Employee or not?- The answer is becoming no less 'elusive'

A decision by an employment tribunal which originally found a construction worker to be a self-employed contractor when he took his client to court for unfair dismissal has been overturned by a Court of Appeal who now says he was an employee. The case shows a profound need for some concrete legal clarity between employees and independent contractors.

Mr Peter Reid was originally told by the tribunal that he was self-employed and that his four years working for North West Ceilings Ltd. meant that there was 'an insufficient period of continuous employment to enable him to successfully present a claim of unfair dismissal against his client.'

The facts:

Mr Reid worked for NWC Ltd. between March 1994 and March 1998, first in Moscow, then in the UK on a number of contracts as a supervisor. He took regular breaks, usually a week long at a time.

He worked solely for NWC Ltd., who provided transport and all equipment with the exception of what the Judge called 'the tools you would expect a man with his skill to provide for the work he was to carry out.'

There were no specific holiday arrangements, nor was holiday pay given. Holidays were taken by Mr Reid 'as and when required by him.' There were also no sick pay arrangements with the company.

He had previously paid National Insurance on a self-employed basis, refusing the company's requests that he become an 'employee' because of concerns that he would lose out financially by being subject to PAYE and National Insurance.

Mr Reid used £714 tax exemption certificates issued by the Inland Revenue. Despite the fact that he produced payslips to the court, which showed that tax had been deducted as well as Income Tax under the SC60 scheme, he also provided evidence that he paid Class II and Class IV National Insurance contributions by direct debit. However, none of this counted in his favour before the Court of Appeal in terms of Mr Reid being an independent contractor.

Weighing up all these factors at the Court of Appeal, Judge Langstaff concluded that:

'Mr Reid was under the control of NWC Ltd. That he was not in any way involved in the profits or losses of NWC Ltd., nor did he negotiate his rate of pay, nor provide a price for the work he was to carry out. He was paid by the hour at a rate prescribed by the company. He received full directions as to what work was to be carried out.'

Elaborating on the issue of control and the implications that this had over his decision to call Mr. Reid 'an employee,' Judge Langstaff cited the case of Ready-Mixed Concrete (South-East) Limited v. Minister of Pensions and National Insurance [1968] where the Judge, Justice MacKenna said that the test of control "was not necessarily decisive, even though without it there would be no contract of service at all."

He also cited Montreal v. Montreal Locomotive Works Limited [1941] where the Judge, Lord Wright said:

"In the more complex conditions of modern industry, more complicated tests" (than that of control) "...have to be applied. It has been suggested that a four-fold test will in some cases be more appropriate, a complex involving 1/. Control, 2/. Ownership of the tools, 3/. Chance of profit, 4/. Risk of loss. Control in itself is not always conclusive..."

Justice Langstaff told Mr. Reid that the appeal "raises in stark form the issue of employment status." He continued, "Various tests of employment have been described in a variety of cases. The perspective of which has differed. In some, the question has been whether a worker was liable for tax or National Insurance. In others, it has been whether there was a succession of pieces of work which might arguably be linked to form one employment under an overall 'umbrella' arrangement, or indeed whether the simple choice presented as 'between employee or independent contractor' masked the fact that the essential contract was not one of service or for services, but of a different character altogether. We have no hesitation in concluding that Mr. Reid was undoubtedly an employee."

Mr. Reid was additionally told that, 'the Inland Revenue had the statutory duty to reclaim tax deductions which were granted to [Mr. Reid] as self-employed.'

Tony Askham, of solicitors Bond Pearce, said of the judgement:

"Despite decades of trying, English law is no closer to having a definitive employment status test that the Courts can correctly apply from case to case. Those working in employment law are becoming increasingly frustrated with having to establish through a case law strategy who is or is not an employee, a problem that is only confounded by the problems the courts introduce by making different decisions on similar facts and getting away with ruling on the same cases differently by falling back on 'primarily issue of fact.'

"This particular case is yet another example of different courts reaching different conclusions on similar facts in an employment law status case. There is no sense in this continuing. There are too many competing public policy issues for the Courts to be the arbiter. This is an issue that can only be resolved by Parliament. The Government needs to recognise people should have the right to choose whether they want to be employed or self-employed. If this raises tax issues the Government might want to consider whether the problem would exist if personal tax was simplified and less burden placed on the employed."

In a preceding case (Lee Ting Sang v. Chung Chi-Keung [1990]) the Judge, Lord Griffiths, described the foundations of the appropriate English common law standard by which to determine whether a workman was working as an employee or as an independent contractor as one which, "has proved to be a most elusive question," adding that, "despite a plethora of authorities the Courts have not been able to devise a single test that will conclusively point to the distinction in all cases."

Such cases prove that the answer to the question of whether a worker is an 'employee or not' in English law is no less elusive now than it ever has been before.

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Richard Powell, UKTECH