11/13/2021

CONTENTS

1. What is an employee?
2. Why does it matter?
3. Employment contract: basic issues
4. Common law duties
5. Statutory duties
6. Varying the terms of an employment contract
7. Continuous employment

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EMPLOYEE
WHAT IS AN EMPLOYEE?

✓ Works under a contract of service.

✓ Master/servant relationship
✓ Obliged to obey reasonable instructions of employer
✓ On the payroll
✓ Takes order from a manager, who has control of his work.
✓ Subordinate role
✓ Under the control of employer
✓ Entitled to all the available employee rights

INDEPENDENT (SELF – EMPLOYED) CONTRACTOR

WHAT IS AN EMPLOYEE?

✓ Works under a contract for services.

✓ Works for himself / owns a business
✓ Almost NO Employment Rights
✓ Generally provide his own equipment and tools
✓ Plumber, taxi driver

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WORKER
WHAT IS AN EMPLOYEE?

✓ Neither an employee nor fully self employed.

✓ Entitled to some core employment rights (minimum wages)
✓ Broader category than employee. (agency workers)
✓ Casual/home workers – called in whenever needed
✓ Obliged to carry out his contractual duties in PERSON.
✓ Cannot bring a Claim of UNFAIR DISMISSAL
WHAT IS AN EMPLOYEE?

To decide if someone is an employee, a number of tests are

applied

1. Control Test
2. Integration Test
3. Economic Reality Test

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The control test

WHAT IS AN EMPLOYEE?

The court will consider whether the employer has control over
the way in which the employee performs their duties.

The integration test

The courts consider whether the employee is so skilled that they
cannot be controlled in the performance of their duties.

Lack of control indicates that an employee is not integrated into

the employer’s organisation, and therefore not employed.

The multiple (economic

WHAT IS AN EMPLOYEE?

reality) test

Courts also consider whether

the employee was working on
their own account and require
numerous factors to be taken
into account.

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Mutuality of obligation Test

WHAT IS AN EMPLOYEE?

The courts then moved on to look at

➔ Whether the employer is obliged to provide work for the

employee,
➔ The employee is obliged to accept it.

If there is such an obligation, then there is a contract of

employment

Agency workers
WHAT IS AN EMPLOYEE?

Two key cases have considered length of service of agency

workers and control that the client of the agency has over the
worker.

(a)Length of service

b) Control over the worker

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Relevant factors
WHAT IS AN EMPLOYEE?

Significant factors to consider when deciding whether or not a person is

employed or self employed:

• Does the employee use their own tools and equipment or does the
employer provide them?
• Does the alleged employer have the power to select or appoint its
employees, and may it dismiss them?
• Payment of salary is a fair indication of there being a contract of
employment.
• Working for a number of different people is not necessarily a sign of
self-employment.

Policy considerations
WHAT IS AN EMPLOYEE?

An employment tribunal might regard a person as an employee

for the purpose of unfair dismissal despite the fact that the tax
authorities treated them as self-employed.

➔Contract stated a worker as self employed but actual working

arrangement not genuinely reflect the reality of a situation.

Relative bargaining power between the parties should be

considered.

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WHAT IS AN EMPLOYEE?

Partners with equity stakes in a partnership cannot be

employees.

A salaried partner (without an equity stake) will be deemed an

employee for employment law purposes.

Significance of the Distinction

WHY DOES IT MATTER?

Social security
Employed
• Employers must pay secondary Class 1 National Insurance contributions
on behalf of employees
• Employees make primary Class 1 National Insurance contributions
• There are also differences in statutory sick pay and levies for industrial
training purposes

Self Employed
• Independent contractors pay Class 2 and 4 contributions

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Significance of the Distinction

WHY DOES IT MATTER?

Taxation
Employed
Deductions must be made for income tax by an employer under PAYE from
salary paid to employee

Self Employed
The self-employed are taxed under self-assessment for income tax and are
directly responsible to HM Revenue & Customs for tax due

Significance of the Distinction

WHY DOES IT MATTER?

Employment Protection
Employed
There is legislation which confers protection and benefits upon employees
under a contract of service, including
• Minimum periods of notice
• Remedies for unfair dismissal

Self Employed
Employment protection is not available for contractors

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Significance of the Distinction

WHY DOES IT MATTER?

Tortious acts
Employed
Employers are generally vicariously liable for tortious acts of employees,
committed in the course of employment

Self Employed
Liability of the person hiring an independent contractor for the contractor's
acts is severely limited unless there is strict liability

Significance of the Distinction

WHY DOES IT MATTER?

Implied terms
Employed
There are rights and duties implied by statute for employers and
employees. This will affect things such as copyrights and patents

Self Employed
These implied rights and duties do not apply to such an extent to a
contract for services.

