Employed Or Self-Employed Consultant?

The legal rights of the employed and the self-employed differ in many ways. For example, it is only employees who may bring claims of unfair dismissal or recover redundancy payments, whereas consultants may not; furthermore consultants are not subject to the duty of fidelity to those engaging them. The question of whether a worker is employed can therefore be of some importance. It is a question answered by reference to the contract under which the services are performed.

Elements of the Test

There are three elements which must be present in any employment contract. Without one of the three elements, a contract cannot be a contract of employment. They are:

1. the contract must impose an obligation on a person to provide work personally;
2. there must be a mutuality of obligation between employer and employee; and
3. the worker must expressly or impliedly agree to be subject to the control of the person for whom he works to a sufficient degree.

Obligation to Provide Work Personally

The first element, the obligation to provide work personally, was the subject of judicial consideration in Express and Echo Publications Ltd v Tanton [1999] IRLR 367. That case involved a contract that provided where the worker was unable or unwilling to do the work personally, he had to provide a substitute. The Court of Appeal held that the power to send a substitute meant that there could be no contract of employment as there was no personal obligation to do the work. There is an important distinction, however, between having the power to provide a substitute where the person in unwilling or unable to do the work (as in Tanton) and contracts which provide that power only where the worker is unable to do the work. In the latter case it is more likely that the required element of personal obligation is present because the conclusion that would be drawn by a court is that a worker will have to do the work personally if he is able.

Mutuality of Obligations

The second element that must be present in any employment contract is the requirement that, for the entire duration of the contract, both the employer and the employee must be under legal obligations to one another. That is, there must be an obligation on the employee to work and an obligation on the employee to pay for that work, as opposed to a situation where there is no obligation for the workers to work and no obligation for the other party to offer work. If there are periods in the contract where there is no work to do and a retainer is not paid in such period, there will be no contract of employment: Clark v Oxfordshire Health Authority [1998] IRLR 125. In Carmichael v National Power plc [2000] IRLR 43, the House of Lords reiterated the mutuality of obligation requirement. In that case workers were engaged as power station guides on a casual as required basis. There was no obligation for the workers to work and in fact they had failed to attend on a number of occasions and were not disciplined. It was held that no contract of employment existed.

Control

The third element requires that ultimate authority over the worker/employee resides in the employer, so that the worker/employee is subject to the employer’s orders and directions. Determining the presence of the required degree of control is not straightforward and requires an examination of the wider circumstances of the arrangement in question. Relevant matters to be taken into account are too numerous to list. They may include:

1. whether the worker is paid by wages or salary
2. whether the worker provides his own equipment
3. whether he is subject to the employer’s disciplinary and grievance procedures
4. receipt of sick pay or contractual holiday pay
5. provision of benefits traditionally associated with employment such as pension or health plans
6. whether there are restrictions on working for others

Concluding Comments

Some contracts stipulate that workers are not employees or servants and are in fact self-employed, however such clauses are not by themselves decisive of the nature of the arrangement. It is open for parties to stipulate the nature of their relationship when it is in doubt, however courts will look at all of the circumstances of a relationship to determine its true nature and will readily go behind what the parties have labelled a relationship to be. Labels will only be decisive to “tip the scales”, that is, when all other factors relevant to deciding one way or another are evenly balanced.

These issues can be important, as the status of a person determines the nature and extent of the duties of the employee/consultant to the employer/principal. After determination of the status of the person, an assessment of whether or not restrictive covenants or the duties of the employee have been contravened.