Contractual Employment

  • Created by: jutnut
  • Created on: 11-07-17 15:05

Independant Contractors VS Employees

First thing to do with an employment question is to determine if the worker is an independant contradctor or an employee

Advantages to a COMPANY of hiring an independant contractor?

  • Avoids the administrative burden of accounting for tax, national insurance (NI) and statutory sick pay scheme (SSPS)
  • Unlikely to incur vicarious liability
  • Notionally lower duty in respect of safety but still negligence and health and safety issues
  • No requirement to furnish S1 statement of terms
  • No duty to consult trade unions 
  • Contracts more likely to reflect commercial reality of situation e.g. Penalty Clauses, Indeminities etc
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Independant Contractors VS Employees 2

 Advantages to WORKERS of being an indpendant contractor

  • Worker taxed more under beneficial schedule D which permits greater deductions from income
  • Greater freedom to work for others 
  • Greater freedom to determine working pattern
  • No requirement to provide personal service
  • Worker may be free to decide where work to be done
  • Worker may be able to achieve more beneficial contractual terms then employee - bonus payments etc 
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Independant Contractors VS Employees 3

Advantages to COMPANY of hiring an employee

  • Personal service may be important in retaining quality 

  • Higher degree of control within ambit of job description

  • Control may be reinforced by sanctions dismissal or use of disciplinary procedures

  • Implied terms of loyalty and good faith

  • Breach of Commerical Conduct may prove more expensive then termination of an employment contract. 
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Independant Contractors VS Employees 4

Advantages to WORKER of being an employee

  • Minimal financial input and risk

  • Membership of company SSPS and possible pension scheme

  • Will receive holiday pay - statutory mimimum under WT regs 

  • Greater job security in terms of income and protection from dismissal (can claim UD etc)

  • Employee has right to indeminty in respect of expenses incurred in carrying out duties

A worker in statute is defines under Section 230 (3) ERA 96

An employee is defined under Section 230 (1) 

Section 230 (2) defines a contract of employment.

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The 3 tests - Control Test

The Control Test

This single test asks the question: "can the employer control not only what is done but how it is done"

The roots of test lie in the idea that the employer having detailed supervision of the worker.

  • Can the employer control not just what is done but also how, when and where the work is done. Employer controls everything worker is doing. 

  • Less relevant for skilled workers

  • Still has a role to play always look for element of control
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The 3 tests - Integration Test (or Organisational

The Intergration Test

Lord Denning: is s/he an integral part - part and parcel of the business. Integral part that makes up the company's whole.

Often dismissed as too vague ut useful where the control test fails.

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The 3 tests - Multiple Test

Multiple Test

  • Most relied upon and widely adopted
  • No one criteria decisive 
  • Have to weigh up different factors
  • Different factos may be given different weight - depending on relevance

3 conditions for a contract of service:

1. Mutuality of Obligation - in consideration of wages an employee provides a personal service

2. Sufficient Control

3. Other provisions of the contract consistent with it being a contract of service 

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The 3 tests - Multiple Test Continued

With a number of factors to be considered:

  • Wages
  • Substitution MCFarlens and Ready Mix Concrete 
  • Economic Risk Stringfellow
  • Control
  • Holiday and Sick pay
  • NI/ Tax
  • Intergration
  • Tools
  • Labels and Descriptions Autoclenz 
  • Mutuality of Obligation** 

Cases in notes!

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Terms of a Contract

Express terms: 

  • Need not be in writing but note evidential issues if not
  • S.1 era requires the employer ro give certain infomation to the employee at the beginning og the relationship
  • Written statement - s.1 - statement
  • 2 months from beginning of employment
  • Give details on employment and place of work

Implied terms - duties owed by the employer: 

  • Duty to pay
  • Duty to provide work
  • Duty to indemnify employees
  • Duty to take reasonable care in employees safety 
    • Safe employees
    • Safe place of work
    • Safe system of work 
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Other Duties

Duty of reasonable care - Johnstone case 


1. Ordinary principles of employers liability apply

2. Kind of harm to this particular employee was reasonably forseeable

3. Forseeability depends on what employer knows or have ought to have known about the employee. 

Duty of Mutual trust and confidence - E/Er must not without reasonable cause, act in a way which seriously damages the relationship of trust and confidence which exists 

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Duties owed by employee

  • Personal Service
  • Comptence 
  • Reasonable care in performance of duties 
  • Obedience 
  • Duty of good faith/ fidelity 
  • Confidentiality -  during and after employment
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Post-termination Covenants

Fall in 4 main catagories:

1. Non-competition clauses - these prohibit the former ee from engaging a competitve activity

2. Non - solicitation clauses - these prohibit the former ee from soliciting custom of clients from his former ee 

3. Non- dealing clauses - these prohbit the former ee from dealing with previous clients from former ee - who initiated the approach is irrelevent 

4. Non- poaching clauses - these prohibit the former ee from enticing away his former collegues.

All prima facie void unless can show certain criteria

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Employer must show that: 
1.. Has a legitmate business interest requiring protection e.g,
- Connections with clients
- Connections with suppliers
- Stability of workforce
- Trade secrets
2. The post termination covenant is reaonably necessary to protect legitimate buiness interest; and

3. The post terminiation covenant goes no further than is reasonably necessary e.g. duaration, geographical scope etc 

If court deems particular clause is unnecessary it is severed, the contract is deemed still effective if following conditions are satisified: 
- Possible to remove provision without adding or modifying remaining wording
- Remaining terms supported by good consideration
- Removal does not chnage the character of the contract to such an extent that it becomes: " not the sort of contract the parites entered into" 

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