The Employment Relationship - Labour Law

The employment relationship

Identifying dependent labour

Classifying labour as ‘dependent’ or ‘independent’

All systems of labour law draw a fundamental distinction between employment which is categorised as ‘dependent’ or ‘subordinate’, or that which is independent or autonomous.

= employees v self-employed or independent contractors.

Employees are subject to the employer’s common law powers of direction and control which, if they do not take the form of express contract terms, tend to be read into the contract as implied terms (e.g. Sim). In return employees come under the scope of employment protection and social security legislation: they may benefit from statutory rights to wage protection, limits of working time, income maintenance and compensation for loss of employment.

By contrast, few of the burdens or benefits of dependent status apply to a relationship in which the worker is self-employed.

Qualifications to this basic picture:

1) there is lack of consensus on the appropriate criteria for identifying dependence or subordination. The English courts have had occasion to use many different and potentially contradictory tests for this purpose including “control”, “integration”, “economic reality”, and “mutuality of obligation”.

This problem is unique neither to English law nor to the common law in general. In most systems there is a conflict or tension between the use of criteria of formal or personal subordination, and those of economic subordination as the principal tests of dependence. The use of economic criteria tends to result in a widening of the scope of statutory protection, encompassing relationships in which the worker retains extensive discretion over the manner and timing of performance of the work but is nevertheless bound to the employer through dependence on wages or salary for subsistence.

In English law, a move towards the adoption of economic criteria occurred when the courts used the integration test to extend employee status to certain professionals such as doctors or accountants who were employed within large organisations (Stevenson, Jordon and Harrison, and Beloff) and also when they invoked the ‘economic reality; test to extend the scope of protective legislation to include certain part-time workers and homeworkers (Market Investigations, and Airfix Footwear).

But in general it cannot be said that economic criteria have successfully displaced rival tests: although control ‘can no longer be regarded as the sole determining factor’ (Cooke J in Market Investigations), it must still be taken into account and the more modern test of mutuality of obligation has led to a renewed emphasis on formality of commitment between the parties (O’Kelly) which has placed the status of many casual workers in doubt

2) the boundary between dependent and independent labour shifts according to the particular statutory context which is being considered. There is no universal dividing line of general application between employees who are protected by legislation, and the rest who are not.

Thus, while it is the case that only employees may qualify for most rights under ERA 1996, other statutes explicitly cover certain categories of the self-employed. In particular, protective legislation may be applicable to individuals who are independent contractors without having an identifiable business of their own. Some provisions of health and safety legislation apply to this group, as do equal pay and anti-discrimination legislation and legislation for basic labour standards in relation to minimum wages and working time.

Moreover, although the self employed have no protection against dismissal in the context of industrial action, a dispute between self-employed workers and their employer may form the basis for a legitimate trade dispute which may enable the individual organisers of industrial action and their trade union to avoid liability in tort.

Thus the self employed are very far from being excluded completely from labour law regulation. The growing inclusion within protective labour statutes of certain categories of the self-employed, together with the difficulties faced by the courts in applying the distinction between employment and self-employment, led Freedland to argue for a unified concept of the “personal employment contract” in place of the existing scheme of classification of employment relationships.

3) the process of classification is complicated by the lack of a uniform terminology in the different Acts of Parliament which regulate the employment relationship. In ERA 1996 the term ‘employee’ is used to describe dependent labour, but the equivalent term for most of the benefits provided by SSCBA 1992 is ‘employed earner’.

Employees and employed earners

Under ERA 1996, an employee is defined as an “individual who has entered into or works under...a contract of employment” and “contract of employment” is defined to mean “a contract of service or apprenticeship, whether express or implied, and (if it is express) whether in oral or in writing.

No further definition is offered: the scope of the legislation, in effect, rests upon the common law tests as developed and applied over time by the courts. The principal rights which are thereby confined to employees concern unfair dismissal protection, redundancy compensation, minimum notice upon termination, guaranteed pay, the right to maternity, paternity and parental leave, and the right to return to work after taking such leave.

EU directives in the employment protection field are mostly stated to apply to employees: this is the case, for example, with Directive 2001/23 on the protection of acquired rights in relation to transfers of undertakings, and Directive 91/533 on information concerning terms and conditions of employment.

The ECH has decided that national courts are entitled to apply their own national definitions of employment status when transposing these employment protection directives, even if this results in some...