“English courts consider substance and not form when determining employment status.” Critically discuss this statement in the context of Employment Law, with particular (but not exclusive) reference to “sham” contracts.
Today, many would agree with this statement as an employment status has become a question of fact rather than a question of law. However, it was clear that the preferred view taken by the courts after Lord Griffiths’ famous comments in Lee Ting Sang v Chung Chi-Keung (1990) where he said, ‘Whether or not a person is employed under a contract of service is often said in the authorities to be a mixed question of fact and law. .‘
Even though everyone in the business world is familiar with contracts of employment, these contracts are not so straightforward, especially to rookies, as they may involve variations or may state misleading statuses making it ‘difficult to say wherein the differences lie’ for the courts to determine the status of a person in times of dispute. Furthermore, businesses are very aware of their responsibilities as employers and would much rather employ ‘workers’ than get into binding contracts of employment that increases their burdens.
In determining employment status, the courts have finally succeeded in forming the ‘multiple’ test that is basically a combination of tests the courts examined in previous cases. These include the ‘control’ test, the ‘integration’ test, and the ‘economic reality’ test. Each of these tests failed on its own to satisfy the wide range of cases the courts had to face, as there are so many different categories and types of workers and being an ‘employee’ is just one type.
A contract of employment has its benefits to the individual involved under it if he has the status of an employee. These benefits include statutory protection rights like National Insurance and tax contributions. Employers under a contract of employment may also have a greater duty towards employees than an independent worker would, for example by having a duty to provide work.
In employment law, signing a contract of employment emphasizes the fact that it is only ‘employees’ who are granted full rights under the Employment Rights Act (ERA) 1996. The ERA 1996 provides exclusive rights to employees such as the right not to be unfairly dismissed and the right to redundancy payments, while also providing other rights covering a larger scope of workers. However, definitions in the act seem to be vague and are not clearly defined. S. 230(1) of the ERA 1996 gives a very broad definition to the word employee stating that it is someone with a contract of employment. Following that, s. 230(2) expresses that a contract of employment can also be a ‘contract of service or apprenticeship, whether express or implied and whether it is oral or in writing.’ Another point worth mentioning from the Act is that s. 230(3) goes on to explain that the word worker includes in it both employees and independent contractors, but the courts in Autoclenz further explained that even though an employee can be considered a worker under the Act, a worker cannot be considered an employee and benefit from employment rights.
Furthermore, in 1880, the courts introduced the control test to give them some sort of criteria in determining an employment status in the case of Yewens v Noakes. Bramwell LJ emphasized the master/servant relationship to see whether the employee was under the control of the employer in terms of the work being done. Although control is an important element in an employment relationship, the problem with this test is that it suits cases that involve domestic servants and unskilled workers rather than a skilled professional on the other hand. Factors that determine control include duty to obey orders, power to decide work hours and power to give instructions and choose the working mode.
Lord Denning strongly encouraged a different approach called the integration test...