #n this lecture, we shall consider$ The types of contracts of employment The formalities of contracts of employment The tests for determining type of contract The importance of the distinction Liability of employer for wrongs of employees Duties of employers and employees the !employee" and the

7.2 T !"# o$ E%!&o %"nt Contr'ct# 1. E%!&o ""# An employee is a person employed under a contract of service. #t is called a contract of service because the work involves a continuous obligation to !serve" the employer. %uch a contract is now usually referred to as a !contract of employment." A person under a contract of service/employment is usually under the direction and control of his employer. &e is paid a regular salary, is entitled to a pension, and has ta'es and (ational #nsurance deducted from his salary by the employer on the basis of )ay as *ou +arn ,)A*+-. A secretary at the faculty office who works Monday to .riday every week at a monthly salary and with holiday and pension entitlements would be an employee under a contract of service. 2. Ind"!"nd"nt Contr'ctor# These are people who are engaged to perform specific assignments either for a short period or for such periods as may be fi'ed under the terms of their contract. #ndependent contractors are usually not part of the organisation that engages their services. Their commitment is usually to do the /ob contracted as they see fit

provided they fulfil the contract. #ndependent contractors are engaged under a !contract for service", so called because it pertains to a specific assignment. A computer specialist who is engaged by the faculty to repair some faulty computers on the basis of a one0off contractual arrangement would be an independent contractor. Likewise a person engaged to work at his own pace and at his own time on a commission basis is likely to be an independent contractor. ("t"r%in'tion o$ t !" o$ contr'ct #t is a matter of fact dependent on the circumstances of each case whether somebody is an employee. Although this fact could be discovered from the terms of the contract, at times it is not always easy to decide whether a particular worker is an employee or an independent contractor. The contract may not be specific enough as to the terms, or the terms of the contract might not capture the e'act nature of the contract. The nature of the contract may therefore be distilled from the contract or from the nature of the work actually being done by the worker. %ome tests have been devised to help in determining the point. The tests are the control test, integration test, and economic reality or organi1ation test. 2n their own, a single test may not be sufficient to settle the 3uestion4 the totality of all the facts and a combination of the tests may have to be used. 1. The Control test This refers to the degree of control e'ercised by the employer over the worker in the performance of the work. The greater the control the greater the likelihood the contract is one of service. #f the employer decides what work is to be done, where, how and when it is to be done, the contract is one of service, and the worker an employee. #t is also necessary to consider whether the employer supplied the tools used for the work4 whether the worker is paid a regular salary instead of a one0off contractual sum4 and whether the employer could dismiss the worker. The lesser the control is, the more likely that it is a contract for service. #f for e'ample the worker does not need to perform the work personally but could appoint someone else to do it on his behalf4 if he provides his own tools and e3uipment, decides the manner and time of performing the work, and is free to work for other employers, these may indicate that the contract is one for service an independent contractor. #n reaching a decision on type of contract, the most important consideration is not the description used by the parties but the actual facts of each case. The cases below illustrate the point.

.erguson v Dawson 5 )artners Ltd. ,6789- : All +; <68 A building labourer worked as a self0employed contractor. &is wages were paid without deductions of income ta' or (ational #nsurance contributions. &owever the employer decided which site he worked on, directed him as to the work to be done, and provided the tools with which he worked. The employer could also dismiss him. 2n being in/ured in an accident at work, he sued the employer for breach of duty. #t was held that, from all the facts, the labourer was an employee under a contract of service. Motorola Ltd v Davidson 5 Melville =raig >roup ,?@@6- #;L; A, +AT D worked for M as an agency worker. But the agency could only send people who pass strict selection criteria set by M. M also reached service agreement with each worker sent to them. D worked under the instructions of M and was treated as other employees of M. &e worked with M" s tools, wore M"s uniforms, and could not take holidays without M" s permission. &e worked for ? years for M e'clusively although the agency could have reassigned him somewhere else if they so wished. D was disciplined and dismissed by M without the knowledge of the agency. D sued M for unfair dismissal and M claimed that they did not employ D. #t was held that D was an employee of M. =ontrol, the court said, need not only be legal, practical control should also be considered. But where the terms of the contract make detailed provisions on the nature of the duties of the worker, these provisions would be considered by the court in determining the employment relationship, unless the reality of the employment contradicts the e'pressed terms. &owever, in modern times the control test may not always be accurate. This is because there are employees with such specialised knowledge and skill that their employers may not be in a position to control how the /ob is carried out. 2ther tests are therefore necessary. 2. The integration/organization test #n cases where the employer cannot control the worker as to how the work should be done, the integration test may be used to determine the type of employment involved. The test is whether the worker or the work is integrated into, i.e. forms !part and

