Contract of Employment

(1983) 1 B.L.R. Part III
(1951) All E.R. 574
[1995] IRLR 493, 495
(1952) 1 TLR 101
[1973] 1 All ER 241. 
(1947) 331 U.S 704
79(2) NLR 158
P. 737
Unrep. S.C. 69/79
(1985) 1 SLR 502
(1968) 1 All E.R. 433 at 439 - 40
(1947) 1 D.L.R. 161 at 169.
(1952) 1 The Times.L.R. 101
(1968) 3 All E.R 732 at p. 737.
C.A. 549/82.
(1960) 63 NLR 126.
Contract of Employment
A contract of employment is an agreement between a master and a servant or an employer and an employee. A contract can be formed in several ways.
Written contracts
Verbal contracts
Contracts by implication
Through an offer letter
A contract need not be in written to be legally bound. Master – servant relationship is governed by Roman – Dutch law under the common law. But recently English law has crept into this area and State has intervened regulating contract of employment and has passed some regulations and legislations concerning contract of employment. But it only can regulate in situations where the contract is written. Common law is still governs most important aspects regarding the relationship of employer and employee.
It is important to establish a contractual relationship. It is relevant for determining rights and duties of the parties. Furthermore termination of employment/ dismissal is determined by the contract. Common law gives effect to the contract if it is not illegal or contrary to public policy.
Master – servant relationship is also known as contract of service where it is different from a contract for service, which is an independent contractor.
In the case De Silva v. The Associated Newspapers of Ceylon Ltd court stated "the question whether a contract is one of service or for services is a question of law, and to over-emphasize the description given by the parties would be to concede to the parties the right to decide what is in effect a question of law."
The distinction between a "workman" and an "Independent contractor" is important in today's context. For example some responsibilities and obligations applied in a contract of service are not applied in contract for service. Some regulations relating to wages and hours of work only apply to master – servant relationship. And also it is important for purposes of vicarious liability. So it is necessary to distinguish these two concepts.
Employee and Independent contractor
Employee and independent contractor are two different personas. Servant covers a person who's in a relationship with another person whom he agrees to serve and call master. An independent contractor on the other hand has a relationship with a particular person to do a certain job.
As an example one recruits a driver for his vehicle and that driver is his servant. If his driver met with an accident he is liable. The same person ordered a cab to go to the airport and the cab driver is not his servant but an independent contractor and if cab driver met with an accident the person who ordered the cab is not liable. A servant is someone who is working for another person and bound by his master's orders and can be controlled by the master. Independent contractor on the other hand work for a certain job for a certain period of time and not bound to follow orders and cannot be controlled by his employer.
There are several tests that developed by Courts to determining whether one is an employee or an independent contractor.
One main test is known as "Control Test". In this test it not actual control that we are looking at but the right to control. An employer has a right to control his employee.
The control test is the most traditional method of establishing a worker's status. It has its roots in common law and is an extension of the concept that the employment relationship is one of master and servant. Up until the nineteenth century the master had property rights in the service of his servant and could enforce his rights through the courts. Control test states that if a person is an employee then employer has the right not only to states what needs to be done, but to states how it should be done. It is all about the right to control but not the actual control.
But the problem arises in today's context where employer lacks the knowledge in certain field or lack of certain skills. Then he cannot states how the job should be done. In the case Cassidy v Ministry of Health the question arose whether nurses are servants of hospital when they were working under the direction of a consulting surgeon. Therefore the council argued what they have is contract for service not contract of service.
Lord Denning held that "nurses are employed by the hospital authorities, paid by them, and liable to be dismissed by them the consulting surgeon has not that entire and absolute control over them which is necessary to make them his servants even temporarily."
The test has been used most recently in Lane v. Shire Roofing Co. (Oxford) Ltd. In this case the Court of Appeal applied 'who lays down what is to be done, the way in which it is to be done, the means by which it is done, and the time when it is done?" test to determined whether the individual was a servant or an independent contractor. Though in this case the control test was used to determine the contract of employment generally it is not a test which can be relied upon due to the defects in it.
To avoid weaknesses in the control test judges looked for another test which is known as "Integration or Organization test". In Stevenson v MacDonald the judge, Lord Denning, stated that 'A person is an employee if that person is an integral part of the business.'
This test overcomes the problem of skilled persons. In this if a person's work is done as an integral part of business he is considered as an employee whereas one's work is done for the business but it is not perform as an integral part he is considered to be an independent contractor. In Beloff v. Pressdram Ltd. A case concerning the ownership of copyright, the individual was a senior correspondent with a newspaper. The job required a great amount of skill but, as was stated in the case, "…the greater the skill required for an employee's work, the less significant is control in determining whether the employee is under a contract of service." Beloff argued that she was an independent contractor and as such owned the copyright in a sensitive piece of information. The courts decided that despite her expertise, contracted position and freedom to write for other journals the work was done as an integral part of the organisation. 
There is another test called "Economic Reality Test" which assesses whether the worker in his business on his/her on account or works for another organisation who takes full responsibility of the profit and loss. It is depends on the economic practice of individual. This test consists of five factors.

