Employee or Self-Employed – An increasingly blurred distinction

The labour market continues to become increasingly sophisticated. The days of working for the same employer from leaving education through to retirement are rare. The main political parties speak of the need for the workforce to be flexible responsive and other similar terms. In practical terms this means more staff being brought in on short term basis including the use of agency staff.

The law places a very high duty of care on employers in relation to the health and safety of their employees. If someone has an accident at work the employer is therefore generally the first choice to pursue the compensation claim against.

It’s therefore important to be able to identify what the relationship is between the claimant and alleged tortfeasor.

Getting to the correct answer quickly is important. The duties owed to employees and members of the public differ often dramatically. Employers and public liability insurance may be covered under different policies and sometimes with different insurers. The Jackson reforms to employers’ and public liability claims due to come into force in April 2013 will reduce the time for insurers to respond to claims.

There is a balance to be struck between the extent to which an employer should be vicariously liable for the torts of their independent contractor (both impractical and economically inefficient) and the extent (if any) to which a claimant should be affected by an organisation’s structural changes which have nothing to do with the nature of their business or the risks it creates.

Organisations that have claims made against them as employers will often deny liability on the basis that the claimant was ‘self employed’ or an ‘independent contractor’. Whilst this will not necessarily absolve them of liability to the claimant the duties owed to members of the public tend to be much lower than those owed to employees.

How does one go about determining the true nature of the relationship? Are we dealing with a contract of service in which case the relationship is likely to be employer/employee or a contract for services which is not likely to create the relationship? Each case will be fact sensitive but some general principles have emerged.

Ready Mixed Concrete (SE) Limited v. Minister of Pension and National Insurance (1968) held:-

“A contract of service exists 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) He agrees expressly or impliedly that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.

(iii) The other provisions of the contract are consistent with it being a contract of service.”

This test was developed further in Market Investigations v Minister of Social Security (1969). Whilst control will always have to be considered it can no longer be regarded as the sole determining factor and one also has to consider:-

(i) Does the person performing the service provide their own tools and equipment?

(ii) Do they hire their own helpers?

(iii) What degree of financial risk do they take?

(iv) What degree of responsibility for investment and management they have?

(v) To what if any extent do they have an opportunity to profit from sound management in the performance of their task?

A commonly encountered scenario is that of an agency supplying staff to an organisation. The agency staff will be supervised by the organisation’s staff, use their equipment and be subject to their rules and regulations. Notwithstanding that the agency may be paying their wages (charging a fee to the organisation) the hiring organisation controls how the work is done and the worker does not meet any of the other criteria to distinguish the relationship from that of employer/employee.

Contrast this with the same organisation that contracts with an individual to carry out a specialised piece of IT installation. The individual will decide how the job is done. They will probably use their own equipment and hire in any assistance they need. They take a risk and have a financial interest in the success of the job. This is a contract for services.

The position can become complicated, typically on construction projects where numerous contractors are operating on site with the workforce often ‘mucking in’ to get the job done and lines of responsibility becoming blurred. In these circumstances the factual importance of who told the claimant to do what, how to do it and whose equipment to use takes on greater significance.

Because of the fact sensitive nature of these cases detailed witness evidence as to what was happening on site in reality is vital. The irony is that given the transitory nature of this type of workforce getting the necessary evidence can often prove difficult.

When investigating a claim for a claimant purporting to be an employee and you are told that the claimant is a self employed contractor or similar they key is not to take the statement at face value.

• Apply the above tests to determine the reality of the relationship.
• Even if liability can be avoided as employer that may not be an end to matters. What if any duty is owed to the claimant as a member of the public and has that duty been breached?
• Does another party have sufficient control over the claimant to make that other party the employer?
• Because the claimant is unlikely to be a party to any contractual indemnities it is necessary to address the parties’ duties to the claimant without reference to such indemnities
• The answers may not always be clear especially in multi-party cases. Bearing in mind the relatively low value of most cases be prepared to consider early commercial settlements with co-tortfeasors.