parcel of" the employer"s organisation. #f the answer is yes, the contract is likely to be one of service. #f the answer is no4 if the worker does the work on his own account, the contract may be one for service. #n =assidy v Minister of &ealth ,67C6- ? DB :A: it was held that a doctor was an employee even though the hospital where he worked did not control the manner in which his work was done. The doctor was an integral part of the hospital organisation. ). The Economic Reality/multiple test This test looks at all the facts of the contractual relationship, in particular, the location of financial risks and the destination of the profits. The 3uestions to be considered include$ Ehether the worker was doing the business on his own account4 whether the worker uses his own capital or resources in the business4 whether he bears a significant financial risk4 whether a significant part of the profits goes to him4 whether he is free to bring in a substitute to do the /ob. #f the answer to these 3uestions is yes, the worker is likely to be regarded as an independent contractor. 2n the other hand if the worker does not bear the financial risk4 if he does not provide his own capital or materials for the work, he would be an employee. #f there is an obligation on the part of the employer to provide work and there is an obligation on the part of the worker to perform the tasks as directed4 #f the worker works under set hours4 if the worker is entitled to sick and holiday pay4 #f other workers doing similar tasks are treated as employees4 and #f the worker is an integral part of the organisation that employs him, then the worker is likely to be regarded as an employee. ;eady Mi'ed =oncrete Ltd. v. Minister of )ension ,679<- ? FB A78 The driver of a lorry had a contract with a company. &e provided his own lorry4 he could employ an alternative driver to drive the lorry4 he was paid on the basis of mileage covered and the 3uantity of goods delivered. &e repaired and maintained the lorry at his own e'pense. &e also paid his own ta' and (ational #nsurance contributions. &owever he drove the lorry only on company business4 obeyed the

instructions of the foreman and wore company colours. &e also painted the lorry with the company colours. #t was held that the driver was an independent contractor since the facts taken as a whole do not point to a contract of service. According to MacDenna G. ,and it is now generally accepted that- a contract of service e'ists if these three conditions are fulfilled$ ,i- The servant agrees that in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. ,ii- &e agrees, e'pressly or impliedly, that in the performance of that service he will be sub/ect to the other"s control in a sufficient degree to make that other master. ,iii- The other provisions of the contract are consistent with its being a contract of service The payment of regular wages or salary is essential to the e'istence of an employer/employee relationship. #n Melhuish v. Redbridge Citizens Advice Bureau (2005) IR R !"#$ %A& the appellant was an unpaid voluntary worker at the =AB but he received reimbursement of e'penses incurred in coming to and going from work. &e also received free training. There was no mutuality, no contract of employment and no contract at all e'cept to reimburse e'penses if incurred. &e claimed unfair dismissal. #t was held that there could be no contract of employment without the payment of remuneration. A*"nc +or,"r# Agency or temporary workers may be considered the employees of the employment agency that recruits them. But in many circumstances, they may be regarded as the employees of the client company where the work was actually done. This will be so if the worker is under the control of the client company or has become so integral a part of the employer"s organisation that he is treated in the same way as regular employees. The length of time the agency worker has worked for the employer and the degree of control e'ercised over him by the employer are therefore relevant factors in