The degree of control exercised by the alleged employer
The extent of the relative investments of the worker and alleged employer
The degree to which the worker's opportunity for profit and loss is determined by the alleged employer
The skill and initiative required in performing the job
The permanency of the relationship
These factors were followed in the case United States v. Silk. Sri Lankan courts adopted this test in the case of Free Lanka Trading Co. Ltd v. De Mel. In that Samerawickrame J. referred to Cooke J, what he said in the case Silk; " The observations of Lord Wright, of Denning, L.J., and of the judges of the Supreme Court in the U.S.A. suggest that the fundamental test to be applied is this : ' Is the person who has engaged himself to perform these services performing them as a person in business on his own account? ' If the answer to that question is ' yes' then the contract is a contract for services. If the answer is ' no' then the contract is a contract of service".
This test was applied in James Appuhamy v Shanmugam and The Ceylon Mercantile Union v. The Fertilizer Corporation.
Courts have developed another test called "Multiple Test" which is considering multiple factors to decide the employer – employee relationship. This is discussed extensively in the case Ready Mixed Concrete v. Minister of Pensions. "A contract of service exists if the following 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 its being a contract of service." In the case Montreal v. Montreal Locomotive Works Ltd, Lord stated fourfold test is more appropriate in determining the master – servant relationship in this complex context. In that fourfold test;
Control;
ownership of the tools;
chance of profit; and
risk of loss;
are considered and this approach developed the multiple test to determine the nature of the contract.


Conclusion
Workman is usually governs under Employment acts and regulations whereas independent contractor is governs under contract act. But due to globalization and development in technology and science there have been difficulties in identifying who governs under contract of service and who governs under contract for service. Therefore courts have developed above mentioned tests and there is no hierarchy or rules regulating these tests. When the facts are ambiguous and complicate courts adopts a combined test to avoid those complications. But in future these tests would also not be enough to govern this area because technology and employment methods are developing in a rapid manner. Therefore State or any other organisation cannot lay down rules or legislations governing this area, only court can decide it looking at the facts of the case. Therefore common law has a major part to play in determining employer – employee relationship.


The advantageous aspects of role played by Judiciary
State has intervened in regulating many aspects in employer – employee relationship and there has been many legislations enacted governing conditions of employments, benefits, termination and industrial disputes. But these legislations and regulations only apply in workman – master relationship, therefore it is important to differentiate a workman from an independent contractor. But the nature of the relationship depends on the facts and circumstances of a particular case and it cannot be regulate with strict rules. Therefore the State cannot make legislations to differentiate the nature of employment. Only the Court could do that through applying tests that it have developed with time.
In the case Stevenson Jordan and Harrison Ltd v. MacDonald and Evans, Lord Denning held "It is often easy to recognize a contract of service when you see it, but difficult to say where in the difference lies"
In the case Market Investigation Ltd v. Minister of Social Security, Cooke J stated "No exhaustive list has been complied and perhaps no exhaustive list can be complied of considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases."
In the case De Silva v. Associated Newspaper of Ceylon, Sharvananda J. held "it is not possible to formulate principles and tests of universal validity to determine the question."
Above mentioned cases show that in the modern complex world strict rules or legislations cannot regulate the nature of the employment and facts of each individual case must be considered in making appropriate decisions.
Sri Lankan Courts were mainly guided by Ready Mixed Concrete case and Market Investigation case. Sri Lankan appellate Court had beautifully applied several tests in determining nature of relationship where facts of the case are complex and ambiguous.
In the case Rev. Father Alexis Benedict of Youth Fisheries Training Project v. Denzil Perera and others, the Court applied control test, integration test and economic reality test in determining whether the fishermen were employees of the Project or are they self- employed. Considering the facts of the case Court stated they were a part of the project and project exercised control over many aspects including financial benefits, therefore they were employed by the project.
In the case Times of Ceylon Ltd. V. Nidahas Karmika Saha Velanda Sevaka Vurthiya Samithiya, Court applied control test to determine the nature of the relationship.
These cases do not create rules but flexible guidelines to recognize which test should be applied under which circumstances to determine the master – servant relationship. What is important is to identify crucial facts in the case and use those to determine the nature of the relationship.
In Sri Lanka decided cases and Court decisions has guide the labour courts and the commissioner to consider the facts and to identify the true nature of the employment among parties.
Judiciary has played an important role in developing tests and creating simple guidelines to apply those tests according to the situation worldwide.
Shashanka Rajapakshe
Faculty of Law
4th year(2014)



References
De Silva, S. R, The Contract of Employment, The Employer's Federation of Ceylon
Sarveswaran. A, Who is a workman? A critical Evaluation of the Tests to differentiate a workman from an Independent contractor in the light of judicial decisions.
Moscardelli. A, EMPLOYEE VS. INDEPENDENT CONTRACTOR, The Labour and Employment Group
Cases
Beloff v. Pressdram Ltd [1973] 1 All ER 241
Cassidy v Ministry of Health (1951) All E.R. 574
De Silva v. The Associated Newspapers of Ceylon Ltd (1983) 1 B.L.R. Part III
Free Lanka Trading Co. Ltd v. De Mel 79(2) NLR 158
James Appuhamy v Shanmugam (Unrep). S.C. 69/79
Lane v. Shire Roofing Co. (Oxford) Ltd [1995] IRLR 493, 495
Montreal v. Montreal Locomotive Works Ltd (1947) 1 D.L.R. 161
Ready Mixed Concrete v. Minister of Pensions (1968) 1 All E.R. 433
Rev. Father Alexis Benedict of Youth Fisheries Training Project v. Denzil Perera and others C.A. 549/82.
Stevenson Jordan and Harrison Ltd v MacDonald and Evans (1952) 1 TLR 101
Times of Ceylon Ltd. V. Nidahas Karmika Saha Velanda Sevaka Vurthiya Samithiya (1960) 63 NLR 126.
The Ceylon Mercantile Union v. The Fertilizer Corporation (1985) 1 SLR 502
United States v. Silk (1947) 331 U.S 704