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Significance of the Distinction

WHY DOES IT MATTER?

VAT
Employed
Employees do not have to register for, or charge, VAT

Self Employed
An independent contractor may have to register for, and charge, VAT

Significance of the Distinction

WHY DOES IT MATTER?

Bankruptcy
Employed
In an employer's liquidation, an employee has preferential rights as a
creditor for payment of outstanding salary and redundancy payments, up
to a statutory limit.

Self Employed
Contractors are treated as non-preferential creditors if their employer is
liquidated.

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Significance of the Distinction

WHY DOES IT MATTER?

Health and safety

Employed
There is significant common law and legislation governing employers'
duties to employees with regard to health and safety

Self Employed
The common law provisions and much of the legislation relating to
employees also relates to independent contractors

Employment contract: basic issues

BASIC ISSUES

An employment contract is a contract of service which may be express or

implied.

If express, it can be either oral or written.

An employment contract may be a document drawn up by solicitors and

signed by both parties

It may consist of a handshake and a 'See you on Monday’.

In such cases the court has to clarify the agreement by determining what
the parties must be taken to have agreed.

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BASIC ISSUES
Intention to create legal relations need to be considered in an
employment contract.

Senior personnel may sign a contract specially drafted to include

terms on confidentiality and restraint of trade.

Other employees may sign a standard form contract, exchange

letters with the new employer or simply agree terms orally at
interview.

Implied terms
BASIC ISSUES

Arise out of custom and practice within a profession or industry.

Four requirements should be met before such terms can be read into a
contract.
• The terms must be reasonable, certain and notorious

• They must represent the wishes of both parties

• Proof of the custom or practice must be provided by the party seeking to

rely on the term

• A distinction must be made between implying terms that make minor,

and terms that make fundamental changes to the contract

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Requirement for written particulars

BASIC ISSUES
Within two months of the beginning of the employment, the employer must give to an
employee a written statement of prescribed particulars of their employment.

The statement should identify the following.

1. The names of employer and employee
2. The date on which employment began
3. Whether any service with a previous employer forms part of the employee's
continuous period of employment
4. Pay – scale or rate and intervals at which paid
5. Hours of work (including any specified 'normal working hours’)
6. Any holiday and holiday pay entitlement (for a person working five days per week,
the holiday entitlement is 5,6 weeks or 28 days, which may include bank and public
holidays depending on the contract of employment)

• Sick leave and sick pay entitlement

BASIC ISSUES

• Pensions and pension schemes

• Length of notice of termination to be given on either side
• The title of the job which the employee is employed to do (or a brief job
description)

A 'principal statement', which must include the first six items above and
the title of the job, must be provided, but other particulars may be given
by way of separate documents.

If the employee has a written contract of employment covering these

points and has been given a copy it is not necessary to provide them with
separate written particulars.

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BASIC ISSUES
The written particulars must also contain details of disciplinary procedures
and grievance procedures or reference to where they can be found
(Employment Act 2002).

If the employer fails to comply with these requirements the employee may
apply to an employment tribunal for a declaration of what the terms
should be.

The Employment Act 2002 allows a tribunal to award compensation to an

employee claiming unfair dismissal if the particulars are incomplete.
COMMON LAW DUTIES

Common law duties

The employer has an implied duty at common law to take

reasonable care of their employees; they must select proper
staff, materials and provide a safe system of working.

The employee has a duty of faithful service and to exercise care

and skill in performance of their duties.

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Employee's duties
COMMON LAW DUTIES

The employee has a fundamental duty of faithful service to their

employer.

This duty also extends after the employment where trade secrets
are concerned.

Employees will be in breach of their duty if they disclose such

secrets to their new employer.
COMMON LAW DUTIES

The implied duties of the employee include the following.

a) Reasonable competence to do their job.

b) Obedience to the employer's instructions unless they require

them to do an unlawful act or to expose themselves to
personal danger (not inherent in their work) or are instructions
outside the employee's contract.

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COMMON LAW DUTIES

c. Duty to account for all money and property received during

the course of their employment except what is customary to
be received or is trivial.

d. Reasonable care and skill in the performance of their work.

e. Personal service – Employee may not delegate their duties

without the employer's express or implied consent.

Employer's duties
COMMON LAW DUTIES

There is a duty of mutual trust and confidence between the

employer and the employee.