determining whether the agency worker would be considered an employee. #n Motorola v 'avidson ,above- an agency worker was held by the court to be an employee of the client company where he was sent by the agency. %imilarly in 'acas v Broo( )treet Bureau *?@@AH +E=A =iv ?68, the =ourt of Appeal held that an agency worker could become an employee of the client company because she had worked e'clusively for the client company for a long time who had control of her and supplied her working e3uipment and uniform 7.) T-" I%!ort'nc" o$ t-" di#tinction Ehether a contract is one of service or one for service has some legal implications. The employer under a contract of service owes a duty of care to his employees. There are also some statutory duties. %ome of the implications of the distinction are as follows$ ,a- +mployees are protected from wrongful dismissal. #f they are wrongfully dismissed, or threatened with wrongful dismissal, they can challenge their dismissal in court or seek an order to prevent it. An independent contract can only sue for breach of contract ,see topic A-. ,b- +mployees have protection against unfair dismissal. #f they are dismissed unfairly, they are entitled to remedies, including re0instatement and re0 engagement ,see topic A-. ,c- +mployees" contracts have implied common law duties, e.g. duty to pay agreed or reasonable remuneration4 duty to indemnify the employee for e'penses incurred in the course of employment4 duty to ensure health and safety at work. The degree of these duties, to the e'tent that they e'ist, is less for independent contractors. %ome of these duties are now also provided in statutes. ,d- +mployees are entitled to benefits like statutory sick pay, maternity leave/pay, and paternity leave/pay ,e- +mployees" wages/salaries etc, are classed as preferential debts when a company is wound up. This means they are among the first creditors to be

paid, unlike independent contractors whose debts are classed as those of ordinary creditors. ,fifferent ta! and "ational #nsurance calculations operate for employees and independent contractors. Moreover, ta'es and (# contributions are worked out, and paid, for employees by their employers4 independent contractors do these themselves. ,g- +mployers may be liable for the wrongdoing or negligence of their employees but not usually for those of an independent contractor. This is known as vicarious liability. 7.. /ic'riou# Li'0i&it Iicarious liability in law is a liability, which falls on a person as a result of the action of another person. As indicated above, employer may be held responsible for the wrongful act or omission of his employee under a contract of service. >enerally there is no vicarious liability for actions of an independent contract ,%ub/ect to e'ceptions-. This is an important conse3uence of the distinction between employee and independent contractor. An employer found vicariously liable would be made to pay for any damages or personal in/ury caused by the employee. Conditions for vicarious liability An employer is not liable for everything his employee does. Liability only arises where the act or omission was committed by the employee in the course o+ his e,-lo.,ent . +ven if an employee performs his normal task in an unauthorised manner, he would still be within the course of his employment. Limpus v London >eneral 2mnibus ,6<9?- 0 The defendants forbade their bus drivers from racing with or obstructing other buses. #n disobedience to this instruction, their driver obstructed another bus, causing in/ury to the claimant. #t was held that the defendant company was vicariously liable since the driver was doing his work although in an unauthorised way.

=ontrast with the case of Beard v London >eneral 2mnibus ,67@@-. A bus conductor, on his own initiative, negligently turned around a bus and in/ured the claimant. #t was held that the company was not liable. The bus conductor was not acting in the course of his employment since driving the bus was not part of his /ob. Moreover, the employee would be within the scope of his employment if the act he committed is closely connected to the nature of his duties. Lister 5 2thers v &elsey &all Limited ,?@@6 ) a warden employed in a residential

school se'ually assaulted some boys in the school. The &ouse of Lords held that his employers were vicariously liable since the se'ual assault was closely connected to the nature of the warden"s duties. Liability also arises where the employer authorised the wrongdoing

(o liability arises where the employee had gone outside the scope of his employment, i.e. where he had gone on a !frolic of his own". An employee goes on a frolic of his own if what he was doing was not connected to his work.

$icarious liability for acts of independent contractors >enerally an employer is not responsible for the wrongdoings of independent contractors. There are however e'ceptional circumstances when an employer might be responsible for a wrong committed by an independent contractor. These include where$ The work commissioned is inherently dangerous or risky and damage or in/ury occurs to another person while that work is being done. The work creates a ha1ard for users of the highway. The wrong committed is one of strict liability4 in this situation the employer cannot shift the liability to someone else. There was negligence by the employer in choosing an un3ualified or incompetent contractor. The duty imposed by law is personal to the employer4 e.g. duty to maintain health and safety at work.

