7 In relation to employment law:
(a) Explain why it is important to distinguish between contracts of service and contracts for services.
(4 marks)
(b) State how the courts decide whether someone is an employee or is self-employed. (6 marks)
(10 marks)

7 (a) Employees are people working under a contract of service. Those who work under a contract for services are independent
contractors. They are not employees, but are self-employed. If you have a problem with your motor car you may take it to a
large garage and have one of its mechanics look at the car. That mechanic would be an employee of the garage and would
work under a contract of service with his employers. Your contract would not be with the mechanic but with his employer,
the garage. Alternatively you might take the car to a one man garage and get that person to look at the car. In that situation
the mechanic is self-employed and you and he are entering into a contract for services.
It is essential to distinguish the two categories clearly, because important legal consequences follow from the placing of a
person in one or other of the categories. For example, although employees are protected by various common law and statutory
rights in relation to their employment, no such wide scale protection is offered to the self-employed. Also ultimate liability for
breach of contract or liability in tort depends on the person’s status as an employee or self-employed. In the example above
in the first instance the mechanic’s employers, the garage, are responsible for the consequence of his actions whilst acting in
their employment; whereas in the second case, the mechanic alone is responsible for any liabilities that arise from his work.
Given the importance of the distinction and the allocation of essential statutory rights that follow from it, it is perhaps
somewhat surprising that no clear statutory definition of the distinction has been provided. Section 230 of the Employment
Rights Act 1996, for example defines an employee as ‘an individual who has entered into or works under a contract of
employment’ and states that a contract of employment ‘means a contract of service’.
(b) Such circularity and lack of clarity means that it has been left to the courts to develop tests for distinguishing the employee
from the self-employed.
The first test to be applied by the courts was known as the control test. In using this test the key element is the degree of
control exercised by one party over the other. The question to be determined is the degree to which the person who is using
the other’s services actually controls, not only what they do, but how they do it. An example of the use of the test can be
seen in Walker v Crystal Palace Football Club (1910) in which it was held that a professional football player was an employee
of his club, on the ground that he was subject to control in relation to his training, discipline and method of payment. Thus
to revert to the example given in part (a) the first mechanic, the employee, can be told what to do and how to do it, whereas
the second, the self-employed mechanic, takes all such decisions as those in his own right.
The control test looks back to and reflects previous master/servant relationships of employment, but its main shortcoming lay
in its lack of any degree of subtlety. Highly skilled professionals, such as surgeons, by necessity have a high level of control
over how they perform their day-to-day work, but the consequence of that, at least under the control test, was that they were
deemed to be self-employed rather than employees, and patients who had suffered as a consequence of negligence would
only be able to sue the doctor rather than the Health Authority which used their services. Such weakness in the control test
led to the courts developing a more subtle test.
The integration test shifted the emphasis from the degree of control exercised of an individual to the extent to which the
individual was integrated into the business of their putative employer. An example of the application of the integration test
may be seen in Whittaker v Minister of Pensions & National Insurance (1967) in which the court found that the degree to
which a circus trapeze artist was required to do other general tasks in relation to the operation of the circus in which she
appeared, indicated that she was an employee rather than self-employed. As a consequence she was entitled to claim
compensation for injuries sustained in the course of her employment. However, even the integration test was not without
problems, as some employers attempted to give the impression of using a self-employed workforce whilst effectively still
controlling what that workforce did.
The response on the parts of the courts was the development of the multiple, or economic reality, test. Rather than relying
on one single factor, this test uses a more general assessment of the circumstances of any particular case in order to decide
whether, or not, someone is an employee. In so deciding the courts will not be bound by how the parties themselves describe
the relationship. Thus it is immaterial that the agreement between the parties states that someone is to be self-employed; if
the indications are otherwise then the person will be recognised, and treated, as an employee (Market Investigations v
Minister of Social Security (1969)).
The economic reality test was first established in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National
Insurance (1968) in which it was held that there were three conditions supporting the existence of a contract of employment:
(i) the employee agrees to provide his own work and skill in return for a wage,
(ii) the employee agrees, either expressly or impliedly, that he will be subject to a degree of control, exercisable by the
employer,
(iii) the other provisions of the contract are consistent with its being a contract of employment.
In deciding whether or not there is a contract of employment the courts tend to focus on such issues as whether wages are
paid regularly or by way of a single lump sum; whether the person receives holiday pay; and on who pays the due national
insurance and income tax. However, there can be no definitive list of tests as the whole point of the multiple test is that it
examines all aspects of the situation in order to reach a determination. For example in Nethermore (St Neots) v Gardiner &
Taverna (1984), a group of home workers, i.e. people who carried out paid work in their own homes, were held to be
employees on the grounds that they were subject to an irreducible minimum obligation to work for their employer.

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