Examples of where this duty has been breached include:

• A director calling their secretary 'an intolerable bitch on a

Monday morning' – Isle of Wight Tourist Board v Coombes 1976

• Failure to investigate a sexual harassment claim – Bracebridge

Engineering v Darby 1990

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COMMON LAW DUTIES

a) To pay remuneration to employees. If there is no rate fixed by the

parties, this duty is to pay reasonable remuneration.
b) To indemnify the employee against expenses and losses incurred in the
course of employment.
c) To take care of the employees' health and safety at work.
d) To provide work, where:
✓ The employee is an apprentice.
✓ The employee is paid with reference to work done.
✓ The opportunity to work is the essence of the contract (for actors).
✓ There is work available to be done (subject to contractual terms to
the contrary) and the relevant employee is a skilled worker who
needs work to preserve their skills.
COMMON LAW DUTIES

If there is no work available and the employer continues to pay its

employees, there is no breach of duty.

If an employee was appointed to a particular role and no work was

provided there may be a breach of duty to provide work if it denies the
employee the opportunity to maintain their skills.

There is no duty to provide a reference when employees leave service.

Employers may be liable under negligence for not taking reasonable care
over accuracy and fairness if they do provide one.

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COMMON LAW DUTIES

The importance of these common law implied duties on both parties is

that:

• Breach of a legal duty may entitle the injured party to treat the contract
as discharged and to claim damages for breach of contract at common
law; and

• In an employee's claim for compensation for unfair dismissal, the

employee may argue that it was a case of constructive dismissal by the
employer, or the employer may seek to justify their express dismissal of
the employee by reference to their conduct.

Statutory duties
STATUTORY DUTIES

An employer has statutory duties in the following areas:

• Pay and equality

• Time off work
• Maternity rights and the 'work/life balance'
• Health and safety
• Working time.

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STATUTORY DUTIES

Discrimination judgements shall be viewed in light of a single

'objective justification' test.

This means employers need to prove their actions were a

'proportionate means of meeting a legitimate aim’.

Maternity leave and pay

STATUTORY DUTIES

Every woman who is an employee is entitled to statutory maternity leave

of up to 52 weeks if she gives 15 weeks' notice of her due date to her
employer.

Statutory maternity pay is paid for 39 weeks during statutory maternity

leave
✓ but is only paid if the woman has at least 26 weeks’ service at the
time of giving her notice and
✓ earns more than a statutory minimum.

The amount of maternity pay received is based on the woman's salary and
is subject to a statutory maximum.

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Paternity leave and pay

STATUTORY DUTIES

To qualify for paternity leave a man

✓ must qualify as an employee
✓ have been with the employer for at least 26 weeks before the 15th
week before the baby is due.

On giving the required notice, eligible employees are entitled to take either
one week or two consecutive weeks paid paternity leave.

The leave must be completed within 56 days of the actual birth of the
child and, like maternity pay, paternity pay is based on salary and subject
to a statutory maximum.

Parental leave
STATUTORY DUTIES

Any employee with a year's continuous service who has parental

responsibility is entitled to
UNPAID parental leave of 18 weeks to care for each child up to
the child's eighteenth birthday.

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Working time
STATUTORY DUTIES

The Working Time Regulations 1998

a worker's average working time in a 17-week period (including

overtime) shall not exceed 48 hours for each 7-day period,

UNLESS

Worker has agreed in writing that this limit shall not apply.

Varying the terms of an employment contract

Change in contract terms can only be made with the consent of

TERMS

both parties to the contract.

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Varying terms without changing the contract

➔An express term giving a rights of variation.

TERMS

➔An implied term may act to vary the contract.

(a) A sales representative may be required to take responsibility for such

area as their employer considers necessary in order to meet changing
market conditions.

(b) Terms may also be implied by custom

Changing the existing contract

➔The existing contract can be changed by consent.

TERMS

➔If an employee's contract is varied without consent, the employee may

have a claim for constructive dismissal.

Signing a new contract

➔Employer may give contractual notice to the employee and then offer a
new contract on the new terms.
➔This opens the employer to a potential claim for unfair dismissal.
➔Obtaining a consent is best to vary the terms of an existing contract.

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Continuous employment
Most of the employment protection which is available is only given to
employees who have one year’s continuous service.
EMPLOYMENT
CONTINUOUS

There are provisions in statute for how the year's continuous service
should be calculated, and what counts as service and what does not.

The basic rule is that a year is 12 calendar months.

Certain weeks might not be taken into account in calculating continuous

service, but they do not break the period of continuous service.
This might be the case if the employee takes part in a strike, or is absent
due to service in the armed forces.

Illustration
Employed for eight months and then given leave to do some
service in the army for five months, on his return to the employer
EMPLOYMENT
CONTINUOUS

he would have been employed for 13 calendar months.

Must complete another 4 months of service to complete a year’s

continuous service.

Once he has completed those four months, the eight months

prior, and the four months subsequent, to the armed service will
count as continuous service, despite being split by a period away
from the employer.

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Illustration
Strike
For example, if you started with a new employer on 1 February
EMPLOYMENT
CONTINUOUS

and over the course of a year you spent five days on strike, your
starting date for continuous employment would be 6 February.

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