7.1 2or% o$ t-" Contr'ct Like most other contracts, a contract of employment may be made orally or in writing. #t is usual however, for employment contracts to be e'pressed in some written form or in a standard form. More comple' contracts of employment are usually e'pressed in writing. &owever, whether the contract is in writing or oral, employers are re3uired to give their employees written statement of prescribed particulars of their employment within ? months of their employment s. " %,-lo.,ent Rights Act "##/. The only e'ceptions are merchant seamen or employees engaged to work wholly or mainly abroad, or where a written employment contract has covered all the particulars. The written prescribed particulars of employment should contain the following matters$ The names of the employer and employee The date of commencement of employment The title of the employee"s /ob ;ate, scale, or interval of pay &ours of work &oliday and holiday pay entitlements %ick leave and sick pay entitlements )ension provisions and the company"s pension scheme Length of notice of termination e'pected from either party Ehether any service with a previous employer forms part of the employee"s continuous period of employment Disciplinary and grievance procedures Junless the employer has less than ?@ employeesH +mployers are re3uired to give their employees written particulars of any changes to the above term within one month of their occurring. #f an employer fails to provide the written particulars of employment, the employee may apply to the +mployment Tribunal for a declaration of what the terms of employment should be s. 66 +;A.

7.3 (uti"# o$ t-" E%!&o "r The employer"s duty ,implied and statutory- to the employee include$ I%!&i"d 4Co%%on L'+5:

uty to pay the agreed remuneration to the employee4 in the absence of an agreed remuneration, to pay the employee a reasonable sum

uty to indemnify the employee for reasonable e!penses incurred in the course of employment

uty of care to the employee 0 this includes duty to maintain a safe place and system of work for the employee4 and to provide and maintain ade3uate plants and machinery 1ealth and )a+et. at 2or( Act "#3!4 1ealth and )a+et. at 2or( Regulations "###. An employee should not be disciplined or punished for refusing to work in an unsafe environment or for championing the cause of health and safety at work.

uty to provide work for the employee where$ ,a- payment is dependent on work done4 ,b- working is of essence in the employment, as in the case of a footballer4 ,c- where working is essential for the maintenance of the employee"s skills4 ,d- the employee is an apprentice.

uty to provide truthful and accurate information where a reference is provided to a departing employee ,but there is no general duty to provide a reference-.

uty of mutual trust and confidence towards the employee confidential.

this duty

re3uires that confidential information relating to employees should be kept

St'tutor uty to pay e%ual wages to female and male employee doing the same work %5ual 6a. Act "#304 %5ualit. Act 20"0.

uty to pay no less than the minimum wage ,KC. 7:/hour for over ??s4 KA. <:/h for 6< employees ?6 year olds, and K:.C8/h for 69 68 year olds- to the (ational Minimum Eage Act 677< ,as amended-.

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uty to provide the employees with a pay slip & s. ' Employment Rights (ct )**+.

uty to pay employees for time spent off work on official Trade ,nion activities ,sections 9< 97 Trade Lnion and Labour ;elations ,=onsolidation- Act 677?-4 and for /ob search upon being given notice of dismissal or redundancy.

uty to allow employees to perform public duties ,such as /ury service-

uty to give maternity leave and pay to working mothers, as well as reasonable time off for ante0natal care, and right of return upon completion of maternity leave. The minimum period of statutory maternity leave is C? weeks. The period of statutory maternity pay is :7 weeks ,weeks A@ C? are not covered by statutory maternity pay-. The rate of pay is usually 7@M of the woman"s normal wages. But to be entitled to paid maternity leave, the employee will have worked for the employer for not fewer than ?A weeks and will be earning at least K7C per week.

7.7 (uti"# o$ t-" "%!&o "" 4I%!&i"d6Co%%on L'+5 To provide personal service to the employer. An employer has no right, without the employer"s permission, to delegate the performance of his /ob to a third party. To give faithful service to the employer. This means he should work in the interest of the employer, and may not engage in direct competition with it either directly or through third parties 1ivac td. 6ar( Ro.al )cienti+ic Instru,ent td ("#!/). #t also means that the employee should not disclose the employer"s legitimate trade secrets, even after the period of employment. To perform with care, skill and competence employee professes to have. the standard of care used is

ob/ective4 but this varies with the level of skill and competence which the

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To give due obedience to the employer could be dismissed

disobedience to lawful and

reasonable instructions could amount to misconduct for which an employer 6e--er v 2ebb (see -. "7 below).

To give account of employer-s money or property received in the course of employment a company managing

. #n Boston 'ee- )ea 8ishing 9 Ice Co. v Ansell J6<<<H

director was ordered to account to his company for commission he received in transaction with the company"s customers.

OCTOBER 2012

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